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The Giant Financial Risk You'll Never Hear About on Television

Commodities / Crude Oil Mar 13, 2010 - 06:09 PM GMT

By: DailyWealth


Best Financial Markets Analysis ArticleMatt Badiali writes: From 20 miles in the air, the Musandam Peninsula doesn't look like much.

Sparsely populated and dominated by the Al Hajar mountain range, little happens on the Musandam that matters to the outside world. Some fishing, tourism, and petty smuggling are about all that goes on in this tiny region belonging to Oman, the southeastern-most country on the Arabian Peninsula.

But the desolate landscape belies the Musandam Peninsula's critical role in global politics and industry...
The U.S. government has a massive contingency plan to defend the area... and investors must pay close attention to the peninsula for the same reasons our government does.
Investors must know about the Musandam Peninsula because it juts out into a waterway locals know as Tangeh-ye Hormoz. For thousands of years, this waterway has held vital strategic significance for regional powers looking to control sea access to the Arabian Peninsula, the Persian coast, and ancient Mesopotamia.
Notice... I said "regional," not global. Neither the U.S. nor any other significant economic power obsessed over it until the dawn of the hydrocarbon age, around 100 years ago.
Nowadays, the the Tangeh-ye Hormoz is one of the world's biggest geopolitical trump cards... and it poses a great threat to your financial wellbeing.
You see, this body of water serves as the transit point for more than 16 million barrels of oil per day... more than 40% of the world's daily consumption and 64% of the oil produced in the Middle East. More oil flows through this area daily than is consumed by China, India, Japan, and Germany combined.
The Musandam Peninsula is the constriction point that "chokes off" the waterway Westerners now call the Strait of Hormuz. And the regions it controls sea access to? That's modern-day Saudi Arabia, Iraq, and Iran. This makes it the most important waterway in the entire world.
The Strait of Hormuz is also Iran's trump card in its desire to go "nuclear."
The great concern here for the U.S. government – and investors – is that Iran could use boats, missiles, mines, or a combination of all three, to attack oil tankers in the Strait... just in case Iran is attacked. Even a small success here for Iran could send the price of oil past $200 a barrel... which would strangle our fragile economic recovery.
The potential solutions to this problem on the table right now are: 1) The U.S. attempts to knock out Iran's nuclear capabilities. 2) Israel attempts to knock out Iran's capabilities. 3) We bluster and clench our fists, then ultimately allow Iran to have nuclear capabilities.
It's the biggest "darned if you do, darned if you don't" situation in the world. Here's why...
An attack designed to destroy Iran's nuclear capabilities isn't 100% guaranteed to work. We don't have complete intelligence on the locations and extent of Iran's facilities. Even if the world knew exactly where all the facilities were, we couldn't be sure attacks would take them out completely. You'd have to invade the country and inspect the damage from up close.
Less than 100% isn't good enough here. A failed attack would immediately place Iran into "war mode," which would destabilize the Middle East and enrage the Muslim world... something the U.S. doesn't want. One of the first moves for an Iran in war mode will be an attempt to shut down the Strait of Hormuz.
An attack would also send lots of young Middle Eastern men and money running for the terrorism business. America has worked too hard, risked too many soldiers' lives, and spent too much money to risk a terrorism renaissance.
So if an attack fails, you'll have a terrible version of what I just described. If you don't attack, you have a nuclear-armed Iran. Like I say, darned if you do, darned if you don't.
I think diplomacy is the likely outcome here. But you're crazy not to buy some financial insurance in case this situation is not resolved without missiles. After all, we're talking Israel, Iran, and the U.S. here. These nations did not get where they are today by sending Hallmark cards and asking "pretty please."
If this conflict goes "hot," SAFE oil and gas assets will soar in price... the kind far away from the Middle East and its problems. In tomorrow's essay, I'll tell you the simplest and easiest way to buy them. In the case of a Middle Eastern conflict, this will beat the pants off gold for "crisis insurance."
Good investing,
Matt Badiali

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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