Could This Be Israel's Counterstrike On Iran?

War Breaks Out With America Rudderless 

Today's Iranian missile barrage on Israel is partly a consequence of America running without a functioning President who could have helped rein in the warring parties in the Middle East. It's also in part a consequence of our proxy war against Russia in the Ukraine. As ZeroHedge noted in its recap of the attack, the Iranian government announced that it had consulted with Russia prior to striking Israel. 

With the U.S. in a proxy war with Russia, Russian diplomacy was off the table. As a result, more people will die. It's unclear as of yet how many casualties were caused by Iran's missile barrage, but, ironically, one caught on video was a Palestinian. 

Israel has promised to retaliate against Iran, raising the question of what that retaliation might look like. Coincidentally, the famous military strategist Edward Luttwak suggested a target earlier this week. 

Luttwak: "Israel Should Hit Iran Where It Hurts" 

In a post on Unherd, Luttwak suggested Israel strike Iran's Kharg Oil Terminal (he uses the alternate spelling, "Khark"). 

As Luttwak wrote there, 

This all means that Iran’s export revenues must now pay for a bewildering range of military expenditures abroad, in US dollars rather than home-made rials. Beyond the upkeep of foreign allies starting with Hezbollah, there are the imported components and supplies consumed by the domestic Revolutionary Guards, with its 125,000 troops and a naval force. This includes the imports of Chinese and North Korean missile and rocket components, as well as the foreign-currency costs of the entire nuclear programme which proceeds at a very large scale.

In practice, most of this cash comes from a single source: oil. It’s true that Iranian farmers grow pistachio nuts and other exportable crops, and that there are some manufacturing exports, even if Tabriz’s famous carpets are out of fashion. Yet at the last count, in 2023, oil accounted for 83% of Iran’s exports. [...]

In other words, the flow of dollars that sustains Israel’s enemies, and which has caused so much trouble to Western interests from the Syrian desert to the Red Sea, emanates almost entirely from the oil loaded onto tankers at the export terminal on Khark Island, a speck of land about 25 kilometres off Iran’s southern coast. Benjamin Netanyahu warned in his recent speech to the UN General Assembly that Israel’s “long arm” can reach them too. Indeed, Khark’s location in the Persian Gulf is relatively close. At 1,516 kilometres from Israel’s main airbase, it’s far closer than the Houthis’ main oil import terminal at Hodeidah in Yemen — a place that was destroyed by Israeli jets in July, and attacked again yesterday.

We'll see if Israel implements Luttwak's suggestion. In the meantime, let's consider the investment implications of this new outbreak of war. 

Investment Implications Of This Latest Israel-Iran Conflict

The first implication is that this has caused a buying opportunity in some names. Not in all names, to be sure--China stocks remain red-hot, with the four stocks I mentioned in last week's Betting On China post all up today: PDD 0.00%↑ XYF 0.00%↑ QFIN 0.00%↑ MOMO 0.00%↑

But some other names got hammered today, including the subject of my previous post ("Bitcoin, Ethereum, And AI"), Bit Digital (BTBT 0.00%↑), which was down 7.55% on the day.

I took advantage of that buying opportunity to add more calls on it. 

The other implication of this outbreak of war is it adds an element of risk going forward. ZeroHedge suggested on X earlier that Israel may let this strike slide, but we don't know if it will or not. 

When you don't know what's going to happen, you should consider hedging. 

As a reminder, you can use the Portfolio Armor iPhone app to find the optimal, least expensive hedges for the level of protection you want.

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