First Tunisia… then Egypt… then on to Bahrain… and now Libya. The political uprisings sweeping across the Middle East have provided the storylines of 2011 so far.

Why all the unrest?

Well, tensions have simmered for years – and the youth of these countries has had enough. For example…

  • 34% of young Algerians are unemployed.
  • 36% of new graduates in Bahrain are jobless.
  • 51% of young people in Libya are looking for something to do.
  • In Yemen, an incredible 64% of the youth have no job prospects. That’s in addition to dwindling resources, especially water.

[ad#Google Adsense]Ominously with Libya, though, Muammar al-Gaddafi’s son, Saif al-Islam Gaddafi, said last weekend that, “Rivers of blood will flow. There will be civil war.”

He was referring to the measures the government is prepared to take to squelch the uprising in cities across the country.

And that was all the world’s major oil companies operating in Libya needed to hear. BP (NYSE:BP) suspended its exploration operations. Statoil (NYSE: STO) closed its offices in Tripoli. AndRoyal Dutch Shell set employee evacuation plans in motion.

Others are tight-lipped about their contingency plans. But privately, most are already closing offices and evacuating workers and their families. In other words, they’re heading for the exits… and fast. And most companies operating in the southern portion of Libya have their own airstrips.

The question is: What does all this mean for the oil market?

Libyan Unrest Sends Oil Prices to a Two-Year High

Libya produces about 1.7 million barrels of oil per day – about 2% of the world’s daily output. It’s the world’s twelfth largest oil supplier.

More importantly, though, it’s a crucial supplier to many European countries. And with much of Libya’s state-owned oil production already shut down and many workers on strike as part of the protests against the Gaddafi government, it’s no surprise that oil prices just touched a two-year high, as Libya edges closer to the civil war that Saif al-Islam Gaddafi proclaimed.

In recent years, Libya has been a hotbed of Islamist activity and if the Gaddafi government falls, radical Islamists will take over the country. If they succeed in gaining positions of power, what will happen to oil production there?

Oil Market at the Mercy of the Middle Eastern Political Cauldron

Simply put, there’s an excellent chance it could all be nationalized.

Time will certainly tell, as the situation is very fluid right now. Similar protests are already breaking out in other nearby countries, with Iran, Yemen and Lebanon growing increasingly restless.

Even Kuwait and Saudi Arabia’s oil supplies could be threatened by uprisings in those countries, whether they turn out to be successful or not.

The bottom line is this: North Africa and the Middle East are collectively responsible for 38% of global energy supplies. And we’re much closer to the beginning of this revolutionary cycle than we are to the end.

That’s why today’s two-year high for oil is merely the start. The price is headed up – steadily – for the foreseeable future.

So what’s the best way to play this massive, unprecedented development?

Western Canada: Close, Stable, Oil Rich and Profitable

In a word: Canada.

Our longtime friends in Canada are happily – and quite profitably – producing millions of barrels of oil from the vast deposits of oil sands in Alberta.

And this is just as well, since Canada is by far and away the biggest oil supplier to the world’s biggest oil consumer – the United States.

In November 2010, for example, America imported 1.141 million barrels of oil per day from Saudi Arabia. But imports from Canada that month totaled 2.510 million barrels per day – more than the daily consumption of Tunisia, Egypt, Bahrain and Libya… combined.

So what does this mean for investors?

Consider this: With oil prices soaring, it won’t be long before Canadian oil costs the same as Libyan oil… but with the big difference being that it will suddenly become way more profitable.

The reasons are three-fold…

  • Safety of supplies.
  • Ease of transport.
  • Proximity to the biggest market.

So what companies are poised to take advantage of this evolving situation?

The Best Way to Play the Middle Eastern Political Crisis

One of the biggest players in the oil sands market is Suncor Energy, Inc. (NYSE: SU), which has long reaped the rewards of Western Canada’s rich reserves.

The pure oil sands play is Canadian Oil Sands Limited (OTC: COSWF.PK), formerly the Canadian Oil Sands Trust.

[ad#ChinaBlankCheck]Both companies are thousands of miles away from the Middle Eastern unrest, leaving them well protected from any supply disruptions.

But perhaps the single best way to play the Middle Eastern political crisis is through Kinder Morgan Energy Partners LP (NYSE: KMP).

Kinder Morgan operates 37,000 miles of pipelines and 180 terminals across North America and is the market leader in most of the areas it operates in. Since the stock bottomed at $57.40 in May 2010, it’s up 27.3% (including a new 52-week high, set on January 26). Not only that, it pays a healthy $4.52 per share annual dividend (a 6.3% yield).

While events in the Middle East and North Africa remain in a dangerous state of flux, oil prices will continue to trend towards the upside.

That makes it a great time to take up a position in oil companies. And the closer they are to home – far removed from the hotbeds of unrest – the better. Look for plenty of upside ahead.

Good investing,

— David Fessler

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Source:  Investment U