Chris’ note: As you know by now, the US killed Iran’s top general, Qassem Soleimani, on the orders of President Trump. And now, many people are wondering what’s next…
That’s why today, I’m bringing in my colleague Nick Giambruno – chief analyst of The Casey Report – to break down the significance of this event… and what we can expect going forward.
Remember, Nick first put this investment trend on our radar over a year ago. He knew something like this was bound to happen. And he’s been warning our readers that the next big war in the Middle East would likely focus on Iran.
Needless to say, it’s imperative to read his thoughts below very closely…
Chris Reilly, managing editor, Casey Daily Dispatch: Nick, as you know, Trump ordered the assassination of Iran’s General Qassem Soleimani, which was carried out on Friday. The story is dominating the news.
Today, I want to get into the significance of this event… and what to expect next.
You’ve been warning your readers of the next big war in the Middle East and that it would involve Iran.
You were spot-on. It appears the chances of a full-fledged war with Iran are higher than ever.
So how did you see this coming?
Nick Giambruno, chief analyst, The Casey Report: Well, what I was doing was looking at the big geopolitical picture in the Middle East and the trends that were unfolding. As you know, a trend in motion tends to stay in motion until something stops it. And there was a trend of rising Iranian power and influence in the Middle East. It’s something that the Israelis, the Saudis, and the Americans find intolerable and would be willing to go to war against.
I’m not at all advocating for war or for the US government to get into more bloody, expensive, and pointless entanglements thousands of miles away. But that is the reality of what is happening, and I don’t like it. It’s likely to lead to incredible amounts of suffering and destruction.
But we have to understand, why was Iran rising in power in the first place? It’s too long to get into the details here. But in short, the main reason Iran has become more powerful is that it has wisely capitalized on the colossal mistakes the Americans have made all over the region in the last 20 years.
Invading Iraq and overthrowing Iraq’s Saddam Hussein – Iran’s historical enemy – was a wonderful thing for them. Same with the Taliban and Afghanistan, whom Iran nearly went to war with in the 1990s after they slaughtered a handful of Iranian diplomats.
The US government’s plan to overthrow Syria’s Bashar al-Assad totally backfired, and here Iran benefited again. Likewise with the disastrous war in Yemen, which has been a total failure – which the media barely utters a peep over.
Iran is following American blunders and picking up the pieces. That’s the main reason why it is a rising power in the Middle East right now.
I could see this situation developing for years, and now it’s reached a boiling point. Here’s the bottom line: Either the US, Saudi Arabia, and Israel are going to acquiesce to Iran becoming the dominant regional power, or they’re going to find some excuse to go to war, the outcome of which is far from certain. It seems like the US government and Iran are on an inevitable path to war, and that has enormous consequences.
Chris: Yeah, let’s talk about that. You lived in the Middle East, in Lebanon, for several years… So you got first-hand exposure to the region, the geopolitics, and how civilians interpret these actions. Just how significant was this attack?
Nick Giambruno: It’s hard to put into context the significance of General Soleimani. There is no easy comparison. He wasn’t just a general or a senior figure in the government. To many Iranians, he was a revered war hero and national symbol who stood up to much stronger enemies – sort of like a Charles de Gaulle. He was a source of national pride of the highest order. Millions of people attended his funeral.
His assassination was a totally counterproductive move. I predict this will backfire spectacularly; in a way, it already has.
The US government’s killing of him touched a deep Persian nationalist nerve that is unifying Iran and significant parts of the Middle East around hostility to the US.
There’s a great chance this turns into a full-scale war with an oil shock unlike anything seen before, and that will undoubtedly doom Trump’s chances for re-election.
Chris: What’s next?
Nick Giambruno: The next step is Iran will retaliate. There’s no way it won’t. It absolutely will retaliate, and it’s going to do something that draws blood, because the Americans have drawn blood.
