Eight of the world’s most powerful heads of state — Bush, Blair, Chirac, Harper, Koizumi, Merkel, Prodi and Putin — will be gathering in St. Petersburg, Russia for their “G8” economic summit.

But for the first time in this decade, the most urgent topic will not be America’s gaping trade deficit, now running at more than double the rate of just five years ago.

Nor will it be China’s bulging trade surplus, now flying at triple the level of 2004 ... or the Chinese yuan, still greatly undervalued ... or the U.S. dollar, still sinking against almost all currencies.

Instead, the most heated debate at this year’s G8 meeting will be about the threat that has suddenly jumped ahead of all others in urgency ...

Iran’s Economic Weapon
Of Mass Destruction

Iran has the second largest reserves of crude oil on the planet.

Iran is the second largest oil exporter in OPEC and the fourth largest in the world, shipping more oil than Venezuela, Nigeria or Mexico.

Iran’s territory nearly surrounds the all-important Strait of Hormuz, through which nearly all Persian Gulf oil must pass.

At the same time, Iran is the country now threatening to choke off the vital supply of energy to the West, using its oil as the ultimate economic weapon of mass destruction.

If Iran’s threats were vague or coming strictly from low-level officials, Bush, Blair, Putin & Company might not have to pay too much attention.

But the threats are coming unambiguously from Iran’s supreme leader, Ayatollah Ali Khamenei, leaving the G8 leaders in a collective state of shock.

Just last month, Khamenei proclaimed that any Western attempt to punish Tehran over its nuclear program would jeopardize energy shipments. And he directly implied that Iran would seek to choke off the massive amounts of oil flowing through the Strait of Hormuz.

Indeed, according to our resident arms specialist, John Burke, Iran can deploy helicopters, dedicated mine layers and Russian-built Kilo-class submarines.

It can launch its large fleet of fast-attack “swarm boats.” It can deploy its vast array of sea, air and land-launched missiles targeting commercial and military ships that must pass through the Strait.

This is critical. The Persian Gulf is responsible for 32% of the world’s oil production capacity ... 45% of the world’s natural gas ... and 57% of the world’s oil reserves.

Problem: Almost all of this oil and gas passes through the Strait of Hormuz. Only a very small percentage leaves the region through alternate routes, such as the East-West oil pipeline across Saudi Arabia.

So just as soon as the West threatens Iran with sanctions, Iran can threaten the Strait of Hormuz, cut off up to one-third of the world’s energy supply, and drive prices into the stratosphere.

If Ayatollah Khamenei were just a religious figurehead, the threat might be pooh-poohed.

But nothing could be further from the truth. In the surreal world of Iranian politics, Khamenei can — and does — overrule Iranian energy ministers, Iranian Parliament, Iranian courts and even the increasingly powerful Iranian President, Mahmoud Ahmadinejad. His word is final.

If Iran had a history of empty threats and false alarms, the Western powers might also be somewhat less alarmed.

But alas, that, too, is contrary to the facts. Over a quarter-century ago, the Shiite revolutionaries of Iran threatened to keep 55 U.S. diplomats hostage, and they did. They threatened to drive world oil prices to the stratosphere, and they did. They said they would create turmoil for the economies of the West, and they did.

Most alarming of all ...

If the threat from Iran were purely about oil, a measured counter-threat from the West might be adequate.

But, unfortunately, that is also not the case. Along with its threat to cut off oil supplies, Iran is also plowing full speed ahead with its master plan to become a nuclear power.

And unlike Saddam’s Iraq, where no weapons of mass destruction were ever found, the evidence is overwhelming that today’s Iran is second only to North Korea in the rogue development of nuclear technology.

Iran is also ...

The World’s Largest and
Most Blatant Sponsor of
International Terrorism

Many still think al Qaeda is the biggest threat to America’s interests.

But as I’ve been warning for months, you’re now starting to hear more about Shiite militias, especially those operating in Iraq. Just yesterday, these militias rampaged through Baghdad, spreading terror, dragging Sunnis from their homes, killing at least 40, and plunging Iraq deeper into violent civil war.

What is the primary source of their financing and training? Iran!

And most prominent among the Iranian organizations behind the Iraqi militias is an international organization called “al Quds.”

Unlike al Qaeda, al Quds is not a nationless, renegade band. It’s a highly organized strike force operating under the leadership of Iran’s elite Revolutionary Guard.

