Dr. Emery
This post is opinion only. See full disclaimer below.
This paper is a preliminary release intended to advance my broader argument. Specific analysis; sources and references remain subject to revision and correction. See additional comments below.
Abstract
MCAH shows how political power, illicit capital, and asset capture distort commodity prices in the oil sector beyond efficient market theory.
Introduction
The new asset approach I have defined, “Macropolitical Captured Asset Hypothesis (MCAH),” was created as a general framework for understanding asset price behavior across a wide variety of classes. Unlike conventional models that focus narrowly on statistical efficiency, MCAH emphasizes the more complex interplay of political power, shadow capital, illicit flows, political enforcement, and institutional capture as mechanisms that shape asset outcomes. It seeks to explain not only financial securities but also commodities, state-owned enterprises, and many hybrid markets where political and economic logics converge. The model is meant to correct EMH’s abstraction from political power, coercion, opacity, and rent pipelines (Carnahan & Saiegh, 2021; International Monetary Fund, 2025).
One area where MCAH’s key premise has been indirectly tested—and found to contradict Eugene Fama’s Efficient Market Hypothesis (EMH)—is the oil sector. Recent research demonstrates that oil prices are often fundamentally distorted by the kinds of elements which MCAH highlights, geopolitical shocks, sanctions, cartel coordination, and shadow fleets, producing anomalies inconsistent with EMH’s assumption of unified, transparent, and information-efficient markets. For example, Gronwald et al. (2024) show that oil markets exhibit “turbulence” rather than efficiency during downturns; Kilian et al. (2024) highlights how geopolitical oil price risk drives predictable asset volatility; and Mignon and Saadaoui (2023) argue that political power often systematically impacts oil prices in ways EMH simply cannot adequately explain. Studies of sanctions and shadow fleets further confirm that benchmark fragmentation undermines EMH’s core assumptions (Rodriguez-Diaz et al., 2025; Brooks & Harris, 2025).
Oil markets represent an important case study area that show’s MCAH’s analytical edge. Prices deviate from EMH under embargoes, wars, sanctions, cartel coordination, and shadow fleets, which create persistent segmentation, opacity, and enforcement-driven volatility regimes. These dynamics fracture benchmarks and undermine unified price discovery across transparent and clandestine settings (Click & Weiner, 2007; International Energy Agency, 2023; Rodriguez-Diaz et al., 2025; Brooks & Harris, 2025; Kilian et al., 2024).
Towards a Broader Comparative Preliminary Case Study
To further clarify these mechanisms, this essay undertakes a broader preliminary comparative case study of diverse episodes: the 1970s oil embargo, Iraq War I, Russian illicit networks in oil distribution, Iraq War II, Petrobras corruption scandals, Saudi Arabia’s 2010s production surge, the Israel–Iran conflict, and recent sanctions with shadow fleets. Each case illustrates how capture dynamics—whether cartel coordination, military enforcement, corruption, illicit logistics, or clandestine maritime networks—reshape asset prices through mechanisms beyond information efficiency.
Has a Broad Comparative Study Been Done?
While there is extensive literature on individual episodes—such as OPEC behavior (Yergin, 2008; Kohl, 2002), corruption in Petrobras (Taylor, 2017; Montero, 2019), or sanctions and shadow fleets (Katona, 2023; International Energy Agency, 2023)—there is to my knowledge no comprehensive small-N comparative study that systematically links these diverse cases under a unified framework. Most research remains siloed: energy economics focuses on supply-demand shocks, political science on corruption, and security studies on war and sanctions. The absence of a broad comparative synthesis suggests that MCAH fills a critical gap by offering an integrative model.
Case studies
1970s oil embargo OPEC’s coordinated export restrictions produced a dramatic price shock and global stagflation, demonstrating the pricing power of producer states and the political orchestration of supply control (Yergin, 2008). The episode contradicts EMH’s frictionless information assimilation, highlighting deliberate rent creation via cartel strategy backed by political authority (Yergin, 2008). Petrodollar recycling routed windfall revenues into opaque banking circuits, concentrating bargaining power and building shadow pools of capital that reshaped global finance and credit allocation (Kohl, 2002; Gowan, 1999). This opacity was not incidental; it stabilized rents and shifted leverage among producers, banks, and consumer states (Kohl, 2002; Gowan, 1999). Domestically, oil rents financed patronage and industrial agendas, while import-dependent economies underwent painful policy adjustments. MCAH interprets this as capture through cartel coordination, opacity, and rent recycling; EMH relegates these dynamics to “news” without mechanisms of power and control (Yergin, 2008; Kohl, 2002; Gowan, 1999).
