When one hears of trouble in the South China Sea, it is almost always to do with resources -- oil, gas, rare earth elements. That and fish. Which means that harmony would break out if a fair division of the raw materials and delicacies could be found among the various Asian states, right? According to experts on the overlapping disputes, the answer may be no.

The U.S. and Philippines are conducting war games in the Filipino section of the South China Sea (pictured above), while the Philippines and China continue a standoff over fishing rights in a place called the Scarborough Shoal. Meanwhile, the Philippines has announced an enlarged estimate of gas reserves in the Reed Bank, a disputed area of the sea near the island of Palawan.

Collectively, this activity raises the temperature among China and its neighbors, not to mention the U.S., as I write at EnergyWire. While relatively little oil or gas has been proven as yet in the South China Sea, Bo Kong, a professor at Johns Hopkins University, says that high oil prices and technological advances raise the chance for strains. "Because of technological breakthroughs, we have a much better idea where the hydrocarbons are," Bo told me. "So I think we will see more activity, and there will be more friction."

That may be the case, says Kang Wu, a senior fellow at the East-West Center in Honolulu. After all, the U.S. Geological Survey estimates that some 20 billion barrels of oil underlie the South China Sea. Yet Kang also sees hydrocarbons and fish as a "pretext" for discord. The Philippines, Taiwan, China, Vietnam and the others, Kang says, would quarrel regardless of the presence of oil or fish.

It's all about the age-old issue of territory -- no one wants to lose any, and if the ownership of a particular spit of land is ambiguous, all want that too. Kang:

The South China Sea problem is a territorial, national sovereignty and security issue. Even if there is no economic benefit, even if there is no oil or gas, they will still challenge each other. No one is likely to give up their territorial claims.

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By the end of the decade, Israel will probably satisfy all its own natural gas requirements, and become a serious exporter of liquefied natural gas. Argentina might produce the world's third-largest volume of shale oil. Mozambique seems likely to become one of the largest LNG exporters in the world. And the United States may meet most of its own liquid-fuel needs.

Which is to say that the geopolitical fabric with which we have grown up seems to be unraveling in spots, and a new patchwork taking its place in Africa, the Middle East, North and South America, and beyond. Settled power and influence are giving way to a maelstrom of moving parts.

The backdrop is a global revival in the oil and gas business, ignited by energy companies that, after two decades of largely standing still, are finally drilling with purpose. These companies could yet self-destruct if they are not environmentally watchful. Clean-tech could achieve massive advances and economies of scale. But as of now, the colossal hydrocarbons industry -- long the tipping point, and at times the singular force, behind countries becoming rich, or falling behind -- is serving as the weaver of the new geopolitical fabric.

What could geopolitics look like? It is premature to detect concrete shapes, as Citigroup's Ed Morse wrote in a much-read recent note to clients. Yet we can discern outlines of the potential appearance of the new world.

We already know, for example, that the heft of the U.S. shale gas boom has challenged Russia's natural gas grip on Europe. Saudi Arabia also fears shale gas, whose abundance could ultimately contribute to the erosion of U.S. oil demand, as Chris Weafer said last week on this blog (also see remarks below by oil scholar Philip Verleger.).

Saudi has valid reasons to worry, as it seems almost-certain that the fresh big oil finds on other continents will whittle away at the centrality of the mighty nations of OPEC, the bain of Western economies for 35 years. OPEC seems far less likely to call the shots in global oil and, according to Citigroup and other analysts, the per-barrel price its members earn could be much-reduced. The wild card will be demand, meaning China's future oil appetite, and the continued progress of energy efficiency.

Similarly, Russia, the world's other current major oil-exporter, will probably be forced into serious political and economic reforms or face decline. Its government spending is too high, its non-hydrocarbon economy too anemic, and now its oil and gas sectors under challenge.

On the other side of the ledger, numerous heretofore basket-case nations up and down Africa's coasts will have to decide whether to squander their unexpected new petro-fortunes, or build middle classes and stable societies. In addition to Mozambique, that includes Tanzania, Kenya, Cameroon, Cote d'Ivorie, and more. Similar prosperity would be in the line of sight of numerous South American nations.

As for the United States (pictured above, drilling in Pennsylvania), a small but growing number of economists see the potential for a resurgent economy, built on the back of cheap natural gas. Leading the pack is Citigroup's Morse, who in the report cited above says the U.S. may more than halve its budget deficit by 2020, and experience a radical economic "revitalization and reindustrialization."

Likewise, we have a dissection of a coming U.S. boom in the Financial Times from Philip Verleger, who ran the Office of Energy Policy in the Treasury Department during the Carter Administration, and is a fellow at the Peterson Institute for International Economics.

