Baker Institute study, conference weigh risks for global energy markets

In recent years, a growing scarcity of energy commodities worldwide has heightened concerns about key geopolitical risks and threats, such as conflict in the Middle East, terrorism and resource nationalism. However, a study released this week by Rice University's Baker Institute for Public Policy suggests that, taken individually, many of the risks driving the oil price premium may be less catastrophic than they seem at first glance. The executive summary may be found at www.rice.edu/nationalmedia/multimedia/IEEJexecsummary.pdf. The study, which was written in conjunction with the Institute of Energy Economics, Japan, analyzes several of the top current market risks, including the U.S.-Iranian conflict over Tehran's nuclear aspirations, Russia's aggressive natural gas strategies in Europe, resource nationalism in Latin America and international terrorism against oil facilities, among others. It concludes that dire predictions that markets cannot alone allocate the costs of these risks in a manner that would avoid wars among major nations are unfounded.

Nevertheless, the study warns that energy and financial markets still face a substantial threat from the ongoing petrodollar boom cycle. It also warns that the high speed of globalized market contagion means that any sudden collapse of asset bubbles in one part of the world could threaten the smooth operation of the entire global financial system, should proper economic policies not be put in place.

The study was released at a conference at the James A. Baker III Institute for Public Policy, which brought together senior policymakers, economists, academic specialists and industry professionals to discuss the geopolitical risks currently facing international energy markets and the global financial system.

The conference, titled "The Global Energy Market: Comprehensive Strategies to Meet Geopolitical and Financial Risks," was held May 21. It was sponsored by the Baker Institute's Energy Forum.

Source: Rice University