Markets Know a Hollow Threat When They See It

Saudi Arabia says it will retaliate against any punitive measures tied to the disappearance of Washington Post columnist Jamal Khashoggi with even “stronger ones.” For many, that means the world’s biggest oil exporter is threatening to hold back on selling crude, creating a global supply shortage and sending prices skyward when the global economy is already decelerating. All that sounds disconcerting — except to the markets.

Perhaps if this was another time, say 30 years ago when Saudi Arabia played the role of “swing producer” and could influence the global economy by setting the price of oil without challenge, this all would matter. But it’s not. The global energy market is now more diversified in terms of products and producers, with even the U.S. a net exporter. Although oil did spike as much as 1.36 percent at the open, it was little changed at $71.45 a barrel in late New York trading. Also, the MSCI All-Country World Index of stocks was little changed as were top government bond markets such as those for U.S. Treasuries and German bunds. As Bloomberg Opinion contributor and economist Gary Shilling noted in a recent column, oil will be in surplus in future years not only because of increasing output potential but also because of rising supplies of natural gas, which have also been made abundant by fracking.