Iran Showdown This Week!

The drumbeat of war with Iran is quickening; the potential impact on your money, escalating.

Today, Irans President Mahmoud Ahmadinejad is holding a press conference to announce his decision regarding the UNs ultimatum to stop enriching uranium. He will flatly refuse.

Then, on Friday, just four days from now, the chief of the Atomic Energy Agency will report on Irans nuclear program to the members of the UN Security Council. He will leave them no choice. They will have to impose sanctions.

Even if China and Russia balk at first, the worlds natural resource markets are likely to go into convulsions.

Already, oil prices have exploded higher, surpassing their 2006 highs two weeks ago … busting through their post-Katrina peak last Tuesday … eclipsing the $75 mark on Friday … and making a beeline for $80 per barrel very soon.

Already, surging oil prices and fears of war are driving precious metals higher.

And its dramatic happening even before Irans showdown with the West this week.

No Waiting.
No Turning Back.
No Easy Escape Hatch.

Until recently, most U.S. diplomats and military strategists thought they had the luxury of time to resolve the Iran crisis.

No more. Now, a consensus is building that time is running out far more quickly than anyone had anticipated.

Richard Armitage, the Deputy Secretary of State in President Bushs first term, believes a covert nuclear program is well under way.

Meir Dagan, the head of Israeli Intelligence, says Iran is close to the point of no return one to two years away, at the latest, from having enough enriched uranium for a bomb.

Another senior Israeli Intelligence official told New Yorker magazine there are two parallel nuclear programs inside Iran the program declared to the I.A.E.A. and a separate operation, run by the military and the Revolutionary Guards.

Even Irans president Mahmoud Ahmadinejad has declared that Iran is an atomic state, boasting of advanced enrichment technology that was likely shipped to Iran by Abdul Qadeer Khan.

Khan was the man who ran Pakistans nuclear program, successfully tested its bomb in 1998, and then became a national hero, worshipped by Pakistanis of all ages.

But he will be most remembered as the man who spread nuclear technology to more rogue states than any other person in history, especially, it seems, to Iran.

Now hes in jail. But its too late. Everything indicates that Iran already has, or can easily buy, nearly everything it needs to make the ultimate weapon of mass destruction.

Pre-Emptive Strikes
Now in the Works

U.S. officials are talking diplomacy. But theyre thinking military action.

The only major question: By whom? The U.S. or Israel?

Back in June of 1981, when it was feared Saddam Hussein was developing the capability to build a nuclear weapon, Israel launched a preemptive attack and destroyed Iraqs nuclear reactor in Osirak.

The Israelis said they had no choice. They could not tolerate the bomb in the hands of Saddam Hussein.

Then, three years and thirty-five days ago, on March 20, 2003, the U.S. invaded Iraq based on a similar war cry against the same madman. And …

Today, we face another lunatic in the same region, but with some key differences:

Key Difference #1.
Saddams Weapons Were Primitive.
Irans Are Far More Advanced.

Iran has up to 550 missiles with a range of 200 to 1,300 miles, capable of hitting virtually any target in the Middle East and beyond.

Iran also has chemical weapons, according to U.S. officials, including the ability to produce 1,000 metric tons of sarin gas, mustard gas, phosgene, and hydrocyanic acid per year.

Most important, Iran has at least 23 sites dedicated to nuclear technology:

Its own uranium mines in Nargan, Saghand and Zarigan …

Purification and enrichment sites in Arak, Darkhovin, Ardakan, Fasa, and Natanz …

Nuclear reactors, weapons development facilities, plasma physics centers, and more.

Not even in his wildest fantasies did Saddam come close to this level of weapons development.

Key Difference #2.
Saddams Terror Was Mostly Domestic.
Irans Is Mostly International.

Irans operatives have far more influence in the region than Saddams even dreamed of having.

Theyre all over Iraq, directly supporting the leading Shiite politicians, including Jawad al-Maliki, just appointed premier this past Friday.

Theyre embedded in embassies throughout the Middle East and the world.

And they have a quarter-century history of terrorism in Lebanon, the Palestinian territories and other hot spots of the Muslim world.

