Oil Price Should Have a Risk Premium From Instability, Herro Says

The transcript discusses the challenges of pricing geopolitical risks in the Middle East, particularly regarding oil. It highlights the impact of attacks on oil supply and demand, suggesting a risk premium should be factored into oil prices. The potential for significant economic disruptions due to oil price shocks is considered, though the US's growing oil independence may mitigate these effects. Despite disruptions, oil and gas continue to trade through various channels, reducing the impact compared to past decades.

What is a significant challenge in pricing geopolitical risks in the Middle East?

• Predicting the exact timing of attacks

• Calculating the cost of oil production

• Assessing the environmental impact

• Determining the risk premium on oil prices

How might a major disruption in oil prices affect the global economy?

• It would only affect the Middle East

• It could potentially tilt the economy downwards

• It might have no significant impact

• It could lead to a global economic boom

What is a Black Swan event in the context of oil price disruptions?

• An event that occurs annually

• An event that has no impact on oil prices

• An event that is rare and unpredictable

• An event that is highly probable and expected

Why is the impact of oil price shocks less significant now compared to the 1970s?

• The global economy is more diversified

• There are fewer geopolitical risks

• The US is nearly self-sufficient in oil

• Oil prices are lower than before

Despite geopolitical disruptions, how do oil and gas markets continue to function?

• They increase prices significantly

• They stop trading until stability returns

• They use various backchannels to trade

• They rely on government subsidies