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Iranian-Oil-Free Zone and international oil prices

Mohammad Reza Farzanegan and Mozhgan Raeisian Parvari

Energy Economics, 2014, vol. 45, issue C, 364-372

Abstract: One of the main elements of economic sanctions against Iran due to its nuclear and military programs is crude oil exportation restrictions in addition to investment in Iranian energy related projects. Senders of such sanction are interested in understanding the impacts of such embargos on international oil prices. We apply unrestricted vector autoregressive (VAR) model, using impulse response functions (IRF) and variance decomposition analysis (VDA) tools with annual data from 1965 to 2012 to analyze the dynamic response of international oil prices to Iranian oil export sanction. Controlling for the supply of non-Iranian oil, the world GDP per capita, and post-Islamic revolution exogenous dummy variables, we show that international oil prices respond negatively and statistically significant to increasing shock in absolute negative changes of the Iranian oil exports – our proxy of Iran oil sanctions – following the first 2years after shock. The main reason is the positive response of the non-Iranian oil supply to negative shocks in Iranian oil exports, filling the missing supply of Iranian oil in international markets.

Keywords: Oil price; VAR model; Sanction; Iran (search for similar items in EconPapers)
JEL-codes: E37 Q32 Q34 Q38 Q43 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:45:y:2014:i:c:p:364-372

DOI: 10.1016/j.eneco.2014.08.004

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