In March 2003 the stock price of Halliburton, an oil and gas engineering company that also provided military logistics support through its subsidiary, was roughly $10.50. Also in March 2003, the US invaded Iraq. According to corporate research site Crocodyl:
Halliburton saw its revenue increase 30 percent to $16 billion in 2003, largely because of its military contracts in the Middle East. Halliburton was the number-one U.S. Army contractor in 2003, with the total value of its Army contracts valued at $3,731,725,648.
At its peak in 2008, as the Iraq war dragged on, Halliburton’s stock price rose to $52.16, a 400% increase at a time when the overall market (S&P 500) rose just 54%.
Halliburton made money on the Iraq war, lots of it. But Halliburton is a publicly owned company. That means anyone who owned Halliburton stock, including through mutual fund investments, made money on the war in Iraq. (Let’s leave aside the war’s impact on our national and ultimately personal debt).
What if, at the time, you had the following foresight, “The former Secretary of Defense and former CEO of Halliburton happen to be the same person named Dick Cheney. That person is now in the White House and is preparing for a war that will require the Department of Defense to request the services of defense contractors. What are the chances that the defense contractor likely to benefit the most will be, incidentally, Halliburton? Pretty high. I should invest in Halliburton.” Is that profiteering from war? Even if it is, what’s wrong with it? You would own a portion of a company that provides critical services to the U.S. Military and you would benefit when that company gains in value. Perhaps it’s a hypocritical investment only if you opposed the war? Or is making money through a calamity such as war unsettling, period?
Likely, you did not invest in Halliburton, but, looking back on its massive gains, wish you did. Who doesn’t want to buy a stock for $10 and sell it for $50?
Which brings us to the point of this post: What if you could profit from the next episode of Middle East turmoil?
Most analysts agree that nuclear weapons are part of Iran’s nuclear program. As discussed in Street Smart Politics’ first post, either Iran will develop a nuclear weapon or Israel will attempt to forcibly stop it. Either scenario heightens the political and security risk in the Middle East, which in turn raises the risk premium in oil prices. Israel bombs Iran, the price of oil shoots up. Iran acquires nuclear weapons technology, the price of oil shoots up. Thus, whatever happens with Iran’s nuclear program, the price of oil—you guessed it—goes up.
Banking on the inevitable turmoil, would you call your broker and invest in oil futures?