Oil Price Projection: $200

The price of crude oil bounced all over the place in 2011. In the fourth quarter, oil rose 24 percent as the economic outlook brightened. Now an ominous development threatens to push prices up again: Iran's First Vice President Mohammad-Reza Rahimi threatened on Dec. 27 to block the Strait of Hormuz, through which almost one-fifth of the world's oil traffic flows. The threat was a response to a proposed European Union embargo on Iranian oil designed to force the Islamic republic to negotiate over its nuclear program.

While the possibility of Iran making good on this threat seems remote, the U.S. and Europe are poised to use military force to keep the passage open, actions that could interfere with shipments and push oil prices higher. Likewise, closing the strait would drastically curtail supply, sending the price as high as $200 a barrel, according to Societe Generale. Higher oil prices can reverberate through the economy--from energy to transportation to retail--as businesses face higher costs and consumers have less money to spend after paying for gasoline.

How to play it? Not by buying oil company stocks, which act a lot more like other stocks instead of moving with the price of oil. If heightened geopolitical fears cause stocks in general to decline, it's far from certain that oil stocks will be an exception. A better alternative may be to buy an exchange-traded fund (ETF) that seeks to track the price of oil, such as DBO or OIL. These ETFs don't track oil perfectly, however: Their returns have tended to lag changes in oil prices over longer periods.