Gulf Cooperation Council countries have accumulated large oil portfolio revenues. However, the world economy is seeking to reduce carbon emissions, and in turn, its reliance on fossil fuel resources through investments in renewable energyresources. The aim of this research is to analyze oil portfolio risk from anexporters’perspective, highlighting how relevant determinants, such as the increasing penetration of renewables in the importer counterparties, and financial and policy uncertainty, increase the volatility of oil export portfolios.We construct oil portfolios for four Gulf Cooperation Council countries (Kuwait, Oman, Saudi Arabia, United Arab Emirates) from 2008 to 2018, and compute volatility spillovers à la Diebold and Yilmaz. Then, the effects of policy and economic variables on volatility spillover indices are estimated using different panel linear regression models. We find rising renewable market shares significantly affects oil export portfolio risks and reduces adverse impacts on importing countries of oil market fluctuations.
Get full access to this article
View all access options for this article.
References
1.
AbadieA.AtheyS.ImbensG.W.WooldridgeJ.M. (2023). “When should you adjust standard errors for clustering?” The Quarterly Journal of Economics138(1): 1–35. https://doi.org/10.1093/qje/qjac038.
2.
AhirH.BloomN.FurceriD. (2022). The World Uncertainty Index. NBER—WP29763. https://doi.org/10.3386/
3.
AkramQ.F. (2009). “Commodity prices, interest rates and the dollar.” Energy Economics31(6): 838–851. https://doi. org/10.1016/j.eneco.2009.05.016.
4.
AlkatheryM.A.ChaudhuriK. (2021). “Co-movement between oil price, CO2 emission, renewable energy and energy equities: evidence from GCC countries.” Journal of Environmental Management297:113-350. https://doi.org/10.1016/j.
5.
AnQ.WangL.QuD.ZhangH. (2018). “Dependency network of international oil trade before and after oil price drop.” Energy165: 1021–1033. https://doi.org/10.1016/j.energy.2018.09.098.
6.
AngB.W.ChoongW.L.NgT.S. (2015). “Energy security: Definitions, dimensions and indexes.” Renewable and Sustainable Energy Reviews42: 1077–1093. https://doi.org/10.1016/j.rser.2014.10.064.
7.
AntonakakisN.GuptaR.KolliasC.PapadamouS. (2017). “Geopolitical risks and the oil-stock nexus over 1899– 2016.” Finance Research Letters23: 165–173. https://doi.org/10.1016/j.frl.2017.07.017.
8.
AshfaqS.TangY.MaqboolR. (2019). “Volatility spillover impact of world oil prices on leading Asian energy exporting and importing economies’ stock returns.” Energy188:116002. https://doi.org/10.1016/j.energy.2019.116002.
9.
Arvanitopoulos T. and P. Agnolucci (2020). “The long-term effect of renewable electricity on employment in the United Kingdom.” Renewables and Sustainable Energy Review134:110322. https://doi.org/10.1016/j.rser.2020.110322.
10.
AtengaE.M.E.MougouéM. (2020). “Return and volatility spillovers to African equity markets and their determinants.” Empirical Economics61: 883–918. https://doi.org/10.1007/s00181-020-01881-9.
11.
AzzuniA.BreyerC. (2018). “Definitions and dimensions of energy security: A literature review.” Energy and Environment7(1): e268. https://doi.org/10.1002/wene.268.
12.
BaiJ.ChoiS.H.LiaoY. (2021). “Feasible generalized least squares for panel data with cross-sectional and serial correlations.” Empirical Economics60: 309–326. https://doi.org/10.1007/s00181-020-01977-2.
13.
BarkindoM. (2006). Energy Security: A global perspective. Speech delivered by Mr. Mohammed Barkindo, acting for the OPEC Secretary General. London Oil Club, 27 July 2006, London Retrived June 27, 2021, from https://www.opec.org/opec_web/en/996.htm.
14.
BeckmannJ.CzudajR. (2013). “Is there a homogeneous causality pattern between oil prices and currencies of oil importers and exporters?” Energy Economics4: 665–678. https://doi.org/10.1016/j.eneco.2013.08.007.
15.
BerkmanH.JacobsenB.LeeJ. (2011). “Time-varying rare disaster risk and stock returns.” Journal of Financial Economics101: 313–332. https://doi.org/10.1016/j.jfineco.2011.02.019.
BollinoC.A.GalkinP. (2021). “Energy security and portfolio diversification: Conventional and novel perspectives.” Energies14(14): 4257. https://doi.org/10.3390/en14144257.
18.
BouoiyourJ.SelmiR. (2019). “The Qatar-Gulf crisis and risk management in oil and gas markets.” Hal Working Paper. 02101633.
19.
BouriE.DemirerR.GuptaR.MarfatiaH. (2018). “Geopolitical risks and movements in Islamic bond and equity markets: A note.” Defence and Peace Economics29: 1–13. https://doi.org/10.1080/10242694.2018.1424613.
