Is Geopolitical Turmoil Driving Petroleum Prices and Financial Liquidity Relationship? Wavelet-Based Evidence from Middle-East

The Iran-Saudi Arabia conflict is an ongoing struggle for influence in the region that has created uncertainty, affected oil prices and regional economics. This paper uses wavelet analysis to examine the frequency and time-varying co-movement and casual nexus between petroleum prices (OP) and financ...

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Bibliographic Details
Published in:Defence and peace economics 2023-08, Vol.34 (6), p.810-826
Main Authors: Xie, Huiqiang, Khurshid, Adnan, Rauf, Abdur, Khan, Khalid, Calin, Adrian Cantemir
Format: Article
Language:English
Subjects:
Crude oil
Dependency
Economic activity
Economic analysis
Equilibrium
financial liquidity
Geopolitical risk
Geopolitics
Impact analysis
International relations
Liquidity
Mitigation
monetary equilibrium model
oil prices
Petroleum
Political factors
Prices
Regional development
Regional economics
Regions
Uncertainty
Wavelet analysis
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Summary:The Iran-Saudi Arabia conflict is an ongoing struggle for influence in the region that has created uncertainty, affected oil prices and regional economics. This paper uses wavelet analysis to examine the frequency and time-varying co-movement and casual nexus between petroleum prices (OP) and financial liquidness (MS) with and without geopolitical risk (GPR). The aim is to test the validity of the monetary equilibrium model from 1988 to 2019. The model is supported by the findings, as both short and medium-term association is found between OP and MS at high frequencies in the presence of GPR. We find a medium-term association between OP and MS in the absence of GPR. The paper's overall conclusion suggests that GPR affects OP and OP, in turn, impact MS. Diversifying economic activities to minimize oil dependency, which is sensitive to external shocks, is suggested as a mitigation solution.
ISSN:1024-2694
1476-8267
DOI:10.1080/10242694.2022.2039525