Oil in the new era of volatility

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In recent years, it was often looking at Friday in June as a good moment to work from home. not now.

With the spread of news about Israeli air strikes In Iran, traders all over Wall Street and London – not to mention Asia – rushed to their offices to prepare for the inevitable storm.

He – she Check quickly: Oil prices increased (initially by about 13 percent), stock prices decreased (initially 1 percent in the United States), and the dollar reflected the last decline segment. While these moves were wiped at a later time, the fluctuations are likely to remain high; Especially since US President Donald Trump has Warning it without a deal Next “already planned attacks” by Israel will be “more brutal”.

So what should investors think about? There is good news (nest). The former revolves around the issue of oil. At first glance, it seems reasonable to assume that high oil prices will be a bad blow to global growth.

Because while Iran “only” produces about 1.7 million barrels of oil per day – about 2 percent of the global total – the real threat is that If the additional conflict closes the Strait of Hormuz It will Calculate charging. actually, Ji Burges expects This is in an extremist scenario and the worst cases-that is, a long blockage of the strait-oil prices can double to a record level of $ 150 later this year.

The history of the twentieth century has shown how harmful oil prices can be. And with the World Bank After just cutting her outlook As for global growth, about half of nearly 2.3 percent – the lowest level since 2008 – is now a bad moment for another shock.

On Friday, Trump claimed that the strikes would be in the end.The greatest thing ever for the marketCreate repercussions in the short term.

But here is good news, or at least the less frustrated issue: one of the most prominent developments, but often in recent decades is that the so-called “oil intensity” for global economies-that is, the amount of barrels needed to feed each unit of growth unit-does not calm down.

In 1975, for example, The World Bank is calculated 0.12 “tons of oil rewards” (toe) was necessary to produce $ 1,000 of GDP. However, by 2022, it was only 0.05, due to the deployment of renewable energy sources, such as solar energy, and increased industrial efficiency.

Thus, we do not face your grandfather’s economy – or your father, to cite the slogan. Shocks should not be like the Israeli attack as devastating as before; Or not if the main transmission channel for this shock is the oil.

However, bad news is that oil no The only transmission channel now; Instead, I think the most important channel is the investor’s psychology.

What the Israeli strikes did is to intensify the perception that we are not merely a return to geopolitical instability, but a Zeitgeist also. It seems that an evil competition for the dominant power Displacement Even the fig leaf of international cooperative standards and laws.

Or, to male Trump again, events are not run by a sense of world law, but through the issue of who has “Cards” (Or not) from power; Thus, Israel feels the freedom to bomb Iran with its military “cards”, regardless of any United Nations bases.

This is a sign – if not terrifying – for investors who have been raised to predict the future with elegant economic models. After all, in the neoliberal era, these models usually excluded chaotic policy – and assumed that the rule of law was consistent, in the local and international field. “The traditional global system – in which the political economy has formed – has been operated on its head, as Pimco She told her customers This week: “Politics (she) is leading the economy now.”

So what should investors do? One of the basic steps is to realize that although old economic models are often useful, they are now Incomplete.

The second is to read more financial history, sociology and psychology. Personally, I find that you can find useful ways to frame today’s events in the writings of political scientists such as Albert Hirschman, Karl Schmidt or economists John Mainard Kinies and Charles Kindleberger. Anthropologists such as David Grabeer, Arjun appadurai and James Scott also help.

Third, we must realize that in a world in which “the fragmentation of commercial and security alliances has become a strong source of volatility”, to martyr Makko again, it is necessary to diversify the governor and take a long look at events – and deep breathing.

The bottom line, then, if you work in financing, do not plan for many Fridays this summer. This is not only because of the high tensions in the Middle East; The height of debts, the removal of the currency, and the trade – and an American president determined to reshape the global order – also all the current risks. Volatility is now an advantage, not a mistake.

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