Journal article
What are the categories of geopolitical risks that could drive oil prices higher? Acts or threats?
Energy economics, v 84, pp 1-14
Oct 2019
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
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•We evaluate the dynamic dependence between oil prices and geopolitical risks.•We separate shocks due to geopolitical acts from those due to geopolitical threats.•We construct a composite geopolitical risk indicator that summarizes recent sources of risks.•We show a positive and strong (moderate) response of oil prices to geopolitical acts (threats).•The reaction of oil to geopolitical risks is conditional on different categories of geopolitical risks.
This study characterizes the oil market as a nonlinear-switching phenomenon and examines its dynamics in response to changes in geopolitical risks over low- and high-risk scenarios. We separate the shocks due to geopolitical acts from those due to geopolitical threats to address whether the serious effects of geopolitical risks are mostly due to increased threats of adverse events or to their realization as acts. While we find the acts to generate a positive and strong impact on oil price dynamics, the effect of threats appears to be moderate or non-significant. Imperfect information in the oil price determination, the history of oil supply disruptions emanating from geopolitical events, the continued rise in populism in the world, oil market volatility, multifractility and the time-varying degree of weak-form efficiency have been advanced to explain the unforeseen responses of oil prices to geopolitical threats. To accommodate recent oil-related events, we construct a composite geopolitical risk indicator by accounting for contemporaneous sources of geopolitical risks, namely global trade tensions, US-China relation risks, US-Iran tensions, Saudi Arabia’s uncertainty and Venezuela’s crisis. The combined effects have an outsized impact on oil prices.
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Details
- Title
- What are the categories of geopolitical risks that could drive oil prices higher? Acts or threats?
- Creators
- Jamal Bouoiyour - University of Pau and Pays de l'AdourRefk Selmi - Institut de Recherche en Santé, Environnement et TravailShawkat Hammoudeh - Bennett S. LeBow College of Business - Department of Economics and International BusinessMark E. Wohar - College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA
- Publication Details
- Energy economics, v 84, pp 1-14
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000506712700053
- Other Identifier
- 991019167632404721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Economics