Geopolitical Oil-Supply Scenarios and Macroeconomic Risks: A Bayesian Toolkit for Policy Analysis

Irma Alonso-Alvarez, Iván Kataryniuk, David López-Salido and Javier J. Pérez
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Irma Alonso-Alvarez: Banco de España
David López-Salido: Banco de España
Javier J. Pérez: Banco de España

No 2616, Occasional Papers from Banco de España

Abstract: This paper develops a tractable framework that maps geopolitical risk in the Middle East to oil prices and macroeconomic conditions through three linked blocks. Geopolitical uncertainty is modelled as a probability distribution over a small set of mutually exclusive scenarios, whose weights are updated with prediction-market prices, structured expert assessments and high-frequency indicators via Bayesian methods. Each scenario is then translated into a net oil supply shortfall after inventory and reserve buffers, which in turn feeds a reduced-form but economically interpretable Brent price equation grounded in recent oil market research. The same architecture can be combined with standard statistical forecasts to check the internal consistency of scenario mixtures and, in reverse, to infer the scenario configuration implicit in observed oil prices. The framework is designed as an operational tool for central banks and other policy institutions to structure geopolitical scenario analysis, quantify resulting oil price and inflation risks and update these assessments in real time.

Keywords: geopolitical risk; oil supply disruptions; energy security; scenario analysis; Bayesian updating; oil prices; inflation; macroeconomic projections (search for similar items in EconPapers)
JEL-codes: C11 C53 E31 E37 F51 Q31 Q43 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:2616e

DOI: 10.53479/44325

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