You have to wonder whether US President George Bush and Iranian President Mahmoud Ahmadinejad are both long gold and oil in their brokerage accounts. We can not of course say that we have done a correlation analysis between the rising rhetoric between the two countries and the price increase of gold and oil. We would be hard pressed to state when the most recent war of words began but the evidence of positive correlation looks pretty good when you consider that over the past year as the shouting heated up gold is up roughly $235 or 55% and oil is up about $25 also around 50%. An excellent profit on a public spitting match between the world's most powerful nation, largest holder of WMD's and most prolific energy consumer and the world's 4th largest oil producer and a WMD wannabe.

That there will be war against Iran does not seem to be in doubt. That it will be a zigzag path in getting there is also not in doubt as there will be periods where it seems a certainty and periods where it is in doubt. What has not been a zigzag is the price of oil and gold. Both have been on a steady climb over the past several months with Iran frequently mentioned as the reason behind the rise.

So why is this war not in doubt? In reality Iran poses no real military threat to anyone. Bluster and idiotic statements makes great press not only in the West but also for domestic consumption. But bluster and idiot words is not war. The question is not if this war breaks out but when. The reality is that while Iran has a formidable military capability, far superior to Iraq in 2003, they are still no match to the overwhelming military power of the United States. The odds of course that Iran does something to precipitate a war is virtually nil as while they may spew venom they are not about to make a foolish move.

The issue has been made that it is Iran's plans for nuclear weapons. But most respected international experts say they are at least 5-10 years away. Iran's nuclear program started under the Shah with the assistance of the US. But after the Iranian revolution in 1979 they were cut off and were forced onto the black market.

Iran, unlike Pakistan, India and Israel neighbours of Iran and all who do possess nuclear weapons, is a signatory to the Nuclear Non-proliferation treaty (NPT) and as such enrichment of uranium is legal. Even when they removed their seals on nuclear material after talks with Britain, France and Germany broke off it was legal under the NPT and it was carried out in the presence of IAEA inspectors.

While Iran has certainly been duplicitous, posturing and "playing games" as US Secretary of State Condoleezza Rice states and that they have what most would consider a very unsavoury regime, the IAEA has not found any evidence nor even accused Iran that they are building nuclear weapons. And this is despite recent enrichment success.

Iran is a part of Bush's axis of evil that also includes Iraq and North Korea. Iraq of course was invaded in 2003 on the premise that they possessed weapons of mass destruction. Condi Rice was famous for her quip that "we don't want the smoking gun to be a mushroom cloud". Tony Blair, Britain's PM of course declared that Saddam Hussein had weapons of mass destruction that could be ready in 45 minutes. All of course turned out to be if not hyperbolic exaggerations they were out right lies. Britain later retracted their 45-minute statement.

Iran has now been dragged into the Security Council. That ensures it will be debated to death, Russia and China will consistently reject calls for sanctions and the fear factor will rise. It will become another "test of the credibility of the Security Council" as described again by Condi Rice in the same way that it was for Iraq. Of course ultimately what this is all about is regime change that the US has also consistently stated for not only Iran but also Iraq before it and Syria as well. All except Iraq remain threats to Israel and all have threatened Israel.

And evidence suggests that even as Iran is being hauled before the Security Council there is a "contra" type military operation already taking place in Iran using Kurdish (Pesh Merga) with Israeli assistance. As well there are reports that there have been forays into Iran from both the border with Pakistan and with Iraq. (Executive Intelligence Review - May 4, 2006). Others including New Yorker journalist Seymour Hersh have also reported on US operations already inside Iran.

While there will be considerable posturing by Russia and China at the United Nations they are unlikely to go along with either sanctions or military operations. The reason is simple. They have considerable economic ties and investments with Iran. In 2004 China signed a deal worth $100 billion that allows China to import 250 million tons of LNG over 25 years and 125 thousand barrels of oil per day. Iran holds the world's second largest reserves of Natural Gas. Further investments by China could exceed another $100 billion in Iran's energy sector.

Both China and Russia have considerable military contracts to supply long-range ballistic missiles and other sophisticated weaponry despite the objections of the US. Russia also has energy ties to Iran. It should be noted that European countries particularly Germany and France also have considerable investments in Iran.

But is the US also posturing over Iran's nuclear ambitions? While there certainly should be concern about any country trying to acquire nuclear weapons as noted Iran is no where near obtaining these weapons. So what's the rush as they say? There are many who believe the real reason behind the attempt to stop Iran's nuclear ambitions is Iran's ultimate nuclear weapon the Iranian Oil Bourse. The oil bourse was originally slated to start up in March 2006 although it had been delayed and is now just getting under way. The bourse will be based on a Euro Currency Oil trading that will require payment in Euros rather then US$ the current and only mode of payment for oil.

