The impact of Russia-Ukraine war on crude oil prices: an EMC framework

The impact of Russia-Ukraine war on crude oil prices: an EMC framework

2024 | Qi Zhang, Yi Hu, Jianbin Jiao, Shouyang Wang
The Russia-Ukraine war has significantly impacted the global energy market, particularly crude oil prices. This study employs an Event Analysis Method based on Multiresolution Causality Testing (EMC) to quantitatively analyze the war's effect on crude oil prices. The analysis window covers from June 24, 2021, to October 27, 2022, with the event window from February 24, 2022, to October 27, 2022. Variational Mode Decomposition (VMD) is used to decompose crude oil prices, the Geopolitical Risk (GPR) index, and the US dollar index. The results show a significant one-way causal relationship between all IMFs of the GPR index and crude oil prices, while no causal relationship exists between the US dollar index and crude oil prices. The war caused a $37.14 increase in WTI crude oil prices (52.33%) and a $41.49 increase in Brent crude oil prices (56.33%), with the war accounting for 70.72% and 73.62% of the fluctuations in WTI and Brent prices, respectively. The war amplified oil price volatility and fundamentally altered the long-term trend of crude oil prices. The study recommends establishing an emergency management mechanism, diversifying oil and gas imports, advancing energy transformation, and using financial instruments to hedge risks.The Russia-Ukraine war has significantly impacted the global energy market, particularly crude oil prices. This study employs an Event Analysis Method based on Multiresolution Causality Testing (EMC) to quantitatively analyze the war's effect on crude oil prices. The analysis window covers from June 24, 2021, to October 27, 2022, with the event window from February 24, 2022, to October 27, 2022. Variational Mode Decomposition (VMD) is used to decompose crude oil prices, the Geopolitical Risk (GPR) index, and the US dollar index. The results show a significant one-way causal relationship between all IMFs of the GPR index and crude oil prices, while no causal relationship exists between the US dollar index and crude oil prices. The war caused a $37.14 increase in WTI crude oil prices (52.33%) and a $41.49 increase in Brent crude oil prices (56.33%), with the war accounting for 70.72% and 73.62% of the fluctuations in WTI and Brent prices, respectively. The war amplified oil price volatility and fundamentally altered the long-term trend of crude oil prices. The study recommends establishing an emergency management mechanism, diversifying oil and gas imports, advancing energy transformation, and using financial instruments to hedge risks.
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