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How Do Geopolitical Events Affect The Price Of Oil?











As one of the most popular traded commodities in the world, oil is often in the headlines for one reason or another. In recent years, the price of oil had been at an all-time low due to a global glut which meant that most countries around the world were oversupplied. Now, however, this glut seems to have ended, and oil is once again a hot topic amongst investors. 

Those looking to invest in oil will no doubt be looking at current geopolitical events which often have a huge bearing on its market behaviour. As such, here are some of the ways geopolitical events can affect oil, and how to approach investment.  

Price
Studying geopolitics, or politics in relation to international relations and geography, often involves looking at conflict and destabilising events which can have a significant impact on a country’s economy. In oil producing countries, any geopolitical event, or rather, geopolitical instability, which affects their ability to produce oil can also affect oil prices globally. 

Usually, if the country’s supply or ability to supply is significantly hampered (through the imposition of sanctions, for instance), then oil prices will rise as demand shoots ahead of faltering supply. 

Volatility
Naturally, geopolitical events are nearly always followed by a significant amount of volatility in the oil market, as investors from around the world try to predict how different events may affect oil prices/supplies. 

If an oil producing country is involved in a war, for instance, then the effect on oil price is rarely straightforward. Each time Iraq, an oil producing country, was involved in a war, oil prices behaved differently, rising sharply during the first war in 1990 and falling during the invasion of 2003. As such, investors will likely take different stances, contributing to oil’s volatility. 

Uncertainty Over Future Prices
One of the main difficulties presented by geopolitical events is that it is often impossible to predict how long they may go on for. The current friction between the US and Iran, for instance, has caused a huge spike in oil prices, and could be part of the reason the global glut has ended (for now).

The problem is that this could change at any time (if a new, less hard line president is elected in the US, for instance), be it this year or in ten years. Geopolitical events, by definition, do not have a start or end date, so this can make it difficult for investors to gauge how they may affect the long term price of oil. 

How to Invest
When looking at how to invest in oil in the face of geopolitical events occurring on a regular basis, it is important to monitor oil prices on a regular basis to help make an informed decision. Tracking geopolitical events from start to finish can help investors to navigate the potential volatility, and gauge when the best time to buy may be. 

Using a quality, local broker who is based in oil producing countries like the UAE, such as Equiti, is also very helpful in staying up to date with the latest market developments. Equiti also offer liquidity from the world’s largest banks and providers, and are likely to have some of the most up to date information on oil prices. Having this information makes it easier to decide how best to invest in oil (whether buying oil outright or betting against it rising in value with a CFD, for instance). 

Geopolitical events in oil producing countries can have a significant effect on oil in a number of different ways, as well as the decisions of investors. Whilst they can make the market harder to read, investors can also use geopolitical events to their advantage if they accurately predict how oil prices will be affected. As such, those investing in oil would do well to always stay informed of such events, and tailor their investments accordingly. 

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