Parallel worlds of political risk: why geopolitics does and doesn't matter for oil

Parallel worlds of political risk: why geopolitics does and doesn’t matter for oil

By Matthew Hulbert and Tariq Akbar, senior analysts at Datamonitor energy and utilities

While OPEC was largely a gleeful spectator of the oil markets up to July 2008 when prices hit a staggering $147/b, it has resumed centre stage in the oil markets once more as prices plummeted to $62/b. Geopolitical friction was undoubtedly used to drive prices up, just as readily as investors ignored political risk when dragging prices back down, but geopolitics now matters more than ever for the oil markets.

This is not in the sense of how far it will drive the price up, but more realistically, at what price a floor will be set as a global downturn sets in. The bottom line is that slackening oil prices are more likely to exacerbate resource nationalism and production cuts, rather than a fundamental change of political direction in producer states. In the longer term, this could render OPEC/non-OPEC divisions irrelevant, in place of a new divide between net importing and net exporting states.

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