Several months ago, I published a research report on the Strait of Hormuz, the narrow waterway that runs along the Iranian coast.
Around 40% of the world's oil supply moves through this "chokepoint." That oil is pumped from the fields in the Middle East, loaded onto ships, and sent to Asia, Europe, and North America.
In case of a shooting war with the U.S. or Israel, military strategists see a huge risk in Iran attempting to close this waterway. Even a partially successful attempt to close the Strait of Hormuz could double oil prices… which would make for economic disaster.
The Strait of Hormuz remains a major danger zone for the global oil industry. But right now, it's taking a back seat to the Deepwater Horizon oil disaster, which is one of the worst ecological catastrophes in American history.
The second largest oil spill in history occurred at PEMEX's "IXTOC 1" well. That was the last time a massive blowout occurred in the Gulf of Mexico (yes, it's happened before). Mexico's state-run oil company let 3.3 million barrels of oil leak out before they got the well plugged.
It will take 20 months for that much oil to leak out of the current well. We're at 22 days right now, roughly 110,000 barrels – or half the size of the Exxon Valdez spill.
What will make this spill so devastating is its proximity to land. Louisiana could lose its entire oyster industry forever. Its shrimp and fishing industries will be shut down for years. The cost of this catastrophe will be well over $10 billion once the losses of industry and tourism are factored in.
I expect this horrible accident will result in a ban on offshore drilling.
I also expect it to provide a long-term tailwind to one of my favorite areas for investment: the Athabasca oil sands.
Before I tell you why, it's vital to keep in mind the United States' four largest sources of foreign petroleum. Currently, they are 1) Canada, 2) Mexico, 3) Venezuela, and 4) Nigeria. (You read that correctly… No Middle Eastern country is even in the top 3. Saudi Arabia is No. 5.)
In April, I told you how Mexico's national oil company, PEMEX, is a bastion of incompetence and corruption. Venezuela is a basket case run by a lunatic. And Nigeria regularly deals with unstable governments and terrorism. Now, let's get back to the first country on our list…
Alberta, Canada's Athabasca oil-sand deposit is the world's largest source of stable, sure oil. At current prices, it holds around 200 billion barrels of recoverable oil (a reserve that is second in size only to Saudi Arabia's).
Oil coming from this deposit is what makes Canada the largest crude exporter to the U.S. From a geopolitical standpoint, it's a beautiful thing for the U.S.
Canada is a stable country. Also, there's no offshore drilling involved. And no terrorism. There's no need to ship the oil over thousands of miles of ocean. We know the oil is there, so there's no risky exploratory wells to be drilled…
Nope… the Athabasca deposit is just a huge swath of oil-soaked Earth a quick pipeline ride away from your gas tank. The Horizon disaster shines more light on just how valuable having this deposit is. The less we rely on offshore drilling, the more we must rely on the bounty of Athabasca… and the more investment interest in big oil-sand players like Suncor (SU) and Canadian Oil Sands Trust (COS.UN on the Toronto Exchange).
The two big offenders in the Horizon spill – driller Transocean and giant British Petroleum – have suffered stock price drops of 25% and 19%, respectively, since the accident. "Crisis investors" are jumping into these stocks in the hopes of a rebound.
I'm holding off on "crisis investing" right now. These two companies might make for attractive stock buys. But it's too early in the blame game for me to risk my money. I'd rather take the sure bets.
In this case, it's Athabasca.
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