Geopolitical Oil Price Risk and Economic Fluctuations

Lutz Kilian, Michael Plante and Alexander Richter

No 19113, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper seeks to understand the general equilibrium effects of time-varying geopolitical risk in oil markets. Answering this question requires simultaneously modeling several features including macroeconomic disasters and geopolitically driven oil production disasters, oil storage and precautionary savings, and the endogenous determination of uncertainty about output and the price of oil. We find that oil price uncertainty tends to be driven by macroeconomic uncertainty. Shifts in the probability of a geopolitically driven major oil supply disruption have meaningful effects on the price of oil and the macro economy, but the resulting oil price uncertainty is not a major driver of fluctuations in macroeconomic aggregates.

JEL-codes: E13 E22 E32 Q43 (search for similar items in EconPapers)
Date: 2024-05
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Working Paper: Geopolitical Oil Price Risk and Economic Fluctuations (2026)
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