Energy Real Options as a Predictor of War: 1920s–2020s

We propose to read wars in history as investment decisions, and develop two distinct forms of real option models in this context, one for preemption and one for reserve accumulation. We then apply these models to analyse the outbreak of wars empirically. Combining two historical data sets on wars and energy prices from 1925, we show that the inclusion of energy prices improves war forecasting. Further, considering real options on commodities helps explain both resource wars and the singularity of the petroleum order.