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Oil prices rose to their highest level in nearly nine months recently, as tensions over Iraq continued to feed supply concerns in the Middle East.

Over the last couple of weeks, the al-Qaeda connected Sunni militant group – the Islamic State in Iraq and Syria (ISIS) – has captured key towns in northern Iraq: Mosul - the country's second-largest city, Tikrit, and Baiji - where Iraq’s biggest oil refinery is located. In a recent move, Sunni militants have been occupying areas along the vast desert of western Iraq. They captured four towns and three border crossings; inflating chances of Shiite-led government in Baghdad. The insurgents want to establish their own state in Iraq and Syria.

Worryingly, the Iraqi security has been weak in the face of these attacks and ineffective in maintaining order. In fact, officials said that forces from Iraq's autonomous Kurdish region took control of the northern oil hub of Kirkuk to protect it from jihadist attack after government troops failed to secure the area and abandoned their posts.

Country's Economic Turnaround at Stake?

Just when things were starting to look up from decades of instability, the stunning advance of the Sunni militants threatens to plunge Iraq back into a state of violence and chaos. This not only disrupts the country’s budding economic growth – during which it became the second-largest oil producer in OPEC after Saudi Arabia – but also poses the risk of disintegration for the fragile nation.

There are fears that the instability could eventually move to the southern part, where most of Iraq’s oilfields and export facilities are located. Predictably, the threat to oil supplies from a major producer has impacted prices in a big way.

The Stakeholders

The rebound in Iraq’s crude production has happened with the help of international oil companies including BP plc (BP - Free Report) , Exxon Mobil Corp. (XOM - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) and Chevron Corp. (CVX - Free Report) . Though Iraq operations make up only a small portion of these majors’ global output, exploration and development has been ongoing.

British major BP has a 38% working interest in the flagship Rumaila oilfield in southern Iraq. Counted as one of the top five oilfields in the world, Rumaila is estimated to hold reserves of nearly 18 billion barrels and currently produces the majority of Iraq's total daily output of around 3.5 million barrels. However, BP’s share of output from Iraq is immaterial to its total daily production of more than 2 million barrels.

U.S. behemoth Exxon Mobil has roughly 900,000 acres of onshore leasehold land in Iraq. The company also possesses development wells in the country’s West Qurna field, another big facility that holds approximately half the proved reserves of Rumaila. Europe’s largest oil company Royal Dutch Shell holds a 45% operated interest in the giant Majnoon field, located in Basra province in Southern Iraq.

Chevron – the second-largest U.S. oil company by market value after Exxon Mobil – holds an 80% operated interest in the development-stage Qara Dagh block in Kurdistan region of Iraq. However, due to its involvement with the Kurdish regional government, Chevron has been barred from bidding on projects in the rest of Iraq

Safe Bets

In the short run, higher oil prices over the Iraqi crisis will benefit the upstream divisions of BP, Exxon Mobil, Shell and Chevron. But in the long run, if the conflict escalates and crude keeps on climbing, at some point the overall economic activity will be hurt, which can’t be good news even for the biggies. Moreover, escalating tensions in Iraq will mean lost opportunities in the region, and eventually a setback to their growth prospects.

Considering the uncertainties associated, we advise investors to play safe. Here are 3 energy funds that might be safe bets for investors now. The funds below have decent five year returns. We also use the asset-size metric. Taken together, they give us funds which are old, established and have proven long-term track record. These funds have returned at least 15% in the last five years and have net assets worth over $100 million.

Moreover, they carry either Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performances, but the likely future success of the fund.

Integrity Williston Basin/Mid-North America Stock A (ICPAX - Free Report) seeks capital growth over the long term. The fund invests a lion’s share of its assets in US or and non-US companies. These firms are either a part of gaining benefits from resource developments in the Williston Basin area and/or Mid-North America area.

The fund carries a Zacks Mutual Fund Rank #2 (Buy). The fund has returned 22.2% over the last five years. Total asset of the fund stands at $870.94 million.

Top holdings include Halliburton Company (HAL - Free Report) , MDU Resources Group Inc (MDU - Free Report) and EOG Resources Inc (EOG - Free Report) .

Fidelity Select Energy Service Port (FSESX - Free Report) invests majority of its assets in companies that are involved in the energy service field. These companies may be the ones who provide services and equipment to the conventional areas of oil, gas and electricity, or it may include newer sources of energy such as nuclear and geothermal among others. The fund invests in both US and non-US companies.

The fund carries a Zacks Mutual Fund Rank #1 (Strong Buy). The fund has returned 15.8% over the last five years. Total asset of the fund stands at $1.15 billion.

Top holdings include Halliburton Company (HAL - Free Report) , Schlumberger Limited. (SLB - Free Report) and National-Oilwell Varco, Inc. (NOV - Free Report) .

Waddell & Reed Energy A seeks to provide growth of capital. The fund invests a lion’s share of its assets in energy sector companies. Operations of these companies may include exploration, production, and distribution of energy and/or alternative energy sources. The fund invests in a blend of growth and value stocks which may be located across the globe. These companies may also belong to emerging markets.

The fund carries a Zacks Mutual Fund Rank #1 (Strong Buy). The fund has returned 15.5% over the last five years. Total asset of the fund stands at $284.7 million.

Top holdings include Schlumberger Limited. (SLB - Free Report) , Halliburton Company (HAL - Free Report) and Core Laboratories N.V. (CLB).

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank.

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