05.07.2009
The principle that countries should in some way compensate others for the effects of pollution that they (or their citizens) generate or have generated
Multinational enterprises and banks face a number of risks when conducting business overseas. Some of these risks can be removed or mitigated by conducting due diligence on the parties involved and on the economic viability of the proposed business. Other risks are harder for investors or lenders to predict. These include some commercial risks and, non-commercial – or political – risks. Political risk insurance (PRI) is a tool for businesses to mitigate and manage risks arising from the adverse actions – or inactions – of governments. As a risk mitigation tool, PRI helps provide a more stable environment for investments into developing countries, and to unlock better access to finance
Oil was the number one political risk in 2008, followed by the Middle East (no. 2 political risk). Part of this was caused by tight market fundamentals that eroded spare oil production capacity, leaving the market without a buffer in the event of disruption which made oil markets much more vulnerable to price shocks. The countries that are most affected by the geopolitics of oil include the major importers (US, Europe, China, Japan) and the exporters (Saudi Arabia, OPEC, FSU, West Africa). Examples of oil and politics include: 2007- Russia/Belarus; 2008 – Russia/Georgia, disruptions in Nigeria; Terrorism; Iran that has threatened to block the 17m b/d Strait of Hormuz, through which 90% of Persian Gulf Exports flow; might Iran hit Iraqi oil production; the whole Middle East is cause for concern. Speculators and oil price: The 2007-08 price actions suggest speculators believed geopolitical risks had risen
This is the danger of political or financial instability in the host country caused by events such as insurrections, strikes, suspension of foreign exchange, creeping expropriation and outright nationalization. It also includes the risk that a government may be able to avoid its contractual obligations through sovereign immunity doctrines. Common mechanisms for minimizing political risk include: (a) requiring host country agreements and assurances that a project will not be interfered with; (b) obtaining legal opinions as to the applicable laws and the enforceability of contracts with government entities; (c) requiring political risk insurance to be obtained from bodies which provide such insurance (traditionally government agencies); (d) involving financiers from a number of different countries, national export credit agencies and multilateral lending institutions such as a development bank; and (e) establishing accounts in stable countries for the receipt of sale proceeds from purchasers
Increase in inventories, mild weather, weakening US oil demand, strengthening of the US dollar, etc can all contribute to a sharp decline in crude oil prices