And unlike al Qaeda, al Quds doesn’t have to beg for refuge or financing. It gets all the protection it needs on Iranian soil ... and all its funding from the Iranian treasury, which, in turn, is liberally lubricated with oil money.

Moreover, al Quds (meaning “Jerusalem”) is not an upstart. For about two decades, al Quds has been operating in Lebanon, providing military guidance and support for terrorist attacks against Israel, especially those carried out by Hezbollah and other Islamic terrorist organizations.

For many years, al Quds has also been operating as an elite international hit squad, responsible for political assassination in Europe and the Middle East.

Al Quds is joined at the hip with one of the most powerful Shiite militias currently operating in Iraq — the Badr Brigade.

And, most disturbing of all, a person who has played a prominent leadership role in the founding and training of both al Quds and the Badr Brigade is none other than Mahmoud Ahmadinejad, now the president of Iran.

Now do you see why Iran has emerged as a far more urgent concern to the G8 heads of state than the U.S. trade deficit, the Chinese budget surplus or the sinking dollar?

And now do you see how important it is for you to pay attention to this rapidly deteriorating situation?

How the Next Few Days Could Seal the
Fate of Your Money for Years to Come

Right now, sitting on the desks of Iran’s Ayatollah Khamenei and President Ahmadinejad is an offer to end Iran’s nuclear research program.

This is the offer submitted to Iran last month by Germany and the five permanent members of the UN Security Council — the U.S., U.K., France, China and Russia.

So far, the only answers these countries have gotten from Iran is defiance or silence. But just two days from now, Wednesday, July 12th, Iran must respond or risk retaliation by the West. That’s the deadline imposed by the U.S. and its allies.

What will Iran do? No one can say for sure. But we do know what they say they’ll do: They’ve vowed to ignore the July 12th deadline, providing no official response until August.

That leaves only two scenarios:

Scenario #1. The U.S. and its allies move promptly to retaliate against Iran. Result: Oil traders, fearing Iran will soon start choking off oil shipments, rush to buy oil before supplies dry up.

Scenario #2. The U.S. and its allies let the July 12th deadline pass with no action. Result: The entire world is given a spectacle of Iran’s growing muscle and the West’s fading prowess. Oil traders, fearing an emboldened Iran and still more trouble ahead, rush to secure oil supplies just the same.

In either scenario, oil prices are likely to surge, despite temporary setbacks. And in either scenario, you must be prepared.

Oil Is Already Rising
In Anticipation of
What’s to Come ...

Although international investors still underestimate the potential magnitude of this crisis, they aren’t entirely oblivious to the dangers.

That’s why the price of oil shot up to $75.78 on Friday, an all-time high.

That’s why oil is widely expected to smash through the $80 mark very soon.

And it’s also why we’ve been urging you to allocate a portion of your funds to investments that are tied to oil ... and to assets that tend to move in tandem with oil, such as precious metals.

Two vehicles to consider:

Vehicle #1. Exchange-traded funds: Like traditional mutual funds, ETFs own shares in multiple companies, especially individual sectors or regions. Plus, there are now ETFs based on commodities — gold and silver.

A key advantage: Unlike most mutual funds, ETFs trade just like individual stocks listed on the exchanges. So you can buy and sell them throughout the trading day. You don’t have to wait until for close.

Vehicle #2. Small-cap stocks: These offer some of the advantages of options without one of the key disadvantages: As with the purchase of options, there’s no risk or obligation beyond your initial investment in these shares (plus any commissions you pay your broker, of course). And unlike options, there’s no expiration date. Provided the company remains solvent, you can hold them as long as you want, and no one can place a time limit on the opportunity.

The leverage can be huge, including the potential to transform a modest investment of $6,000 into over $51,000.

(That report was posted to our website on Saturday. So now there’s only one day left for the opportunity he’s talking about.)

Meanwhile, be sure to ...

Avoid investments vulnerable to higher energy costs, accelerating inflation and rising interest rates. That includes long-term bonds, banks and virtually all housing-related industries.

Make safety your first priority! That means keeping most of your money in investments that protect your capital in almost any market environment.

My favorites: Short-term U.S. Treasury securities or Treasury-only money market funds.

Good luck and God bless!

Martin Weiss, Ph.D.

© 2006 Martin D. Weiss, Ph.D.
Editor, Safe Money Report
Editorial Archive

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