DPECO 2025 Kohler Report T2W9 (13/6 - 18/6)

Which of the following best explains why the recent conflict between Israel and Iran has not led to a prolonged oil price spike?

• The oil price is heavily controlled by OPEC, which limited price increases

• Markets are confident that US military aid will stabilise oil supply routes

• Global oil intensity has decreased and expectations are moderating demand shock

• Crude oil prices were already elevated due to post-COVID supply shortages

Answer explanation

The passage notes that the oil intensity of the economy has halved over 50 years due to efficiency and renewables. This means that each unit of GDP now requires less oil, buffering the inflationary impact of oil price shocks. Options A and B aren't supported by the text. Option D is outdated and not specific to the current conflict.

Why have the odds of a July interest rate cut in Australia declined from 97% to 80%?

• The Reserve Bank of Australia expects a rise in long-term unemployment

• Higher oil prices may contribute to increased inflationary pressure

• The local currency has fallen, increasing import costs

• Australian banks have increased lending rates independent of the RBA

Answer explanation

Higher oil prices can raise input and transport costs, leading to cost-push inflation. This may deter the Reserve Bank from cutting rates. Option A isn't mentioned. Option C contradicts the text, which shows the Aussie dollar is rising, not falling. Option D is not mentioned or implied.

Why might Donald Trump have received a cool reception in Alberta, Canada?

• He threatened Canadian energy exports with embargoes on crude oil

• He supported G7 nations in placing retaliatory tariffs on Canadian goods

• He imposed higher tariffs on countries that export steel and cars to the US

• He cancelled bilateral agreements related to North American oil pipelines

Answer explanation

The passage shows a graph of tariffs targeting G7 nations, including extras for countries exporting steel, aluminium, and cars. Canada, as a G7 country and major exporter of these goods, would be negatively impacted. Options A and D are fabricated, and B reverses the direction of the tariffs.

Why did Santos' share price remain well below the $8 takeover offer despite the high bid?

• The oil price is falling and the bid does not reflect future market expectations

• The market anticipates the government may block the foreign takeover of a strategic asset

• Investors are uncertain due to the collapse of a previous deal with Abu Dhabi and Carlile

• Market efficiency means share prices rarely reflect takeover premiums in volatile sectors

Answer explanation

The text states the bidder is a foreign government and that Santos controls critical energy infrastructure. This implies that regulatory approval is uncertain, which limits the market's confidence in the deal proceeding. Option A is incorrect because oil prices rose on Friday. Option C is not supported by any collapse—only prior silent bids. Option D is vague and doesn’t reflect actual IB economic theory on takeover premiums and expected value.

Based on Tuesday's Kohler Report, which of the following best explains investor sentiment in the oil market?

• High global demand and tight supply are keeping prices volatile and rising

• Recent military events in the Middle East have caused a prolonged spike in oil prices

• The oil market is watchful but not overly reactive to geopolitical tensions

• The decline in productivity has sharply increased oil intensity per unit of GDP

Answer explanation

The text says the oil market is alert but not alarmed and that prices are relatively stable despite conflict risk. Option A is not mentioned. Option B is directly contradicted by the lack of a prolonged spike. Option D confuses productivity and oil intensity—the latter is not discussed in this passage.

What key economic principle is highlighted by the reaction of sellers who unknowingly sold Santos shares below $6?

• Law of diminishing marginal utility in share valuation

• Information asymmetry in financial markets

• Moral hazard in foreign direct investment

• fficient market hypothesis in perfect competition

Answer explanation

The fact that some sellers did not know about private takeover bids over $8 indicates a lack of access to critical information, a classic case of information asymmetry. Option A is unrelated. Option C applies to incentives and risk, but not here. Option D incorrectly implies perfect information and rational pricing, which did not occur in this scenario.

What is the most likely short-term macroeconomic effect of the 11% surge in crude oil prices for net oil-importing countries?

• An increase in cost-push inflation due to higher input costs for firms

• A decrease in structural unemployment due to higher energy production

• An increase in cost-push inflation due to higher input costs for firms

• A decrease in interest rates as central banks seek to stimulate demand

Answer explanation

A sharp rise in oil prices raises production costs across many industries, shifting the SRAS curve leftward, causing cost-push inflation. Distractor A and C are incorrect; energy price spikes often worsen unemployment. D is plausible in a recession, but inflationary pressure might delay rate cuts.

Which of the following best explains the rise in gold prices following the outbreak of conflict?

• A fall in real interest rates has increased gold’s return relative to bonds

• Investors expect deflation, increasing gold’s purchasing power

• Gold is a safe haven asset, attracting demand during economic uncertainty

• Rising oil prices reduce gold supply, increasing scarcity and price

Answer explanation

Gold is traditionally viewed as a store of value during geopolitical or financial crises. This increases demand, raising its price. Option A could influence gold demand, but interest rates aren’t mentioned. B and D are unrelated to the specific context.

Why did the Australian dollar fall nearly 1% following news of Middle East conflict?

• Expectations of falling exports due to global trade disruptions

• A decrease in investor confidence leading to capital outflows

• Increased demand for Australian commodities due to war

• Lower interest rates in Australia compared to the United States

Answer explanation

In times of global uncertainty, investors often pull money out of smaller or risk-sensitive currencies like the AUD and move into “safe” currencies like USD or CHF. A is not directly supported in the text. C would raise the AUD. D is plausible, but not mentioned or linked to the timing.

What is the most likely economic reason why the United States softened its tone toward China, according to the data?

• China’s lower tariffs will increase US government tax revenue

• China's monopoly on rare earth minerals presents a strategic risk to the US

• US consumers benefit from Chinese goods being taxed at higher rates

• The United States has a comparative advantage in rare earth production

Answer explanation

The report identifies the US's strategic vulnerability due to China’s dominance in rare earth minerals, which are essential inputs in advanced technology and defense. Option A misunderstands the function of tariffs. Option C misrepresents the effect of tariffs on consumers (they raise prices). Option D is factually incorrect.