Some of the largest and smallest ticking time bombs of the world are about to explode.
This week, just as oil and gold markets were jumping in response to Iran and Iraq, they’ve been driven further by the sudden turn of events in Bolivia and Venezuela.
So this morning I’ll bring you up to date with what’s happening, what’s likely to happen and how you can turn these events in your favor.
Pray that the greatest of these bombs will somehow be defused. But at the same time, prepare your portfolio for the likelihood that at least some will blow up.
Evo Morales Has Just Nationalized Bolivian Oil and Gas!
Now What? Will Cezar Chaves Do the Same in Venezuela?
Last December, Bolivian president Evo Morales was elected on a campaign pledge to grab a bigger share of the country’s natural gas revenues to benefit the impoverished indigenous majority.
But until this week, no one quite understood exactly how he was going to do it.
Now they do.
On Monday, May 1, Morales announced that foreign energy firms will be reduced to mere operators of the gas fields. In their place, the state-run Yacimientos Petroliferos Fiscales Bolivianos is stepping in to take over ownership of all the gas that’s produced.
For starters, the two largest gas fields — San Alberto and San Antonio — have to fork over at least 82% of production revenues to the state, as compared to the 50% they do now.
Venezuela’s Hugo Chavez is cheering him on.
In fact, just yesterday, Chavez gathered up a bunch of Venezuelan oil industry technicians, jetted off to La Paz, met with Morales to find out more, and offered direct assistance.
All this just four days after Chavez met with Fidel Castro in Cuba to cement a leftist alliance!
Surprised?
If you’ve been getting my Real Wealth Report, and you read my February issue, you shouldn’t be. In it, I warned of exactly this situation, stressing that …
“Bolivia sits on the second-largest reserves of natural gas in South America after Venezuela. And even before he was officially sworn in, Morales said he plans to seize all oil and gas reserves now owned by international companies.”
I also wrote that Bolivia is poor and lacking in expertise. So I wondered how far Morales would go. The country simply cannot capitalize on its most valuable resource without outside help.
Now, though, even in the best of scenarios, the threat to the world’s already-tight natural resource supplies is undeniable … and getting worse.
The bigger threat I warned about:
“If Latin America’s vast resources are handicapped by the leftist movements occurring there, it’s one more macroeconomic force that will send natural resource prices higher, igniting yet another round of inflation in the years ahead.”
Don’t take this lightly. At stake are …
- More than 6 million barrels a day of crude oil production. That’s 30% of the U.S. consumption needs of 20 million barrels a day of oil.
- 63 million tons of coal.
- 1.9 million tons of copper smelter production. 378 tonnes of gold. More than 258 million ounces of silver.
Clearly, the political move to the socialist left in Latin America has dire implications for the world’s supplies of natural resources, and consequently, global inflation.
Under the most radical regimes, mining companies, oil producers and more are at high risk of being nationalized, taken over by worker revolts, taxed into oblivion. Or all three.
Here’s a quick run-down of just some of the global trouble spots you should be on the alert for …
Venezuela Moving Steadily Toward
A Wholesale Takeover of Oil Industry
Like Iranian President Ahmadinejad (with whom he has a warm relationship and shares virulent anti-Semitism), Venezuela’s Hugo Chavez has a knack for grabbing headlines by shaking his fist as the media icon of the New Left in Latin America.
He fashions himself in the image of Simon Bolivar, revered in much of South America as the great liberator who freed the oppressed from Spanish colonial rule. And he presents himself as the chief proponent of Bolivarianism, including his own witch’s brew of anti-imperialism, anti-Americanism, and populist socialism.
In actual practice, Chavez behaves more like a caudillo — a warlord- militia-leader-cum dictator — than a liberator. His strong-arm tactics resemble the military dictators of the 1900s.
Indeed, Chavez has been busily building his military, aiming at a force of 1.5 million strong, to repel, he says, an expected U.S. invasion with “asymmetric” guerilla tactics. But the opposition in Venezuela claims it’s to suppress internal dissent.
The risk to investors: His readiness to impose state control over private enterprise, especially in the areas of natural resources and commodities.
Already, Venezuela has effectively nationalized the country’s oil industry, requiring all oil to be produced by companies in which the government holds the majority share.
Venezuela is the world’s fifth largest oil exporter, producing more than 3 million barrels of oil a day, and controlling the largest proven oil reserves outside the Middle East.
Put simply: The world’s fifth largest oil exporter is now effectively anti-American, joining with Castro and Morales, forming a leftist alliance and threatening to strangle world oil markets.
Peru Hanging in the Balance
Peru’s National Election Board just announced yesterday that center-left former President Alan Garcia will face nationalist Ollanta Humala in upcoming run-off elections.
And Humala has a good chance of winning. He is the former army lieutenant colonel who took over a mine owned by Southern Peru Copper in October.
He’s very close to Hugo Chavez and Evo Morales. Indeed, earlier this year, Chavez praised Humala’s “Second Republic” plan to renegotiate contracts with foreign companies to benefit Peru’s poor, calling it a “second independence” for Peru.
Among Humala’s platforms: placing limits on foreign investment in state assets (ports, for example), calling a referendum on whether to sign a free-trade agreement with the U.S., imposing higher oil royalties on mining companies and higher taxes on “excessive profits.”
Humala is said to be a disciple of Juan Velasco, a former Peruvian general who wrecked the country with land seizures and authoritarian rule.
