Political influence in commercial and financial oil trading: the evidence from US firms

Mila Kashcheeva and Kevin Tsui ()

No 491, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: International politics affects oil trade. But do financial and commercial traders who participate in spot oil trading also respond to changes in international politics? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine how these firms respond to increases in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. However, the political pattern of oil imports is not entirely driven by the concerns of hold-up risks, which exist when oil transactions via term contracts are associated with backward vertical FDI that is subject to expropriation. In particular, our results indicate that even financial and commercial traders significantly reduce their oil imports from U.S. political enemies. Interestingly, while these traders diversify their oil imports politically immediately after changes in international politics, other oil companies reduce their oil imports with a significant time lag. Our findings suggest that in designing regulations to avoid harmful repercussions on commodity and financial assets, policymakers need to understand the nature of political risk.

Keywords: United States; Petroleum; International trade; Foreign investments; Energy policy; International politics; FDI-based imports; Hold-up risk; Energy security (search for similar items in EconPapers)
JEL-codes: F13 F51 F59 Q34 (search for similar items in EconPapers)
Date: 2015-02-01
New Economics Papers: this item is included in nep-bec, nep-ene, nep-int, nep-mfd and nep-pol
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 491. 2015-02-01

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