20.
BouriE.LuceyB.SaeedT.VoX.V. (2021). “The realized volatility of commodity futures: Interconnectedness and determinants.” International Review of Economics and Finance73: 139–151. https://doi.org/10.1016/j.iref.2021.01.006.
21.
BrainardW.C.CooperR.N. (1968). “Uncertainty and Diversification of International Trade.” Food Research Institute Studies8: 257–285.
22.
CanhN.P.BinhN.T.ThanhS.D.SchinckusC. (2020). “Determinants of foreign direct investment inflows: The role of economic policy uncertainty.” International Economics161: 159–172. https://doi.org/10.1016/j.inteco.2019.11.012.
23.
Chanatásig-NizaE.CiarretaA.ZarragaA. (2022). “A volatility spillover analysis with realized semi(co)variances in Australian electricity markets.” Energy Economics111:106076. https://doi.org/10.1016/j.eneco.2022.106076.
24.
CharfeddineL.RefaiH. Al (2019). “Political tensions, stock market dependence and volatility spillover: evidence from the recent intra-GCC crises.” The North American Journal of Economics and Finance50:101032. https://doi.org/10.1016/j. najef.2019.101032.
25.
ChenX.SunX.WangJ. (2019). “Dynamic spillover effect between oil prices and economic policy uncertainty in BRIC countries: A wavelet-based approach.” Emerging Markets Finance and Trade55: 2703–2717. https://doi.org/10.1080/154 0496X.2018.1564904.
26.
ChoiJ.ShinD.W. (2020). “Bootstrapping volatility spillover index.” Communications in Statistics—Simulation and Computation49(1): 66–78. https://doi.org/10.1080/03610918.2018.1476696.
27.
DieboldF.X.YilmazK. (2012). “Better to give than to receive: Predictive directional measurement of volatility spillovers.” International Journal of Forecasting28: 57–66. https://doi.org/10.1016/j.ijforecast.2011.02.006.
28.
DieboldF.X.YılmazK. (2014). “On the network topology of variance decompositions: Measuring the connectedness of financial firms.” Journal of Econometrics182(1): 119–134. https://doi.org/10.1016/j.jeconom.2014.04.012.
29.
EneasatoO.B. (2021). “International Petroleum Price Volatility.” ESUT Journal of Social Sciences and Humanities6(1): 13–26.
30.
European Commission (EC) (2006). Green Paper: A European Strategy for Sustainable, Competitive and Secure Energy. Retrieved December 13, 2021, from http://www.energy.eu/directives/2006_03_08_gp_document_en.pdf.
31.
FangL.ChenB.YuH.QianY. (2018). “The importance of global economic policy uncertainty in predicting gold futures market volatility: A GARCH-MIDAS approach.” Journal of Futures Markets38: 413–422. https://doi.org/10.1002/fut.21897.
32.
FenglerM.R.GislerK.I. (2015). “A variance spillover analysis without covariances: What do we miss?” Journal of International Money and Finance51: 174–195. https://doi.org/10.1016/j.jimonfin.2014.11.006.
33.
GongX.WangM.ShaoL. (2020). “The impact of macro economy on the oil price volatility from the perspective of mixing frequency.” International Journal of Finance and Economics. https://doi.org/10.1002/ijfe.2383.
34.
GorodnichenkoY.LeeB. (2020). “Forecast error variance decompositions with local projections.” Journal of Business and Economic Statistics38(4): 921–933. https://doi.org/10.1080/07350015.2019.1610661.
35.
GouveiaJ.P.DiasL.MartinsI.SeixasJ. (2014). “Effects of renewables penetration on the security of Portuguese electricity supply.” Applied Energy123: 438–447. https://doi.org/10.1016/j.apenergy.2014.01.038.
GruberJ.W.VigfussonR.J. (2018). “Interest rates and the volatility and correlation of commodity prices.” Macroeconomic Dynamics22(3): 600–619. https://doi.org/10.1017/S1365100516000389.
38.
GuesmiK.FattoumS. (2014). “Return and volatility transmission between oil prices and oil-exporting and oil-importing countries.” Economic Modelling38: 305–310. https://doi.org/10.1016/j.econmod.2014.01.022.
39.
HaarL.HaarL.N. (2019). “A financial option perspective on energy security and strategic storage.” Energy Strategy Reviews25: 65–74. https://doi.org/10.1016/j.esr.2019.100364.
40.
HameedZ.ShafiK.NadeemA. (2021). “Volatility spillover effect between oil prices and foreign exchange markets.” Energy Strategy Reviews38:100712. https://doi.org/10.1016/j.esr.2021.100712.
41.
