August 27, 2012–You cannot turn on your television or surf the internet without being bombarded by news of the events in the Middle East involving Israel and Iran. These two countries have been adversaries for a long time, and saber rattling between the two has been a common occurrence over the years. All this has changed though with the recent introduction of Iran’s possible development of nuclear weapons. Now the threats and posturing have taken on new meaning.

In the most recent headlines, Iran’s president has stated that Israel’s existence is an “insult to all humanity”. This statement was made in concurrence with the introduction of Iran’s upgraded version of a short-range surface-to-surface ballistic missile called the Fateh-110, or Conqueror. In roughly the same time frame, Prime Minister Benjamin Netanyahu told visiting U.S. dignitaries that time “is running out” for a peaceful solution to Iran’s atomic program.” Needless to say, this powder keg is becoming more volatile by the day. The question is what will Israel do, and when will it act?

Obviously this article could go on and on about potential scenarios, military capabilities, and the tragic loss of life that might occur. But this article is about your money and ideas that could help protect it from the events that might occur. That being the case, let’s dive in and look at what might happen if Israel does strike and how you could protect your current investments.

An Israeli strike on Iranian nuclear facilities would not be a single day event as was done against the Iraqi Osirak reactor in 1981. The targets are just too far away, so Israel would have to attack over a series of days. The drama that would unfold would be worldwide news, and will stay as the top headlines for weeks. Needless to say, stock markets and exchanges around the world will most likely have very negative views and will sell off in varying degrees. The most critical event would be if Iran attempts to shut off the flow of oil through the Strait of Hormuz. Now if this were to happen, even for only a brief time, it would send tremors through the world’s financial markets as oil prices would rise at a rapid rate.

United States Oil (USO) Obviously the first protective action one could take would be to get long oil. When I write this I mean putting on some exposure to the actual commodity itself and not the stocks that are involved in exploration and development. That being the case, one of the best bets would be getting long the very popular ETF, United States Oil. An investment in USO seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund invests in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. It may also invest in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil. A rapid move up in oil prices should drive up prices in USO. The hope would be that this increase would help offset any losses that would be experienced elsewhere in your portfolio as events unfold. To get a brief glimpse of how this fund could work, let’s take a look at the 3 month chart below…Read More>>

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