And then, Trump will have a choice. He will either have to launch what will turn into a full-scale war, or back down. And I don’t think he’s going to back down. I think it’s going to turn into a full-scale war.
I’m not trying to sound like an alarmist, but it’s the logical conclusion of where things are going.
And then, that is going to have enormous consequences for oil.
Chris: How so?
Nick Giambruno: You remember what we saw in September in Saudi Arabia? It was the most significant attack against oil infrastructure in the history of the world. Drone strikes knocked out more than half of Saudi Arabia’s crude oil output in a highly precise attack.
But that’s nothing compared to what we could be in store for now. What happened in Saudi Arabia was like tiny hors d’oeuvres before a 12-course meal. What will happen is that a war will destroy all the oil infrastructure in the entire Persian Gulf. And this is not something you can fix in a week. It’s going to take years, maybe decades, to fix if it happens.
Further, I believe Iran is going to shut down the Strait of Hormuz, a vital waterway in the Middle East, and the most important oil chokepoint in the world. The Pentagon has gone through many war game exercises and has found that Iran can do just that.
There was one scenario called Millennium Challenge in the early 2000s at the cost of $250 million. It found that Iran has a distinct advantage in the Persian Gulf because it’s a narrow, crammed waterway. It’s not like you’re fighting in the open Pacific Ocean like in World War II. You’re fighting in a very cramped geography that is very suitable to Iran’s specialty: asymmetrical warfare.
The Iranians are experts in unconventional and asymmetrical warfare.
The result of this war game was that the US Navy is a sitting duck in the Persian Gulf. So this is a nasty situation that is spiraling out of control. It’s really hard to overstate the importance of this. But we’ll see what happens.
It’s going to depend on Iran’s response, and then Trump’s answer to that. In my view, Iran is measured and collected. It will get revenge, but it will take its time and it will do it on its schedule. It will be in a way that I think is going to be compelling. At that point, Trump will have a fateful choice…
If everything that I’m saying happens, we’re talking about an oil shock bigger than any oil shock that’s ever happened.
It’s a world-class, historical disaster waiting to happen, and it will destroy any prayer Trump has of getting re-elected. So he’s going to have a very tough couple of months ahead of him.
Chris: So what should our readers do? This is troubling news on a lot of fronts…
Nick Giambruno: Look, Iran and the US are headed toward a confrontation that will almost certainly disrupt the strait. Five of the world’s top 10 oil-producing countries border the Persian Gulf – that’s roughly one-third of the world’s oil supply. And the narrow strait – only 21 miles wide at its narrowest point – is the only sea route to the open ocean… and world markets.
Every single oil tanker leaving or entering the Persian Gulf has to pass through Iranian territorial waters… This strategic advantage is one that Iran is very likely to use. It’s its best bet.
And just after the assassination, oil prices spiked 3%. This is just the beginning. If a full-scale war between Iran and the US happens, I’d expect oil to easily exceed $150.
So what you want to do here is own the highest-quality oil stocks that aren’t exposed to the Middle East turmoil. Companies that have done well during turbulent times in the past. I’ve got four of these companies – all of which pay a nice yield – in my Casey Report portfolio. Current subscribers may want to refresh their memory on these and add to their positions.
If you’re not a subscriber, now’s the time to find out more about these companies.
The US may be headed toward trouble, but your portfolio doesn’t have to suffer.
Chris: Thanks, Nick. We’re all looking to protect our wealth during these turbulent times.
Chris’ note: As Nick said, he’s got four of the world’s top oil companies set to benefit from rising tensions in the Middle East in his model portfolio. Buying these names is the best way to play the unfolding crisis with Iran.
These companies have all weathered rough times in the industry, and they have minimal-to-nonexistent exposure to the Middle East. And they pay a nice dividend.
If you’re already a Casey Report subscriber, you can read about them in the July 2019 issue right here. If you’re not a subscriber yet, go here to learn more about the coming oil shock and lock in your subscription today.