Israeli Prime Minister Benjamin Netanyahu announced Monday "a nuclear Iran will pose a serious threat to the Middle East and the entire world, and it of course poses a direct and heavy threat to us." This statement is brought to headline attention today as accounts circulate that Israel test-fired a ballistic missile from a military base near Tel Aviv on Wednesday.

Could the country be preparing itself for a "direct and heavy threat" posed by Iran's nuclear program?

Cause
It is no secret Iran has no love for Israel. The determination to see Israel wiped from the map has fostered high tensions in the region that have often resulted in plays on the battlefield. But the threat of Iran's nuclear program brings the battlefield to a new level (Iran denies wanting nuclear bombs, but few Israelis feel comfort or truth in this).

Reuters reports, "the Israelis bombed Iraq's nuclear reactor in 1981 and launched a similar sortie against Syria in 2007, precedents lending weight to their veiled threats to take similar action on Iran if foreign pressure fails to curb its uranium enrichment."

Iran's shady government structure, plus a lot of internal stability, means the region is very volatile and capable of igniting very quickly. The threat of someone taking a shot at Iran (either the USA and/or Israel) by the end of next year is very real, and the consequences are very severe.

Effect
To start with, a nuclear battle has its own set of cons that are beyond the scope of this article, but a nuclear war in the Middle East has a more addressable impact on oil prices.

Iran controls the Strait of Hormuz, through which a third of all seaborne oil shipments pass. If war starts, Iran would likely shut down straight, causing oil prices to shoot up very quickly. The Military Advisory Board, which is made up of retired senior U.S. Generals and Admirals, reported that a 30-day closure of the Straits of Hormuz, would cost the U.S. economy billions of dollars.

"Our overreliance on this single commodity makes us vulnerable. We are vulnerable not only to price spikes, which can slow or halt our nation's economic growth and devastate family budgets, but also to price volatility and uncertainty that can negatively affect our investment decisions," the report read.

Likelihood of attack
Israel might have one of the best trained and most technologically advanced militaries in the world, but would it be enough for the New Jersey-sized country to take on Iran?

Reuters writes that although Israel is reputed to have the Middle East's sole atomic arsenal along with a technologically superior air force, Israel lacks long-range bombers which could deliver lasting damage to Iran's distant, dispersed, and fortified facilities.

"The military option (against Iran) is not an empty threat, but Israel should not leap to lead it. The whole thing should be lead by the United States, and as a last resort," Moshe Yaalon, Israel's strategic affairs minister, told Army Radio on Tuesday.

Investing ideas
A confrontation with Iran could lead to skyrocketing oil prices, considering their status as one of the world's biggest oil producers.

With that in mind, we wanted to identify a few oil-related stocks that you can keep on your radar as the Iranian story unfolds. To create this list, we started with the 200 largest oil-related stocks. To refine the list, we collected data on institutional transactions, and identified the names that have seen significant inflows during the current quarter.

And to further refine the list, we collected data on short-seller trends, and identified the names that have seen a significant decrease in shares shorted during the current month (i.e., short-sellers think the upside of these stocks outweighs the downside)

Sophisticated investors, like hedge funds and short-sellers, think these oil stocks are going higher. Will an Iranian showdown add more upside to these names?

Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

List compiled by Eben Esterhuizen, CFA:

1. HollyFrontier (NYSE: HFC): Operates as an independent petroleum refiner and marketer in the United States. Net institutional purchases in the current quarter at 21.0M shares, which represents about 20.52% of the company's float of 102.34M shares. Shares shorted have decreased from 7.26M to 4.98M over the last month, a decrease which represents about 2.23% of the company's float of 102.34M shares.

2. CVR Energy (NYSE: CVI): CVR Energy,, together with its subsidiaries, refines and markets transportation fuels in the United States. Net institutional purchases in the current quarter at 9.7M shares, which represents about 13.55% of the company's float of 71.61M shares. Shares shorted have decreased from 7.10M to 6.07M over the last month, a decrease which represents about 1.44% of the company's float of 71.61M shares.

3. Northern Oil and Gas (NYSE: NOG): Engages in the acquisition, exploration, development, and production of crude oil and natural gas properties in the Williston basin, the United States. Net institutional purchases in the current quarter at 10.8M shares, which represents about 18.96% of the company's float of 56.95M shares. Shares shorted have decreased from 21.49M to 19.85M over the last month, a decrease which represents about 2.88% of the company's float of 56.95M shares.

4. Cheniere Energy (NYSE: LNG): Engages in the ownership and operation of liquefied natural gas (LNG) receiving terminals and natural gas pipelines in the Gulf Coast of the United States. Net institutional purchases in the current quarter at 14.5M shares, which represents about 23.77% of the company's float of 60.99M shares. Shares shorted have decreased from 17.41M to 16.15M over the last month, a decrease which represents about 2.07% of the company's float of 60.99M shares.

5. Crosstex Energy (Nasdaq: XTXI): Crosstex Energy,, through its partnership interest in Crosstex Energy, L.P., engages in gathering, transmission, processing, and marketing natural gas and natural gas liquids (NGLs) in the United States. Net institutional purchases in the current quarter at 5.6M shares, which represents about 17.9% of the company's float of 31.29M shares. Shares shorted have decreased from 3.30M to 2.76M over the last month, a decrease which represents about 1.73% of the company's float of 31.29M shares.

6. Endeavour International (NYSE: END): Engages in the acquisition, exploration, development, and production of crude oil and natural gas in the United States and the United Kingdom. Net institutional purchases in the current quarter at 4.6M shares, which represents about 18.65% of the company's float of 24.67M shares. Shares shorted have decreased from 5.84M to 5.40M over the last month, a decrease which represents about 1.78% of the company's float of 24.67M shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Institutional data sourced from Fidelity, short data sourced from Yahoo! Finance