Decomposed and partial connectedness between oil shocks and sovereign credit risk in emerging economies: Insights from the Russia-Ukraine war

This paper explores the decomposed and partial connectedness between oil shocks and sovereign credit risk, emphasizing the dynamics in emerging economies divided between oil-importing and exporting nations. Using data from June 28, 2013, to June 1, 2023, empirical findings indicate that oil demand and supply shocks have become net receivers during the Russo-Ukrainian war, absorbing spillovers from sovereign credit risks. Risk shocks emerge as the only consistent and intensifying net transmitters, indicating the growing role of geopolitical uncertainty in driving volatility. Mexico appears as a notable net transmitter. Brazil also plays a persistent role as a systemic transmitter, while Russia's diminishing influence and higher self-insulation reflect financial decoupling under sanctions. A decreased total connectedness during the conflict suggests a decoupling trend among countries. Our analysis demonstrates the predominance of external over internal connectedness, emphasizing the significant influence of global events. The results display distinct connectedness patterns between oil-importing and exporting countries, reflecting the varied effects of oil price volatility on sovereign credit risk, particularly during geopolitical instability.