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Managing natural resource prices in a geopolitical risk environment

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  • Aloui, Donia
  • Benkraiem, Ramzi
  • Guesmi, Khaled
  • Mzoughi, Hela

Abstract

In this paper, we analyze the potential impact of geopolitical risks on various natural resources such as oil, coal, copper, and zinc, from January 2005 to September 2022. Firstly, we employ an event study analysis to detect the impact of selected geopolitical events by assessing the significance of the abnormal returns and their cumulative effect. Secondly, we use the Time-Varying Parameter Vector-Autoregression estimation method to investigate the possible time-varying impact. Our empirical results from both methods indicate a significant impact of the ongoing Russia–Ukraine conflict on the energy commodity markets. Moreover, our findings reveal that metal prices exhibit a more stable behavior in terms of stochastic volatilities compared to natural gas and oil prices. Furthermore, the response curves of oil and natural gas prices to geopolitical index shocks suggest a downward trend, indicating a negative linear relationship between the geopolitical index and the energy market. In contrast, copper and zinc prices show a non-linear and negative relationship with the geopolitical index, although they are not very responsive to it. Overall, our study provides important implications for policymakers, investors, managers, and consumers to consider geopolitical risks while managing natural resource prices.

Suggested Citation

  • Aloui, Donia & Benkraiem, Ramzi & Guesmi, Khaled & Mzoughi, Hela, 2023. "Managing natural resource prices in a geopolitical risk environment," Resources Policy, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:jrpoli:v:83:y:2023:i:c:s0301420723003392
    DOI: 10.1016/j.resourpol.2023.103628
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