What I Didn't Tell CNBC Yesterday

What I Didn’t Tell CNBC Yesterday

by | published June 21st, 2019

In yesterday’s early hours (U.S. time), Iran used a surface-to-air missile to shoot down an American drone.

Not just any drone, mind you, this one:

Source: www.wired.com
This is an RQ-4A Global Hawk unmanned surveillance aircraft. For those of you who follow such matters, it costs a least $110 million.

The Global Hawk has been the workhorse of the U.S. reconnaissance fleet since its introduction in 2001, logging more than 250,000 flight hours over Iraq, Afghanistan, North Africa, and the Asian/Pacific region.

U.S. command in Qatar says it was in international waters. Teheran says it was in Iranian airspace. The precise demarcation in the waters abutting the strategic (and very narrow) Strait of Hormuz has always been a matter of dispute.

The Strait is the essential waterway connecting the Persian Gulf to the north with the Gulf of Oman and the broader Arabian sea to the south. About a third of all global daily waterborne oil traffic moves through Hormuz.

Source: Al Arabiya

At its apex, the Strait is barely two miles wide. However, the navigable portion of that opening pictured above is considerably narrower.

Meanwhile, both sides acknowledge the drone was launched from the United Arab Emirates (UAE).

One thing, however, is patently clear:

The shootdown has decisively worsened the dynamics in what has been an already unraveling situation in the Persian Gulf.

Immediate Market Response to Tanker Attacks

For starters, after attacks on six tankers in the Gulf of Oman south of Hormuz and the primary Saudi inland East-West pipeline, this marks the first time a U.S. asset has been targeted.

And whereas it had disputed being the perpetrator in the previous events, Iran immediately claimed responsibility for the Golden Hawk hit.

This marks an important escalation in the crisis unfolding between the U.S. and Iran. For the first time, genuine concerns have emerged about the security of crude oil trade moving out of the Persian Gulf. Prior to this point, traders were regarding each event as an insular situation, unlikely to have lasting effect.

Not any longer.

The market response was immediate. U.S. crude prices in New York spiked 6%, with West Texas Intermediate (WTI), the benchmark for futures contracts in New York, closing up 5.4% for the day. That was the largest one-day rise since December 26.

Meanwhile, Brent, the more widely used global benchmark set in London, ended the session up 4.5% – the most pronounced daily increase since January 9.

Now, here’s what makes it different.

The Three Iranians under My Surveillance

My sources have been confirming over the past 24 hours that Iranian political and military officials are resolute in this standoff.

Several of my contacts (Iranian and others in the region) have told me they do not believe the White House has the resolve to see this through. As a result, a calculated strategy has been undertaken by the Iranian leadership to up the ante.

Yesterday, I appeared on CNBC’s “Closing Bell” to discuss the implications. You can see the interview right here.

However, there were three important aspects I did not reveal to CNBC’s Sara Eisen and Wilfred Frost.

First are the folks I am tracking. In addition to Supreme Religious Leader Ayatollah Ali Khamnei and President Hassan Rouhani, all my sources confirm that there are three Iranian military leaders who need watching.

The first is Iranian Revolutionary Guard Corps (IRGC) Navy commander Commodore Alireza Tangsiri:

Source: TeheranTimes.com

The second is Brigadier General Hossein Salami, head of the IRGC:

Source: TheAarabWeekly.com

And the third is commander of the IRGC’s elite Quds Force, Major General Qasem Soleimani:

Source: MiddleEastMonitor.com

Of the three, Soleimani is the best known. As the top general in Quds – the IRGC elite subversion and intelligence division – he is one of the most accomplished military tacticians in the region, largely (and correctly) responsible for the rollback of ISIS in neighboring Iraq. His forces will be the spearhead should the crisis escalate to an even more confrontational stage.

My Iranian contacts have not seen Soleimani for a while. Several have remarked that that is rarely a good sign.

Salami is the overall IRGC top dog. His appointment by Khamenei last year was widely seen as a direct challenge to the U.S. Salami is a hardline military leader; his elevation (in the process removing a more senior general prematurely) came shortly after Washington designated the IRGC a terrorist organization.

