Will Another Arab Spring Doom Middle East ETFs? (EIS, EGPT, GULF)

Last year, it was Egypt, Libya and Tunisia. This year it could easily be Syria, Qatar and other Middle East countries that bring about a sequel to 2011's Arab Spring. In Syria, President Bashar al-Assad has been fighting a seemingly uphill battle to keep his oppressive regime in charge. This week, the Assad administration blamed Qatar and Saudi Arabia for a car bombing in Aleppo, according to

. Qatar, which has a good relationship with the U.S., is playing the role of power broker to the region, but it's speculated the country is a stronghold of the Muslim Brotherhood. Qatar enjoys excellent relations with the United States, which has no less than three military bases on its soil – but keeps in touch with al-Qaida through Al Jazeera, which is run by Qatar's ruler, according to the

. To top it all off, Algeria is slated to hold elections next month and Libyans head to the polls in June. As the world knows, this is a volatile region and any uptick in said volatility could mean profits and peril for select ETFs.

The Market Vectors Egypt Index ETF doesn't make this list because of political issues in Egypt, though the reality is the country isn't much more stable today than it was 12-15 months ago. Rather, EGPT makes the list because it is the only country-specific ETF focused on a Middle East nation. EGPT has had

but if violence escalates in the Middle East, even it's outside of Egypt, EGPT makes for an easy target because there are no ETFs for Algeria, Libya, Syria, etc.

Think twice before being enticed by the WisdomTree Middle East Dividend ETF's juicy 5.3% yield. In an ideal world, the Middle East would be stable, developed region and that would mean GULF would be an intriguing ETF because it is allocated to the more steady countries in the region – Qatar, Kuwait, United Arab Emirates and Jordan. That said, GULF does have a combined 16% allocation to Morocco and Oman. Oman is a curious case. It has an investment grade rating from Moody's, but the country also supports Palestinian statehood. GULF is up over 6% this year, but those good times could end with a thud should a tenuous situation worsen in the Middle East.

GULF has a kissing cousin in the form of the Market Vectors Gulf States Index ETF. MES allocates almost 90% of its country weight to Kuwait, Qatar and UAE, meaning the ETF is at least exposed to stable countries that are somewhat friendly to the U.S. Problem is that won't be enough to keep from MES if Arab Spring Part II materializes. MES plunged almost 20% in the early part of 2011 during the Egyptian turmoil and the ETF has yet to reclaim its January 2011 highs.

Like MES, the Market Vectors Africa Index ETF took a nasty spill during the first Arab Spring and has yet to reclaim its 2011 peak. Even though AFK has an 18% allocation to Nigeria, the energy sector only accounts for 13.8% of AFK's weight. Non-African nations represent 25.5% of AFK's weight and we like that. The ETF's potential vulnerability comes from a combined 30% allocation to Egypt and Morocco.

Even if Israel shared borders with friendlier neighbors, it might be fair to say EIS would have problems. As it is

.Those problems include a 28% tumble in the past year. The result is one of the nastiest charts of any developed markets ETFs out there. EIS is more than 29% removed from its 52-week high, but just 11.5% above its 52-week low. A move below $40 probably takes EIS back to that low. Said differently, shorts don't need an excuse to punish this ETF, but they'll take it.