From Goldman Sachs research, this is Alison Nathan.

Welcome to Top of Mind, a podcast that explores macroeconomic issues on the minds of our clients.

In this episode, we're taking a look at geopolitical risks around the world and their impact

on the global economy and markets.

As recession fears loom, some of these geopolitical risks are fueling growth worries.

The major example of this is, of course, the ongoing U.S.-China trade war, a topic we've

explored in several recent episodes.

On the other hand, one of the largest geopolitical shocks in recent memory, namely the

unprecedented attack on Saudi Arabia's oil infrastructure that resulted in the biggest daily

disruption in oil supplies in history, has gone almost unnoticed by markets.

That's despite the fact that oil shocks historically have been one of the most common causes of

recession, and the already substantial disorder in the Middle East only looks set to worsen,

as tensions have intensified in many parts of the region, at the same time that the United States seems to be walking away from commitments that have helped shore up regional stability.

Whether the market's response to recent developments in the Middle East is warranted, and just how vulnerable the economy and markets are to these and other geopolitical shocks is top of mind.

To understand why the market's response to the recent oil disruption was so muted, I first

turned to Goldman Sachs' head of energy research, Damien Cuervilleen.

He explains that despite the historically large size of the disruption, the oil market is much

better positioned to deal with supply outages today than in the past. That's true even

relative to a year ago when the market was facing another big disruption, the loss of Iranian

oil supplies, after the U.S. walked out of the 2015 nuclear deal and imposed sanctions on Iran.

The Saudi disruption was roughly twice the size, but had a much smaller price impact.

Here's why.

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