So far, 2014 has been a year of heightened geopolitical risk. Russia has annexed the Crimea region of Ukraine, Syria remains embroiled in a civil war, political protests continue in Egypt and Turkey, and North Korea has once again fired missiles into the sea to protest joint US-South Korea military exercises.

Earlier this month, the managing director of the International Monetary Fund, Christine Lagarde, pointed to these simmering geopolitical tensions as an impediment to global economic growth.

Geopolitical risk can affect a variety of asset classes, ranging from energy and gold to bonds and equities. In the energy space, Brent crude, essentially the equivalent of West Texas Intermediate (WTI), traded above $109 a barrel thanks to worries that Russia might make a play for more Ukrainian territory. While WTI also spiked, it finished the week essentially flat following a stronger than expected inventory report from the Energy Information Administration (EIA).

Even as oil prices are on the rise, so is production. In the US, the EIA reports that crude production average 7.5 million barrels per day (BPD) last year, 1 million BPD over 2012 and the highest annual rate since 1989. The agency estimates that production should run about 8.5 million BPD this year and hit 9.6 million BPD next year, the highest level of production since 1970.

The Organization of Petroleum Exporting Countries (OPEC), which produces about 40 percent of the world’s oil, is forecasting similar supply growth. This past January production rose by 28,000 BPD to 29.71 million BPD, largely thanks to increased production from Libya. Including America’s production increase, non-OPEC countries are expected to boost their supply by 1.29 million BPD to 55.43 million BPD.

With consumption forecast to grow by about 1.3 million BPD in 2014, that leaves supply and demand in almost perfect balance, supporting strong oil prices even when and if the crisis in Ukraine abates.

Not only does that make energy stocks a compelling investment theme for the remainder of this year, given the impact of geopolitics on energy prices it also makes them an ideal hedge against instability. Energy stocks also happen to be one of the best bargains in the market right now.

According to data from FactSet, of the energy stocks included in the S&P 500 that have reported first quarter earnings so far, 75 percent have reported revenue that’s above estimates. That makes energy the best performing sector in terms of revenue beats in the quarter. On the other hand, the energy and financials sectors have reported the biggest decline in earnings as a result of higher operating expenses and lower production volumes.

That said, largely because of higher prices, analysts expect the energy sector to swing to double-digit profit growth in the remaining three quarters of 2014 and into 2015, making the sector an attractive bargain following the recent weakness.

There are a couple of ways to play the global energy sector in your portfolio.

The first is to focus on individual names, such as China Petroleum & Chemical Corp (NYSE: SNP), otherwise known as Sinopec.

While China’s economic growth has been slowing over the past several quarters, energy consumption in the country has been growing. China accounted for one-third of the world’s oil consumption growth last year, making the country the world’s largest net importer of oil. By 2015, while China is expected to produce about 4.3 million barrels of oil per day, it will consume nearly 12 million.

That creates huge growth opportunities for Sinopec, an integrated oil company, which produces about 1.5 million barrels of oil equivalent per day with refining capability for about 5 million. At the same time, the Chinese government has introduced a more market-based pricing mechanism that allows Sinopec to reap higher profits on its refined products.

However, Sinopec isn’t a perfect hedge against geopolitical instability and its impact on oil prices. The company must import about 80 percent of the crude it uses so, while it can now pass on more of higher crude costs than it could in the past, it still has some degree of price exposure. Still, it’s a great bet on growing global energy consumption.

China Petroleum & Chemical is a buy up to 120.

A less risky way to employ an energy hedge in your portfolio is with an exchange-traded fund (ETF) such as iShares Global Energy (NYSE: IXC).

This ETF holds positions in 93 companies and integrated oil and gas companies account for about half of assets, followed by exploration and production companies at a quarter of assets and equipment and services, pipelines and refiners all at less than 10 percent. With the exception of Exxon Mobil (NYSE: XOM) at 14.9 percent of assets, none of the remaining 92 companies in the portfolio account for more than 8 percent of assets.

In geographical terms, 53.2 percent of the ETF’s assets are devoted to the US. While that is a sizable chunk, the fund also offers exposure to companies based in the United Kingdom, Canada, France, China, Australia and Brazil. And given the global nature of the energy business, even companies based in the US have limited exposure to the country.

The S&P 500 is only up 1.5 percent so far this year and the Dow is essentially flat, but iShares Global Energy has gained nearly 6 percent while most emerging market indexes are off by about 1.5 percent.

Additionally, the fund has a low 0.48 percent expense ratio, making it one of the cheapest global energy funds available. It also currently offers a 2.5 percent yield with a steadily growing semiannual payout.

Another compelling characteristic is that during the global turmoil sparked off the financial crisis, the ETF was less volatile than either the S&P 500 or the MSCI Emerging Markets Index, largely thanks to steady global energy demand.

Offering an effective downside hedge against geopolitical risk, iShares Global Energy is a buy under 50.

Portfolio Update

Shares of CEMIG (NYSE: CIG), one of Brazil’s leading electricity producers, have risen by 23.5 percent this year as electricity demand has been surging.

CEMIG is primarily reliant on hydroelectric generation, ensuring relatively stable fixed costs, and slow rainfalls had sparked worries that reservoirs which power the stations might run dry. But the rains arrived in mid-February and continued into March, bringing much needed relief with many reservoirs nearly two-thirds depleted. It was also recently reported that the utility has won a better than expected tariff adjustment, prompting analysts at Goldman Sachs (NYSE: GS) to issue a bullish research note, boosting the shares.

CEMIG remains a buy up to 15.