By Nick Giambruno, chief analyst, The Casey Report
The world’s next oil shock is playing out exactly as I predicted…
On Saturday morning, tensions in the Middle East escalated after drones attacked two major oil facilities in Saudi Arabia.
The strikes knocked out more than half of Saudi Arabia’s crude oil output… and 5% of the world’s oil supply. The Houthi movement in Yemen, which is at war with Saudi Arabia, claimed responsibility. The U.S. government, however, has blamed Iran.
In any case, this attack is unprecedented and makes escalating actions almost inevitable. I think it’s only the beginning.
If you thought this attack was disruptive, understand that it’s only a tiny example of what could really happen in the case of a full-fledged war with Iran, which grows more likely by the hour.
If you’ve been reading the Dispatch, this shouldn’t come as a surprise at all. I’ve been saying that the chances of war with Iran are higher than ever…
And when it happens, it will have tremendous consequences for the price of oil.
We’re seeing this play out just as I predicted. The attacks sent the global oil markets into chaos… and crude oil prices are up 14% today as I write.
And I saw it coming a mile away. Today, I’ll show you everything you need to know about the rising tensions with Iran – including what Iran could do next…
You see, about a year ago, I warned readers of my newsletter, The Casey Report, that the next big war in the Middle East was coming. And I showed them why it would focus on Iran.
But let me give you a quick refresher of what’s going on…
Tensions in the Persian Gulf region were already near a boiling point as U.S. sanctions choked Iran’s economy. But Iran hasn’t taken this economic strangulation lying down. It has a few cards to play, too.
Let me explain…
Things have been heating up around a key waterway in the Middle East – the Strait of Hormuz. Six oil tankers were attacked near the Strait and the Persian Gulf, and the U.S. government blamed Iran.
Iran then shot down a $120 million U.S. drone. It claims the drone was flying in its airspace.
In response, Trump approved airstrikes against Iranian targets. It would have started a full-scale war… but Trump pulled back at the last minute.
And those are just a few of the skirmishes that are now making headlines. In short, tensions between the U.S. and Iran are flaring.
But Iran holds a powerful card… because it controls the Strait.
Oil’s Most Important Chokepoint
The Strait is a narrow strip of water that links the Persian Gulf to the rest of the world. It’s the most important oil chokepoint in the world.
Five of the world’s top 10 oil-producing countries – Saudi Arabia, Iran, Iraq, the United Arab Emirates, and Kuwait – border the Persian Gulf. The Strait of Hormuz is their only sea route to the open ocean… and world markets.
Every day, nearly 19 million barrels of oil pass through the Strait of Hormuz. That translates into roughly 33% of the world’s oil traded by sea. It’s over $1.2 billion in value every single day.
That’s part of the reason why big Middle East wars are often catastrophic for global oil supplies. After all, almost 40% of global oil exports comes from the Middle East. Take a look:
As you can see, shutting down the Strait is Iran’s next powerful option in this conflict. And the investment implications are huge…
The Next Oil Shock
If Iran shuts down the Strait of Hormuz, it would cause the largest oil supply shock the world has ever seen.
And that will cause a huge price shock.
A “price shock” is when the price of something rises so quickly that businesses cannot react. Two classic examples are the First and Second Oil Shocks.
The First Oil Shock happened in 1973.
A regional war in the Middle East caused the price of oil to nearly triple. It triggered a massive gas shortage in the U.S.… and a lot of panic.
Drivers sat in lines stretching for blocks, waiting to fill up their gas tanks. Some gas stations closed. Others operated by appointment only. Rationing was introduced.
The Second Oil Shock came in 1979. Crude prices nearly tripled again… also caused by conflict in the Middle East.
You can see what happened to the oil price during both oil shocks in the next chart.
I would expect the Third Oil Shock’s effect on the oil price to be at least as severe as the first two shocks. Recall that oil prices nearly tripled both times.
In today’s prices, that would likely mean oil shooting to around $200 a barrel…
A Golden Opportunity
However, the market doesn’t appreciate how close we are to a war yet.
Yes, the price of oil is rising, but this is just the beginning.
In this environment, you want to own the highest-quality oil stocks. That means two things:
1) Companies that have done well during turbulent times in the past.
2) Companies that aren’t heavily exposed to trouble in the Middle East.
As Middle East supply disruptions cause oil prices to skyrocket around the world, companies that fulfill these criteria will be your ticket to profits.
So if you haven’t yet, now’s the time to get in.
Chief Analyst, The Casey Report
Chris’ note: You don’t want to be sitting on the sidelines when the next oil shock arrives. The last time this happened, investors who got in early could’ve made 12 times their money.
And remember… Nick said that this next shock will likely be at least as severe as the last one.
So if you want to take advantage of this opportunity, owning oil stocks is key. And Nick has found four companies that will soar once this trend kicks into high gear. You can find out more about them right here.