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

2024-11-08 | Qi Zhang, Yi Hu, Jianbin Jiao & Shouyang Wang
The Russia-Ukraine war has significantly impacted global crude oil prices, with the study employing an Event Analysis Method based on Multiresolution Causality Testing (EMC) to quantify its effects. The analysis window spans from October 1, 2021, to August 25, 2022, revealing a one-way causal relationship between the war and crude oil prices. The war caused WTI crude oil prices to rise by $37.14 (52.33%) and Brent crude oil prices to rise by $41.49 (56.33%). The war accounted for 70.72% and 73.62% of the fluctuations in WTI and Brent crude oil prices, respectively. It also amplified oil price volatility and fundamentally altered the long-term trend of crude oil prices. The study proposes four recommendations: establishing an emergency management mechanism for the oil market, diversifying oil and gas imports, advancing energy transformation, and using financial instruments to hedge risks. The EMC framework effectively isolates the net impact of extreme events by decomposing crude oil price series and using multiresolution causality testing to separate overlapping effects. Variational Mode Decomposition (VMD) was used to analyze the short-term, medium-term, and long-term impacts of the war on crude oil prices. The study highlights the significant impact of the war on Brent crude oil prices compared to WTI, with a sharp increase in the price difference between the two. The findings indicate that the war has fundamentally changed the long-term trend of crude oil prices, emphasizing the need for strategic energy policies and risk management. The EMC framework is suitable for analyzing the net impact of sudden extreme events on commodity prices but requires careful application for long-duration events. The study underscores the importance of energy security and the need for diversified energy sources to mitigate the impact of geopolitical conflicts on oil prices.The Russia-Ukraine war has significantly impacted global crude oil prices, with the study employing an Event Analysis Method based on Multiresolution Causality Testing (EMC) to quantify its effects. The analysis window spans from October 1, 2021, to August 25, 2022, revealing a one-way causal relationship between the war and crude oil prices. The war caused WTI crude oil prices to rise by $37.14 (52.33%) and Brent crude oil prices to rise by $41.49 (56.33%). The war accounted for 70.72% and 73.62% of the fluctuations in WTI and Brent crude oil prices, respectively. It also amplified oil price volatility and fundamentally altered the long-term trend of crude oil prices. The study proposes four recommendations: establishing an emergency management mechanism for the oil market, diversifying oil and gas imports, advancing energy transformation, and using financial instruments to hedge risks. The EMC framework effectively isolates the net impact of extreme events by decomposing crude oil price series and using multiresolution causality testing to separate overlapping effects. Variational Mode Decomposition (VMD) was used to analyze the short-term, medium-term, and long-term impacts of the war on crude oil prices. The study highlights the significant impact of the war on Brent crude oil prices compared to WTI, with a sharp increase in the price difference between the two. The findings indicate that the war has fundamentally changed the long-term trend of crude oil prices, emphasizing the need for strategic energy policies and risk management. The EMC framework is suitable for analyzing the net impact of sudden extreme events on commodity prices but requires careful application for long-duration events. The study underscores the importance of energy security and the need for diversified energy sources to mitigate the impact of geopolitical conflicts on oil prices.
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