Doomsday reflexivity? ‘Domestic’ political statements and oil prices
June 8, 2008
On Friday, crude oil prices jumped in a new all-time high: the benchmark futures contract of light sweet crude was traded at US$139.54 in New York.
This new record was attributed to a comment by Iranian-born Israeli deputy prime minister, Shaul Mofaz, who said that: “If Iran continues its nuclear weapons program, we will attack it. Other options are disappearing. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear program.”
The news stories did mention that the context for this comments is the primaries in Kadima, PM Olmert’s party, where Mofaz is a contender and that it is likely that the comments were made for ‘domestic consumption’. The reaction to the statement shows that in today’s highly connected markets distinction between the local and the global cannot be made easily. Mofaz’s Israeli political bravado injected volatility to global oil markets. Such effect, in itself is dangerous enough, of course, but the other ‘leg’ of the reflexivity circle is potentially even riskier. In fact, this side of the phenomenon may feed a social loop that can place Iran and Israel on a sure collision course.
How so? Mofaz is now aware of the impact that his words have on markets. However, if anyone may think that this would serve as a lesson and that future comments would be less vehement, then they do not know the Israeli political discourse. Mofaz will now celebrate his influence on global oil markets and will use last week’s price rise as leverage for creating more political capital. Moreover, the reaction to this comment will motivate Mofaz and other Israeli politicians to outdo it and to have even more impact. So, as long as the scandal-ridden Olmert government is haemorrhaging support we should expect increasingly more flamboyant statements from Israeli politicians about Iran, more volatile markets and a steady progress to the brink of a (possibly, nuclear) war in the middle east.