08.07.2019 – Special report. Buy when the cannons thunder – this is an old motto on the stock exchange. In fact, it could soon be that time again. Because Iran is making progress on the subject of nuclear armament. It remains to be seen whether the USA, Israel and Great Britain will stand idly by and watch the action. In the event of an intervention, the world faces an oil shock with exploding prices and a collapse of the stock market.
On the way to the mullah bomb
Yesterday, Sunday, a disturbing news hit the market: Iran wants to increase uranium enrichment beyond the permitted level. The 2015 nuclear treaty provides for a maximum limit of 3.67 percent. Iran’s President Hassan Ruhani had previously announced that he would again enrich uranium “indefinitely”. An earlier statement stated that Tehran would enrich to 20 percent. Previously, the country had already exceeded the 300 kilograms of low-enriched uranium it is allowed to retain under the nuclear treaty.
If uranium is 20 percent enriched, the road to the A-bomb is relatively easy. The degree of enrichment required for nuclear bombs is about 90 percent. But most of the problems are with the low percentages, after which things go quite smoothly. Documents available to the IAEA and documents procured by the Israelis prove that Tehran had worked on nuclear weapons and was relatively far advanced.
Sanctions against Iran
In the meantime, Tehran signaled that it would gladly fulfil the contract again. But first the USA would have to drop the sanctions. Which is unlikely. The sanctions recently reduced Tehran’s oil exports from 2.5 million barrels a day to about 300,000 barrels. However, smuggling is flourishing. And the British have just partially stopped it.
British Royal Marines had on Thursday the Iranian supertanker “Grace 1” because of violation of the sanctions before Gibraltar raised, he was on the way to Syria. Tehran announced that it would put a British ship on the chain as a liner. On Friday the clergyman Ayatollah Ali Mowahdei Kermani also threatened the USA that Iran would turn the Persian Gulf into a “red sea” in the event of an attack. He also announced a missile attack on the Israeli nuclear reactor Dimona.
Kermani reacted to a statement made by US President Donald Trump to journalists in Washington: “We will see what happens to Iran. Iran must be very, very careful.” This Wednesday, at the request of the USA, the Board of Governors of the International Atomic Energy Agency (IAEA) is to be convened for a special meeting.
Israel in the sights
Thus also the front course is drawn quite clearly. Iran will try to draw Israel into the war in order to draw Europe and Arabia, which are mostly hostile to Israel, to its side. Tel Aviv has warned on several occasions that it will not accept Iran’s nuclear armament and, if necessary, will act alone, as Israeli Foreign Minister Israel Katz recently told Isreal Army Radio. At the Herzliya Conference security forum a few days ago he stressed that Iran is leaving the “grey zone” and moving into the “red zone” – which means war.
By the way, Israel, in cooperation with Egypt, has been attacking IS networks and Iranian convoys on Sinai for months. The Egyptians have flooded dozens of tunnels into the Gaza Strip with sewage or sea water, the Israeli air force has destroyed several rocket-loaded truck convoys in the Sinai according to the “Jerusalem Post”.
One thing is clear: Iran has been equipping both Hamas and Hezbollah with short- and medium-range weapons for years – tens of thousands of them are said to be in the meantime. Should these missiles break through the Israeli Iron Dome interceptor on a large scale and even poison gas be used, the Israelis could respond in the worst case with a nuclear strike against the Gaza Strip and southern Lebanon. Hezbollah targets in Syria are also likely to be attacked, but the Russians are likely to get in the way.
Decapitation strike against Tehran
What else is going to happen? Europe is likely to fall back into the old appeasement reflexes and remain passive except for the British. Moscow, Ankara and Beijing will probably protest against an attack, but will probably not intervene in Iran’s favour. The Anglo-Saxons are likely to set off a huge fireworks display in the Persian Gulf. Nobody wants ground troops – so remains a massive, short air strike with bombers and cruise missiles against nuclear research facilities, Iranian naval bases and barracks. Saudi Arabia and the United Arab Emirates could take part in an attack. Meanwhile, Israel is likely to attack Hamas and Hezbollah.
Wall Street down – arms industry up
The scenarios for the financial market remain: Wall Street, DAX and co. will probably go to their knees immediately after an attack. Because at the beginning it will be unclear whether it will be a limited blow or a large-scale invasion. In the first case, prices should recover. In the second case, the stock market is likely to slide further. Because if the Americans send their soldiers into a ground war contrary to expectations, then it will probably be bad for a long time, even on the stock market. Oh yes: armaments shares would of course be the exception – a conflict here could send prices up, the longer the stronger.
$250 a barrel?
Which brings us to oil. Needless to say, in the event of a war, the price of oil would hiss upwards. How high? That depends. Iran could close the oil route through the Strait of Hormuz with mines or speedboats. In addition, Iranians could destroy oil facilities and ports of the Saudis and Emiratis.
In a guest article for Oilprice.com in May, Geopolitics Central, a management consultancy specialising in energy, estimated the price of oil at 250 dollars a barrel if exports of 18 million barrels a day through the Persian Gulf fail – at least one fifth of the world market. Note: In such a case, no chart analysis will help, as the worst case has never occurred before. The sky is the limit, therefore, applies to the price of oil.
Washington will probably open the Strategic Petroleum Reserve to reduce the oil shock. In the SPR, gigantic salt domes on the coast of Texas and Louisiana store around 727 million barrels of crude oil, which would cover the entire US consumption for about a month. In addition, US producers would increasingly pump oil. A counter-movement on WTI’s short side would therefore be likely. As high volatility is guaranteed, you should prepare yourself with Germany’s best CFD brokers with Bafin licenses and powerful servers for possible trades at the time of the possible new Gulf War.
Escape into Gold, Yen and Treasuries
Otherwise, investors are likely to flee to the usual safe havens: gold, Japanese yen and American government bonds. CFD traders should keep an eye on these assets in particular and on the crisis in general – and keep a close eye on regular market updates on your trading platform.
The Bernstein Bank wishes us all a peaceful outcome and successful investments in spite of everything!
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