Iran

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.

Even more mysterious update #2:

• IRANIAN CENTRAL TV CONFIRMS THAT EIGHT UK EMBASSY STAFF TAKEN HOSTAGE

Mysterious update confirming that something very fishy is going on here:

• IRAN'S MEHR NEWS AGENCY REMOVES REPORT OF HOSTAGE TAKING FROM ITS WEBSITE - NO EXPLANATION GIVEN

Today's developments are rapidly turning into a repeat of Iran-Contra:

• SIX UK EMBASSY STAFF TAKEN HOSTAGE BY PROTESTERS IN NORTHERN COMPOUND OF TEHRAN EMBASSY - MEHR NEWS AGENCY

Expect a very formal, and very forceful UK response imminently.

Luckily the market is all stable and stuff and can handle the prospect of a potential Iran war.

• SARKOZY WRITES LETTERS CONCERNING IRAN'S NUCLEAR PROGRAM
• SARKOZY SAYS IRAN'S PROGRAM IS A 'SERIOUS AND URGENT' THREAT
• SARKOZY SAYS NEW SANCTIONS WOULD FORCE IRAN TO NEGOTIATE

Now where is that weekly US naval update...

A fascinating article by Reuters this morning really brings to bear the reality that Greece faces as lenders and trade creditors refuse to help (and why should they realistically) with energy needs. The harsh reality that Iran (yes that nuclearized Iran) is the main provider of Greek oil needs surely puts into perspective what seemingly unlikely events can occur when a person, corporation, country, gets desperate. Perhaps we should reflect the other way that while all the world's bankers and money-men refuse to lend Greece money, Iran has truly become the lender of last resort for Greek survival - as it strikes us that energy needs will/should trump a coupon payment any day.

The near paralysis of oil dealings with Greece, which has four refineries, shows how trade in Europe could stall due to a breakdown in trust caused by the euro zone debt crisis, which is threatening to spread to further countries.

 

"Companies like us cannot deal with them. There is too much risk. Maybe independent traders are more geared up for that," said a trader with a major international oil company.

 

"Our finance department just refuses to deal with them. Not that they didn't pay. It is just a precaution," said a trader with a major trading house.

Let's face it: with the Iranian invasion foreplay having gone on about 3 years too long, everyone is just waiting for the flashing red "GDP boosting" headline. But to know how close we are to I-day, there is one question needing an answer: where are the boats? Below we share the latest weekly update of US naval positioning, as usual courtesy of Stratfor. The chart is self explanatory: the 5th Fleet AOR is getting just a little too crowded.

While we are looking for the full IAEA report blasting Iran and specifically its nuclear program, claiming that Iran carried out work relevant for developing nuclear arms according to a UN report citing 'credible' info, as well as having information of activities in Iran specific to nuclear weapons, we already know what Iran's response is to any potential 'provocations' from Israel. To wit: "We'll show you 'hell'" UPI explains: "Israel will learn the true meaning of "hell" if it decides a military strike against Iran is worth the risk, an Iranian national security official said. Israeli Prime Minister Binyamin Netanyahu is said to have been reviewing strike plans against Iran's nuclear infrastructure as the International Atomic Energy Agency expressed concerns about Tehran's nuclear ambitions. Iranian officials have said any attack on its nuclear infrastructure would be suicidal." And the soundbites keep getting better: "If a military challenge is started against Iran in the region, the Zionist regime will definitely be faced with a hell," Javad Jahangirzadeh, a lawmaker on Iran's national security commission, told the semiofficial Fars News Agency." Israeli Defense Minister Ehud Barak, in a Tuesday interview with Israel Radio, said Israel doesn't want war. If dragged into conflict, he said, the casualties would be low. "Israel is the strongest country in the region and it will stay that way," he added." And while a few weeks or even days ago, the outcome of this event would have been easily predictable, following the just announced "microphone" gaffe involving Sarkozy, Obama and Netanyahu, suddenly the odds are far more interesting. Regardless, at this point, aside from concluding that Keynesians everywhere must be rejoicing at the imminent GDP boost driven by the military-industrial complex, we can also venture to gamble: short glass manufacturers. In a few months there may be a natural glut.

What is today's most underreported news of the day, and the reason Brent is breaking out, is that according to WaPo, IAEA is about to report that Iran is on the verge of becoming a nuclear state: needless to say this is just the green light all of its enemies need to launch a pre-emptive strike (not to mention, GDP-boosting). Below is some must read commentary from Emad Mostaque of Religare Capital Markets on what this IAEA finding will mean for the region, for the world and for what really matters: capital markets.

First Fukushima made a repeat appearance last night with news of a repeat fission incident, a topic which has gotten absolutely zero media coverage as discussing beta, let alone gamma decay, is considered uncouth in refined society; now it is time for the fallback geopolitical hotbed to enter the stage. Sky News has reported that Israeli Prime Minister Benjamin Netanyahu is trying to rally support in his cabinet for an attack on Iran, according to government sources. "The country's defence minister Ehud Barak and the foreign minister Avigdor Lieberman are said to be among those backing a pre-emptive strike to neutralise Iran's nuclear ambitions. But a narrow majority of ministers currently oppose the move, which could trigger a wave of regional retaliation. The debate over possible Israeli military action has reached fever pitch in recent days with newspaper leader columns discussing the benefits and dangers of hitting Iran. Mr Lieberman responded to the reports of a push to gain cabinet approval by saying that "Iran poses the most dangerous threat to world order." But he said Israel's military options should not be a matter for public discussion." Which makes one wonder: why is Sky News reporting on this, and why is it a matter for public discussion?