Oil Price Volatility under Geopolitical Risk: Evidence from India using GARCH–VAR Models

The study “Oil Price Volatility under Geopolitical Risk: Evidence from India using GARCH–VAR Models” examines how oil prices behave during periods of geopolitical stress, with a particular focus on the effects of armed conflicts and their implications for India. Global events such as the RussiaUkraine War and the Iraq War have highlighted how sensitive oil markets are to political instability, often leading to sharp fluctuations and increased uncertainty.

To better understand these dynamics, this study uniquely integrates GARCH and VAR models with highfrequency data to examine how geopolitical conflicts influence oil price volatility and its transmission to the Indian economy, providing new evidence on dynamic and nonlinear market behavior. Daily data on Brent Crude Oil and West Texas Intermediate are analyzed alongside geopolitical risk indicators to provide a comprehensive view of market behavior.

The findings show that oil price volatility increases significantly during periods of conflict and tends to persist over time, indicating that shocks are not short-lived. The results also suggest a two-way relationship between geopolitical risk and oil prices, where each influences the other. For India, as a major oil-importing economy, these fluctuations have important implications for economic stability, inflation, and policy decisions.

Overall, this study contributes to the understanding of how geopolitical uncertainty affects energy markets while offering practical insights for policymakers, investors, and risk managers in navigating an increasingly uncertain global environment.