With all of this turbulence, is it an article of faith that China will rule the world in the second half of the century, as many presume? China still looks on track to have the largest economy, but the many moving parts -- including its challenging demography, as the Economist reports -- make its trajectory seem less certain.

I separately emailed Verleger asking his opinion of the bullish forecasts of shale oil that we are seeing from Morse and others -- what is the data backing up these predictions? Verleger had an answer, but was mostly interested in laying out a case for what he calls a "Kodak Moment" of marginalization for the U.S. oil industry. The email is provocative, and I reprint in full after the Jump.

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After some two dozen bombings of the natural gas pipeline linking Egypt to Israel, Cairo has canceled a gas supply contract between the two nations 12 years before its official expiration.

Outside analysts attribute the loss of Egyptian gas -- the source of 40 percent of Israel's gas needs -- to the Arab Spring, which ousted President Hosni Mubarak in February 2010.  But 33 years after they became the first to sign a Jewish-Arab peace, Israelis and Egyptians themselves say it is pure business.

Daniel Byman, a professor colleague at Georgetown University, says he does not expect fighting down the road, but that politics between the neighbors is likely to worsen. "I think it signals that the cold peace will get even colder," Byman told me in an email exchange. Byman:

I think [the Israelis] will not react calmly -- they've been doomsaying about the new government in Egypt, and this seems like proof (and, frankly, they have a point, I think, with this one).

Maybe so. Regional politics surely contributed to the gas cancellation, announced yesterday. Yet, when you examine the few contractual details that are out there, the picture becomes mixed.  

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The million-reason volatility of oil prices: Ever wonder why oil and gasoline prices seem to go inexplicably up, and just as mysteriously down? One reason you are so baffled is that experts themselves provide definitively certain yet quite distinct explanations for these phenomena. Take yesterday at FP for example. On this blog, I suggested that supply, demand and geopolitics are the prime movers. In a piece just a few column inches away, though, three academics -- Bernard Haykel, Giacomo Luciani and Eckart Woertz -- asserted categorically that Saudi Arabia decides prices and, if it wished, could take them lower.

Following these pieces, other experts naturally emailed with their own explanation of what we are seeing (such as high prices in Pakistan, the scene of a protest pictured above). Below I am reprinting a sampling with the authors' permission.

Philip K. Verleger, PKVerleger LLC:

You are looking for the forces moving crude prices in all the wrong places.

The individuals who buy crude know that product prices [such as gasoline and diesel] are set not by crude, but by supply and demand [for products themselves] in the marketplace. Thus, they will look to the value of crude as evidenced by the marketplace [for products] to determine how much they will bid for crude. When product prices rise, they bid up crude prices -- especially the crudes that produce the most desirable products such as diesel. For example, the European Union shift to ultra-low sulfur diesel pushed up diesel prices in 2008.  Then Nigerian [oil] production fell. Nigeria produced the crudes that produced the most diesel. Product prices rose, and bidders chased crude higher.

This year it has been gasoline. In case you missed it, gasoline prices are plummeting in the spot market -- and crude is following.

Let me add that these traders do not chase crude up unless they have a buyer. A cargo can cost $100 million to $150 million. At these prices no one -- and I mean no one -- chases crude higher. You need to sit at the desks with physical traders at a trading company for a day.

Now I know my view does not conform. However, I have pushed it since 1981 and have been right most of the time. If you go to www.pkverlegerllc.com, you will see our estimate of the value of light sweet crude. We post it every day. This is the value of Brent crude. This forecast is generated on a daily basis using only changes in product prices. The model has no error correction, and the last information on crude prices I fed to it was for January 1, 1997.  Wednesday's forecast was the 3,833rd data point.

Crude tracks products closely except when there is a refinery upset. The model corrects when the upset ends. The only way to send crude higher is to put out a fear of shortages, and panic consumers into buying more gasoline.

Go to the Jump for more on oil prices, and the rest of the Wrap.

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Sudan has declared war on South Sudan, India has fired a long-range missile, yet oil and gasoline prices are down.What is going on?

Common sense has come over our much-scorned oil trader friends in New York and London.

For months, there has been a global surplus in oil and gasoline, which should mean lower prices than we have seen. Yet, because of geopolitical tension such as the trouble between Iran and the rest of the world, prices have not dropped -- until now.

Oil prices are down again today, a declining trend that seems genuine when you get no bump-up despite official war between two modest oil-producers, and a missile test by a nuclear power with menace toward China.

The turn began two weeks ago with a sharp withdrawal from the futures market by hedge fund and investment bank traders, writes the Wall Street Journal's Konstanin Rozhnov. Venezuela is unhappy about the supply bulge, which has been assisted by growing volumes from Libya and Saudi Arabia. But, short of outright war involving Iran, prices look like they will continue to moderate.

