Robin Brooks Argues a Big War Risk Premium Is Priced Into Brent
The futures price is above $116 a barrel. Brooks asks what is priced into Brent at $117.
Brooks argues that a big risk premium has been priced in—perhaps an excessive one—in anticipation of a return to a “hot” war after the midterms.
The caveat is that this episode has been full of big surprises, including what the post calls the sheer incompetence of war planning and strategic presidential decision-making, so markets may understandably give more weight to larger disruptions than earlier ones.
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The decomposition is the useful part: it separates an expected price change from a risk premium—a forecast from a fear premium.
But the risk-premium framing has a built-in humility: if war planning has produced big surprises, markets may be weighting larger disruptions than before, not simply overreacting.