But it is Tangsiri that the former intelligence officer within me is following most closely.

The U.S.’s Retaliatory Options

While attention is now directed to whether Trump will authorize a proportionate response to the Global Hawk, shootdown, the IRGC Navy assets in the waters about Hormuz will figure more prominently in what is about to come.

This is because neither the IRGC Navy nor the larger regular Iranian Navy can close the Strait of Hormuz for any length of time, especially without risking a direct confrontation with the more powerful presence of a (now) two carrier task force strong U.S. fleet.

That’s the second matter I did not mention to CNBC. The Iranian approach to the Strait will be an intensification of sporadic attacks on shipping traffic.

Rather than a direct confrontation, this will be a “death of a thousand cuts.”

It involves the integrated use of twin elements under Tangsiri’s control. One involves the swarming tactics of short-range attack vessels like the Zolfaqar semi-submersible, high-speed torpedo boat pictured below. I drew attention to this craft in an Oil & Energy Investor edition last week (click here to read it).

I mentioned in that column that the Zolfaqar as a likely surface culprit in the latest tanker attacks (of course, should Washington be correct, and it was the Iranians responsible).

The other naval element may already have been active in the ramp up of hostilities.

I have catalogued 39 submarines currently in Iranian use. They extend from three Kilo class (as we used to call the Russian equivalents) attack subs, through a range of smaller Fateh, Besat, Al-Sabehat, and North Korean-built Yugo class diesels, to the crafts preferred by Tangsiri and under his control.

These are 23 Ghadir and 1 Nahang class two or three-person-crewed mini subs, all Iranian built. Short range and deliberately intended for use near the coastline, they are very hard to deflect. A Ghadir carries torpedoes, while the single Nahang deploys mines.

Five Ghadir mini subs moored off Bandar Abbas Source: Islamic Republic News Agency

These can be easily used in and around the Strait of Hormuz. A Ghadir has no problems maneuvering in such confines; larger U.S. task force ships would. These minis can strike and return to territorial waters quickly, but, given their size, can carry limited armament.

Nonetheless, such small subs will play an increasingly important role in the developing Iranian strategy. US navy ships can detect these minnows. However, once again they will not be the targets. Oil shipping will.

Third, I did not tell CNBC listeners how to play the rising tensions.

But I will tell you.

How to Play the Newest Rise in Oil Prices

This is something I rarely do, but in this situation I feel like it cannot be ignored.

The ProShares UltraPro 3X Crude Oil ETF (OILU) is an exchange-traded fund that pays (after management fees) 300% of the rise in oil prices. OILU was up 19% for the week through close Wednesday, but almost 14% yesterday alone.

This is the best single play to maximize profits when oil prices are moving up quickly. The value of OILU is determined by the underlying price of oil, not by how many shares are bought and sold.

But this is not the kind of equity you buy just before leaving on an extended vacation. Because OILU will also magnify losses by 300% when oil price decline. So, investors need to watch this one carefully.

Yet, as long as the crisis in the Persian Gulf continues, OILU could be the best single way to profit from it.

Now, this is something that my Energy Advantage readers know quite well, as OILU has been able to give them significant profits in the past. And you could join them in OILU’s newest profitable direction.

I have more information on this profit opportunity – and many others – right here. Don’t wait, because things could be about to skyrocket.

London Meetings Are Fast Approaching

Now, my next Oil & Energy Investor column will be coming to you straight from London.

I will be there with Iraqi, Kurdish, and other neighboring officials for meetings on another regional energy matter of importance – the first major project tenders for areas around Kirkuk and Mosul taken from ISIS.

That’s the official reason for the talks. But recent events have expanded the agenda.

So, get your landing gear in order, because I’ll be bringing you along for all the discussions.



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  1. Peter Armati
    January 22nd, 2020 at 12:26 | #1

    Now trump is telling Iraqi management that he will close the Iraqi bank account in the usa if they don’t do what he wants. my question is could China deal directly with Iraqi oil people, and receive oil from Iraq somehow, paying in gold? Is there some massive play possible that would completely transforn the middle east?

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