Prepare for Iran’s Energy Market Chaos with the United States Oil Fund LP (NYSE: USO)

Iran kicked off the New Year with aggressive messages for the Western world, setting the stage for heightened political tensions and a huge oil price push in 2012.

Oil futures finished at their highest level in eight months yesterday (Tuesday), with West Texas Intermediate crude jumping 4.2% to settle at $102.96 a barrel on the on the New York Mercantile Exchange (NYMEX).

The surge came after Iran warned a U.S. aircraft carrier to stay out of the Persian Gulf. The message fueled speculation that Iran will make good on its threat to close the Strait of Hormuz to oil tankers.

An average of 14 supertankers carrying one-sixth of the world’s oil shipments every day pass through the Strait, a narrow channel which the U.S. Department of Energy calls “the world’s most important oil chokepoint.”

With global oil demand expected to rise to a record 89.5 million barrels per day in 2012, a major disruption to oil exports from Iran would drastically affect pricing.

Even though Iran has made such threats repeatedly over the past 20 years, tighter sanctions imposed by the United States and Europe may have pushed the country to its breaking point. Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants.

Now Iran is expected to trigger oil market performance similar to spring 2011, when Libya’s civil war caused oil prices to spike close to $115 a barrel.

In fact, if the Iranian government made good on shutting down the Strait, oil prices would probably shoot up $20 to $30 a barrel within hours and the price of gasoline in the United States would rise by $1 a gallon.

While we can’t control Iran’s actions, we can control how we prepare for whatever political and economic turmoil it inflicts. That’s why it’s time to buy the United States Oil Fund LP (NYSE: USO).

Global Political Tensions Will Bolster US Oil Fund

Iran is trying to scare the world out of imposing more sanctions against it, which drastically limit the country’s ability to conduct business.

The latest sanctions, signed into law by U.S. President Barack Obama last Saturday, will make it far more difficult for refiners to buy crude oil from Iran, the world’s fourth-largest oil exporter.

Tehran has slowly been isolated from the global economy after decades of increasingly strict regulations. One of its only steady relationships was an energy trade with Europe. Iran sold crude oil to the European Union (EU) in exchange for gasoline imports, which provided 50% of Iran’s gasoline needs.

But now increasing political strife has deteriorated that arrangement.

The EU next month will consider an embargo of Iranian oil, which also means the end of refined gasoline exports from Europe to Iran.

Iran-EU relations started to fall apart in November when Britain cut business transactions with all banks in Iran, including the central bank, in response to news that Iran was building nuclear weapons. Then Iranians on Nov. 29 stormed two British Embassy compounds in Tehran to protest the sanctions, screaming “Death to Britain” and destroying British flags.

This attack not only brought back images of the American embassy staff that was held hostage for 444 days in 1980, but also greatly increased the chances of a military attack this year involving Iran and the Western world.

Now the British have closed down their embassy in Tehran, and have ordered the Iranians to close their London-based embassy. Norway also decided to close its embassy in Tehran, and Germany and France have recalled their respective ambassadors for consultations.

All this, in my opinion, could be the prelude to bombing attacks.

While the world has waited for Israel to start a unilateral bombing campaign to hit Iranian nuclear facilities, I now think that it could be done by North Atlantic Treaty Organization (NATO) countries.

A bombing campaign to disrupt the Iranian nuclear facilities would also be a catalyst for higher oil prices. Such a military move will include attacks on Iran’s oil production and refining capacity. This will drive up oil prices significantly for a short-term spike.

While Saudi Arabia can increase its oil output in the near term, that won’t last. We want to be exposed to the United States Oil Fund LP before anything drastic happens, because the market will react suddenly.

The Fund has climbed about 28% since October. It rose 4.15% yesterday to close at $39.69.