Key points
- Shows up most clearly in oil, gold, defence shares and the currencies of affected countries.
- Tends to shrink once the uncertainty clears, unless supply is actually disrupted.
- Hard to measure directly; analysts infer it from price moves that supply and demand don't explain.
Example
If oil jumps $5 a barrel after an attack on a tanker even though no supply has been lost, much of that rise is a risk premium.
In history
In September 2019 drone attacks on Saudi oil facilities briefly knocked out about 5% of world supply. Brent jumped almost 15% in a day, then gave up most of the gain within two weeks as output was restored.
Related terms