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The Coupled Cycles of Geopolitics and Oil Prices

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  • Mahmoud A. El-Gamal and Amy Myers Jaffe

Abstract

We analyze the coupled cycles of Middle-East geopolitical violence and oil prices. Building on earlier work that shows that low oil prices are regularly followed by geopolitical strife, and that the latter is usually followed by higher oil prices, due to actual or feared disruption in oil supply, we focus in this paper on one particular factor: Which geopolitical events are most likely to lead to sustained supply disruptions? Using discrete wavelet analysis of oil production at the country level, we find that military conflicts that destroy production installations or disrupt oil transportation networks are the most significant antecedents of sustained, long term, disruptions in oil supply; whereas nonviolent regime change, internal political strife, and low level geopolitical tensions have more limited sustained impact. We discuss a framework to analyze whether conflict-related disruptions to oil supply could be endogenous to the oil cycle and offer some policy considerations for ameliorating that cycle's impacts.

Suggested Citation

  • Mahmoud A. El-Gamal and Amy Myers Jaffe, 2018. "The Coupled Cycles of Geopolitics and Oil Prices," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    • Handle: RePEc:aen:eeepjl:eeep7-2-jaffe
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    Cited by:

    1. Qi Zhang & Yi Hu & Jianbin Jiao & Shouyang Wang, 2024. "The impact of Russia–Ukraine war on crude oil prices: an EMC framework," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    2. Ben Cheikh, Nidhaleddine & Ben Naceur, Sami & Kanaan, Oussama & Rault, Christophe, 2021. "Investigating the asymmetric impact of oil prices on GCC stock markets," Economic Modelling, Elsevier, vol. 102(C).
    3. Khan, Nasir & Saleem, Asima & Ozkan, Oktay, 2023. "Do geopolitical oil price risk influence stock market returns and volatility of Pakistan: Evidence from novel non-parametric quantile causality approach," Resources Policy, Elsevier, vol. 81(C).
    4. Liu, Siyao & Fang, Wei & Gao, Xiangyun & Wang, Ze & An, Feng & Wen, Shaobo, 2020. "Self-similar behaviors in the crude oil market," Energy, Elsevier, vol. 211(C).
    5. Agnello, Luca & Castro, Vítor & Hammoudeh, Shawkat & Sousa, Ricardo M., 2020. "Global factors, uncertainty, weather conditions and energy prices: On the drivers of the duration of commodity price cycle phases," Energy Economics, Elsevier, vol. 90(C).
    6. Abdel-Latif, Hany & El-Gamal, Mahmoud, 2020. "Financial liquidity, geopolitics, and oil prices," Energy Economics, Elsevier, vol. 87(C).
    7. Boying Li & Chun-Ping Chang & Yin Chu & Bo Sui, 2020. "Oil prices and geopolitical risks: What implications are offered via multi-domain investigations?," Energy & Environment, , vol. 31(3), pages 492-516, May.
    8. Gong, Xiao-Li & Feng, Yong-Kang & Liu, Jian-Min & Xiong, Xiong, 2023. "Study on international energy market and geopolitical risk contagion based on complex network," Resources Policy, Elsevier, vol. 82(C).

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    JEL classification:

    • F0 - International Economics - - General

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