Oil price changes, uncertainty, and geopolitical risks: On the resilience of GCC countries to global tensions

Abdullah Alqahtani and Tony Klein

Energy, 2021, vol. 236, issue C

Abstract: We examine the long-term impact of oil prices, price uncertainty, and local and global geopolitical risks on Gulf Cooperation Council (GCC) stock markets from May 2007 to August 2018. We apply the ARDL methodology to all member states and control for other sources of risk such as implied volatility of equity and oil markets. This framework captures dependencies and connectedness’ across several time horizons, quantifying the impact of geopolitical risk on GCC countries. While all markets are highly sensitive to changes in energy prices and volatility in the long run, only the stock market of Qatar is negatively affected by global geopolitical risk. All other member states are resilient on a global scale. The negative effects of local geopolitical events—measured as the Saudi Arabian geopolitical risk index—are much more pronounced for GCC members and highly significant. The results show that each GCC country responds differently to shocks in geopolitical uncertainty. Surprisingly, Saudi Arabia as the economic and political heavyweight of the GCC shows no long-term reaction to its local geopolitical risks. Our findings are relevant in terms of risk transmission and hedging for market participants as well as energy market supply and security for policy makers.

Keywords: Geopolitical risk; Oil producing countries; Equity markets; GCC; ARDL (search for similar items in EconPapers)
JEL-codes: C58 F49 F51 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:236:y:2021:i:c:s0360544221017898

DOI: 10.1016/j.energy.2021.121541

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