Not all political shocks are alike: Decoding the heterogeneous impacts of political uncertainties in the LNG market

This paper identifies the distinct impact profiles of different political shocks on China's imported spot LNG landed price. We analyze the effects of three political shocks (geopolitical risk, economic policy uncertainty, and climate policy uncertainty) on LNG price across different time horizons, using a time-varying parameter structural vector autoregression (TVP-SV-VAR) model. The results indicate that all three political risk indices are significantly correlated with LNG price fluctuations but exhibit substantial heterogeneity. First, regarding the magnitude of impact, climate policy uncertainty exerts the strongest effect on LNG price. Second, concerning the persistence of impact, economic policy uncertainty has a more enduring effect on LNG price movements compared to climate policy uncertainty and geopolitical risk. Furthermore, the impacts of these three political shocks on LNG price demonstrate significant heterogeneity during critical political events, such as the Sino-US trade war, the COVID-19 pandemic, and the Russia-Ukraine conflict. By differentiating the magnitude and persistence of these risks, this study clarifies the distinct implications of various political shocks for energy security and holds important implications for LNG market trading decisions and policy.