It sits on vast oil fields and produces 17.3 trillion cubic feet of natural gas reserves. Its financial future affects some of the most popular ETFs focusing on the Middle East. Little wonder at least some investors may be getting a little nervous about Yemen, the latest country tied to terrorism.

Days after the country's security forces killed two al Qaeda suspects who were linked to threats against several diplomatic outposts, Yemen remains in the center of a harsh spotlight. The incident came on the heels of the attempted bombing of Northwest Flight 253 on Christmas Day, which authorities say was nearly carried out by a man who received his training in Yemen. Al Qaeda has claimed responsibility for the attempt.

Yemen has no capital markets, but the country has ties to some of the world s largest economies. Events there stand to touch individual stocks, neighboring markets, international markets and national budgets -- but to what degree is debatable.

In short, then, Yemen is a place that many investors may not be knowledgable about -- but could well have implications for their portfolios in the months ahead. Here's a look at several asepcts of the developing story.

Oil

When you talk about the Arabian Peninsula, most people immediately think of oil -- yet among nations in the region, Yemen is relatively poor in oil. In 2008, the nation produced just over 300,000 barrels of oil per day, making it just the world's 37th largest producer.

Still, terrorism or warfare in the region could threaten to disrupt pipelines, but some analysts say the market does not consider such disruptions a major risk at this point.

Al Qaeda has been targeting airplanes and not oil facilities, so the market is paying less attention we may come to regret that because we know that one of Osama bin Laden s goals was to go after oil facilities, says Phil Flynn, senior market analyst for the futures brokerage PFGBest. It s an issue in the backdrop that costs everybody more money. Of course, if there were an attack on a tanker or a refinery, prices would rise.

Natural Gas

Although Yemen may not possess the oil riches that some countries have, there's another energy resource it has in remarkable quantities: natural gas. The country was sitting on about 17.3 trillion cubic feet of proven natural gas reserves at the start of 2009, according to data compiled by the BP Statistical Review and cited by Reuters. And a natural gas project spearheaded by Total, Europe s third-largest oil firm, could boost production down the road.

The market for natural gas is vulnerable to some of the same threats of violence that can weigh on the oil market, and they are of increasing concern to many investors. Until recently, few individual investors were likely to have much direct exposure to natural gas, but the rising popularity of exchange-traded funds has made investing in this area much easier -- sometimes to a fault. One big fund, the U.S. Natural Gas ETF, has lost roughly half of its value in the last year.

Yemen is not a major player in this market yet, but the pieces are in place. The question is whether the proliferation of a profitable natural gas export could hold up against potential destabilization of the region. Either way, the effects may be felt more locally. The issue in the U.S. is not as dramatic because we have discovered new resources, such as shale, here, so we re not as concerned as we were just a few years ago, says Flynn.

Exchange-Traded Funds

Middle Eastern ETFs such as Wisdom Tree Middle East Dividend (GULF), Market Vectors Gulf State (MES), and PowerShares MENA Frontier Countries (PMNA) were volatile in the wake of Dubai World s near collapse and could also be affected if problems deepen in Yemen. Financials make up the largest portion of all three of those funds followed by industrials making them particularly sensitive to the Dubai situation.

But as long as worries about Yemen remain contained, the effects will be isolated, says Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. The real problem becomes if there s a major event, which shakes people's faith in what s going on, he says, that would affect emerging markets more than anything.

Security Equities

If al Qaeda activity in Yemen fuels a renewed wave of terror activity, it could mean renewed interest in stocks of companies that produce security technology and services. It's already underway to some extent. The attempted terrorist attack on Northwest flight 253 prompted the U.S. to buy additional screening equipment and put pressure on other countries to add security measures.

On Dec. 30, the Transportation Security Administration awarded a $165 million contract to L-3 Communications (LLL) for its millimeter-wave, whole body imagers (WBI). But that award was likely long in the works before the attempted attack, says Roth Capital Partners analyst Richard Hoss.

Only L-3 and OSI Systems (OSIS), which was awarded a $173 million contract in October, make whole body imagers that meet the TSA s guidelines.

Still, additional orders are likely to be made after the events of the last few weeks, Hoss says. He predicts TSA may order 300 WBI's in 2010 and expects more definitive guidance on increased security measures in the next several weeks.

Dutch authorities plan to start using full body scanners within three weeks at airports to screen passengers flying to the U.S., and other countries are expected to take similar steps.

International Markets and Currencies

For two countries set apart by a growing political rift, the U.S. has a large stake in Yemen. Right now, the U.S. is one of the country's largest financial supporters. In fiscal 2009, the U.S. budgeted more than $30 million in aid to Yemen, according to the Agency for International Development. For fiscal 2010, the Congressional budget request has grown to more than $55 million.

Yemen could use the support. The nation suffers 18% to 22% unemployment, says Dr. Louay Bahry, a political science professor at the University of Tennessee. And American support is now likely to grow to help stabilize the country. The U.S. has two main concerns the degradation of the political and economic situation inside Yemen and the fear that al Qaeda will be able to strengthen its position and destabilize Saudi Arabia, Bahry says. All of these problems were there, but this incident put it all under the spotlight.

Counterterrorism spending is also on the rise. The U.S. plans to double its counterterrorism outlays in Yemen this year, after spending $70 million last year, Gen. David Petraeus, head of the U.S. Central Command said Friday.

Britain could also offer additional help. The U.K. plans to host a meeting on Jan. 28, in conjunction with an international conference on Afghanistan, discussing ways to combat extremism in Yemen.

But solving this problem may require more than military aid from other nations. They need not only to ship weapons and share intelligence with the Yemenis and the Saudis, but they need real investment in human beings there, Bahry says. They need to help the society, building more schools and hospitals, establish new roads, and find job possibilities to revive the economy of the country. Although such outlays have not been announced, financial commitments of that magnitude can affect national budgets.