The purpose of this study is to empirically investigates the influence of geopolitical risk acts (GPR) on world crude oil production. GPRs are a proxy for waging wars and military actions, thus it is expected to have a clear impact on world crude oil production (WCOP).
The current study formulates a theoretical model, and its parameters are estimated using three methodologies – traditional autoregressive distributed lag (ARDL) model, Dynamic ARDL model, and Frequency domain causality test – across the period 1973–2023 to ensure robust findings.
The results illustrate that GPRs constrain the global crude oil supply. The final impact relies on the positive interaction term between GPRs and international economic activity from one side and the negative interaction term with crude oil prices from the other. Likewise, the findings show that geopolitical threats reduce producing crude oil. Furthermore, this research deliberates on policy implications stemming from these findings.
Examining existing literature reveals a gap in understanding the relationship between geopolitical risk and crude oil production. Most of the studies in this research strand focus on investigating the impact on oil price volatility.
