Watch what markets don't do as world politics turns nasty

Wed Jul 23, 2014 2:02am EDT
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By Mike Dolan

LONDON (Reuters) - Like so much in the investment world of late, it's what financial markets are not doing right now that is most intriguing.

Over the course of the past month, conflicts, superpower standoffs and economic sanctions have flared in Iraq and Syria, Israel and Gaza, Ukraine and Russia. All are at least potential threats to world energy supplies, if not globalized business links and supply chains.

What's more, a September referendum looms on the potential breakup of the world's sixth largest economy as Scots vote on secession from the rest of the United Kingdom.

Yet the world's main financial markets have barely blinked.

Crude oil prices gyrated briefly on the upsurge in the Iraq/Syria violence but net moves have been slight to non-existent. At around $108 per barrel, Brent crude is roughly where it was at the start of this year - and where it started last year and even the year before that.

In the face of all this seeming uncertainty, energy price volatility has in fact sunk to its lowest on record.

For some, energy prices moved to discount this more economically integrated but less politically stable globe more than 10 years ago, when they quadrupled in the early 2000s.

And the persistence of $100 plus per barrel oil in itself reflects that more fragile state of affairs. Little of what's happened this year will have materially altered that picture beyond a relatively small $1 or $2 pop in futures markets premia for near-term supply disruptions.   Continued...

A pedestrian holding her mobile phone looks at an electronic board showing graphs of various countries' stock market indices outside a brokerage in Tokyo July 22, 2014.  REUTERS/Yuya Shino