Showdown In The Middle East?

As if the world and the United States didn't have enough holes in their collective dams to plug, here comes yet another leak.  Based on a recent interview with John Bolton, who has served as an interim ambassador to the United Nations from August 2005 to December 2006, action against Tehran must be taken within days, or risk a nuclear enemy in the resource rich Middle East.

Israel has days to launch a military strike against Iran's Bushehr nuclear facility and stop Tehran from acquiring a functioning atomic plant, Bolton said.

Iran is to bring online its first nuclear power reactor, built with Russia's help, on August 21, when a shipment of nuclear fuel will be loaded into the plant's core.  Russia, voted for the sanctions, yet has assisted Iran in bringing this facility on line.  What does Russia care?  They are one of a small group of countries whose oil supplies are growing.  No Peak Oil for them.

At that point, Bolton warned,  it will be too late for Israel to launch a military strike against the facility because any attack would spread radiation and affect Iranian civilians.

"Once that uranium, once those fuel rods are very close to the reactor, certainly once they're in the reactor, attacking it means a release of radiation, no question about it," Bolton told Fox Business Network.

Absent an Israeli strike, Bolton said, "Iran will achieve something that no other opponent of Israel, no other enemy of the United States in the Middle East really has and that is a functioning nuclear reactor."

The UN Security Council hit Tehran with a fourth set of sanctions on June 9 over its nuclear programme, and the United States and European Union followed up with tougher punitive measures targeting Iran's banking and energy sectors.

Bolton doubts that any military action is forthcoming, however.  In fact, despite his warning, he believes the window of action may have already closed.

The significance of this to investors is multi-fold.  In the first place, any military action would undoubtedly cause a major disruption in Middle East oil and a closure of the Gulf of Oman shipping lanes.  That would have grave consequences on the world economy and the financial markets.

Secondly, the other impact would be a heightened crisis bid in Gold.  One can only imagine the resultant spike in the price of Gold.  We could see a move of $100 per ounce in minutes or even more. 

A deflationary scare might suddenly turn into an inflationary scare.

For the record, one must believe that the odds of such a dramatic occurrence is pretty low.  The world is already engaged in numerous military conflicts and resources are quite constrained for more military spending.  But, it does alter the investment calculus.  One would be well-advised to maintain some positions in assets that benefit from crises.  GOLD.

Marko's Take