LONDON After a first quarter in which seismic political upheaval in the Middle East has pushed oil prices up some $20 a barrel, investors and companies are struggling to gauge the political risks for the rest of 2011.
While global equities look to be finishing the quarter in positive territory on robust growth hopes, many market players and corporate planners admit that politics is likely to determine how the rest of the year will play out.
In the last week, daily moves on oil and cocoa markets have been driven by the ebb and flow of new civil wars in Libya and Ivory Coast. Company contingency plans have been tested to their limits by Libya, the wider "Arab Spring" and Japan's earthquake.
The rejection of austerity measures by Portugal's parliament this month shows the euro zone debt crisis is far from over. And political attempts to tackle it have been potentially further dented by Chancellor Angela Merkel's defeat in important state polls as her opponents benefited from Japan's nuclear crisis.
In the background, a host of potent geopolitical issues -- from growing strains between Israel and neighbors to Korean peninsula confrontation and perhaps Western-China tensions -- simmer at a higher temperature than in previous years.
Veteran market players say they have not seen such a wide range of political market drivers since the early 1990s, when the collapse of communism, first Gulf War and European exchange rate crisis followed in quick succession. Such events often frustrate economic and market models, they say, and many market players are too young to have experience handling them.
"Financial markets are very, very bad at dealing with political risk," said Paul Donovan, chief global economist at UBS. "Not that many traders recall what (it) is all about."
While a handful of economists and market analysts have tried to build models to predict revolutions or otherwise begin to numerically quantify political dangers, others are simply scanning the news more closely to react quickly to events.
Ultimately, it might never be possible to predict that the self-immolation of a vegetable seller in Tunisia would spark uprisings in half a dozen states and war in Libya -- or that the Japanese quake could influence election results in Germany.
Charles Robertson, chief global economist for Renaissance Capital, said some in markets were turning to one variable they could roughly model -- weather -- as a guide to the immediate future on the streets of the Middle East.
WATCHING THE WEATHER?
"There's a consensus developing that... politics will cool down as the temperature heats up, so May-September will be calmer," he said -- but in the longer term he believed regional unrest would return.
With elections coming up next year in the U.S., France, Russia and a change of key leadership positions due in China, many politicians are likely to be focused on domestic issues -- making global coordination to tackle issues much harder.
Political risk consultancies such as Eurasia Group say they have seen an uptick in demand for their services as investors try to assess which crises could spiral out of control and which might peter out.
"That's where expertise really comes in," said Eurasia Group president Ian Bremmer. "There are risks you need to watch closely but there are also some that are overstated."
Bremmer said he believed the oil-rich rulers of the Gulf -- particularly number one global producer Saudi Arabia -- were stronger than some have suggested and should withstand ongoing protest relatively intact.
The "fat tail" fringe risk of wider conflict in the Middle East remained small, he said. Nonetheless, the danger had risen sharply with heightened Israeli-Palestinian tensions and with rulers in Syria and Iran under growing domestic pressure, which could drive them to take a tougher anti-Israeli line.
He said Europe could expect more street unrest such as that seen in London last weekend -- again, some of the worst in two decades -- but with relatively little policy impact.
NORTH KOREA, CYBER THREATS
While North Korea had been relatively quiet this year after a lethal cross-border artillery exchange with South Korea and warship sinking last year, he said it remained a major danger to the global economy ahead of a likely leadership transition.
The rise of cyber attacks could also have unpredictable consequences, he said. A growing number of countries have complained of mounting hacking attempts and other attacks often blamed on China, although security experts say proving direct state involvement is often impossible.
Overall, it was the growing rivalry between emerging powers such as China and developed states led by the U.S. that would have the greatest impact on currency, commodity and other assets in the months and years ahead, Eurasia's Bremmer said.
"It's the global rebalancing and aftermath of the (financial) crisis that is really driving this rising political risk," he said.
For some reeling from the events of the recent months, the main lesson is simply to expect the unexpected.
One oil executive said all the expertise in the world only got one so far: "My main take-away here is that nobody seems capable of forecasting the actual events."
(additional reporting by Simon Jessop; Editing by Elizabeth Fullerton)