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Does Oil Prices Cause Financial Liquidity Crunch? Perspective from Geopolitical Risk

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  • Khalid Khan
  • Chi-Wei Su
  • Ran Tao

Abstract

This study measures whether oil prices affect financial liquidity (FL) in the Kingdom of Saudi Arabi (KSA). The results indicate a positive association between oil prices (OP) and FL in the medium run. FL led OP in the short run during the global financial recession, when the KSA used foreign reserves to stabilize the impact of low OP. Similarly, geopolitical risk (GR) led OP in the medium term and had a positive influence on FL in the short term, especially during periods of higher uncertainty. The correlation between OP and FL becomes more noticeable in the medium term in the presence of GR. Short-run volatility can exert pressure on foreign reserves, which can be effectively managed by keeping reserves in the national currency. Similarly, economic growth sources other than oil income and a peaceful solution to regional differences can reduce defense spending.

Suggested Citation

  • Khalid Khan & Chi-Wei Su & Ran Tao, 2021. "Does Oil Prices Cause Financial Liquidity Crunch? Perspective from Geopolitical Risk," Defence and Peace Economics, Taylor & Francis Journals, vol. 32(3), pages 312-324, April.
    • Handle: RePEc:taf:defpea:v:32:y:2021:i:3:p:312-324
    DOI: 10.1080/10242694.2020.1712640
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    Citations

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    Cited by:

    1. Pan, Lijun & Wang, Yangjie & Sun, Xiaofei & Sadiq, Muhammad & Dagestani, Abd Alwahed, 2023. "Natural resources: A determining factor of geopolitical risk in Russia? Revisiting conflict-based perspective," Resources Policy, Elsevier, vol. 85(PA).
    2. Jiang, Wei & Zhang, Yanyu & Wang, Kai-Hua, 2024. "Analyzing the connectedness among geopolitical risk, traditional energy and carbon markets," Energy, Elsevier, vol. 298(C).
    3. Khan, Khalid & Su, Chi Wei & Khurshid, Adnan, 2022. "Do booms and busts identify bubbles in energy prices?," Resources Policy, Elsevier, vol. 76(C).
    4. Khan, Khalid & Su, Chi-Wei & Khurshid, Adnan & Umar, Muhammad, 2022. "COVID-19 impact on multifractality of energy prices: Asymmetric multifractality analysis," Energy, Elsevier, vol. 256(C).
    5. Khan, Khalid & Khurshid, Adnan & Cifuentes-Faura, Javier & Xianjun, Dai, 2024. "Does renewable energy development enhance energy security?," Utilities Policy, Elsevier, vol. 87(C).
    6. Zhang, Xiaojing & Khan, Khalid & Shao, Xuefeng & Oprean-Stan, Camelia & Zhang, Qian, 2024. "The rising role of artificial intelligence in renewable energy development in China," Energy Economics, Elsevier, vol. 132(C).
    7. Li, Zhuolun, 2023. "Do geopolitical risk, green finance, and the rule of law affect the sustainable environment in China? Findings from the BARDL approach," Resources Policy, Elsevier, vol. 81(C).
    8. Gong, Xu & Xu, Jun, 2022. "Geopolitical risk and dynamic connectedness between commodity markets," Energy Economics, Elsevier, vol. 110(C).
    9. Khan, Khalid & Khurshid, Adnan & Cifuentes-Faura, Javier, 2023. "Energy security analysis in a geopolitically volatile world: A causal study," Resources Policy, Elsevier, vol. 83(C).
    10. Li, Sufang & Tu, Dalun & Zeng, Yan & Gong, Chenggang & Yuan, Di, 2022. "Does geopolitical risk matter in crude oil and stock markets? Evidence from disaggregated data," Energy Economics, Elsevier, vol. 113(C).
    11. Khan, Khalid & Khurshid, Adnan & Cifuentes-Faura, Javier, 2023. "Investigating the relationship between geopolitical risks and economic security: Empirical evidence from central and Eastern European countries," Resources Policy, Elsevier, vol. 85(PA).
    12. Xiao Xuan & Khalid Khan & Chi-Wei Su & Adnan Khurshid, 2021. "Will COVID-19 Threaten the Survival of the Airline Industry?," Sustainability, MDPI, vol. 13(21), pages 1-18, October.

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