Impacts of OPEC's political risk on the international crude oil prices: An empirical analysis based on the SVAR models

Hao Chen, Hua Liao (), Bao-Jun Tang and Yi-Ming Wei

No 96, CEEP-BIT Working Papers from Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology

Abstract: The impacts of OPEC's political risk on the fluctuations of international crude oil prices have caused widespread concern and analyzing the impacts is of great significance to the investment decisions and risk aversion strategies in the crude oil markets. Therefore, using the International Country Risk Guide (ICRG) index as a proxy for the countries' political risk situation, we empirically investigate the impacts of OPEC's political risk on the Brent crude oil prices, based on several Structural Vector Autoregression (SVAR) models. The main empirical results indicate that: (1) The political risk of OPEC countries does have a significant and positive influence on Brent crude oil prices in the sample period from January 1998 to September 2014, and the most significant positive influences appear in about one and a half year and last about a year. (2) The OPEC's integrated political risk contribute to 17.58% of the oil price fluctuations in the sample period, which is only lesser than that of the oil demand shocks (34.64%). (3) Compared with the political risk of OPEC countries in North Africa and South America, the political risk of OPEC countries in Middle East contribute most to the oil price fluctuations. (4) Among the eight components of the political risk in OPEC, the internal conflicts contribute most to the oil price fluctuations in the sample period.

Keywords: OPEC; Political risk; Oil price; SVAR (search for similar items in EconPapers)
JEL-codes: Q40 Q54 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2016-10-01
New Economics Papers: this item is included in nep-ara, nep-ene, nep-pol, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (78)

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Journal Article: Impacts of OPEC's political risk on the international crude oil prices: An empirical analysis based on the SVAR models (2016)
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