The UN and Iran's uranium-enrichment program
Frank Hemsley - Thu 07 Sep, 2006
...Facing the prospect of economic sanctions by the United Nations and potential violent force from Western countries, Iran the other day essentially told the UN to take a hike as it plans to move forward with its uranium-enrichment program. Some would say this is a bold move by Tehran, but considering we're talking about a showdown with the jellyfish United Nations, its hardly a show of strength...
Facing the prospect of economic sanctions by the United
Nations and potential violent force from Western
countries, Iran the other day essentially told the UN
to take a hike as it plans to move forward with its
uranium-enrichment program.
Some would say this is a bold move by Tehran, but
considering we're talking about a showdown with the
jellyfish United Nations, it’s hardly a show of
strength. If anything, it sends a message to the world
that Iran could care less about potential economic
sanctions because it's making obscene amounts of money
from higher crude oil prices.
The UN and Iran's uranium-enrichment program: Oil is the ultimate weapon
As the fourth largest exporter of oil in the world,
Iran knows that its ultimate weapon isn't a nuclear
bomb but rather a barrel of oil. If Iran cuts off
supplies to the world - even a small percentage of
production - it would be catastrophic to the global
economy.
Today, the world requires 84 million barrels of oil a
day to survive and oil producing countries are only
pumping 85 million barrels a day out of the earth. Any
slowdown to this production (i.e., hurricane, war,
etc.) would immediately cause a spike in oil prices and
a collapse of all stock markets around the world.
You can see this reaction in the United States. With
talk about Hurricane Ernesto heading to the Gulf of
Mexico, US oil prices spiked and the stock indices
dropped. Fortunately, the storm shifted to the east,
thus maintaining oil production in the region and
causing oil prices to settle down - and, more
importantly, lift stock markets higher. (Consequently,
the S&P 500 hit a three-month high in the days after
oil fell below the $70 a barrel level.)
Now, the concern regarding oil has shifted to Iran and
it's up to the world's leaders to solve the riddles of
this defiant country. A meeting has been scheduled for
September 7th to figure out "what to do." I wish them
luck because if this situation isn't resolved
diplomatically soon, investors are going to have some
serious problems with share portfolios as we close out
2006.
The UN and Iran's uranium-enrichment program: Investments will take a hit
Here's why: After seeing higher oil and gas prices this
summer, consumer spending dropped. This is because
people have less discretionary income due to the fact
that it's costing a lot of cash to fill up their cars.
Look st the US, for example. The drop in gas prices
certainly helped with consumer spending as the US
Government just this week said spending increased by
0.8% in July. This uptick in consumer's opening their
wallets is partially attributed to the slight drop in
petrol prices. As a result, stores like Wal-Mart
reported higher retail sales for this period. Starbucks
even reported that August same-store sales were up 5%.
The UN and Iran's uranium-enrichment program: $100 a barrel – what this could mean
Now, let's consider if Iran shuts off the spigot for
exporting oil and tells the world - especially the
United States - to go find the commodity somewhere
else. Well, we'll definitely see prices for crude come
close to the elusive $100 price and have petrol prices
shoot higher at the pumps and heating fuel prices, too.
This effect on discretionary spending could again feed
through to the economy and the stock markets as
retailers, for one, will be hit hard and cause a
negative ripple effect on consumer staples.
Prices for crude at $100; petrol hitting new highs at
the pump; potential for more violent conflicts in the
Middle East - these are the ingredients for horrible
market conditions and dire results for your portfolio.
Investors looking for some profit seeking moves to take
advantage of higher oil prices and off-shore drilling,
consider some of the blue-chip oil companies for your
portfolio.
Warm regards,
Frank Hemsley
for The Daily Reckoning
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