Spillover effects of separated oil price shocks on regional financial stress amidst Russia–Ukraine and global geopolitical tensions: a novel GVAR approach

Faroque Ahmed () and Kazi Sohag ()
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Faroque Ahmed: Ural Federal University
Kazi Sohag: Ural Federal University

Eurasian Economic Review, 2025, vol. 15, issue 3, No 4, 593-639

Abstract: Abstract The sophisticated nature of the global financial system is shaped by a refined web of cross-border connections and interdependencies. Using the Global Vector Autoregressive (GVAR) framework, we investigate the dynamic response of financial stress to counterfactual shocks arising from Russia, Ukraine and global geopolitical risks and separated oil price shocks affecting the G-20, EURO, Nordic, and ‘rest of Asia’ blocs. We analyse quarterly data from 1979-Q2 to 2023-Q3 for 33 developed and emerging economies. Empirical estimation based on counterfactual shock analysis reveals that a 1% positive shock to the Russian Geopolitical Risk (RGPR) amplifies the Financial Stress Index (FSI) of the 'rest of Asia' bloc most profoundly (8.1%), while the Nordic bloc is impacted the least (2.1%). The escalating impacts of Ukraine Geopolitical Risk (UGPR) and Global Geopolitical Risk (GGPR) on the FSI of different regions are relatively weaker than that of the RGPR in terms of intensity. Furthermore, Oil Price Risk Shock (ORS) emerges as the strongest source of risk spillovers to the regional FSI compared to Oil Price Demand Shocks (ODS) and Oil Price Supply Shocks (OSS). Notably, the financial market of the EURO bloc is identified as the most sensitive (8%) to oil price shocks, whereas the Nordic bloc demonstrates the highest resilience (0.015%). The study's implications are valuable for policymakers and market participants, providing insights for policy formulation and decision-making.

Keywords: Financial stress; Geopolitical risks (Russia; Ukraine and Global); Oil price shocks (demand; supply and risk); GVAR; Global regions (search for similar items in EconPapers)
JEL-codes: E17 F36 F37 F62 G15 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40822-025-00329-8

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