The Effects of Geopolitical Oil Price Shocks

Guillermo Verduzco-Bustos and Francesco Zanetti

No 12606, CESifo Working Paper Series from CESifo

Abstract: We develop a novel instrumental variable to identify geopolitical oil price shocks arising around significant geopolitical tensions and examine their transmission to the global oil market, key U.S. macroeconomic aggregates, and cross-border spillover effects on other commodity markets, output, and inflation. Geopolitical oil price shocks resemble severe oil supply shocks, leading to production declines and a much sharper increase in oil prices than conventional shocks. They are coupled with heightened uncertainty and induce a distinct inventory response: an initial short-term decline followed by long-term accumulation, reflecting market participants' concerns about future economic and oil market conditions. The cross-border spillover effects are significant for oil-intensive commodities, and are stronger for output and inflation in oil-importing economies and for countries with low energy inventories and high energy dependency on foreign supply.

Keywords: geopolitical risk; oil price shocks; VAR model; identification; spillovers; commodity markets (search for similar items in EconPapers)
JEL-codes: C32 E22 E31 E32 Q43 (search for similar items in EconPapers)
Date: 2026
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