I recently returned from a terrific two weeks in Israel. Construction is booming; business and condo skyscrapers and building cranes are all around Tel Aviv and Jerusalem is rapidly expanding. Apartments and homes are expensive and the focus of many protests. New cars enjoy a 100% sales tax and fuel is expensive. At McDonald’s, a large hamburger, fries and Coke is about $10. Smog hovers unglamorously above the large cities. All state government signs and messages are in three official languages: Hebrew, Arabic and English, in that order. On the streets, one hears a good assortment of Hebrew, Arabic, English, Russian, and French. I was impressed by how relatively little military presence I felt, by the large number of Islamic minarets I saw dotting the skylines, and by the easy intermingling of so many cultures that often gain headline attention.


Tel Aviv has the most expensive real estate in the country, which is interesting since approximately 1,500 foreign missiles are pointed at Tel Aviv, more than any other city in the world. Which brings to mind a topic that is hotly debated here in the U.S.; will Israel attack Iran to stifle its nuclear capabilities and will that cause a flare in oil prices? Although there are many opinions and beliefs in this small and vocal country and understanding consensus opinion is difficult in a parliamentary system stitched together by coalitions, I shall risk sharing what is purely my point of view.


There are several consensuses in Israel.


  1. If Israel were to attack Iran’s nuclear weapons facilities, it would be wise to do so before the U.S. presidential elections
  2. Israel will not actually attack Iran in the near-term
  3. Israel can’t allow Iran to obtain nuclear weapon capabilities and risk another holocaust

The empathy of, “never again” – the concept of never allowing another holocaust – is deeply ingrained in the foundation of the state as well as the Israeli psyche.


If Israel were to attack Iran’s nuclear weapons facilities, it would be wise to do so before the U.S. presidential elections. It is thought that Obama has politically not been overly supportive of Israel, whereas Romney, and the Republican coalition, would be more reassuring. Since no one knows who will win, the belief is that a presidential candidate, this close to election, would politically have to back Israel against a nuclear Iran or risk being seen as weak at the polls.


However, there is no consensus that such an attack will occur. An outright pre-emptive defensive attack may not be the best solution for numerous reasons:

  • Political solutions or a change in the Iranian government could be advantageous
  • Stealth operations like the Stuxnet computer virus – that havocked Iran’s uranium enrichment centrifuges – and deep covert operation may be more expedient and endanger far fewer lives
  • A pre-emptive defensive attack would invite retaliation and heavy Israeli losses
  • Israel, on its own, does not have the machinery to properly carry off an operation that would target over 100 nuclear, radar, research and defense facilities
  • But most importantly, the main deterrent may be the heavy casualty costs on the Iranian side. To risk so much and only set Iran’s nuclear ambitions back 5-years would not be worthwhile; to truly stave the threat, nuclear abilities would need to be curbed for at least 20-years. However, doing so might affect a fifth of the Iranian population, and that would be a heavy toll to inflict, especially since Israel tries its utmost to eliminate civilian casualties in every conflict


Therefore, expect to occasionally hear about covert operations, assassinated scientists, and new computer viruses like Duqu and Flame. But, don’t expect Israel/Iran flare-ups to be a catalyst for higher oil prices. We expect August to be economically peaceful as European leaders will be on vacation and China has already bottomed.



Michael Ashley Schulman, CFA

Managing Director