Iran

Continuing our tradition of listing what according to Zero Hedge readers were the key news events of the year for the third year in a row (2009 and 2010 can be found here and here), we present, as is now customary, the most popular posts of the year as determined by the number of page views, or said otherwise - by the readers themselves. So without further ado, here are this year's top 20.

While the Iranian war game naval exercises have been ongoing for almost five days, or half of the projected 10, tensions in the Straits of Hormuz region have been rising culminating with today's interchange between the head of the Iranian Navy and the US 5th Fleet (which for various reasons we can not present you with a status update today). One question that remains is just what would a closure of the Straits looks like. Luckily, the Middle East Media Research Institute's blog has caught a release by an Iranian website Mashreq News, which spells out the step by step details of just how such a closure would be enacted.

As was reported yesterday, Iran has now officially commenced its 10 day wargame exercise in the Straits of Hormuz. What happens next is 10 days in which one false move, either planned or false flagged, can have some serious (if required by the status quo) consequences: after all WTI is at $100, and the ECB has quietly "printed" $700 billion in the past 6 months, with the Fed not far behind - there has to be some implicit backstop to keep crude from soaring once it becomes clear that print mode is on, and the only way that can happen is the "possibility" of expanded oil supply through control of the main supply channels. From Reuters: "Iran began 10 days of naval exercises in the Strait of Hormuz on Saturday, raising concern about a possible closure of the world's most strategic oil transit channel in the event of any outbreak of military conflict between Tehran and the West. The military drill, dubbed "Velayat-e 90", comes as the tension between the West and Iran is escalating over the Islamic state's nuclear programme. Iranian authorities have given no indication the strait will be closed during the exercise, and it has not been shut during previous drills. "Displaying Iran's defensive and deterrent power as well as relaying a message of peace and friendship in the Strait of Hormuz and the free waters are the main objectives of the drill," Sayyari said. "It will also display the country's power to control the region as well as testing new missiles, torpedoes and weapons."

As the rest of the world enjoys Festivus or whatever celebration one indulges in, Iran is launching a "massive" 10 day war games naval exercise right in the belly of the beast. From Xinhua: "Iranian Navy Commander Rear Admiral Habibollah Sayyari on Thursday announced the upcoming launch of ten-day massive naval exercises in the international waters, the local satellite Press TV reported. Sayyari said at a press conference on Thursday that the naval maneuvers dubbed Velayat 90 will start on Saturday and will cover an area of 2,000 (1,250-mile) km stretching from the east of the Strait of Hormuz in the Persian Gulf to the Gulf of Aden, the report said. This is the first time that Iran's Navy carries out naval drills in such a vast area, he was quoted as saying. He said that the exercises will manifest Iran's military prowess and defense capabilities in the international waters, convey a message of peace and friendship to regional countries and test the newest military equipment among other objectives, said the report. He added that the newest missile systems and torpedoes will be employed in the maneuvers, adding that the most recent tactics used in subsurface battles will also be demonstrated. Iranian destroyers, missile-launching vessels, logistic vessels, drones and coastal missiles will also be tested, said the Iranian commander, according to the report." And while conventional wisdom is that the market is focused on what the upcoming closure of the Straits of Hormuz means for tanker routs and oil prices, there is another more disturbing possibility: with all those Iranian canoes, and soapboxes floating around, one wonders if one is bound to have a close encounter with USS CVN-74 John Stennis, which as the updated naval map below from Stratfor shows, will be smack in the middle of the action.

The Iranian geopolitical tension is about to get more complicated, after it was uncovered that Russian authorities had intercepted a passenger carrying radioactive material to Iran. According to AFP, the Russian customs service seized a consignment of radioactive isotope Sodium-22 at a Moscow airport from a passenger who was to travel on a flight to Tehran, the customs service said in a statement. "Tests showed that the Sodium-22 could only have been obtained as the result of the work of a nuclear reactor," the customs service said, saying it was alerted by signals that background radiation in the area was 20 times the norm. We expect to hear some loud noises coming from the now hopelessly irrelevant US State Department within minutes. As for the "Russian connection", we doubt anyone will be surprised by the gamma decaying love between the two countries.

And update from Bloomberg:

HORMUZ STRAIT IS NOT SHUT: IRAN FOREIGN MINISTRY SPOKESMAN - BLOOMBERG

Earlier:

Iran has closed the Straits of Hormuz for military training as was expected yesterday, according to RanSquawk. Oil, and all other commodities, are outtahere.

And just in case a brutal reminder that nothing is solved in Europe is not enough, here comes Iran:

IRAN MP SAYS MILITARY TO PRACTISE CLOSING STRAIT OF HORMUZ TO SHIPPING; IRANIAN MILITARY DECLINES TO COMMENT - RTRS

Due to our less than admirable Farsi skills, we present the following Iranian video showing the captured downed US drone without commentary. As they reverse engineer our planes, we reverse engineer their state media released video.