Key Difference #3.
Saddam Had Little Hope of Ever
Dominating the Arab World.
Iran, in Contrast, Has The Mission to
Become THE Power of the Muslim World.

To achieve this goal, their vision is to …

Cause a chain of Shiite revolutions in Muslim countries with Shiite majorities or pluralities …
Support the rise of fundamentalist Islamic states all the way from West Africa to Southeast Asia, and …
Unite hundreds of millions of people under the single-minded goal of rejecting Western culture, values and hegemony.

In sum,

Iran is the WMD-armed, rogue, terrorist state Iraq turned out not to be. So while U.S. officials give lip service to diplomatic solutions, theyre dusting off contingency plans for a preemptive attack on Irans nuclear facilities.

Meanwhile, Israel is seriously considering a mission similar to the June 1981 attack on Iraqs nuclear reactor.

Israeli Intelligence chief Dagan has declared that a nuclear Iran is the worst-ever threat to the countrys existence. Israels Defense Minister Shaul Mofaz has stated that under no circumstances would Israel be able to tolerate nuclear weapons in Iranian possession. Israeli Intelligence has even revealed plans for attacks by F-16 bombers.

This is precisely what Larry warned you about months ago at a time when virtually no one was talking about it. Now its coming closer to reality.

The next question: Will Iran back down?

For some hard answers, I asked John Burke, Product Manager of Larrys Real Wealth Report and a regular member of the Money and Markets team. Heres what he reported back to me:

Why Iran Wants the Bomb

I live and breathe investments. But that wasnt always my job.

For over six years, as a sergeant in the U.S. Marine Corps, I served in the intelligence sections of three units, compiling and disseminating intelligence information and tracking Soviet weapons systems.

I was stationed in Guatemala, Czechoslovakia and Finland. I was young and low on the totem pole. But I learned a lot, including this: Established and wannabe military powers invest heavily in weapons systems for multiple reasons. And when they do, they rarely give them up.

Thats certainly the case with Iran today. By obtaining nuclear capabilities, Iran would propel itself to the status of a regional power. Plus, the Iranians want the bomb as a deterrent against attacks on their borders.

To you or me, this may sound paranoid. But take one look at the history and geography of Iran and youll see that its not entirely irrational:

In 1980, Iran fought a horrific 8-year war against Iraq. It was the longest conventional war of the twentieth century, taking one million casualties, costing over one trillion dollars and involving the only large-scale use of chemical weapons after World War I. Not exactly a forgettable experience!

And today, the Iranians are virtually surrounded by what they consider to be hostile forces.

Their longest border, near most of their oil reserves, is with Iraq to the west, where the U.S. and its allies have almost 140,000 troops. Their second longest border is with Afghanistan to the east, where about 35,000 allied forces are stationed.

Pakistan, also to the east, is a triple threat to Iran. Its run by Sunni Muslims. Its one of Americas staunchest allies in the war on terror. And its the first Muslim country in the world to successfully develop, stockpile, and test nuclear bombs.

Meanwhile, theres only one other nuclear nation in the region: Israel, which Irans president has openly threatened to wipe off the map. But without his own bomb, he knows thats impossible.

At the very minimum, the bomb would give Iran the ultimate bargaining chip to push its agenda to restore Shiites to their leadership of the Muslim world and to overthrow Sunni Arab regimes that support the United States.

The Iranians know that if they join the nuclear club, the entire balance of power in the region would tip in their favor. Thats precisely what they want. And they want it bad.

My conclusion: Anyone who thinks Iran will back off in the face of UN ultimatums or UN sanctions is in for a hellish surprise.

The Evidence

As evidence, John also gave me the following five reports from reputable sources:

The Iran Country Analysis Brief by the U.S. Energy Information Administration;
The Iran Special Weapons Guide by GlobalSecurity.org;
A News Archive on Iran at MissileThreat.com;
A profile of Irans nuclear capabilities by Nuclear Threat Initiative (NTI); and
Preemptive Attack on Irans Nuclear Facilities: Possible Consequences by the Center for Nonproliferation Studies.

