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The Solution to Iran's Aggressive Persian Gulf Policy

By Rich Smith – May 25, 2015 at 2:09PM

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The U.S. Navy is a good solution to many problems -- but does it have to be the solution to all problems, all the time?

When Iranian naval vessels began harassing commercial shipping in the Persian Gulf last month, the U.S. Navy quickly dispatched the guided missile destroyer USS Farragut to take a look. Photo: U.S. Navy.

For the third time in three weeks, Iran's Revolutionary Guard has attacked a civilian merchant vessel in the Straits of Hormuz.

As reported by NBC News last week, five Iranian gunboats believed to be operated by the Revolutionary Guard attacked the Singapore-flagged Alpine Eternity after personnel refused to allow the oil tanker to be boarded. After firing across the ship's bow, the Iranian gunboats pursued the vessel until they were chased off by warships from the United Arab Emirates.

Last Thursday's attack followed a late-April incident in which Iranian gunboats likewise fired warning shots at -- and then captured and boarded -- a Marshall Islands-flagged cargo ship operated by Denmark's Maersk Group. The Revolutionary Guard claimed it seized the ship in response to a commercial dispute over unpaid bills, and released it after the matter was resolved.

Four days earlier, Iranian patrol boats surrounded a U.S.-flagged, Maersk-operated vessel. (At least that time, no one shot at anybody.)

Be that as it may, when was the last time you remember a lender trying to repo a car by firing a machine gun burst across its hood? Well, over in the Persian Gulf, it's happened twice. Clearly, the Persian Gulf is becoming a very dangerous neighborhood.

And for some folks, that spells opportunity.

When bad news is great news
I'm referring, of course, to U.S. defense contractors. In what could be a complete coincidence -- but probably isn't -- we just learned that Saudi Arabia has asked the U.S. Congress to authorize the sale of $1.9 billion worth of new military equipment. Among the weapons Saudi Arabia is seeking:

  • 10 MH-60R Sikorsky Seahawk combat helicopters from United Technologies (NYSE: UTX).
  • 24 T-700 GE 401 C engines from General Electric (NYSE: GE) to give the Seahawks wings.
  • 14 APS-153(V) Multi-Mode radars from Griffon Corp. (NYSE: GFF) to give them eyes.
  • 38 Hellfire Missiles, 380 Advanced Precision Kill Weapons System rockets, a dozen M240 medium, and a dozen more .50-caliber GAU-21 heavy machine guns to give them fangs.
  • Additionally, because the Seahawk is a "multimission" helo, the Saudis want 1,000 sonobuoys for use in anti-submarine warfare.

Now, I'll give you three guesses which Persian Gulf nation is the only one with a submarine fleet -- which at last report numbered two dozen boats. (Hint: It's the same one that has been sending gunboats to harass commercial shipping this past month.)

"I spy with my little eye-in-the-sky..." A U.S. Navy Seahawk keeping a watchful eye on the Iranian Revolutionary Guard. Photo: U.S. Navy.

Reading between the lines
Notifying Congress of Saudi Arabia's weapons request last week, the U.S. Defense Security Cooperation Agency advised that the Saudis intend to use these new weapons "as a deterrent to regional threats and to strengthen its homeland defense." In particular, Saudi Arabia would use the Seahawks "to identify, engage, and defeat maritime security threats" such as we've seen emerge from Iranian ports over the past few weeks.

Assuming Congress agrees with these goals, and approves the purchase (as it has done for every other foreign military sale upon receiving DSCA notification), it's not a huge leap to conclude that Iranian antics in the Persian Gulf have just produced a $1.9 billion windfall for these defense contractors. 

What it means for investors (and taxpayers)
As investors (and as taxpayers), it looks like we're getting the best of both possible worlds here. On one hand, Iran's nautical naughtiness is generating beaucoup business for some of our favorite defense contractors. (Indeed, although Hellfire missiles are Lockheed's only high-profile contribution to the sale, the company has somehow gotten itself named alongside United Technologies as one of the two principle contractors on the deal).

At the same time, by selling these weapons to Saudi Arabia, rather than buying and deploying them ourselves, the U.S. is essentially delegating part of the role of Persian Gulf policeman to its Saudi allies -- saving American taxpayers a bundle in the process. In short, there's very little not to like about this deal.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 359 out of more than 75,000 rated members.

The Motley Fool owns shares of General Electric Company. 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.

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