Geopolitical Oil Price Risk and Economic Fluctuations

Abstract

The purpose of this paper is to examine the evolving landscape of geopolitical oil price risks and their impact on global economic fluctuations during 2024 and 2025. The methodology used compares historical models that have long linked energy shocks with macro-instability, innovations in modeling with high-frequency data analysis that might suggest a more nuanced relationship. The paper also explores how determinations of oil price uncertainty, oil storage, and shifting dynamics of downside risk affect global GDP and inflation in the 2024–2025 period. It further investigates the geopolitical tensions in the Middle East and Eastern Europe producing significant short-term volatility, but also high spare capacity and strategic reserves mitigating the recessionary effects historically associated with these shocks. As the paper concludes, new findings come to light showing the emerging risks in the disorderly energy transition and the financialization of energy markets are identified.