An area the size of Rhode Island with a population smaller than Pawtucket has caused Russia a whole lot of trouble.

South Ossetia, with only 1,500 square miles of territory and 70,000 “citizens”, claimed independence from Georgia on November 28, 1991. Russia officially recognized the territory’s independence on August 26, 2008, twenty days after Russian troops entered the region to defend South Ossetia’s population from Georgian forces.

Less than a week later, investors in Russia were headed for the hills… And they’re still running.

The EU, currently headed by French President Nicolas Sarkozy, is trying to make Russia comply with the ceasefire agreement and withdraw troops. According to a BBC news report, “Some European leaders have already warned there can be ‘no business as usual’ with Russia until the peace plan is fully implemented, and the European Union has suspended talks on a new partnership agreement with Moscow.”

That’s going to be a bit difficult when it comes to Russian energy supplies, however. Russian natural gas accounts for 40% of all EU imports.

And if conflict continues into winter, it truly could be a Cold War between Russia and the EU if the Bear turns off the spigot. That’s why the EU is rushing around the Caspian Sea and the Mediterranean like mad trying to scare up energy supplies and pipeline partners.

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Over the past several months, the investment world has turned its ever-roving eye on the Middle East and North Africa.

Since July, four new exchange traded funds have hit the market focusing on these regions. They are the WisdomTree Middle East Dividend Fund (GULF:Nasdaq), the Market Vectors Gulf States Index ETF (MES:NYSE), PowerShares MENA Frontier Countries Portfolio (PMNA:Nasdaq), and the SPDRs S&P Emerging Middle East & Africa ETF (GAF:AMEX).

But the one thing lacking in these ETFs is investments in Iran.

Of course, the U.S. has decreed it will not make investments in Iran, who it considers a state-sponsor of terrorism. That’s nothing to fool around with.

While much of the Western world stands firm by not investing in Iran, other nations, like China and Russia aren’t quite as righteous. Russia has repeatedly stood against strong sanctions in response to Iran’s nuclear program… as has China, but for different reasons. Iran and Russia have a history that goes back to before the Cold War. But China…

Iran is the world’s fourth largest oil exporter, and China, in early December 2007, signed a $2 billion deal with the country to secure oil supplies.

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They say when the U.S. sneezes, the whole world catches cold…

Well, it’s time for a trip to the drug store. More and more often, that means Central and Eastern Europe, or Emerging Europe.

For our Taipan VIP subscribers who attended our August Global Summit conference in San Francisco earlier this month, you may remember me mentioning a couple companies. Big names… Internationally recognized pharmaceutical companies like Teva Pharmaceuticals (TEVA:Nasdaq) and Sanofi-Aventis (SNY:NYSE). They’ve set up shop in places like Hungary and the Czech Republic.

Hungary is one of the most developed pharmaceutical and biotechnology sectors in Central and Eastern Europe. Hungary boasts the strongest biotech sector among the twelve new EU member states. That has enticed seventy core biotech companies to set up shop in Hungary up to now and 170 companies have some kinds of biotech related activities. The reason? Cost savings. Companies can save 30-50% compared to Western European enterprises.

But there’s another side to the drug industry and it’s increasingly finding a home in this very region.

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Conspiracy theorists, meet the Nostradamus of Novels: Tom Clancy.

My colleague and fellow analyst, Christian DeHaemer, and I were reading up on the latest news from the South Ossetia conflict between Russia and Georgia. We were passing articles back and forth, trying to determine what was really at the heart of the matter, and how it would affect the markets.

(Turns out, Russian markets aren’t taking it too well… The ruble fell 1.6%.)

Then Chris turns to me and asks, “Have you ever heard of Ghost Recon?”

Back in 2001, military science novelist, Tom Clancy designed a video game called Ghost Recon. Here’s the story’s timeline…

The Russian Democratic Union, consisting of Russia, Ukraine, Belarus, and Kazakhstan, is formed in 2007, with the goal of reuniting the former Soviet Union states. Action comes to a head in April 2008, when ultra-nationalists seize total power in Russia and begin invading the Baltics and Georgia. U.S. Special Forces join with rebel factions in Tbilisi, Georgia, but can’t hold back the Russian tide…

Earlier today, in real life, Russian planes flew over the presidential palace in Tbilisi.

This coincidence gave me chills. You can check out the real timeline for the current conflict in this article from Reuters.

The Georgian president, Mikhail Saakashvili, says this conflict, in which Russia is supposedly supporting a separatist faction in Abkazia (an area in South Ossetia), is because Russia wants to control energy routes through the Caucasus.

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