Market Overview

Iran: "Buy and Store! War is Looming!"

Reuters reported Thursday that speculations of war are disrupting the lives of concerned Iranians as they begin to mentally and financially prepare for the onset of a military conflict with the West. According to the Reuters article, tensions are rising after Iranian students "stormed two British diplomatic compounds" in response to new sanctions that were imposed on Iran owing to the UN nuclear agency's suggesting that Iran is working to make nuclear weapons.

While Iran and the US have engaged in saber rattling recently with respect to the prospect of Iran building a nuclear weapon, the likelihood of the conflict rising to the level of military action appears to be increasing. Pres. Barack Obama said on Thursday that, "No options off the table means I'm considering all options" thereby suggesting that military action is a possibility.

According to the Reuters article, customers passing through a market in Tehran could hear a nut seller shouting, "Buy and store! War is looming!" One 82-year-old Iranian named Zahra Farzaneh stated that, "In case of an attack ... we will be imprisoned inside the country ... the borders will be closed." Another Iranian named Hossein Alaie said, "After the first strike the country and then the whole region will turn into a war zone. They will destroy everything. I am stockpiling goods and have told my relatives to do so."

According to the article, aside from keeping a store of essential goods, some Iranians are selling jewelry, withdrawing cash, and selling securities in order to buy dollars as the demand for hard currency increases. As those in Iran mentally prepare for war, "The cost of many basic necessities like bread, meat and transportation has shot up."

While some Iranians fear that war is coming, the Drudge Report featured an article recently from the National Journal written by Michael Hirsch boldly asking the question, "Has the war with Iran already begun?" Hirsch suggests that recent incidents in Iran including the capture of a US spy drone and alleged explosions at supposed Iranian nuclear facilities demonstrate that both Israel and the US are engaging in cloak-and-dagger activities. Hirsch: "Asked whether the United States, in cooperation with Israel, was now engaged in a covert war against Iran's nuclear program that may include the Stuxnet virus, the blowing-up of facilities and the assassination or kidnaping of scientists, one recently retired US official privy to up-to-date intelligence would not deny it."

On Thursday, Iranian state television ran footage of two men wearing military uniforms walking around and inspecting the alleged captured US spy drone. According to the Washington Post, beneath the drone ran posters saying, "We'll trample America underfoot". Also on Thursday, the UK's Daily Mail reported that a US official confirmed that the spy drone is of the US. Daily Mail: "'Yep, that's it - it's intact,' a source told Fox News. 'This is a big prize in terms of technology.'" Even so, as the Daily Mail's Mark Duell commented, much mystery surrounds the alleged capture of the spy plane as the drone in the footage was "in near mint condition" thereby "contradicting Iran's claim it was shot down".

As the drum beat of war between Iran and the West appears to be getting louder, where Iranians may be stocking up on essential goods, Americans may be concerned about how a war with Iran would influence the price of oil and gas prices at home. Where Iran could attempt to hit US targets in the Gulf and close up the Strait of Hormuz thereby disrupting the flow of oil, a war with Iran would most likely substantially increase oil prices.

Is it likely that the West will go to war with Iran? Although a 2010 CBS News poll suggested that war-weary Americans would be hesitant to go to war with Iran, the electoral advantage of being a wartime president could possibly benefit Pres. Obama in the 2012 election. Of course, the coin has two sides as voters may get frustrated with the nation being involved in an unpopular war. That being the case, one has to think that $5 to $10 per gallon gasoline would bring the US economy to a grinding halt -- and just when it was starting to look as if the economy was beginning to improve.

There are possibly those who think that a war with Iran could boost the US economy, but I think that such a venture done in the spirit of economic growth would be reckless. As Austrian School economist Ludwig von Mises observed, "War prosperity is like the prosperity that an earthquake or a plague brings."

As traders and speculators may see a financial opportunity in rising oil prices, it is important to note that saber rattling and the exchange of political zings between the West and Iran have been going on for a while. Iranian president Mahmoud Ahmadinejad has long criticized the West while relaying an apocalyptic vision of the world. Even back in 2005, Ahmadinejad said that Israel must be "wiped off the map".

It is also important for traders and speculators to note that, as we saw in 2008, a significant rise in oil prices can burst. Owing to the interplay of commerce and energy usage, there appear to be practical limits to how high oil and gas prices can go before the economy simply shuts down. That being the case, rising oil prices could very well prove to be a blessing for traders and speculators while being a curse for US consumers.

Recently, Jim Cramer spoke of how we appear to be entering an era of expensive oil. CNBC's Drew Sandholm: "With oil prices continuing to rise and given the increased tension in Iran, the 'Mad Money' host recommends owning an oil stock. Investors can currently get them at discount, too, because oil stocks have been hammered lately." Cramer speculated on Nov. 29, "If oil hasn't come down yet, isn't it safe to presume that it might never come down?" While Iranians may be stocking up on cash, nuts, and bread, in the West traders, speculators, and investors may be wanting to stock up on oil. Cramer: "The only stocks that consistently react positively to good news these days? The oil and gas stocks."

ACTION ITEMS:

Bullish:
Traders who believe that oil prices will rise in the future owing to military action in Iran might want to consider the following trades:

  • Check out iPath S&P GSCI Crude Oil Total Return (NYSE: OIL), ENSCO PLC (NYSE: ESV), and ConocoPhillips (NYSE: COP).

Bearish:
Traders who believe that war with Iran could send oil prices so far through the roof to the point that it decimates consumer demand thereby effectively shutting down the economy may consider alternate positions:

  • Check out SPDR Gold Trust ETF (NYSE: GLD), iShares Gold Trust ETF (NYSE: IAU), and silver coins & bars.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: CNBC Long Ideas News Jim Cramer Rumors Movers & Shakers Commodities Politics Best of Benzinga

 

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