History tells us about the impact of tremor of oil prices

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Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

Author, author of “Blood and Treasure, Economics of Conflict from Vikings to Ukraine”

Fears of geopolitical risks appeared regularly towards the summit of investor concerns during the past year. In recent months, the “geopolitical risks” have often been a polite expression of an unpredictable American tariff policies, preferred by American institutions that do not want to disturb the White House much. But now the geopolitical risks that are achieved, are more traditional, the threat of a long -term conflict in the Middle East endangered global oil supplies.

Oil prices rose Up to 12 percent in the wake of Israel’s attacks directly on Iranian nuclear facilities. Orange, the conflict escalated more as Israel beaten, among other goals, a major oil station in Tehran. Iran produces about 3.3 million barrels per day of crude, of which 2MN are exported. Looking at global demand, an International Energy Agency is estimated at 103.9 million barrels per day and that the Kingdom of Saudi Arabia and the United Arab Emirates I mentioned To be able to raise production quickly by more than 3.5 meters of barrels per hour, it is possible that there will be a severe disturbance in Iranian production. The rise in the price of oil in the wake of the first Israeli strikes reflected broader fears that the conflict could escalate to the point that Tehran tried to close the Strait of Hormuz into tankers or even attack oil facilities for its neighbors.

The interaction between geopolitical uncertainty, oil prices and macroeconomics is rarely clear, because some are useful research From the European Central Bank published in 2023 indicates. It indicates that Brent crude prices jumped by 5 percent in the wake of the September 11 terrorist attacks in New York, where investors provided an opportunity for the war in the Middle East that disrupts supplies. But they decreased by 25 percent within 14 days, as fears that the slowdown in the global economy would weaken oil demand at the forefront. In the following two weeks, Russia invaded Ukraine in February 2022, Brent prices rose by 30 percent. But they returned to the pre -invasion level after eight weeks.

European Central Bank research indicates that geopolitical shocks affect the global economy through two channels. In the short term, the most important is usually the risk channel. Since the financial markets are an opportunity for more disturbances in global oil supplies, it causes an increase in the cash value of the contract of oil contracts – known as the comfort return – the rising pressure on oil prices. But in the long run, the economic activity channel plays. Top geopolitical tensions tend to be a negative shock to global demand, as increased uncertainty provokes investment and consumption and perhaps trade. This channel usually reduces the demand for oil and global prices. In other words, oil prices resulting from geopolitical shocks tend to be short -term.

This was not always the case. The shocks of oil prices in 1973 and 1979 followed all of the American recession and the possibility of high geographical oil prices that move to the coup in the global economy still tends to worry about both politics and investors. Maybe they can take some condolences from research It was published earlier this year the Federal Reserve in Dallas. The authors of this study have adopted a new approach, in an attempt to separate uncertainty in oil prices from the wider total economic uncertainty. They found that the risk of oil prices driven by the geopolitical is unlikely to generate significant impacts on the recession. Even a significant increase in the risk of a lack of production on the 1973 or 1979 scale will do only, according to the model, the decrease in economic product by 0.12 percent.

While the high uncertainty about future oil supplies can raise crude prices in the short term, unless these risks are achieved, the global macroeconomic repercussions are likely to be limited. A similar effect on asset prices in general. According to the latest International Monetary Fund Global Financial Stability ReportSince World War II, geopolitical risks have been associated with a modest decrease in stock prices in the short term, but in most cases, without any permanent effect. Ultimately, the global stock markets ignored the invasion of both Iraq to Kuwait in 1990 and Russia Ukraine in 2022. Once again, although 1973 it appears as an exception, with an oil ban that year, leaving global stock markets less than 12 months less.

A lot will depend, of course, on the time when Israel’s conflict continues Iran and how to escalate. It must be remembered that even during the “carrier war” in the 1980s, in which oil prices were bombed through Iran-Iraq more than 200 oil tankers pass through a hormone, and oil prices settled after an initial rise. The effects of anything are likely to be less than a major disorder in the product of the Middle East oil.