| Saturday, June 21, 2014 | Issue #71 | | Eric Fry, reporting from Laguna Beach, California...
Sean Brodrick, The Oxford Club's Resource Strategist, has been actively and accurately examining Russia's land grab in Ukraine. From the outset of the hostilities, Sean has insisted that this land grab is really about grabbing oil and gas reserves.
In fact, in two early April issues of The Daily Grind, Sean explained not only why Russia was really annexing Crimea, but also why Russia was likely to continue its westward expansion into Ukraine.
Putin did not annex Crimea to "[protect] the ethnic Russians living under the 'oppressive' yoke of Ukrainian rule," Sean explained in his April 4 post titled "Russia's Newest Oil and Gas Project: Crimea." "For Russia, it's all about the energy. Vladimir Putin is obsessed with rebuilding the former Soviet Empire on a foundation of oil and gas."
"Recently," Sean continued in that post, "Bob Woodward of The Washington Post described the situation this way on Fox News: 'Russia is, in a sense, an oil and gas company masquerading as a nation-state.'"
"It is my belief," Sean concluded, "that the next world war will likely be over natural resources: Oil, gas, water and food. Ukraine could be one of the flash points. Maybe not right now. But maybe sooner rather than later. The Russian bear is starting to look awfully hungry."
A few days later, Sean followed up this post with one titled "Who Will the Russian Bear Maul Next?"
As Sean predicted in both posts, the Ukrainian crisis continues to simmer. Or, to use his terms, the Ukrainian flashpoint continues to flash; sometimes with gunfire, sometimes with geopolitical brinksmanship. - Three weeks ago, Ukraine cut off a major water supply into Russia-controlled Crimea.
- One week ago on Friday, Moscow rebels in eastern Ukraine shot down a Ukrainian military transport plane, killing all 49 people on board.
- A few days later, Russia cut off natural gas supplies from Russia into Ukraine.
Sean believes this latest maneuver could be especially incendiary. In short, the crisis in Ukraine is far from over, which is why Sean believes investors should be focusing more than ever on domestic U.S. oil and gas producers. Read on...
The Coming "Crisis" in the U.S. Has Obama Terrified " We're not as prepared as we should be," Obama sheepishly said recently. What the president is referring to is an event that could cripple the U.S. economy ... It's also one Oxford Club Editor Sean Brodrick had previously predicted. On April 27, he proclaimed, " Sometime very soon in 2014, we're going to see the first major [word redacted] in the United States." Click here to get the uncensored version.
Buy American! By Sean Brodrick
 | | Back in early April, I told you how Russia invaded part of Ukraine for oil and gas riches. Well, that crisis hasn't gone away. In fact, it's gotten worse. That's very bad news for Ukraine... But probably very good news for U.S. oil and gas producers.
Last Friday, Moscow rebels in eastern Ukraine shot down a Ukrainian military transport plane, killing all 49 people on board. Three days later, Russia effectively cut off Ukraine's natural gas supply. Moscow says it won't turn the gas back on unless Ukraine starts paying back its debt for natural gas Moscow already supplied. Bloomberg pegs the size of that nat-gas debt at $4.5 billion!
The problem is Russia supplies about 30% of Europe's natural gas, and half of that is piped through Ukrainian territory. So what's to stop Ukraine from tapping someone else's natural gas?
It's happened before. Remember, Russia's energy company Gazprom cut off supplies to Kiev mid-winter during price disputes in 2006 and again in 2009. This in turn disrupted the flow of Russian gas to the EU via Ukrainian pipelines.
Russia knows it may be pushing Ukraine along the same dangerous path. Russian president Vladimir Putin sent a note to European leaders, saying: "We fully realize that this increases the risk of (Ukraine) siphoning off natural gas passing through Ukraine's territory and heading to European consumers."
So Is There a Way Out of This Mess?
There is not an easy solution. See, Europe already proposed a workable solution - Ukraine would pay $1 billion immediately and the rest in installments by the end of the year. But Russia said, "nyet!" Russia demanded $1.95 billion up front.
Also, the two countries can't agree on the price Ukraine should pay for Russian gas. Ukraine, which depends on Gazprom for about half its gas supply, wants to pay market rates, which it says are lower than what Russia is demanding. Again, Russia said, "nyet!"
Iraq Shows How Bad Things Can Get
Speaking of oil-and gas-producing nations in crisis - right now, Iraq appears to be splitting along sectarian and ethnic lines. It could end up as three countries, with Sunni, Shiite and Kurdish regions breaking off into their own republics.
Well, what a coincidence: Ukraine has its own deep ethnic divisions. This map shows the percentage of people in different regions of Ukraine who identify Russian as their native tongue.  Russia has already grabbed Crimea, the deep red portion on the lower part of the map. But there are plenty of other heavily ethnic Russian areas in what remains of Ukraine.
And those red, Russian-populated areas are rich in oil, natural gas and coal - three things that Russia wants as it builds a new empire of energy.
In fact, if you were a jaded sort of person, you might think Russia is deliberately provoking a reason to "liberate" those ethnic Russians in Ukraine.
The Sum of All Fears
So, let's explore what could happen if things go from bad to worse. - Russia stops providing nat-gas to Ukraine. That's already taking place.
- In mid-September, Ukraine starts to run out of gas just as the cold winds of autumn blow through the streets of Kiev.
- To keep its citizens from freezing to death, Ukraine starts to siphon off nat-gas that Russia is sending to the rest of Europe through Ukrainian pipelines.
- And that's when Russia responds to the theft of its gas with good ol'-fashioned violence.
Gazprom is shipping more than 180 million cubic meters of gas a day through Ukraine and says it will monitor transit volumes. I bet it will.
To be sure, everything in Ukraine could work out just fine. On the other hand, there's no rule that says the trouble has to wait until mid-September. The next stage of Russia's big shoot-'em-up adventure could start sooner rather than later.
What's the Bottom Line?
The more trouble there is in other energy-rich parts of the world - the Middle East, Russia, you name it - the better U.S. oil and gas producers look. Perhaps that's why U.S. oil and gas stocks have been performing so well lately. Both the Market Vectors Oil Services ETF (NYSE: OIH) and the Market Vectors Unconventional Oil and Gas ETF (NYSE: FRAK) are up about 20% year to date - or roughly triple the return of the S&P 500 index.  But even without crisis conditions in Iraq and Ukraine, there are solid fundamental reasons to like U.S. oil and gas producers. Three U.S. crude oil fields - the Permian Basin, Eagle Ford and Bakken - are expected to produce 4 million barrels a day in July. That's up 22% from the same period a year ago. Wow! And that's more than half the total oil output in the lower 48 states. Double wow!
There are companies in those oil fields that look pretty darned cheap now that Wall Street analysts are lining up to put a $116 price target on international oil prices, all thanks to the conflict in Iraq.
And if oil producer Russia gets mired deeper in the Ukraine - and gets hit with Western sanctions? How high do you think oil prices could go then?
I'd say pretty darn high.
We have some great recommendations on these all-American oil plays in my investment letter Oxford Resource Explorer. If you're investing on your own, please do your own due diligence. And good luck and good trades.
All the best,
Sean Brodrick
for Free Market Café
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