Financial liquidity, geopolitics, and oil prices

Abstract

This paper aims simultaneously to study the global dynamic relationship of oil prices, financial liquidity, and geopolitical risk, on the one hand, and the economic performance of oil-exports-dependent economies on the other. Global and country-specific dynamics are studied together in a Global Vector Autoregression (GVAR) model that allows different lag structures for different variables in different countries. Global impulse response functions from the estimated model suggest that new waves of high oil prices are unlikely, despite the likely continuation of high global financial liquidity and heightened geopolitical risk, which had driven earlier episodes of very high oil prices. With oil remaining at modest to low prices by recent historical standards, we study the prospects for economic growth in oil-export-dependent economies through dramatic increases in domestic investment, as planned under Visions 2030 of some Arab countries, and conclude that, unfortunately, success is unlikely.

Dynamic Characteristics of Crude Oil Price Fluctuation—From the Perspective of Crude Oil Price Influence Mechanism

“…Similarly, Joo et al [80] pointed out that the 2008 financial crisis had a negative impact on the crude oil market. Regional political risks will affect the oil price fluctuation by changing the global crude oil supply relationship, and it is also an important external environment variable [81], but crude oil financial products will avoid the impact of political risks on oil price fluctuation to a certain extent. Global public events, such as COVID-19, will increase the fluctuation of crude oil prices through the joint influence of supply and financial fluctuation sources.…”

Not All Political Relation Shocks Are Alike: Assessing The Impacts of Us-China Tensions On The Oil Market

“…Along with the empirical investigation of Chen et al (2016), several papers aimed at estimating the quantitative impact of political risk on the oil price dynamics (Lee et al, 2017;Miao et al, 2017;Perifanis and Dagoumas, 2019;Abdel-Latif and El-Gamal, 2020;Qin et al, 2020;Caldara and Iacoviello, 2022). Alhajji and Huettner (2000) can be considered the first attempt to assess the quantitative impact of political risk shocks on oil price fluctuations, being the sole study that incorporates quantitative measures of political tensions-security cost per barrel (i.e., the increase of military spending for each OPEC country relative to Venezuela)-in a model of oil prices during the 2000s (Coleman, 2012).…”