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How do political tensions and geopolitical risks impact oil prices?

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  • Mignon, Valérie
  • Saadaoui, Jamel

Abstract

This paper assesses the effect of US–China political relationships and geopolitical risks on oil prices. To this end, we consider two quantitative measures, the Political Relationship Index (PRI) and the Geopolitical Risk Index (GPR), and rely on structural VAR and local projection methodologies. Our findings show that improved US–China relationships, as well as higher geopolitical risks, drive up the price of oil. In fact, unexpected shocks in the political relationship index are associated with optimistic expectations of economic activity, whereas unexpected shocks in the geopolitical risk index also reflect fears of supply disruption. Political tensions and geopolitical risks are thus complementary causal drivers of oil prices, the former being linked to consumer expectations and the latter to the prospects of aggregate markets.

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  • Mignon, Valérie & Saadaoui, Jamel, 2024. "How do political tensions and geopolitical risks impact oil prices?," Energy Economics, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:eneeco:v:129:y:2024:i:c:s014098832300717x
    DOI: 10.1016/j.eneco.2023.107219
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    Cited by:

    1. António Afonso & Valérie Mignon & Jamel Saadaoui, 2023. "On the time-varying impact of China’s bilateral political relations on its trading partners (1960–2022)," Working Papers of BETA 2023-41, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Afonso, António & Mignon, Valérie & Saadaoui, Jamel, 2024. "On the time-varying impact of China's bilateral political relations on its trading partners: “Doux commerce” or “trade follows the flag”?," China Economic Review, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    Oil prices; Political relationships; Geopolitical risk; China;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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