HeY.NielssonU.WangY. (2017). “Hurting without hitting: The economic cost of political tension.” Journal of International Financial Markets, Institutions and Money 51: 106–124. https://doi.org/10.1016/j.intfin.2017.08.011.
42.
HeF.MaF.WangZ.YangB. (2021). “Asymmetric volatility spillover between oil-importing and oil-exporting countries’ economic policy uncertainty and China’s energy sector.” International Review of Financial Analysis75:101739. https://doi.org/10.1016/j.irfa.2021.101739.
43.
HuM.ZhangD.JiQ.WeiL. (2020). “Macro factors and the realized volatility of commodities: a dynamic network analysis.” Resources Policy68:101813. https://doi.org/10.1016/j.resourpol.2020.101813.
44.
HuangS.AnH.GaoX.WenS.HaoX. (2017). “The multiscale impact of exchange rates on the oil-stock nexus: Evidence from China and Russia.” Applied Energy194: 667–678. https://doi.org/10.1016/j.apenergy.2016.09.052.
45.
ImhofJ.P. (1961). “Computing the Distribution of Quadratic Forms in Normal Variables.” Biometrika 48(3–4): 419–426. https://doi.org/10.1093/biomet/48.3-4.419.
46.
IRENA (2019). A New World: The Geopolitics of the Energy Transformation. Retrived April 10, 2022, from https://www. irena.org/publications/2019/Jan/A-New-World-The-Geopolitics-of-the-Energy-Transformation.
47.
JacobyK.D. (2009). Energy security: conceptualization of the International Energy Agency (IEA). In Facing Global Environmental Change (pp. 345–354). Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-68488-6_23.
48.
KaraliB.RamirezO.A. (2014). “Macro determinants of volatility and volatility spillover in energy markets.” Energy Economics46: 413–421. https://doi.org/10.1016/j.eneco.2014.06.004.
49.
KaratayevM.HallS. (2020). “Establishing and comparing energy security trends in resource-rich exporting nations (Russia and the Caspian Sea region).” Resources Policy68:101746. https://doi.org/10.1016/j.resourpol.2020.101746.
50.
KhalfaouiR.SarwarS.TiwariA.K. (2019). “Analysing volatility spillover between the oil market and the stock market in oil-importing and oil-exporting countries: implications on portfolio management.” Resources Policy62: 22–32. https://doi.org/10.1016/j.resourpol.2019.03.004.
51.
KhanS.ShaheenR. (2020). “Transition to renewable energy technologies and future prospects for oil-exporting countries.” OPEC Energy Review44: 429–450. https://doi.org/10.1111/opec.12189.
52.
KoopG.PesaranM.H.PotterS.M. (1996). “Impulse response analysis in nonlinear multivariate models.” Journal of Econometrics74: 119–147. https://doi.org/10.1016/0304-4076(95)01753-4.
53.
KraneJ. (2015). “Stability versus sustainability: energy policy in the Gulf monarchies.” The Energy Journal36(4): 1–21. https://doi.org/10.5547/01956574.36.4.jkra.
54.
LiJ.SunX.HeW.TangL.XuW. (2009). “Modeling dynamic correlations and spillover effects of country risk: Evidence from Russia and Kazakhstan.” International Journal of Information Technology and Decision Making8: 803–818. https://doi.org/10.1142/S0219622009003570.
55.
LiowK.H.HuangY. (2018). “The dynamics of volatility connectedness in international real estate investment trusts.” Journal of International Financial Markets, Institutions and Money 55: 195–210. https://doi.org/10.1016/j.intfin.2018.02.003.
56.
LisinA.SenjyuT. (2021). “Renewable Energy Transition: Evidence from Spillover Effects in Exchange-Traded Funds.” International Journal of Energy Economics and Policy11(3): 184. https://doi.org/10.32479/ijeep.10899.
57.
MarkowitzH.M. (1952). “Portfolio selection.” Journal of Finance7(1): 77–91. https://doi.org/10.1111/j.1540-6261.1952. tb01525.x.
58.
MetcalfG.E. (2014). “The economics of energy security.” Annual Review of Resource Economics6: 155–174. https://doi. org/10.1146/annurev-resource-100913-012333.
59.
MirzaeiA.Al-KhouriR.S.F. (2016). “The resilience of oil-rich economies to the global financial crisis: Evidence from Kuwaiti financial and real sectors.” Economic Systems40(1): 93–108. https://doi.org/10.1016/j.ecosys.2015.08.001.
60.
MnifA.T. (2017). “Political uncertainty and behavior of tunisian stock market cycles: Structural unobserved components time series models.” Research in International Business and Finance39: 206–214. https://doi.org/10.1016/j.ribaf.2016.07.029.
61.
MoranaC. (2013). “Oil price dynamics, macro-finance interactions and the role of financial speculation.” Journal of Banking and Finance37(1): 206–226. https://doi.org/10.1016/j.jbankfin.2012.08.027.
