How to Trade on Iran-Saudi Tensions Over Assassination Plot

The alleged Iranian plot to assassinate the Saudi Arabian ambassador to the United States threatens to disturb the delicate balance of power in the Middle East. The Sunni Muslim monarchy of Saudi Arabia and the Shiite Muslim theocracy of Iran have been increasingly at odds over a number of disputes throughout the Middle East over the last few years, as the two countries vie for leadership in the Muslim world. Tensions between Saudi Arabia and Iran go back decades but the revelation of an alleged plot to assassinate the Saudi Arabian ambassador to the United States has raised the stakes of the rivalry between the two Middle Eastern powers.If the current tensions escalate to the point of military action, the effects on the price of oil and the world economy could be great. A military conflict between Iran and Saudi Arabia might still be unlikely but there is also the possibility that Israel or the United States could use the alleged plot as an excuse to launch an attack on Iran. If either were to do so, Saudi Arabia might pressure other Muslim states to limit their criticism of any military action taken by the United States or Israel, which makes an attack on Iran even more likely.Saudi Arabian Prince Turki al-Faisal has already stated publicly that Iran must pay a price for the alleged assassination plot, so the Saudi Arabian government might even encourage an attack on Iran. Regardless of the outcome of any military action, the markets would be spooked and as the price of oil rises, stock prices could take a serious blow.Investors who feel that the tensions between Saudi Arabia and Iran will escalate might want to buy the United States Oil Fund (NYSE: USO) or PowerShares DB Oil Fund (NYSE: DBO) ETFs. Even the hint of a looming conflict between Iran and either Saudi Arabia, Israel or the United States could push oil prices higher and these two ETFs should see their share prices surge on any news that open conflict has broken out.Rising oil prices could also slow economic growth in the export driven Asian economies, so the ProShares Ultrashort FTSE China 25 (NYSE: FXP), ProShares UltraShort MSCI Japan (NYSE: EWV) or Direxion Daily China Bear 3x Shares (NYSE: CZI) ETFs could all do well if Asian stocks prices fall on news of the situation between Iran and Saudi Arabia worsening.