Financial modeling for global energy market impacts of geopolitical events and economic regulations
1 Booth School of Business, University of Chicago, IL, USA.
2 The Wharton School of Business, University of Pennsylvania, PA, USA.
3 Columbia Business School, Columbia University, NY, USA.
Review Article
Magna Scientia Advanced Research and Reviews, 2024, 10(02), 272–296
Article DOI: 10.30574/msarr.2024.10.2.0049
Publication history:
Received on 06 February 2024; revised on 13 March 2024; accepted on 15 March 2024
Abstract:
The global energy market is highly susceptible to the impacts of geopolitical events and economic regulations, which often result in significant volatility and uncertainty. This study develops a comprehensive financial modeling framework to assess the impacts of these factors on energy prices, market dynamics, and investment decisions. Using advanced econometric techniques, such as Vector Autoregression (VAR) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH), the research examines historical data to quantify the effects of geopolitical shocks, trade disputes, and regulatory changes on major energy commodities, including crude oil, natural gas, and renewable energy resources. Key findings highlight the critical role of geopolitical stability in influencing energy market performance, with events such as regional conflicts, sanctions, and trade embargoes causing sharp price fluctuations and market disruptions. Similarly, the introduction of stringent economic regulations, such as carbon pricing and renewable energy mandates, has a dual impact—driving up compliance costs while accelerating investment in sustainable energy technologies. The study underscores significant regional disparities in the magnitude of these impacts, with energy-exporting nations more vulnerable to geopolitical disruptions, while energy-importing economies face higher exposure to regulatory-driven cost increases. Through scenario analysis, the research evaluates potential future market outcomes under various geopolitical and regulatory scenarios, providing actionable insights for policymakers and market participants. Results suggest that diversification of energy sources and investment in renewable technologies are critical strategies to enhance market resilience and mitigate the risks associated with geopolitical and regulatory uncertainties. This study contributes to the growing literature on energy economics by offering a robust financial modeling approach to evaluate complex market dynamics. By integrating geopolitical and regulatory factors into energy market analysis, it provides a valuable tool for stakeholders to make informed decisions and develop adaptive strategies in a rapidly evolving global energy landscape.
Keywords:
Financial Modeling; Energy Market; Geopolitical Events; Economic Regulations; Energy Prices; Market Volatility; Renewable Energy; Econometrics; VAR; GARCH; Scenario Analysis
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Copyright © 2024 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0