Multilayer connectedness across geopolitical risks, clean, and dirty energy markets: The role of global uncertainty factors and climate surprise

Ahmed H. Elsayed, Mohammad Enamul Hoque and Mabruk Billah

Energy Economics, 2025, vol. 144, issue C

Abstract: Geopolitical risks and energy markets have always been deeply connected. This relationship is complex and heterogeneous, including high extreme geopolitical shocks periods like the COVID-19 and the Russia-Ukraine conflict. Therefore, this paper aims to examinate the interconnectedness and spillover effects between geopolitical events, geopolitical threats, and both clean and dirty energy commodity markets. To achieve this objective, we employ the multilayer analysis and the decomposed R-squared connectedness approach. Additionally, to explore the dominant roles of global economic and financial market uncertainty factors and climate surprises, we use the Wavelet Local Multiple Correlation method. Empirical findings reveal a moderate level of interconnectedness between geopolitical events, risks, and energy markets, with contemporaneous spillover playing a more significant role than lagged connectedness. Moreover, geothermal, solar, gasoline, WTI oil, and heating oil are primary drivers of contagion, while biofuel, fuel cell, wind, natural gas, gasoil, GPR act, and GPR threat are net receivers, with these roles changing over time in response to various economic and extreme geopolitical factors. These findings offer valuable suggestions to market players, policymakers, governments and energy sectors in terms of investments and risks management, who must be aware that interconnectedness increases during high extreme geopolitical crises and instabilities, leading to greater spillover effects among not only energy markets, but also further afield in commodity markets, economies and financial systems.

Keywords: Geopolitical risk; Clean energy; Dirty energy; Multilayer spillover networks; Extreme events (search for similar items in EconPapers)
JEL-codes: C58 E44 G11 Q43 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:144:y:2025:i:c:s0140988325001665

DOI: 10.1016/j.eneco.2025.108342

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