Currency Play to Defeat Iran

By Sean Hyman, Editor, Currency Cross Trader

Tensions are heating up in Iran and it could affect your portfolio ... especially if war breaks out between Iran and the U.S.-Israel.

Israel and the U.S. are decidedly uncomfortable with Iran “going nuclear.”

But when the U.S. told Iran to halt its nuclear program, the Iranians basically told us to “stick it.”

Then, on the Christmas Eve, Iran began 10 days of naval drills in the Strait of Hormuz - the point through which 20% of the world’s oil passes.

Now Iran has threatened to close the strait, which would stop the daily flow of around 17 million barrels crude oil from the region.

So, the beating of the chests has begun!

This is serious business, because parting from its control over the Strait of Hormuz, Iran is the second-largest OPEC oil producer behind Saudi Arabia.

In response, President Obama signed into law on December 31st a bill that would place sanctions on Iran and any financial institutions which did business with Iran’s central bank.

Meanwhile, the Saudis have now pledged to boost the kingdom’s oil production by as much as 2.7 million barrels a day, more than Iran exports, should be a market demand for more oil.

In response, Iran has warned Saudi Arabia that it should “reflect on and consider” that pledge.

At the same time, the West is ratcheting up pressure on the Islamic Republic and tensions continue to builds as each side ups the ante.

Whatever the outcome, the price of oil is going up - and as investors, we should act upon this important trend.

The Geopolitical Complication

The geopolitical oil web is complicated.

China imports about 22% of Iran’s oil while Japan imports 14% and the European Union imports 18%.

The U.S. needs these countries to boycott Iranian oil to enforce a proper clamp down. Japan and Europe will likely be up for that, but China won’t be so willing - and that will certainly be a problem for Obama.

Of course, another complication is that someone just bumped off another Iranian nuclear scientist - the third one recently, but the fifth over the past few years. I’m sure that chaps Iran’s rear-end and just makes them even more determined to close the Strait of Hormuz.

Now Iran has announced its next round of “naval war games”, which will be conducted by the Iranian Revolutionary Guard Corps next month.

Meanwhile, the U.S. has moved its next chess piece too by moving its second aircraft carrier into the Arabian Sea, where Israel and the U.S. will continue their “war game” operation called “The Great Prophet”.

At the same time, the U.S. has given Iran a “final warning,” signaling that if it closed the strait, such a move would be regarded as declaration of war.

So what’s an investor supposed to do?  A war would undoubtedly rattle portfolios. A number of positions could nosedive.

However, in a tense geopolitical crisis like this, there are few certainties - and one is that oil will go through the roof.

We all know that if oil goes higher, gas prices will also rise. We also know higher oil prices act like a broadly dispersed tax on consumers.

Think of the wholesaler who has to get his products to the retail outlets so consumers can buy them. If transport costs rise, it’s easy to see why either the consumer has to pay more or retailers profit margins are squeezed - or both.

Most likely, it will be you and I who pay the price - through the fuel we use to get to work, church, home, etc, and also in the rising cost of the goods we buy in stores. So, we’re getting hit twice.

Higher oil prices also act like a weight upon corporations. When profit margins are squeezed, companies often cut costs, which can then translate into layoffs.

Any way you look at it, trouble in the Strait of Hormuz will be tough for everyone... well, almost everyone, with the exception of oil exporters and smart investors.

How to Benefit if Oil Goes Through the Roof

If the Strait of Hormuz gets plugged, more demand will be placed on supplies of oil from other, more peaceful places like Canada.

And that’s where investor opportunities can really be found.

High crude prices are great for oil-exporting nations, because it means they get more money for their chief product and their profit margins have also widened.

I’ll have my Currency Cross Trader subscribers prepared if war breaks out. In the meantime, I’ve got them in a Canadian dollar trade right now as these tensions of war rise. Make sure that you, too, defend your portfolio.

You can do this by buying the Canadian dollar ETF (FXC) through your stock brokerage account... or you can also do it in the Forex market, like many of my subscribers are doing, to grab even greater profit.

Either way, it’s important to be proactive. Don’t just sit around scratching your head when war breaks out and the price of oil surges. My subscribers and I are snapping up the Canadian dollar.

Neither you nor I make the call on whether war will break out, but be prepared to take action if it does.

Have a Nice day!


Sean Hyman
Editor, Currency Cross TraderJanuary 2012