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Resilience of energy market under geopolitical risks: What’s the policy implications?

Author

Listed:
  • Cao, Jie
  • Zhu, Yingxin
  • Yin, Zhujia
  • Li, Jing
  • Chang, Chun-Ping

Abstract

This paper studies the global energy market under geopolitical risk shocks from a novel perspective of resilience. Using the time-varying parameter factor-augmented vector autoregressive model, we quantify resilience by measuring the absorption duration and the intensity from temporal and magnitude aspects. We describe the resilience of the energy market over time. Sub-market analysis shows that the oil market has a longer recovery period but higher absorption intensity than the natural gas and coal markets. We also observe that the energy market exhibits different resilience to geopolitical threats versus actual geopolitical events. Furthermore, we show that market resilience is significantly correlated with hedge ratios and market returns, underscoring the critical role of resilience in risk management. Our study highlights the importance of understanding and measuring market resilience, which provides valuable insights for policymakers and investors to enhance the security and robustness of energy markets.

Suggested Citation

  • Cao, Jie & Zhu, Yingxin & Yin, Zhujia & Li, Jing & Chang, Chun-Ping, 2025. "Resilience of energy market under geopolitical risks: What’s the policy implications?," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 1706-1724.
    • Handle: RePEc:eee:ecanpo:v:86:y:2025:i:c:p:1706-1724
    DOI: 10.1016/j.eap.2025.05.014
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    More about this item

    Keywords

    Energy market; Resilience; Geopolitical risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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