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The death of political risk

25 July 2024

Commentary
Edmund O'Sullivan
Former editor of MEED

On 13 July, an assassin’s bullet missed Donald Trump’s head by an inch.

Three days later, speakers at the Republican National Congress, which nominated him as its candidate in this year’s US presidential election, heard calls for unwavering support for the assault on Gaza, despite the threat that it might spark a regional conflagration.

The previous week, Nato leaders shrugged off warnings from Russia’s President Vladimir Putin that the war in Ukraine could trigger a nuclear confrontation, and reaffirmed their support for the ejection of Russia from Ukrainian territory.

An oil tanker in the Red Sea being hit by a missile fired from Yemen on 15 July looked like a minor development in comparison. But it was another sign of the times.

What previously was unimaginable has become the new normal, and not just for those watching from the sidelines.

The markets – now the supreme judges of what is good or bad – think none of this matters much either. The Dow Jones Industrial Index opened higher following the failed assassination of Trump. The consensus was that his survival – not the attempt to end his life – was the real story.

What previously was unimaginable has become the new normal

Oil, in contrast, went down despite yet another assault on one of the world’s vital energy supply routes.

The Washington-based IMF is also sanguine. Its economic outlook report released on 16 July forecasts that world growth will quicken marginally next year to 3.3%.

Only precious metals markets suggest there may be doubts. Gold is up more than 20% since the start of the year, but this is probably more about inflation than perceptions of political risk.

Those who argue that prices of securities and commodities capture all relevant information about the course of world affairs have concluded that they signal there is nothing to worry about. The world will barrel ahead next year much as it did in 2024, regardless of further carnage in Gaza and Ukraine and twists in US politics.

But perhaps sensitivity to events has been dulled by the way they are now reported, particularly on social media.

Like tight-rope walkers, investors have become accustomed to risks that would be conventionally considered unacceptable. And there is always more money to be made in markets that rise.

In the spring of 2007, Lehman Brothers chief executive Dick Fuld said in Dubai that he had rarely seen so many positive forecasts for the world economy, though he admitted there were worries about trends in derivatives markets.

At least he acknowledged the contradiction. What he did not foresee was that it would be the bank he was then leading that would trigger the global financial collapse that came less than 18 months later. 

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Edmund O’Sullivan

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