So I reaffirm what I said in February: I’d put Peru in the very shaky category. Most troubling of all …
War With Iran Now
Seems Inevitable
I was among the first to warn of the upcoming conflict with Iran, as far back as January of this year. Few listened. Even Martin was skeptical at first.
Now, here we are — on the verge of a conflict with Iran. So I think it’s time to take a look at some possible scenarios of how the crisis could pan out.
Two critical facts …
FIRST, Iran’s first nuclear plant, a 1,000-megawatt (MW) nuclear reactor in Blusher in southwestern Iran, is almost live. If that facility starts up and is then attacked, there could be a major radioactive disaster in the region.
So, in my opinion, any attack on Iran is likely to occur before that facility goes live. And based on the latest public information, it’s about seven months from now.
SECOND, the new Iranian Oil Bourse, which opens this month, can send the U.S. dollar reeling.
Although it hasn’t been talked about much, Washington must be very concerned. The new oil exchange, opening this month in Tehran, could compete with New York’s Mercantile Exchange and London’s International Petroleum Exchange. With one critical difference: The oil will be priced in euros, not U.S. dollars.
That means Europeans will no longer have to buy and hold U.S. dollars to secure payment for oil. They will be able to purchase oil with their own currency. It may allow the Chinese and Japanese to reduce their dependence on the dollar. And Russians have an inherent economic interest in adopting the euro because the bulk of their trade is with European countries.
Meanwhile, the Arab countries exporting oil need to diversify against the rising mountains of U.S. dollars they’re collecting.
The economic implications of a successful Iranian Oil Bourse are significant, and could create a shift in capital flows, sending the U.S. dollar into a deeper plunge. One more rationale for Washington to seek to act sooner rather than later.
What Kind of Attack?
There are undoubtedly many possibilities. But in one scenario, the U.S. Air Force and Navy could launch quick, air and/or missile attacks aimed on Iran’s nuclear capabilities. The goal: To set their program back a decade or more.
The U.S. has 150 aircraft and several hundred missiles in the region. So the strikes would likely be aimed at the primary nuclear facilities, including the soon-to-be ready Bushehr station, the Tehran Research Reactor, radioisotope production facilities at the Esfahan Nuclear Technology Centre, along with enrichment plants at Natanz and Arak.
Destroying Iran’s air defenses might also be part of the plan. Targets could include radar facilities and command centers all over the country.
Iran’s Likely Response Is Largely Unpredictable.
But Therein Lies The Great Uncertainty and Danger.
U.S. forces will likely hit by surprise, and very hard. Neither Iran’s Navy or Air Force is a match for U.S. forces.
However, the big fallout would come after the dust settles. Anti-American sentiment will be worse than ever. Iranians will be galvanized even more against the U.S. … and so will many other countries and Muslims. Our attack would only exacerbate the great clash of civilizations.
The result would be more frequent and intense insurgencies, suicide bombings, and attacks on oil facilities. Also expect attempts to blockade or sabotage the Strait of Hormuz … attack critical pipelines … and rally fellow Shiites in Iraq to mount a full-scale rebellion against allied forces.
Warning: Just this week, Iran announced it would attack Israel in retaliation for a U.S. strike. While that might not affect us immediately, such action would further destabilize the region and elevate the clash of civilizations to an even larger stage.
When and How Might Israel React?
Again, this is largely unpredictable.
But I suspect Israel will prefer to act rather than react. All along, I’ve thought there’s a very good chance Israel will make the first strike. They may inform the U.S. Or they may decide not to. 
Either way, I wouldn’t count on Israel standing idly by. If negotiations between Washington and Iran go slowly, Israel will get nervous, and increasingly eager to take the lead. With threats and counter-threats now bouncing back between the two countries like ping pong balls, I wouldn’t count on much time between today and the first shots.
Natural Resource Prices,
Especially Oil and Gold,
Will Surge Uncontrollably
They’ve already been surging without attacks; exploding time bombs would only add to their momentum.
I wouldn’t be surprised to see oil soar to $100 a barrel if an attack begins. Gas prices at the pump could surge to $5 a gallon.
Gold could easily hit my next target of $740 an ounce. Silver could jump to $16 or more.
After the initial knee-jerk reaction, I wouldn’t be surprised by some profit taking. However, I think prices would continue upward once the consequences of the attack become more obvious.
What to Do
If you’ve been following my Real Wealth Report, you don’t need to do anything further. A large portion of your net worth should be in money markets and cash equivalents.
You should also own gold bullion, sitting on substantial profits. Heck, when I first recommended gold in the inaugural issue of Real Wealth, it was around $350. Since then, it has nearly doubled.
You should also have core holdings in my favorite junior and senior gold miners with open gains of as much as 319%.
The gold funds I’ve recommended are up as much as 82%.
You should own five different core natural resource stocks, representing interests from oil to steel. Of the five, one is down about 2% while the other four have gained as much as 58%.
For income, you should be holding two natural resource stocks that yield more than 9%. One of them has posted a modest capital gain and the second is up 119%.
Through May 2, I figure total gains (booked and open) are at $69,395 in gains. Not bad for a $99 newsletter!
So stick with it! Or, for even greater profit potential, consider my Energy Options Alert.
Warning: There are only 101 slots left, and they’re going fast. Call us at 1-877-719-3477 to get in.
Best wishes,
Larry
For more information and archived issues, visit http://www.moneyandmarkets.com.
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Red Morgan, Ekaterina Evseeva, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2006 by Weiss Research, Inc. All rights reserved.
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