Iraq War I (1990–91) Coalition operations secured chokepoints, stabilized flows, and signaled credible enforcement, producing a sharp spike followed by normalization as military logistics reasserted control (Mabro, 1991). The price path tracked coercive authority over physical flows, not merely public information updates (Mabro, 1991). Sanctions constrained Iraq’s exports and narrowed smuggling channels, shifting rents toward aligned producers (notably Saudi Arabia), which responded by modulating capacity and cushioning supply (Cordesman & Wagner, 1990). Enforcement, its timing and credibility, operated as a pricing instrument by resetting expectations with demonstrated capacity to protect flows (Cordesman & Wagner, 1990). The broader pattern: where political authority governs logistics, asset prices reflect structural volatility and regime shifts. MCAH endogenizes enforcement and coercion; EMH does not model the causal role of authority over flows (Mabro, 1991; Cordesman & Wagner, 1990).
Russian illicit networks in oil distribution (1990s) State fragmentation enabled illicit networks to capture regional logistics, evade taxes, and undercut legitimate distributors, entrenching distorted local pricing (Shelley, 1995). These “violent entrepreneurs” substituted for weak institutions, monetizing control of transport, access, and retail margins through extra-legal governance (Volkov, 2002). Illicit flows stabilized via laundering, protection rackets, and informal contracts, producing quasi-equilibria that persisted despite official policy signals. Prices reflected network governance and enforcement forbearance, not competitive efficiency (Shelley, 1995; Volkov, 2002). Under MCAH, these outcomes arise from captured microstructures—logistics monopolies, tolerated opacity, and transactional enforcement—while EMH misclassifies durable distortions as temporary noise (Shelley, 1995; Volkov, 2002).
Petrobras corruption and Operation Car Wash (2000s–2010s) Petrobras’s procurement was colonized by partisan patrons and contractors, inflating capex and embedding kickbacks into project selection. Equity and credit markets repriced on credible revelations of systemic corruption and rent pipelines (Taylor, 2017; Montero, 2019). Operation Car Wash activated judicial and prosecutorial authority against entrenched patronage, reconfiguring alliances and shifting control from partisan actors to courts, with asset prices responding to enforcement shocks and anticipated governance changes (Bechara & Goldschmidt, 2020; Minson & Winter, 2024). Post-Car Wash, markets priced higher uncertainty premia for state-linked assets, recognizing that enforcement could rewire political capital and investment trajectories. MCAH situates price resets in the distributional architecture of rents; EMH under-specifies enforcement as a causal driver (Taylor, 2017; Montero, 2019; Bechara & Goldschmidt, 2020; Minson & Winter, 2024).
Iraq War II (2003) Pre-invasion expectations of supply restoration collided with insurgency, sabotage, and state collapse, suppressing output and sustaining a geopolitical risk premium (Bromley, 2005). Price behavior tracked governance viability rather than public forecasts of capacity (Bromley, 2005). Illicit flows reconstituted under non-state actors, entrenching smuggling linked to territorial control and cross-border leakage. These channels stabilized volumes for some buyers while destabilizing transparent benchmarks (Bromley, 2005). The divergence between anticipated supply gains and realized instability demonstrates political authority’s role in asset regimes. MCAH clarifies the path dependence of prices under insurgent logistics; EMH’s anticipatory efficiency cannot reconcile persistent risk premia with public expectations (Bromley, 2005).
Saudi production surge vs. U.S. frackers (2014–2016) Saudi Arabia deployed capacity to discipline higher-cost U.S. shale, deliberately compressing margins and accelerating consolidation, wielding sovereign control over output as a strategic weapon (Krane & Aghel, 2017). Prices fell as a function of deliberate cost-curve exploitation, not neutral information updates (Krane & Aghel, 2017). Industry outcomes—bankruptcies, hedging losses, capital exit from marginal plays—reflected structural power and liquidity pressure engineered by a swing producer, translating geopolitical bargaining power into commercial advantage (Stevens, 2016). MCAH predicts this pattern of unilateral discipline, sector consolidation, and leverage rebalance without relying on EMH’s statistical abstraction. Enforcement here is capacity deployment under sovereign authority (Krane & Aghel, 2017; Stevens, 2016).