The reason that this is so dangerous to the US is that it is a clear threat to US$ global hegemony. US$ hegemony of oil for US$ dates back to the 1970's when at the height of the Arab Oil Embargo they cut a deal with Saudi Arabia to support the House of Saud and in return they would accept only US$ for their oil. Everyone else followed and because the Middle East was the primary oil producer and exporter to the world everyone had to hold US$. One could say effectively while we came off the gold backed US$ in 1971 we have since been in the era of the oil backed US$.

Trouble is since 1971 with the world coming off of the gold standard the US$ has depreciated to a point where today it is worth only about 10% what it was in 1971. And the threat is that it could go lower. If the US were to lose its oil backing all claims to being the world's reserve currency would be gone. Since the world went on the oil standard most countries were too weak to challenge US$ dominancy to demand oil in any other currency but the US$.

The one exception was Saddam Hussein who tried to do that in 2000. Initially it was met with derision but then others were showing signs of warming up to Iraq's demands. Once Iraq was back in US hands the oil for food program ended and the euro accounts were closed. The US$ backed by oil ruled once again.

The world is awash in US$ and that have a lot of countries very nervous especially given the US prolificacy for debt in trade, current account and budget. The US is exporting its monetary problems to the rest of the world. But the Iranian Oil Bourse is a clear-cut threat to this US$ hegemony. Anyone willing to buy oil will now be able to transact it in either US$ or in Euros. And many may chose the latter.

The Chinese and Japanese are the largest holders of US$ debt. By moving into Euros to purchase their oil they could diversify their currency base and not be so dependent upon the US$. European countries would naturally be interested as they would be able to transact in their home currency. Russia who transacts almost exclusively with Europe would be happy to switch to Euros. Even the Arab oil producers might be interested also to reduce their mountain of US$ holdings.

Quite simply this scenario can not be allowed to take place even if the evidence is not as yet in. Currently there are only two exchanges for trading oil in the world, the New York NYMEX and London's International Petroleum Exchange (IPE). Not surprisingly the British while they should have a natural affinity with Europe will probably for the reasons of having the IPE go along with the US once again in the coalition of the willing in the war against Iran.

So the US is left with either sabotaging the exchange or hoping they can engineer a coup d'etat as they did in 1953 when the CIA and British MI5 overthrew Mohammed Mossadegh to install the Shah. Both of these require Special Forces and the assistance of others inside Iran. The odds of success are however low given the high level of support for the current Iranian regime particularly from the military. If that were to change then a military coup remains possible.

This then would only leave the UN Security Council route and raising the rhetoric about Iran's nuclear ambitions which appears to be the current modus operandi. Without the support of Russia and China it is probably doomed to failure. This will leave only the unilateral military strike with the possible use of nuclear weapons an option that has not been ruled out by the Bush administration. If this were to occur the world would probably go into shock.

So what can happen if the Iranian Oil Bourse was actually successful? Bernanke would be left with only two choices neither of them palatable. Interest rates would have to rise and it could plunge us into a deflationary depression. The other route and possibly more likely is that "Helicopter" Ben would come to the rescue and flood the system with money creating a possible hyperinflation scenario. Either way gold is a winner. Indeed we suspect that gold is not rising because of Iran but instead at the demise of the US$ as the world's reserve currency.

Will any of this happen? While our thoughts on the Iranian Oil Bourse is speculation (except that it will get underway but the impact is unknown at this time) our thoughts that there is a looming war against Iran is not. What should we watch for? The ongoing charade at the UN will continue with no resolution. The US will follow a similar script they used with Iraq. There will be a massing of aircraft and warships in the Gulf, Dubai (they need to protect the Straits of Hormuz) and possibly in Pakistan, Central Asia and undoubtedly Iraq.

Turkey is out as they have become increasingly disenchanted with the US over their support of the Kurds in Iraq and Iran even as the US winks at Turkey's atrocities against their own Kurdish population. Turkish troops have been massing on the Iraq border (an attack on Iraqi Kurds?). As to timing? Well there is an election in November and right now the Republicans are going to lose in both the Senate and Congress. Some have talked of an October surprise. Do wartime Presidents lose elections?

But then what happens when the bombing of Iran gets underway? We don't know but like George and Mahmoud we want to be long both gold and oil. Both the gold and oil markets have been exceptionally strong. If a pullback should present itself view it as an opportunity.

Sources: Eric Margolis www.ericmargolis.com, Haroon Siddiqui - Toronto Star www.thestar.com, Executive Intelligence Review www.larouchepub.com, Energy Bulletin www.energybulletin.net - The Proposed Iranian Oil Bourse, Krassimir Petrov, Asia Times www.atimes.com, Foreign Affairs www.foreignaffairs.com, Stratfor www.stratfor.com.