Sunday, October 5, 2014

The only Middle East conflict that could cause oil prices to spike – a war between Israel and Iran

Third, the turmoil in the Middle East has not triggered a massive shock to oil supplies and prices like those that occurred in 1973, 1979, or 1990. On the contrary, there is excess capacity in global oil markets. Iraq may be in trouble, but about 90% of its oil is produced in the south, near Basra, which is fully under Shia control, or in the north, under the control of the Kurds. Only about 10% is produced near Mosul, now under the control of the Islamic State.

Finally, the one Middle East conflict that could cause oil prices to spike – a war between Israel and Iran – is a risk that, for now, is contained by ongoing international negotiations with Iran to contain its nuclear program.

So there appear to be good reasons why global markets so far have reacted benignly to today’s geopolitical risks. What could change that?

Several scenarios come to mind. First, the Middle East turmoil could affect global markets if one or more terrorist attack were to occur in Europe or the US – a plausible development, given that several hundred Islamic State jihadists are reported to have European or US passports. Markets tend to disregard the risks of events whose probability is hard to assess but that have a major impact on confidence when they do occur. Thus, a surprise terrorist attack could unnerve global markets.

Read more at http://www.project-syndicate.org/commentary/nouriel-roubini-asks-why-global-financial-markets-remain-buoyant-in-the-face-of-mounting-geopolitical-risks#cGS9ow6GRvwQA0jd.99

Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
Related Posts Plugin for WordPress, Blogger...