With a risk premium for oil, the World Economic Forum worried by war

A global risk survey from the WEF found nearly all of the respondents were worried about confrontations between the world's major powers.
By Daniel J. Graeber  |  Jan. 17, 2018 at 7:53 AM
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Jan. 17 (UPI) -- With this year opening with a geopolitical risk premium for oil prices, a survey from the World Economic Forum said those frictions were a growing concern.

The WEF, in its annual global risks report, said the outlook for the economy in general was positive and world leaders could capitalize on the momentum to address issues ranging from social fractures to the environment. But in a survey of nearly 1,000 respondents, nearly all of them said geopolitical risk was increasing.

"A deteriorating geopolitical landscape is partly to blame for the pessimistic outlook in 2018, with 93 percent of respondents saying they expect political or economic confrontations between major powers to worsen and nearly 80 percent expecting an increase in risks associated with war involving major powers," the report read.

World Bank President Jim Yong Kim said last year that global economic momentum was "robust," but warned the interdependent world that normally binds peace to deeper levels of connectivity was "falling apart and countries and peoples are pulling away from each other."

This year started with political unrest in Iran, one of the main producers in the Organization of Petroleum Exporting Countries. That added to concerns that U.S. President Donald Trump would scrap the multilateral nuclear deal that lets Iranian oil flow through European markets at a time when market analysts are looking at a narrowing gap between supply and demand.

In a message on the New Year, U.N. Secretary-General António Guterres issued a red alert instead of an appeal.

Asked about trends for 2018, Joe McMonigle, a senior energy analyst at Hedgeye Risk Management, told UPI there could be "a few geopolitical lottery tickets in 2018."

In November, analysts at Morgan Stanley said an oversupplied market for oil, a situation that pushed oil prices below $30 per barrel in early 2015, is a market that's more or less immune to geopolitical risk. With a tighter situation this year, the bank said "oil markets may become increasingly vulnerable to political unrest."

The WEF's report said the norms that offered some stability in the post-Cold War order are over.

"The world has moved into a new and unsettling geopolitical phase," it read. "It is not just multipolar, but multiconceptual."

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