When Islamic State fighters in Iraq captured the town of Ramadi this week, just 80 miles (129 kilometers) from the capital of the Middle East’s second-largest oil producer, crude markets shrugged.
Rather than the spikes that have historically accompanied geopolitical disturbances, oil prices actually fell that day.
Elsewhere, Libya is on the verge of becoming a failed state and Saudi Arabia is waging an air war against rebels in neighboring Yemen.
Again, the markets seem blissfully indifferent.
The old certainty that oil prices respond sharply to geopolitical upset no longer seems the case.
It’s a change that reflects a new global market where the rise of US shale fields and Saudi Arabia’s determination to defend the country’s share of world production ensures ample supply.
“There is a lot of risk in the world, but there isn’t much of a risk premium in oil right now, which is unusual, despite all the tension in the Middle East,” said oil industry historian Daniel Yergin.
“It’s because there is so much oil and there’s the sense that if there is a disruption, supplies can be made up elsewhere.”
While a deal with Iran would bring even more oil, he said, “developments on the ground in the Middle East could bring back a risk premium pretty quickly.”
In fact, politics is disrupting supply more than usual.
Once Iran is taken into account, about 2.6 million barrels a day are being kept from the market by conflict and sanctions, more than five times the average from 2000 to 2010, according to the US Energy Information Administration.
As Iraqi government forces tried to halt the advance of Islamic State, oil futures traded in New York fell 4 percent in the first two days of the week to about $57 a barrel, and rebounded the next two days.
While it’s true that prices have rallied more than 10 percent this year, that’s mainly a result of robust demand, oil analysts say.
Even with conflict across the Middle East, the geopolitical situation isn’t as dangerous as it appears, Michael Wittner, head of oil research at Societe Generale SA in New York and a former CIA official, said in a report.
The impact of the war in Yemen is overstated, he said.
The possibility of a nuclear deal with Iran in the coming weeks is another reason traders are relatively relaxed. The EIA believes an agreement that eases sanctions could knock as much as $15 a barrel from oil prices.
On the other hand, some analysts believe the risk of a shock is growing because the world is short of spare supply.
While global stockpiles are ample, the oil market is working with the thinnest cushion against a new supply outage in seven years, EIA data show.
The main reason: Saudi Arabia’s decision to pump more than 10 million barrels a day as it tries to grab market share from higher-cost producers has left the largest oil exporter little room for maneuver.
“At some point, Saudi production hikes stop being bearish and become bullish because the spare capacity is reduced,” said Paul Horsnell, head of commodities research at Standard Chartered Plc in London.
Gary Ross, founder of PIRA Energy Group, an influential oil consultant in New York, expects the cushion to get thinner still as Saudi Arabia boosts production further this summer to meet domestic demand.
“The very low level of spare capacity carries a risk of a price spike in the not-too-distant future,” PIRA said in a report to clients in April.
The U.S. EIA estimates current global spare capacity at 1.76 million barrels a day, well below the 10-year average of 2.2 million and less than half of 2010’s peak of 4 million.
That narrowing margin hasn’t rattled the market yet, partly because even in conflict-prone countries the oil has kept flowing.
Iraq has been able to boost production to its highest since 1979, approaching 4 million barrels a day, adding 600,000 barrels day in extra output over the last two years.
In Libya, production has fluctuated wildly over the last two years even as militias fight.
“It’s remarkable that in contrast to last summer, when ISIS was on the march, there’s hardly any geopolitics in the price of oil,” Yergin said.