By Christian DeHaemer


Yesterday, someone attacked a Saudi oil pipeline and killed five Shi'ites in two separate incidents.

Pictures of flames and billowing black smoke made the social web circuit as it was going on.

The markets reacted, with the Tadawul All Share Index falling 7% in two days. The price of oil shot up $2 before falling again today.

Major Escalation

As Bloomberg wrote yesterday:

“Riyal forwards have jerked notably higher (implying weakness expected) and the Tadawul All Share Index has dropped 7% in the last 2 days after the killing of Shi'ites by unknown parties and now news that a pipeline has exploded... If that indeed signifies the spread of Islamic State into Saudi Arabia, it would be the first time they crossed Saudi borders. That would be a big deal and a major escalation of problems over in that part of the world, far beyond what it would do to capital markets."

Since then, the Saudi government has denounced the attack and rounded up 15 people. Some members of the group of killers have fought in Iraq and Syria. This is blowback, as Saudi Arabia has supplied ISIS with guns and money to counter Iranian aggression.

This is yet another example of the Sunni (Saudi) / Shi’ite (Iran) escalation from cold war to hot.

World War III

This is not a battle between the U.S. and terrorists — it is a tribal battle between Iran and Saudi Arabia, with a sideshow of Israel, Turkey, Iraq, Syria, Kurdistan, Russia, the EU, and Egypt.

These countries, each with their own goals, are further divided into sub-categories, sometimes with diametrically opposing views. And, of course, at the end of the day, it all comes down to oil.

Kurds: Where the Oil Is...

Here is a map of the regions inhabited by Kurds.

That little bit that drops down into Syria is where ISIS is attacking Kobani.

The Turks have been fighting a Kurdish terrorist group for years and have no desire to help these particular Kurds, so they have shut the border.

Kobani is home to the "wrong" Kurds. The “right” Kurds are over in northern Iraq, where the oil is — more than 12 billion barrels of proven reserves and 25 trillion cubic feet of gas.

Now, Iran wants the Kurds to beat ISIS — but isn't exactly what you'd call friendly. Turkey is getting oil via a pipeline from Kurdish Iraq at a discount and wants the flow to continue. The EU and U.S. also want this oil flow to continue.

Hungary, ignoring Bagdad, just signed a long-term deal to buy Kurdish oil. This is against the agreement the Kurds have with the official government of Iraq. The fact that people will openly buy Kurdish oil signals that Iraq as we knew it is gone and will not come back.

Russia wants to continue its energy monopoly over Europe, maintain its warm water ports, and support its allies in Syria. Saudi Arabia wants to undercut all other energy producers and gain market share. At the same time, it wants to defeat Iran, end its nuclear ambitions, and remain in power at a time of increased instability.

Israel wants the Muslims to continue to fight amongst themselves — but not to the point of Iran getting a nuclear bomb.

All of this goes on in the background of a failed “Arab Spring” and a weak U.S. president who is making threats against the nation's old allies, Israel and Saudi Arabia, and talking nice with Iran.

Add in a booming U.S. fracking economy, and what little trust there has been historically is quickly eroding.

ISIS Stopped

My goal here isn't to solve the petro, religious, and geographic mess that is and has always been the Middle East. What I'm trying to do is make you money.

The goal of investing is to buy low and sell high — the old "blood in the streets" idea that can make bold people like you 1,000% gains.

Right now, there are Middle Eastern oil stocks that are down 90%. These are now the cheapest oil companies with the largest reserves in the world.

The thing about oil is that it doesn't just go away. It sits in the ground and waits for the day it will be sold for a profit.

I've learned over the years that the biggest gains come from buying during the moment of acute fear. We are nearing that moment for Kurdistan oil companies

Like I wrote last week, major oil companies in the Kurdistan region, after evacuating months ago, are bringing their people back and ramping up production.

Oil production is expected to go from 100,000 bpd in 2014 to 1,000,000 bpd in 2016. That is massive growth. And today, you can buy these growth machines at severe discounts of up to 90%.

Energy and Capital