Soaring oil prices the great unknown
IT was Donald Rumsfeld, the Bush-era defence secretary, who loved to separate events into “known unknowns” and “unknown unknowns”. Even the former can have a huge impact. One key trick is to spot possible risks as they shift from one category to the other. In recent weeks, with the novelty of the Eurozone crisis wearing off, a slight feeling of complacency has descended upon the City; not so much excessive optimism – investors and firms remain generally quite realistic about most matters – as excessive certainty. That is silly: ignorance is the defining feature of human beings.
One of the big known unknowns for 2012 is the possibility of full-scale war in the Middle East. The Iranian government, one of the worst, most despicable and oppressive in the world, is committed to going nuclear; this is anathema, not just to the Israelis, to whom the Iranian theocracy has repeatedly signaled its hatred, but also to the Saudis and every other Gulf state. At best, a nuclear Iran would trigger an arms race across the Middle East and finally destroy the world’s last pretence at controlling nuclear proliferation; at worst it would lead to nuclear war. It’s a nightmare, albeit one that has been unraveling in such slow motion that much of the world has become bored with it.
There is a decent chance that a resolution may come before the US presidential elections – but no observer really knows when, or how. For years, analysts who have predicted an imminent attack on Iran have been proved wrong; this could happen again. But there has already been an ongoing campaign of targeted assassinations against Iranian scientists, a sophisticated cyber-attack and at least one mysterious explosion in Iran. The Israelis will only bomb Iran if they think America won’t; they believe that the US is much less likely post-elections. Barack Obama clearly doesn’t want to do anything, but may feel compelled to act.
This is where a known unknown mutates into an unknown unknown. US presidents don’t win elections when the price of petrol is rocketing. So could the mere possibility of conflict in the Middle East be enough to derail Barack Obama’s re-election campaign? This is unlikely, of course, but growing fears for supplies – including whether Tehran would ever lob a few landmines into the Strait of Hormuz, closing a key shipping lane for oil — have led to oil prices jumping 11 per cent this year and have taken US petrol prices to their highest ever. Equally worryingly for George Osborne, petrol prices are also on the verge of hitting records here in the UK, and the price of diesel already has. Geopolitics could overshadow his Budget – or even completely disrupt it, if the price of oil continues to go up over the next few weeks.
There are lots of other risks that are being downplayed. Take the possibility of the coalition collapsing before the next election. Comments by Lord Oakeshott on the BBC’s Sunday Politics suggest it could happen over an issue that the public would see as trivial: reform of the House of Lords. I doubt this will destroy the government – but the possibility shouldn’t be dismissed. The Eurozone’s implosion may no longer feel imminent, but plenty of truly unknown unknowns could, for the better or for the worse, overturn the established order of things. Forget about precise predictions; it’s all about adaptability, flexibility and learning to live with uncertainty.
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