Justin’s note: Oil stocks are getting crushed. The average oil stock is down 28% since the beginning of October. But Casey Report chief analyst Nick Giambruno says we could be on the verge of a big rally… and now is the time to get in.
The catalyst? It’s one you probably haven’t considered…
Big Middle East wars are often catastrophic for global oil supplies.
This makes sense. The Middle East accounts for more than 40% of global oil exports. So a big conflict in the Middle East often triggers a big spike in the price of oil.
Take the 1973 “oil shock,” for example. Oil prices suddenly spiked… roughly quadrupling in a matter of weeks.
Today, we could be on the verge of an oil crisis even worse than that. That’s because regional tensions are growing in the Middle East. Specifically, the conflict between Iran and Israel – and their allies – is quickly getting worse.
As I’ll explain in a moment, this conflict could soon explode, causing a sudden spike in the price of oil.
But before that, let’s take a quick look at the first two oil shocks to see how this could all play out.
The First Two Oil Shocks
In 1973, Israel was battling Egypt and Syria in the Yom Kippur War. In response to U.S. support for Israel, the Organization of the Petroleum Exporting Countries (OPEC) placed an embargo on oil exports to the U.S. and several other countries. It also cut oil production.
This triggered the first “oil shock.” The price of oil nearly quadrupled. It jumped from around $3 per barrel to around $12.
The second “oil shock” started in 1979. It grew out of the Iranian Revolution and continued with the Iran-Iraq War, which was one of the bloodiest conflicts of the past 50 years.
Iraq and Iran were (and still are) two of the biggest oil exporters in the world… So it’s no surprise that the war rocked global energy markets.
The price of oil more than doubled, as you can see in the next chart.
There was also another, less dramatic price spike in the early 1990s. It happened after Iraq invaded Kuwait, triggering the first Gulf War. Oil shot up over 70%, as you’ll see in the next chart.
The Middle East is divided into two basic geopolitical camps. On one side, you have the U.S. and its allies, like Israel and Saudi Arabia. On the other side, Russia and its allies, like Iran and Syria.
You likely know that a bloody conflict has been raging in Syria for nearly seven years. It’s the most significant military conflict on the geopolitical chessboard today.
The U.S. side, working through its proxies, has been trying to overthrow Syria’s leader, Bashar al-Assad. Meanwhile, Russia and Iran have massively fortified his regime. Assad is still firmly in charge.
This has shifted the regional balance of power toward Iran. The U.S., Israel, and Saudi Arabia find that unacceptable. But at this point, a war is the only thing that could reverse the trend.
Team Trump Wants to Bomb Iran
Iran will almost certainly be the focal point of the Middle East’s next regional war. Many people think that war has already started.
Earlier this year, Israel launched its biggest military strike on Syria since the 1973 Yom Kippur War. This attack, and other recent ones, killed dozens of Syrian and Iranian soldiers.
I only expect the conflict to escalate from here.
Aside from what appears to be the start of an actual war, there have been numerous, unambiguous signs that the U.S. has Iran in its sights.
To start, Trump has staffed up on known war hawks. In April, he made John Bolton his National Security Advisor and Mike Pompeo his Secretary of State. Both have been eager to bomb Iran for years.
In early May, Rudy Giuliani, one of Trump’s lawyers and a longtime political ally, announced that Trump is “committed to regime change” in Iran.
A few days later, President Trump pulled out of the 2015 Iran nuclear deal. He also re-imposed economic sanctions on Iran.
The World’s Most Critical Oil Choke Point
Iran has the world’s third-largest proven oil reserves, or 10% of the world’s total. It exports about 2.4 million barrels of oil per day. China, India, and Europe buy most of it.
A war between Iran and Israel (and its U.S.-led allies) would wreak havoc on the oil market. That’s because Iran holds a very powerful card…
Iran could effectively shut down the Strait of Hormuz, the narrow channel connecting the Persian Gulf to global markets. It is the only sea route from the Persian Gulf to the open ocean.
Tankers moving oil from Iraq, Iran, Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates all have to pass through the strait. That translates into roughly 35% of the world’s oil traded by sea.
Nearly $2 billion worth of oil passes through the Strait of Hormuz every day. It’s the most critical oil choke point in the world.
In the event of an all-out war, Iran would quickly shut down the Strait of Hormuz. It’s been blatantly clear about this.
Credible studies have shown that – in a best-case scenario for the U.S. Navy – Iran could seal off the Strait with sea mines and asymmetrical warfare techniques for at least a month before the U.S. could reopen it. The Pentagon itself has admitted as much.
If and when a war with Iran happens – even if there’s only a whiff of it happening – investors should expect the third and most dramatic oil shock.
Of course, we’re not cheering for a war, or the collateral damage that would inevitably come with it.
Nevertheless, the odds of a big war in the Middle East starting soon are high. That means a sudden spike in the price of oil is equally likely.
There’s a good chance of outsized returns and soaring dividends in select oil stocks in the weeks ahead. I recommend positioning yourself for big profits now… before the bullets really start flying.
Chief Analyst, The Casey Report
Justin’s note: Casey Report subscribers can see Nick’s top four recommendations to play the “third oil shock” in his new special report right here.
If you’re not a Casey Report subscriber, make sure to watch our brand-new video with more details on the “third oil shock.” As you’ll see, you can make up to 1,250% from this coming oil crisis. But you need to act soon. This is a massive opportunity for smart investors: go here to learn more.
Today, a reader praises Strategic Investor editor E.B. Tucker’s recent essay on legal sports betting…
Hi, I read E.B. Tucker’s piece on Saturday with interest… When gambling was legalized in Great Britain back in the 1960s, the people best-placed to take advantage were those that already had the expertise – the criminals who had been running the illegal gambling for years. The situation is a little different now. But the opening of American markets presents a huge opportunity for those who already have the expertise… British bookmakers have been awaiting the current U.S. situation for years. They’ve been planning for it. And they will be among the big winners. This was an opportunity to share my point of view (I write about sports betting for my living) and wanted to give a little back in the hope it might be a bit of useful detail.
If you haven’t seen E.B.’s new video on this opportunity, make sure to check it out here.
And another reader enjoyed Doug Casey’s classic piece: “Money – How to Get It and Keep It”…
Another great article. Thank you. Talking about charity and charitable giving, a certain African politician called it "The White Savior Complex." You can understand his point of view when he sees young idealistic "lefties" meddling in his nation and his nation’s economy.
As always, if you have any questions or suggestions for the Dispatch, send them to us at [email protected].
Tonight at 8 p.m. ET, our founder Doug Casey is taking part in a rare and exclusive subscribers-only event…
As far as we’re concerned, this event should be mandatory viewing for all Casey Research subscribers.
You see, for the first time ever, Doug will meet with publishing superstars Bill Bonner and Mark Ford for a candid conversation about their history, investing, the economy, and what they’re doing with their own money now.
There are also some incredibly valuable bonuses lined up for anyone who attends the event. (Including the opportunity to “partner” with Doug, Bill, and Mark in a brand-new venture.)
We’re inviting you to attend for free. Join the VIP list here.