I exchanged emails with Nick Butler, a former top lieutenant to John Browne at BP and now chairman of King's Policy Institute at King's College London. In an op-ed at the Financial Times, Butler forecast a plunge in oil prices, and I asked whether he thinks U.K.-traded Brent crude -- currently trading at over $117 a barrel -- will fall as far as the $80s-per-barrel range. "Who knows?" he replied. "I think [prices] will overshoot going down, and then stabilize back at $95 to $100.  But that is probably too rational." Butler does not think, like some of us, that pure good sense has conquered the market for now.

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In late January, Spain's Repsol began drilling in the Northbelt Thrust, a stretch of the offshore Caribbean that may contain 6 billion barrels of oil. Between now and next month, Repsol will learn whether its part of the Thrust has commercial oil. But the company will be judicious with any news (pictured above, Repsol rig), uncertain whether it will be greeted with the hoots and cheers with which the industry typically greets word of a fresh discovery.

The Northbelt Thrust falls into a curious category on the global oil patch. Like dark matter in the universe, it is a blank spot, one of a few places with big proven and potential reserves that are wholly ignored in official forecasts. For it is offshore from Cuba, a political pariah in the U.S.

Wall Street, major commercial consultant firms, and government energy agencies appear to feel uncomfortable lending serious public attention to Cuba's potential for big strikes this year, as I write at EnergyWire. For differing reasons, Venezuela, too, is part of this alter-reality.

I asked a senior Wall Street contact why his firm's reporting excludes Cuba and Venezuela. "They have no oil supply growth," he replied, which at the moment technically is true -- yet may turn out not to be in a matter of weeks in the case of Cuba.

Jorge Pinon, who worked for years as an Amoco executive in Latin America, told me that companies and firms are simply heeding U.S. political reality, starting with the role of Cuban-American Ileana Ros-Lehtinen as a leader of the Republican majority in the House of Representatives. He said:

When you have a Cuban delegation in Congress that is very powerful, and among them is the chairman of the House Foreign Relations Committee, you have to be extremely careful how you play Cuba.

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Argentine President Cristina Fernandez de Kirchner, angry at a rising national oil bill and emboldened by her own populist fervor, has relieved Spain's Repsol of most of its shares of YPF, the country's biggest oil company. Repsol, which since 1999 has owned 57.4 percent of YPF, will now have about 6 percent.

Spain has lashed out, rating agencies are reconsidering political risk in Argentina, and analysts generally seemed to regard it as a bad move. Repsol has not said so since yesterday, but it naturally would be unhappy with Fernandez (pictured above).

Wherever the balance of fault lies, the biggest hit will be to Argentina's place in the global surge in oil production. Along South America's east coast, Brazil is already on the cusp of being among the world's premier oil producers, and, just to the north, crude has been found in French Guiana. Repsol itself is drilling in both Guyana and Cuba, both of which could become oil exporters.

As for Argentina, it currently produces about 570,000 barrels of oil a day. But industry experts say Argentina has the potential for much more since it has among the world's largest reserves of shale oil and shale gas -- the equivalent of 23 billion barrels of oil in a formation called Vaca Muerta. YPF has said that it will cost $25 billion to develop Vaca Muerta, reports Bloomberg BusinessWeek. YPF controls more than half the total - the equivalent of 13 billion barrels of oil.

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Let's say you are Iran. You are either developing nuclear arms, or for whatever reason wish to convey the impression that you are. And you want to continue doing so. But now your main flow of cash -- your oil export earnings -- is jeopardized by Western concerns that it is the former: You pose the threat of becoming a new, activist nuclear power. For financial and insurance reasons, but mainly to avoid the wrath of the United States and Europe, many of your usual international customers want less of your oil, or none at all.

If you are Iran, you adopt a dual strategy: You start talking with the West (above, chief Iranian nuclear negotiator Said Jalili at talks over the weekend). And you act to make it possible for risk-takers to buy your oil.

To accomplish the latter, you go stealth -- you set up a mechanism so buyers of your crude can hide that they are defying U.S. and European wishes.

In a scoop, Reuters' Christopher Johnson and Peg Mackey report one way this is happening: Iran's oil tanker company, known for short as NITC, has switched off the tracking devices on most of its 39-ship fleet. By international maritime law, these GPS-based transponders are installed on all such ships plying the seas.

In order to figure this out, Johnson and Mackey took a list of the 39 ships (like this one), and put it up side-by-side against the constant reporting carried out on this web site) by MaritimeTraffic.com. Then they interviewed a lot of traders. The result is a must-read.

I pulled up the sites last evening and this morning, and saw just two of the 39 ships listed - the Afagh and the Amol. In their check, Johnson and Mackey found reporting for seven of NITC's 25 very large crude carriers, and two of its nine smaller Suezmax tankers. You can take a look yourself.

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