LONDON The Iranian nuclear row and related oil price jump appear to have swooped back onto the radar for global investors just as Western credit woes seem to be easing - but energy risks may well now be an ever-present menace.
After six months digesting euro sovereign and banking crises and the odds of another global recession, world markets have bounced back smartly in 2012. Worst-case scenarios have been dodged, and the residual pain has been eased by another flood of central bank cash and monetary easing worldwide.
But just as the coast has cleared, an alarming escalation of the row between Iran and the world's major powers over the former's nuclear development programme has seen military threats and counter-threats alongside a tit-for-tat war of western sanctions and Iranian moves to disrupt European crude supplies.
Despite debates about the precise hit to world oil supplies, Brent crude futures are up more than $12 per barrel or 11 percent in the year to date and closed above $120 per barrel on Monday for the first time since last June. About 9 percent of that surge has come in February alone as the rhetoric stiffened.
Yet for rallying world equities .MIWD00000PUS the impact has been barely perceptiple. Stocks set new highs for the year on Monday, and MSCI developed world stocks are now up almost 9 percent in 2012 and emerging market equities are up 11 percent.
So is the Iranian standoff just noise to world investors after five years of seismic banking quakes and countless policy stabilizers? Or have markets yet to absorb the very real risks?
"More and more people are citing the Iranian situation as a major risk, and it's not hard to see why. The run-up in oil prices surrounding 2011's Arab Spring was largely responsible for the sharp global economic slowdown in the second half of the year," said Julian Jessop, Chief Global Economist at Capital Economics.
For context, oil prices surged more than 30 percent in the first four months of 2011 - about three times the size of this year's move so far - as popular revolutions across North Africa and the Middle East stoked regional geopolitical tensions and hit crude oil supplies from Libya in particular.
STUCK ABOVE $100
And just as importantly for many economists, oil prices never had a weekly close back below $100 for the rest of the year despite a demand-sapping euro crisis, double-dip recession warnings stateside and rapidly slowing emerging economies.
Only last month, the International Monetary Fund slashed its global growth forecast for this year by 0.7 percentage point to 3.3 percent. However, citing worrisome geopolitics, it left its baseline petroleum price projection for the year largely unchanged at $99 per barrel compared to $100 previuosly.
And if those political tensions are on the rise again and the global economy - or at least the world's biggest economy - is stabilising, there is justifiable concerns about another sustained and growth-smothering oil price surge.
Bank of America Merrill Lynch economists reckon oil will not fall back below $80 per barrel over the next five years, and supply constraints mean they could even spike as high as $200.
Jessop at Capital Economics remains sanguine about Iranian tensions, however. Offsetting supplies and what he sees as Tehran's poor bargaining hand will quickly reverse the estimated $5 of this year's price jump that he ascribes solely to Iran.
Still, he added that back-of-the-envelope calculations suggest that if Iran made good on its threat to block the critical Straits of Hormuz - the narrow shipping passage through which a full fifth of the world's traded oil flows - it could lift crude prices as high as $210, or almost twice current levels.
Even though the correlation between quarterly oil price changes and global GDP growth is essentially zero since 1970, spikes of that scale have packed a serious punch. Over these 42 years, any doubling of year-on-year prices has presaged either a U.S. recession or at least steep slowdowns as was the case in 2001.
But the nature of the oil spike is crucial. Gauging the impact is dependent on several variables including the scale of the price move, how long it is sustained and -- crucially -- whether it is driven by supply problems or surging demand.
Small moves or big spikes quickly reversed tend to have negligible impacts over time due to a variety of hedging or smoothing strategies adopted by consumers. Similarly, a rise in oil prices due to a boom in demand is, intuitively, far more benign to the world economy than a sudden supply shock.
Moreover, damage to business and financial confidence can amplify the effects in developed economies. But there is also the longer-term effect of energy exporters recycling the windfalls back into world credit and equity markets.
Modelling all these ifs and buts, JPMorgan economist Joseph Lupton said his framework suggested a 1 million barrel a day shortfall in the supply of oil would push oil prices up 26 percent and, if maintained for a year, damp global gross domestic product by 0.5 percentage points.
Significant, then, but not disastrous on its own. Softening the blow would be any release of special reserves, while wider financial market volatility could exaggerate any hit.
Lupton said the bank's central scenario is for Iran tensions to ultimately wane and additional supplies from the likes of Saudi Arabia, Libya and Iraq to rein back prices to about $110.
But "the risk of a damaging oil shock is never far around the corner. Although the data flow of late has pointed tentatively to building momentum, the global recovery remains fragile and thus vulnerable to even temporary shocks."
(Graphics by Scott Barber and Vincent Flasseur)