Geopolitical Shocks and the Global Energy System: Mechanisms of Spillover Transmission

Geopolitical risks, particularly in energy-producing regions, significantly impact national economic development. This study uses the Generalized Variance Decomposition Spectrum Representation method to analyze the relationship between international energy prices (coal, oil, and natural gas) and geopolitical risks. The findings show that geopolitical risk serves as a net transmitter of risk, with a short-term effect on energy prices that diminishes over time. Oil prices are most sensitive to geopolitical risks, while coal prices are least affected. The study also identifies distinct spillover effects between geopolitical behavioral risks and threat risks, with the former contributing more to price fluctuations. The results highlight the complex interplay between energy prices and geopolitical risks, with implications for global economic stability.