Scarcity doesn’t really justify the upward price movement. There isn’t a shortage of oil in the world. But there could be, in the worst case, if missiles start flying between two of the world’s largest oil players: Saudi Arabia and Iran. Maybe it won’t happen. But maybe it will. And that’s what the “geopolitical risk premium” is all about. It’s an anxiety surcharge that’s tacked onto every barrel of oil, in fear of supply disruption on a moment’s notice. And the fear is back. After three years of naivety we’re back to acknowledging the known unknowns of the Middle East, the uncertainties that strap a 10-to-20 percent premium on the price of a barrel. Paying a risk premium for oil is nothing new. It’s been around for decades and has gone up and down with the hostility thermometer of the Middle East. Unusually, the pricing of risk dropped to […]