62.
NaeemM.A.PengZ.SulemanM.T.NepalR.ShahzadS.J.H. (2020). “Time and frequency connectedness among oil shocks, electricity and clean energy markets.” Energy Economics91:104914. https://doi.org/10.1016/j.eneco.2020.104914.
63.
NasirM.A.Al-EmadiA.ShahbazM. (2019). “Importance of oil shocks and the GCC macroeconomy: a structural VAR analysis.” Resources Policy61: 166–179. https://doi.org/10.1016/j.resourpol.2019.01.019.
64.
NguyenD.K.WaltherT. (2020). “Modeling and forecasting commodity market volatility with long-term economic and financial variables.” Journal of Forecasting39(2): 126–142. https://doi.org/10.1002/for.2617.
65.
NovikauA. (2021). “What does energy security mean for energy-exporting countries? A closer look at the Russian energy security strategy.” Journal of Energy and Natural Resources Law39(1): 105–123. https://doi.org/10.1080/02646811.202 0.1794108.
66.
OSCE-PA (2022) The Clean Energy Revolution and its Implications for the OSCE region (4 feb.) Retrived June 22, 2022 from https://www.oscepa.org/en/documents/general-committees/economic-affairs-science-technology-and-environment/4344- osce-pa-web-dialogue-on-the-clean-energy-revolution-highlights–2022-02-04/file.
67.
PaparoditisE. (1996). “Bootstrapping autoregressive and moving average parameter estimates of infinite order vector autoregressive processes.” Journal of Multivariate Analysis57: 277–296. https://doi.org/10.1006/jmva.1996.0034.
68.
PavlovaI.de BoyrieM.E.ParhizgariA.M. (2018). “A dynamic spillover analysis of crude oil effects on the sovereign credit risk of exporting countries.” The Quarterly Review of Economics and Finance68: 10–22. https://doi.org/10.1016/j.qref.2018.03.003.
69.
PesaranM.H.ShinY. (1998). “Generalized impulse response analysis in linear multivariate models.” Economics Letters58: 17–29. https://doi.org/10.1016/S0165-1765(97)00214-0.
70.
ProkopczukM.StancuA.SymeonidisL. (2019). “The economic drivers of commodity market volatility.” Journal of International Money and Finance98:102063. https://doi.org/10.1016/j.jimonfin.2019.102063.
71.
RamM.AghahosseiniA.BreyerC. (2020). “Job creation during the global energy transition towards 100% renewable power system by 2050.” Technological Forecasting and Social Change151:119682. https://doi.org/10.1016/j.techfore. 2019.06.008.
72.
RentschlerJ.E. (2013). “Oil price volatility, economic growth and the hedging role of renewable energy.” Policy Research Working Paper Series 6603, The World Bank. https://doi.org/10.1596/1813-9450-6603.
73.
RentizelasA.A.TolisA.I.TatsiopoulosI.P. (2012). “Investment planning in electricity production under CO2 price uncertainty.” International Journal of Production Economics140(2): 622–629. https://doi.org/10.1016/j.ijpe.2010.11.002.
74.
Resources for the Future (2022). Global Energy Outlook 2022: Turning Points and Tension in the Energy Transition, Report 22-04. Retrieved July 1, 2022 from https://www.rff.org/publications/data-tools/global-energy-outlook/.
SarwarS.KhalfaouiR.WaheedR.DastgerdiH.G. (2019). “Volatility spillovers and hedging: evidence from Asian oil-importing.” Resources Policy61: 479–488. https://doi.org/10.1016/j.resourpol.2018.04.010.
77.
ShapiroS.S.WilkM.B. (1965). “An analysis of variance test for normality (complete samples).” Biometrika52: 591–611. https://doi.org/10.1093/biomet/52.3-4.591.
78.
SuX. (2020). “Dynamic behaviors and contributing factors of volatility spillovers across G7 stock markets.” The North American Journal of Economics and Finance53:101218. https://doi.org/10.1016/j.najef.2020.101218.
79.
Van EydenR.DifetoM.GuptaR.WoharM.E. (2019). “Oil price volatility and economic growth: Evidence from advanced economies using more than a century’s data.” Applied Energy233: 612–621. https://doi.org/10.1016/j.apenergy. 2018.10.049.
80.
WenD.LiuL.MaC.WangY. (2020). “Extreme risk spillovers between crude oil prices and the US exchange rate: Evidence from oil-exporting and oil-importing countries.” Energy212:118740. https://doi.org/10.1016/j.energy.2020.118740.
81.
World Energy Council (2010). Pursuing Sustainability: 2010 Assessment of Country Energy and Climate Policies. World Energy Council London, UK.
82.
YoussefM.MokniK.AjmiA.N. (2021). “Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?” Financial Innovation7: 1–27. https://doi.org/10.1186/s40854-021-00227-3