Israel–Iran conflict (2020s) Threat signaling in the Gulf and Levant generated volatility episodes absent sustained supply destruction, while Iranian exports continued via sanctions circumvention and shadow fleets, buffering aggregate flows despite the risk backdrop (Katona, 2023; Mignon & Saadaoui, 2023). Prices reflected the mix of credible disruption and entrenched clandestine logistics rather than transparent, unified benchmarks (Katona, 2023; Mignon & Saadaoui, 2023). This coexistence—volatility with persistent clandestine trade—fits MCAH’s claim that markets equilibrate around power-shaped logistics, not pure transparency, with rents extracted through the durability of illicit channels (Katona, 2023; Mignon & Saadaoui, 2023).
Sanctions and shadow fleets (2020s–2025) Sanctioned producers built clandestine fleets through reflagging, AIS manipulation, and ship-to-ship transfers, routing around insurance and compliance, creating parallel channels and dual markets (International Energy Agency, 2023; Rodriguez-Diaz et al., 2025). The expansion of shadow capacity and adaptive routing reinforces the durability of illicit flows even as formal enforcement escalates (Brooks & Harris, 2025; Childs, 2025). Benchmark fragmentation introduces wedges between transparent and opaque venues, increasing basis risk and volatility, especially around enforcement timing and compliance shocks (International Energy Agency, 2023; Rodriguez-Diaz et al., 2025; Brooks & Harris, 2025). The literature further details sanctions’ role in segmenting liquidity and distorting price discovery across dual regimes (Bordoff & O’Sullivan, 2024). MCAH reads these dynamics as capture by logistics actors and sanctioned states monetizing regulatory arbitrage. EMH’s assumptions of integrated, transparent markets do not hold under dual pricing, hidden volumes, and enforcement-induced regime shifts (International Energy Agency, 2023; Rodriguez-Diaz et al., 2025; Brooks & Harris, 2025; Bordoff & O’Sullivan, 2024; Childs, 2025).
Mechanisms
- Supply chokepoint leverage: Political authority over chokepoints and capacity translates into price power and rent extraction, whether through cartel restriction, military control, or sovereign output discipline (Yergin, 2008; Mabro, 1991; Cordesman & Wagner, 1990; Krane & Aghel, 2017; Stevens, 2016).
- Opacity as a tool: Shadow capital, clandestine logistics, and corruption pipelines are constructed to sustain rents and shift bargaining power; opacity is a strategic instrument, not noise (Kohl, 2002; Gowan, 1999; Taylor, 2017; Montero, 2019; International Energy Agency, 2023; Rodriguez-Diaz et al., 2025).
- State–market fusion: Firms, parties, courts, and extra-legal actors co-govern asset regimes. Political authority fuses with corporate and market mechanisms, changing pricing via patronage and enforcement (Bechara & Goldschmidt, 2020; Minson & Winter, 2024; Shelley, 1995; Volkov, 2002; Krane & Aghel, 2017).
- Enforcement calibration and signaling: Timing, credibility, and scope of enforcement—military, judicial, regulatory—set volatility regimes and redistribute rents across actors (Mabro, 1991; Montero, 2019; Bechara & Goldschmidt, 2020; Childs, 2025; Brooks & Harris, 2025).
- Redistributive pipelines of rents: Rents extracted through capture are recycled into patronage, budgets, and industrial policy, stabilizing coalitions and pricing structures despite formal constraints (Kohl, 2002; Gowan, 1999; Taylor, 2017; Montero, 2019; Brooks & Harris, 2025).
- Dual markets and benchmark fragmentation: Sanctions and compliance regimes split liquidity into transparent and opaque pools, with shadow fleets and off-benchmark pricing creating persistent wedges and basis risks (International Energy Agency, 2023; Rodriguez-Diaz et al., 2025; Brooks & Harris, 2025; Bordoff & O’Sullivan, 2024).
- Political risk transmission across asset classes: Geopolitical and corruption shocks propagate across equities, sovereign debt, and currencies, altering premia, comovement, inflation paths, and crisis sensitivity (Carnahan & Saiegh, 2021; International Monetary Fund, 2025; Gronwald et al., 2024).
