What would peace in the Middle East mean for the oil price?

This might be the price that the region has to pay for a new peace settlement. Certainly current oil prices above $60-a-barrel include a war risk premium that would bring prices down if it was removed.

Economists reckon that up to $30-a-barrel of the present oil price comprises this risk premium, which has been supported by hedge fund investments in commodities. Such hot money can leave an asset class very quickly when fundamentals change.

But after four years of terrible violence and mayhem in Iraq, and the overlapping contagion into the Palestinian territories and Lebanon, not to mention the controversy over the development of nuclear technology by Iran, peace is not only desirable but essential to secure the long-term future of the Middle East.

Political challenge

It remains to be seen whether the political will exists between old rivals, and the US and its allies to pull off this kind of landmark shift in the status quo.

However, business planners are already trying to get their heads around what a peace settlement would mean for the region. This thinking should go beyond worrying about the short-term liquidity issues of a lower oil price, as investment levels would almost certainly be maintained by cash-rich regional governments.

The bigger picture is a much brighter one. For a peace settlement would open up a new world of investment possibilities across the Middle East, and those quickest to seize them could profit hugely by taking the initial risk.

It might be like the falling of the iron curtain in Europe, although much would depend on the response of individual regimes to the changing circumstances. For an established regional hub like Dubai this could be a golden opportunity to fill the real estate now under construction with new business and commerce.

Regional investment

Indeed, there is so much investment needed to improve infrastructure standards - whether in oil and gas or healthcare and education - that a new regional investment boom is virtually guaranteed. International and regional money would be mobilized for this effort as the returns on investment should be high.

Could it be that a far more optimistic economic future emerges from the violence of the past four years? It is to be hoped it does and that this historic opportunity is not lost.

But with the US economy slowing, and stock markets and hedge funds in difficulties after last week's sell-off, the more immediate concern is that any move towards peace will be another factor driving oil prices down.

Yet that may just prove to be the cost of a more prosperous and secure long-term future for the region, and the oil-rich states should dig deep into their investment funds to make sure it does.