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?
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.
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.
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:
2. CVR Energy
3. Northern Oil and Gas
4. Cheniere Energy
5. Crosstex Energy
6. Endeavour International
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
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.