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Commodities behind 2016’s big political risks
The slump in oil prices is frightening stock traders, but the impact on geopolitical stability may prove to be more alarming this year.
Low commodity prices could exacerbate tensions and conflict in the Middle East, increase public protest in Latin America, and worsen industrial action in Africa’s resource-rich countries, Verisk Maplecroft, a global political risk consultancy, warned in a 2016 outlook report published Friday.
“Verisk Maplecroft highlights low commodity prices as one of the primary drivers of political risk for investors in major producing countries across Africa and Latin America, while the increasing international threat posed by the Islamic State and rising tensions between Iran and Saudi Arabia, are flagged among the foremost geopolitical risk multipliers,” the consultancy said in the report.
Crude oil prices tumbled below $35 per barrel on Wednesday to 11-year lows, with the commodity around two-thirds lower since its long decline began in June 2014. Prices of other commodities, particularly metals, have also slumped over the year.
Saudi-Iran tussle
Royal Bank of Scotland warned Wednesday that continued low oil prices this year could worsen the tide of conflict and tensions in the Middle East.
“The Middle East is no stranger to conflict. Most countries remained resilient versus low oil prices in 2015, however. In 2016 we think low oil may exacerbate the crisis and result in a further escalation of geopolitical tensions in the region,” Alberto Gallo, head of global macro credit research at the bank, said in a report on Wednesday.
Oil is important in the dispute between Iran and Saudi Arabia, whose animosity long precedes the row sparked by this month’s execution of a prominent Shiite cleric. Saudi Arabia is the world’s top oil producer and will face increasing competition from Iran, if and when, international sanctions are lifted on the latter country’s exports.
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