Geopolitical Oil-Supply Scenarios and Macroeconomic Risks: A Bayesian Toolkit for Policy Analysis

This paper develops a tractable framework that maps geopolitical risk in the Middle East to oil prices and macroeconomic conditions through three linked blocks. Geopolitical uncertainty is modelled as a probability distribution over a small set of mutually exclusive scenarios, whose weights are updated with prediction-market prices, structured expert assessments and high-frequency indicators via Bayesian methods. Each scenario is then translated into a net oil supply shortfall after inventory and reserve buffers, which in turn feeds a reduced-form but economically interpretable Brent price equation grounded in recent oil market research. The same architecture can be combined with standard statistical forecasts to check the internal consistency of scenario mixtures and, in reverse, to infer the scenario configuration implicit in observed oil prices. The framework is designed as an operational tool for central banks and other policy institutions to structure geopolitical scenario analysis, quantify resulting oil price and inflation risks and update these assessments in real time.