Does Geopolitics Have an Impact on Energy Trade? Empirical Research on Emerging Countries

TL;DR

This study empirically investigates how geopolitical risks negatively influence energy trade in emerging countries, revealing delayed effects, mediating factors like commodity prices, and heterogeneity based on country attributes and event types.

Contribution

It provides the first comprehensive empirical analysis of the complex mechanisms and heterogeneity of geopolitics' impact on energy trade in emerging economies.

Findings

Geopolitical risks significantly reduce energy imports and exports.

The negative impact persists for up to 10 months after geopolitical events.

Natural gas prices increase while coal and crude oil prices decrease due to geopolitics.

Abstract

The energy trade is an important pillar of each country's development, making up for the imbalance in the production and consumption of fossil fuels. Geopolitical risks affect the energy trade of various countries to a certain extent, but the causes of geopolitical risks are complex, and energy trade also involves many aspects, so the impact of geopolitics on energy trade is also complex. Based on the monthly data from 2000 to 2020 of 17 emerging economies, this paper employs the fixed-effect model and the regression-discontinuity (RD) model to verify the negative impact of geopolitics on energy trade first and then analyze the mechanism and heterogeneity of the impact. The following conclusions are drawn: First, geopolitics has a significant negative impact on the import and export of the energy trade, and the inhibition on the export is greater than that on the import. Second, the impact mechanism of geopolitics on the energy trade is reflected in the lagging effect and mediating effect on the imports and exports; that is, the negative impact of geopolitics on energy trade continued to be significant 10 months later. Coal and crude oil prices, as mediating variables, decreased to reduce the imports and exports, whereas natural gas prices showed an increase. Third, the impact of geopolitics on energy trade is heterogeneous in terms of national attribute characteristics and geo-event types.