So if youre still wondering why Larry predicted war with Iran … or if youre doubting some of the facts and conclusions weve shared with you this morning … just read one or more of these reports. Regardless of their place in the political spectrum, they point to very serious consequences in the wake of an attack on Iran …

Consequence #1. $100 crude oil or more. Although Irans oil output has been declining, it can still sustain production of about 4 million barrels per day.

Even if Iran merely threatens to withdraw some of that oil from the world market, the impact on prices is bound to be explosive.

And imagine what could happen if President Ahmadinejad aims his missiles at the busy oil shipping lanes in the Persian Gulf! He could drive oil prices far beyond $100 per barrel. And he could do so without ever firing a shot.

Consequence #2. Worldwide scarcity of natural gas. Iran has the second-largest natural gas reserves in the world an estimated 940 trillion cubic feet. Thats more than all the natural gas in the U.S. and Canada combined.

So any conflict with Iran is bound to ricochet back through the various natural gas markets around the world, helping to drive prices back toward their recent peaks.

Consequence #3. A vastly enlarged Iranian nuclear program. In the event of an attack on its nuclear facilities, Iran could argue that it now requires nuclear weapons to guard against aggression and protect its sovereignty.

Result: It would withdraw from the Nuclear Nonproliferation Treaty, allocate even greater resources to its nuclear programs and greatly expand their scope.

Consequence #4. A new confrontation between the U.S. and Russia. The Russian Federation is Irans foremost supplier of nuclear energy technology and training. Moreover, hundreds of Russian scientists and technicians are reported to be working in Bushehr, one of the prime targets of any attack. If Russian personnel are killed, Russian oil sales to the West could be cut back. Worse, the cold war, supposedly dead, could return.

Consequence #5. Stronger domestic support for the Iranian president. For most Iranians, the nuclear facilities are their crown jewels and a source of national pride. So any attack would merely make it that much easier for President Ahmadinejad to rally support from the Iranian masses, squash opposition parties and intensify his crackdown on dissidents.

Consequence #6. Counterattacks by Iran. Back in 1981, when Israel launched its preemptive attack against Iraq, Saddam Hussein was busy fighting his war with Iran and he lacked the military means to retaliate. In contrast, Iran is fully capable of launching a counter-attack. And Iranian leaders have already promised to do just that.

According to the Center for Nonproliferation Studies,

A likely scenario includes an immediate Iranian missile counterattack on Israel and U.S. bases in the Gulf, followed by a very serious effort to destabilize Iraq and foment all-out confrontation between the United States and Iraq’s Shi’i majority. … The destructive potential of [Irans] ballistic missile systems should not be underestimated. They have much greater accuracy and higher payloads than the Iraqi al-Husseins.

What to Do

First and foremost, pray that were wrong; that a diplomatic solution, however elusive, will be found … and will stick.

Second, make sure youre fully prepared for a continuing escalation in the crisis.

That includes keeping a large chunk of your money out of harms way, in instruments like 3-month U.S. Treasury bills or money market funds dedicated to short-term Treasury bills and equivalent.

My favorite is the Weiss Treasury Only Money Market Fund at www.WeissFund.com. But before investing, be sure to check out others as well, using our list of recommended money funds.

Third, allocate a substantial allocation to investments likely to protect you from inflation or a falling dollar, such as:

streetTRACKS Gold Reserve (GLD), the exchange-traded fund thats based on gold,
U.S. Globals Global Resources Fund (PSPFX), consistently one of the top performing funds in its category, and
Enerplus (ERF), our favorite Canadian royalty trust with a substantial interest in oil and natural gas properties.

Fourth, for funds you can afford to invest more aggressively, Im afraid youre very close to missing out on Seans small-cap natural resource picks.

This morning, his service is hours away from being sold out. And tomorrow, he will be recommending some mining shares with up to 10-for-1 potential.

If you call 1-800-898-0819, you should still be able to get in.

Or, for more information, see the Sunday column he just posted, New Recommendations for Tuesday.

Just remember: Markets dont wait for the other shoe to drop. They start moving well ahead of time, in anticipation of expected events. Despite any minor corrections, thats what we think the oil and gold markets could do before the Iran showdown this week.

Good luck and God bless!

Martin

For more information and archived issues, visit http://legacy.weissinc.com.

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Red Morgan, Ekaterina Evseeva, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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