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Geopolitical risk and vulnerability of energy markets

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  • Liu, Zhenhua
  • Wang, Yushu
  • Yuan, Xinting
  • Ding, Zhihua
  • Ji, Qiang

Abstract

Geopolitical risk, as a key determinant of energy supply, greatly influences the vulnerability of energy markets. This study develops a novel energy market vulnerability index—which measures the level and dynamics in vulnerability of energy markets from market risk perspective—using a quantile connectedness approach for the first time. Then, by introducing a generalized autoregressive conditional heteroskedasticity–mixed-data sampling (GARCH-MIDAS) model, we explore the impact and predictive role of geopolitical risk on the vulnerability of energy markets. We find that the vulnerability of energy markets showed an upward trend and fluctuated considerably during 2007–2024. Moreover, geopolitical risk positively affects the vulnerability of energy markets. Finally, the vulnerability of energy markets can be forecasted better by the predictor, geopolitical risk. Our results offer useful insights for investors and policy-makers in the energy markets.

Suggested Citation

  • Liu, Zhenhua & Wang, Yushu & Yuan, Xinting & Ding, Zhihua & Ji, Qiang, 2025. "Geopolitical risk and vulnerability of energy markets," Energy Economics, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007643
    DOI: 10.1016/j.eneco.2024.108055
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