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TheStreet Open House

A Small Stock to Play the Ukraine Crisis

DELAFIELD, Wis. (Stockpickr) -- Energy has some energy in this shaky equity market.

>>5 Stocks Set to Soar on Bullish Earnings

In contrast to all the recent problems with the technology and biotech stocks, there's one sector that's been doing relatively well during the overall market decline: the oil and gas complex. The United States Oil Fund ETF (USO) has risen by 11% over the last three months and is currently trading just a few points off its 52-week high of $39.54 a share.

The major driver for the oil sector at the present moment is the geopolitical tensions in the Ukraine, which show no signs of letting up. In fact, they look like they could turn much worse in the blink of an eye. The latest development out of the Ukraine is that pro-Russian militants are starting to take control of the eastern town of Slaviansk as Ukrainian military forces gather nearby. The fear among many is that a full-blown civil war breaks out in the Eastern part of the Ukraine, and that's a scenario that could embolden Russian President Vladimir Putin to make a push for more territory or all of Ukraine.

There's just no telling how aggressive Putin might get if pro-Russian separatists start to engage with the Ukrainian military in a live conflict. This could spiral out of control very quickly, and the impact on the energy market could be huge. Russia controls a vast amount of natural gas pipelines that run through the Ukraine and serve most of Europe. Any major disruptions in the natural gas flow to Europe would be a major blow for the economic viability of that region. The oil risk due to this potential conflict is big as well, because if things escalate, the U.S. will likely start slapping Russia with economic sanctions.

>>5 Energy Stocks Hedge Funds Are Buying

Make no mistake about it, Russia will not sit by and do nothing if the U.S. starts to implement sanctions. It will use the best weapon it has against the West -- and that's its oil exporting business. Russia will ramp up oil shipments to China and cut off Europe and the U.S., leaving them both far more dependent on high-priced oil from the Middle East. To put things into perspective on how big of a player Russia is in the energy market, consider the fact that Europe is estimated to get 40% of its natural gas from Russia and over 30% of its crude oil.

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