Nouriel Roudini writes: Global markets have not reacted for several reasons. For starters, central banks in advanced economies (the United States, the eurozone, the United Kingdom, and Japan) are holding policy rates near zero, and long-term interest rates have been kept low. This is boosting the prices of other risky assets such as equities and credit.

Second, markets have taken the view that the Russia-Ukraine conflict will remain contained, rather than escalating into a full-scale war. So, though sanctions and counter-sanctions between the West and Russia have increased, they are not causing significant economic and financial damage to the European Union or the US. More important, Russia has not cut off natural-gas supplies to Western Europe, which would be a major shock for gas-dependent EU economies.

Third, the turmoil in the Middle East has not triggered a massive shock to oil supplies and prices like those that occurred in 1973, 1979, or 1990. On the contrary, there is excess capacity in global oil markets. Iraq may be in trouble, but about 90% of its oil is produced in the south, near Basra, which is fully under Shia control, or in the north, under the control of the Kurds. Only about 10% is produced near Mosul, now under the control of the Islamic State.

Finally, the one Middle East conflict that could cause oil prices to spike – a war between Israel and Iran – is a risk that, for now, is contained by ongoing international negotiations with Iran to contain its nuclear program.

So there appear to be good reasons why global markets so far have reacted benignly to today’s geopolitical risks.   Why the Markets Have not Responded to Geopolitical RIsks