Conclusion
Across embargoes, wars, criminal networks, corruption scandals, unilateral production discipline, and sanctions, asset behavior aligns with macropolitical capture rather than efficient markets. Prices respond to who controls flows, who enforces rules, and how rents are recycled into power. Oil market cases demonstrate repeatable pathways by which political actors shape volatility and levels; broader evidence from equities, sovereign debt, and other commodities shows that geopolitical risk and corruption systematically alter premia, comovement, inflation dynamics, and benchmark integrity (Carnahan & Saiegh, 2021; International Monetary Fund, 2025). MCAH integrates mechanisms—chokepoint control, constructed opacity, state–market fusion, enforcement calibration, rent recycling, and benchmark fragmentation—into a coherent framework that explains and anticipates outcomes. EMH abstracts from political structures and cannot account for durable distortions, dual markets, or enforcement-induced regimes. In politically saturated asset environments, MCAH is superior: it connects power to prices and rents, yielding predictive insight into regime shifts and structural repricing (Click & Weiner, 2007; Kilian et al., 2024).
References
Bechara, F. R., & Goldschmidt, P. C. (2020). Lessons of Operation Car Wash: A legal, institutional, and economic analysis. Wilson Center. Bordoff, J., & O’Sullivan, M. (2024). Sanctions on Russia and the splintering of the world oil market. American Enterprise Institute. Brooks, R., & Harris, B. (2025). The race to sanction Russia’s growing shadow fleet. Brookings Institution. Bromley, S. (2005). The United States and the control of world oil. Government and Opposition, 40(2), 225–255. Carnahan, D., & Saiegh, S. (2021). Political shocks and asset prices. Political Science Research and Methods, 13(1), 1–18. Childs, N. (2025). Russia’s shadow fleet and sanctions evasion: What is to be done? International Institute for Strategic Studies. Click, R. W., & Weiner, R. J. (2007). Does the shadow of political risk fall on asset prices? Oily evidence (Working paper). George Washington University. Cordesman, A. H., & Wagner, A. R. (1990). The lessons of modern war: Vol. II. The Iran–Iraq War. Westview Press. Gowan, P. (1999). The global gamble: Washington’s Faustian bid for world dominance. Verso. Gronwald, M., Wadud, S., & Dogah, K. (2024). Oil market efficiency, quantity of information, and oil market turbulence (CESifo Working Paper No. 10995). International Energy Agency. (2023). Oil market report – July 2023. IEA. International Monetary Fund. (2025). Geopolitical risks: Implications for asset prices and financial stability. In Global Financial Stability Report, April 2025 (Chapter 2). Katona, V. (2023). Shadow fleets and sanctions evasion in global oil markets. Energy Intelligence. Kilian, L., Plante, M. D., & Richter, A. W. (2024). Geopolitical oil price risk and economic fluctuations (Working Paper No. 2403). Federal Reserve Bank of Dallas. Kohl, W. L. (2002). OPEC behavior, 1998–2001. The Quarterly Review of Economics and Finance, 42(2), 209–233. Krane, J., & Aghel, F. (2017). Saudi Arabia’s oil price war and the future of OPEC. Energy Policy, 107, 123–133. Mabro, R. (1991). Oil markets and prices: The Brent market and the formation of world oil prices. Oxford Institute for Energy Studies. Mignon, V., & Saadaoui, J. (2023). How political tensions and geopolitical risks impact oil prices (INFER Working Paper). Minson, E., & Winter, S. (2024). Judicial institutions and institutional corruption: Some lessons of Operation Car Wash for a further research agenda. In The fight against systemic corruption (pp. 1–20). Springer. Montero, A. P. (2019). Corruption and political fragmentation: Lessons from Brazil’s Operation Car Wash. Latin American Politics and Society, 61(3), 125–150. Rodriguez-Diaz, E., Alcaide, J. I., & Endrina, N. (2025). Shadow fleets: A growing challenge in global maritime commerce. Applied Sciences, 15(12), Article 6424. Shelley, L. (1995). Post-Soviet organized crime: The challenge of transition. Journal of Communist Studies and Transition Politics, 11(4), 1–19. Stevens, P. (2016). The collapse in oil prices: Causes, consequences and policy responses. Chatham House. Taylor, M. M. (2017). Getting to accountability: Brazil’s corruption scandal and the politics of reform. Cambridge University Press. Volkov, V. (2002). Violent entrepreneurs: The use of force in the making of Russian capitalism. Cornell University Press. Yergin, D. (2008). The prize: The epic quest for oil, money, and power. Free Press.
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Additional Comments:
This paper as suggested at the outset is preliminary only. Advanced language tools were in the interests of getting the model itself to the public quickly also used. As such, some of the specific sections lack the usual depth of analysis I prefer and are presented in cursory form only. A fuller more detailed analysis that will provide much more content and discussion especially about some of the source materials and the broader implications for investing itself in my usual more personalized style will be forthcoming. I believe you will find it interesting so refer back and stay tuned.
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