Faint drumbeats of war

October 1st, 2007

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Back in January this year, we expressed our concern for a possible Israeli strike on Iran. Recently, we have been noticing an increase in the media’s news speculation on a US plan to strike Iran. For example, we just saw ‘US plan to bomb Iran’ in the Sydney Morning Herald (SMH).:

Australia, Britain and Israel have “expressed interest” in a US campaign to launch “surgical” bombing raids on Iran targeting the Revolutionary Guard facilities, one of the US’s leading investigative reporters, Seymour Hersh, reports.

The Israelis may have a reason poke their nose into Iran, but we wonder what business does Australia have in bombing Iran? In any case, politics aside, a bombing campaign against Iran is an example of a Black Swan event?one that is highly improbable but has colossal impact. When that happens, oil and gold will surge, the jumpy stock market will tank and the dysfunctional credit market will get worse.

Given the advanced military technologies of the US and Israel, we guess they will be immediately effective in stopping (or at least temporarily delaying) the Iranians from acquiring nuclear weapons. But we doubt they can control the effects of what comes after?once the genie is out of the bottle, it is very hard to put it back. Much will depend on how the Iranians react. If they meekly back down with their tails between their legs, then this will just be another skirmish. But if they decide to unleash the full extent of their fury, then the outcome will be unpredictable.

Anyway, since geopolitics is outside our area expertise, we cannot say much. But as investors, it may be useful to top up our cache of gold, just in case.