The Return of Geopolitical Risk

One of the more intriguing things about the market period we are living in has been the way Markets have shaken off all manners of risk. I couldn’t tell if it was a sign of strength (resiliency) or weakness (evidence of complacency).

All manner of risky activity has been shrugged off as if it didn’t matter.

We even noted on Monday that Oil and Gas had ticked up in price, with premium (high test) selling for more than $3 and Oil tickiling $64. That obviously didn’t concern Mr. Market last week, nor did the Fed’s evident concern with the decaying economy and creeping Real Estate problems.

Now, it appears that glimmers of recognition of all that risk is returning, courtesy of Iran’s capture of 15 British sailors and marines. Last night, Oil spiked $5, "rumors that Iran fired on U.S. Navy warships." Other rumors of an immiment Iran attack by the Brits aided by the U.S. were reported.

With a little luck, this situation gets resolved with no shots fired,
but I suspect that may not suit the unpopular President of Iran, Mahmoud Ahmadinejad — nothing rallies the populace around an unpopular president like an attack on the nation from abroad.

Oil has backed off from those lofty prices, but it remains over our previously noted resistance level of $64.

Bloomberg is reporting that:

"Oil rose for a seventh day in New
York, climbing close to $65 a barrel, on concern a dispute over
Iran’s capture of British servicemen would escalate, disrupting
supplies from the Middle East.         

Oil surged $5 in seven minutes late yesterday on speculation
the U.K. would mount a rescue attempt, and rose today by more than
$2 a barrel. U.S. stockpiles of gasoline were already falling
before the standoff between Britain and Iran, and analysts expect
the Department of Energy to report today they fell again last week,
the seventh straight decline…

Almost a quarter of the world’s oil flows through the Strait
of Hormuz, a narrow waterway between Iran and Oman at the mouth of
the Persian Gulf. Relations between Iran, which sits on the world’s
second-largest proven reserves, and western governments are already
frayed because of the country’s nuclear program."         

I have no idea where Oil will go, but if this situation escalates further, the direction will be higher.  Mike Panzner charts a potential move in Oil up to $77:


We may or may not see that type of a move. However,it is increasingly obvious (to me at least) that  Obliviousness may no longer be a rewarding investment posture.


Oil Rises a Seventh Day, Climbs Near $65 on U.K.-Iran Standoff
Grant Smith
Bloomberg, March 28 2007

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