The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. By Gregg Schoenberg NEW YORK ( TheStreet) -- At some point during 2012, Americans may wake up to learn that Israeli jets loaded with "bunker busters" have descended on Iran's nuclear facilities. We may also learn that Israel will have paired these strikes with cyber initiatives and other measures in an unprecedented display of tactical ingenuity. America's role may be unknown at first, but Iran's response would deepen the sense of crisis regardless. Missile strikes by Iran and its proxies against Israel may be the first response, followed by a potential widening conflict and potential Iranian blockage of the Straight of Hormuz.
In recent months, an increasing number of portfolio managers have been handicapping the probability of the scenario above and whether this country will be heading into a new Middle East conflict. The analysis is complicated by the lack of historical parallels to the current situation. First, previous Israeli strikes against the nuclear facilities of Iraq in 1981 and in Syria in 2007 surprised the world. Second, the Arab Spring upended many long standing assumptions about Islamic solidarity in the Middle East. And third, And third, Iran is currently facing unprecedented isolation within the community of nations. Some investors have chosen not to modify their portfolios on the basis that leading world powers will find a way to avert a preemptive Israeli strike for now. The resumption of talks between Iran and the UN's Permanent Security Council plus Germany buttress hope that this outcome will come to pass. Recent comments from Obama administration officials and Israel's former spy chief, Meir Dagan, have furthered the view that Israel will exercise restraint. Others have concluded that a strike before year's end is a probable outcome given the Netanyahu government's growing impatience with Iran's use of North Korea's "play-for-time" playbook. For investors with this viewpoint, adding exposure to oil, Treasuries, the dollar or gold might be a logical step. If there were an attack, equity markets worldwide would likely swoon on fear of the unknown. However, as markets digest the news and events unfold, credible scenarios exist in which a Middle East war or a sustained crisis in the Strait of Hormuz fail to materialize.
|Prime Minister Benjamin Netanyahu met recently with President Obama to discuss Iran's nuclear program.|
As a result, it is possible that a strike could set back Iran's nuclear capabilities by a few years and usher in a period of tension that nonetheless falls short of the dire predictions of many experts. According to David Wurmser, founder of the Delphi Global Analysis Group and Senior Middle Eastern Advisor in the Bush administration, "there is a distinct chance that a strike on Iran's nuclear assets would not strengthen but weaken the Iranian regime's grip on power. As such, rather than escalating the situation in a meaningful way, Iran's ruling infrastructure may pair chest-thumping threats with a renewed focus on attempting to restore order within the country for the time being." If we are left with a world where tensions remain high but a full-scale war does not ensue, here are some equity themes that could emerge after the initial reaction. 1. Crude prices could stay at elevated levels for the foreseeable future, which could catalyze politicians (especially in a presidential election year) and corporate leaders to take genuine steps towards energy self-reliance. Although the supermajors could benefit, companies highly levered to natural gas and/or domestic oil production could be even bigger beneficiaries. New life could also be breathed into soon-to-expire tax credits and subsidies that would benefit wind, solar and other alternative energy companies. 2. Investors may indiscriminately dump shares of U.S.-traded Israeli companies such as TEVA Pharmaceuticals ( TEVA) and Checkpoint Systems ( CKP). That could be a mistake as these and other Israeli companies are well prepared for crisis. If missile strikes are launched against Israel, these companies will have an opportunity to prove their resilience to investors like never before. They are likely to impress. As was the case during the Arab Spring, social networking sites could become part of the story as they would likely provide ongoing news updates and insight into the reactions of people worldwide. An even greater appreciation for the power of social networks could result, especially if an attack occurred within the time frame of perhaps the most widely anticipated IPO in history (i.e. Facebook). That attack could not only impact that offering, but also influence perception around other publicly-traded social networking players.
We can all hope that this showdown ends with diplomacy. In case it does escalate, though, it would be wise to consider that this crisis may present longer-term opportunities. At the time of publication, the author did not own any equities mentioned. Gregg Schoenberg is the founder of Wescott Capital, an investment and advisory firm. He most recently ran U.S. equities for the French bank, Natixis, and previously held positions in Washington D.C. with former Sen. Bill Bradley and the Atlantic Richfield Corp.