Macroeconomic effects of oil price shocks in the context of geopolitical events – evidence from selected European countries

This study examines the relationship between oil price changes and GDP growth and other macroeconomic variables from the perspective of vulnerability of oil-importing and oil-exporting countries to unexpected oil price shocks driven by tense geopolitical events in three European countries (Norway, Germany and Poland). We apply the structural VAR model and the orthogonalized impulse response functions based on quarterly data from period 1995 to 2024 with respect to two samples: the first spans 1995Q1-2019Q4 (pre-2020 sample) with relatively gradual changes in oil prices and the second spans 1995Q1-2024Q2 (whole sample) with sudden fluctuations in oil prices due to geopolitical developments. A main result of this research is that sudden and unexpected oil price shocks induced by geopolitical events affect economies differently than oil price shocks that happen gradually, both in oil-importing and oil-exporting countries. Different causality patterns and responses in GDP growth in the pre-2020 and the whole sample lead to believe that economies are not more resilient to oil price shocks as has been suggested by some studies which referred to periods not driven by geopolitical events. It is therefore premature to assume that future disruptions in oil prices will not cause a problem for monetary policy. This study contributes to the relevant literature by providing new insight into the debate on the diminishing vulnerability of economy to oil price changes by investigating the effects of unexpected oil price shocks driven by geopolitical tensions. In contrast to previous studies, this paper draws on data including periods with recent geopolitical tensions and covering the homogenous period with regard to energy transformation and major reforms in European countries.