Whether it is just posturing or this time Iran feels it has little to lose, following a spate of mysterious explosions and a downed US attack drone (for those who can put 2 and 2 together), it seems that the oil-rich country is increasingly seeing war as the probable endspiel. YNet reports that Iran is "moving missiles to secret sites, Western officials tell British paper; earlier, Tehran residents reported to stockpile goods, fearing imminent strike. The commander of Iran’s elite Revolutionary Guards has ordered his forces to raise their operational readiness ahead of a possible war or strike on the country’s nuclear facilities, the Telegraph reported late Monday." The move is for now precautionary: "The British newspaper quoted Western intelligence sources as saying that Iran is repositioning ballistic missiles, explosives and troops into defensive positions, in order to offer a quick response in the case of an attack by Israel or the United States." And while all this is happening, Iran is busy shipping of the downed US drone to the highest regional bidder (with substantial reverse engineering skills).

Gold and the dollar are Bank of America Merrill Lynch’s top currency trades for 2012. The second-biggest U.S. bank by assets after JPMorgan Chase & Co. said that investors should buy gold versus the euro as the ECB engages in quantitative easing to contain debt turmoil. David Woo, global head of rates and currencies in New York at the Bank of America Corp. unit, told clients in research note that “the ECB will be buying more government debt and doing QE, so buy gold against the euro.” “The second major theme is U.S. fiscal tightening is about to come and the U.S. economy will slow, and this will be very good for the U.S. dollar.” “The general theme for the year ahead is pretty negative for the risk environment,” Woo said.

Perhaps it is time to point out the "trade of the day", which for some reason has seen no action yet since the Iran news has broken. Presenting the InTrade "USA and/or Israel to execute an overt Air Strike against Iran before midnight ET 30 Jun 2012" contract, which at last trade yesterday (no trades today yet), was seen trading at $24.3, or at about 24.3% implied probability. Following today's news, we would venture to guess that the upside/downside here is attractive to quite attractive.

Here we go:

IRAN MILITARY DOWNS U.S. DRONE IN EASTERN PROVINCE -TV

IRAN SAYS ITS RESPONSE TO U.S. DRONE VIOLATION OF ITS AIRSPACE WILL BE CARRIED OUT OUTSIDE IRAN'S BORDERS- FARS AGENCY

Fast forward to 2:08: "It is puzzling to some that Major General Zhang Zhaozhong, a professor from the Chinese National Defense University, said China will not hesitate to protect Iran even with a third World War... Professor Xia Ming: "Zhang Zhaozhong said that not hesitating to fight a third world war would be entirely for domestic political needs...." And don't forget Russia, which recently said it is preparing to retaliate against NATO and has put radar stations on combat alert: "Russia is another ally of Iran, with similar policy to that of China. Toward Iran." Watch, and please forward the entire video, for an explanation of how China is approaching the situation not only in Iran, but a perspective of how they view the western "threat", as well as what tensions they face domestically.

Just headlines via Bloomberg from the Iran Foreign Minster Mehr:

*IRAN SAYS U.K. DECISION TO CLOSE EMBASSY IS `HASTY'

*IRAN WILL TAKE `NECESSARY MEASURES' IN REACTION, MEHR SAYS

This as Germany, Italy, and now France also call back their Ambassador from Iran.

Pimco's Greg Sharenow has released a white paper on what the Newport Beach company believes are the 4 possible outcomes should Iranian nuclear facilities be struck as increasingly more believe will happen given enough time. The conclusion is sensible enough "Whenever the global economy is in a fragile state, as it is today, geopolitical concerns such as the possibility of a strike on Iran’s nuclear facilities become much more exaggerated. Although we cannot (and will not) predict whether an attack is imminent, or even likely, our experience and research tells us that any major disruption in the supply of oil from Iran could have either subtle or profound global repercussions – especially as excess capacity is virtually exhausted and we doubt that other OPEC nations would be able to compensate for a reduction in Iranian oil production." As for those looking for numbers associated with the 4 scenarios presented by PIMCO here they are: "i) Scenario 1: Exports minimally effected. Concerns would drive initial price response; Oil could spike initially to $130 to $140 per barrel and then settle in a higher range, around $120 to $125; ii) Scenario 2: Iranian exports cut off for one month. In this case, we would expect prices could reach previous all-time highs of $145/bbl or even higher depending on issues with shipping; iii) Scenario 3: Iranian exports are lost for half a year. We think oil prices could probably rally and average $150 for the six months, with notable spikes above that level; iv) Scenario 4: Greater loss of production from around the region, either through subsequent Iranian response or due to lack of ability to move oil through Straits of Hormuz. This is the Armageddon scenario in which oil prices could soar, significantly constraining global growth. Forecasting prices in the prior scenarios is dangerous enough. So, we won’t even begin to forecast a cap or target price in this final Doomsday scenario." Needless to say, even the modest Scenario 1 is enough to collapse global economic growth by several percentage points to the point where not even coordinated global printing will do much.