Is Oil Political? From the Perspective of Geopolitical Risk

Chi -Wei Su, Meng Qin, Ran Tao and Nicoleta -Claudia Moldovan

Defence and Peace Economics, 2021, vol. 32, issue 4, 451-467

Abstract: This paper investigates the political property of oil from the perspective of geopolitical risk (GPR). We explore the relationship between GPR and oil price (OP) by performing the full-sample and subsample rolling-window bootstrap Granger causality tests. We find that wars will lead to an increase in OP but that low GPR cannot lead to an immediate decline in price. This finding can also be explained by economic crises, which can make OP soar while GPR is low. In turn, the rise in OP has a positive impact on GPR. The oil market has a significant interaction with geopolitical events, which reflects the pattern of global politics, so we can conclude that oil has a political property. In the context of a tense and complex global relationship, the world can benefit from the political property of oil to prevent GPR, which can in turn facilitate an accurate prediction of OP to reduce the adverse effects of large fluctuations in the oil market.

Date: 2021
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DOI: 10.1080/10242694.2019.1708562

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