Risk across the spectrum: Unpacking the nexus of global oil uncertainty, geopolitical tensions, energy volatility, and US-China trade tensions

Abstract

The growing interconnectedness of the world's political and economic institutions leaves them open to a series of hazards, including trade tensions, geopolitical conflicts, oil price fluctuations, and uncertainty in the energy market. Even though comprehending these interrelated dynamics is crucial, much research has concentrated on individual risk variables, ignoring the more extensive systemic linkages across quantiles and fluctuating market conditions. Using a novel generalized quantile-on-quantile connectedness technique, this work fills this gap by examining the interconnectivity and risk transmission dynamics among geopolitical risk, global oil price uncertainty, US-China trade tensions, and energy-related uncertainty. The study reveals quantile-specific and temporal disparities in the evolution of risk transmission across calm and crisis periods using monthly data from March 1996 to December 2023. Significant events like the Iraq War, the worldwide financial crisis, the COVID-19 epidemic, and the Russia-Ukraine war correspond with notable peaks in overall connection. The results show that oil price volatility and geopolitical risks are primary risk transmitters, mainly affecting energy-related uncertainty, which is always the biggest recipient of spillovers. These findings highlight the necessity of adaptive, quantile-specific policies to reduce systemic vulnerabilities and efficiently manage global risks in stable and tumultuous times.