War with Iran may be inevitable.

Over the weekend, Iran increased its uranium enrichment well beyond the limit allowed under its 2015 nuclear deal, which pushes its program closer to weapons-grade levels.  

“Within hours, the technical tasks will be done and enrichment above 3.67% will begin,” Iran nuclear agency spokesman Kamalvandi said, as quoted by the Associated Press. “We predict that the IAEA measurements early tomorrow morning will show that we have gone beyond 3.67%.”

While Europe can help diffuse the explosive situation, they’ve failed to do so even with a 60-day warning.  Experts fear a miscalculation could lead to open conflict. England warned Iran to “immediately stop and reverse all activities,” as quoted by the Associated Press.  Germany says its “extremely concerned.”  

And Israel is urging world powers to impose “snapback” sanctions on Tehran.  

“Israel will not allow Iran to obtain nuclear weapons, even if it has to act alone on that,” Katz told Army Radio. He added that Tehran’s “mistakes in the gray area will lead it to the red zone—a war in which it will be hit hard.” Netanyahu also said Iran’s uranium enrichment progress as a “significant step” toward building nuclear weapons.

At the same time, France is trying to find a way to resume dialogue between Iran and the U.S. by July 15 – a date that does not hold any specific importance.

Iran Warning it Will Turn Gulf into a Sea of Blood

However, it doesn’t seem that Iran is fearful of war.

In fact, according to Iranian cleric Mohammad Ali Movahedi-Kermani, Iran is ready for war, as reported by the Daily Star.  “Think of an attack only if you want to change the color of the Persian Gulf waters from azure to red,” he said, threatening to also “blow up” Israel’s nuclear reactor in Negev.  

War Would Create Opportunity in Defense and Oil Stocks

After all, rising tensions in the region only raise fears of a battle near the Strait of Hormuz – the most important choke point for oil transports in the world. 

Should the fear of war increase, investors are likely to push into oil ETFs such as:

SPDR Energy Select Sector ETF (XLE)

The Energy Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index. It also seeks to provide precise exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries.

Defense ETFs could move higher, as well, including:

iShares U.S. Aerospace & Defense ETF (ITA)The iShares US Aerospace & Defense ETF invests in stocks in the domestic aerospace and defense sector. These stocks can include companies that manufacture both commercial and military aircraft as well as other types of defense-related equipment. It has holdings in Boeing, United Technologies Corporation, Lockheed Martin, Raytheon, General Dynamics, and Northrop Grumman for example.