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U.S. Fleet Keeping Oil Price Buoyant
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With tensions in the Persian Gulf on the rise, the collapse in oil prices that we've been predicting may take longer than originally anticipated. There are three U.S. carrier groups within striking distance of Iran right now, and two more reportedly on the way. This is unprecedented, although you'd have to search the web and the newsletter world to find any mention of it. Gary North thinks that the news media have deliberately chosen not to report the naval build-up for fear of starting a panic that could push oil to $200-per-barrel, wrecking the already frail U.S. economy. But we think reporters have simply been too busy obsessing over the Olympics and the meaningless political spectacle in Denver to care about what is going on in the geopolitical world. Whatever the case, the build-up is big news, especially since President Bush has yet to even acknowledge it.
What's on his mind? Although it's possible to infer that an offensive against Iran is imminent, we doubt that Mr. Bush would attempt anything so bold with just five months left in his term. Nor is Israel likely to launch a pre-emptive strike without U.S. backing. There are tactical reasons as well for thinking that an air strike against Iran implausible, not least of which is that such an operation could trigger a regional conflagration while failing to destroy Iran's supposed nuclear weapons program. It seems more likely that the U.S. flotilla is intended to give Iran second thoughts about disrupting the flow of oil through the Strait of Hormuz. Tactically speaking, Iran must surely know that the much higher energy prices that would result would tip the U.S. economy over the edge.
Even if this were Iran's goal, it would come at a grave price to the country, since, with no oil revenues coming in, Iran's already dire economic situation would grow worse. It would also further destabilize a shaky political leadership. The mullahs have been calling for President Ahmadinejad's ouster, and he is therefore hardly in a position right now to launch a potentially world-shaking military operation. Regardless, as long as the U.S. naval build-up continues, oil prices are all but certain to remain buoyant. If so, it would be at least mildly bearish for U.S. stocks and bullish for precious metals. Both trends will strengthen to the extent the President allows rumors to speak for his intentions.
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Rick Ackerman
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company.
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