The impacts of geopolitical risks on the energy sector: Micro-level operative analysis in the European Union

Abstract

Energy prices play a crucial role in combating geopolitical risks, especially for the major suppliers of energy resources. However, energy prices display a bilateral relationship with geopolitical risks in any economy. Any hike in the price of energy stimulates geopolitical risk factors and visa-versa. The consequences adversely impact economies and bring forth international tensions. This paper bridges a gap between the influence of geopolitical risks relating to energy and international tensions by analyzing micro-level operational measures. We deploy an empirical model to predict the energy sector and possible risk factors incorporating Eurostat data on twenty-seven states, from 2011 to 2020. This study collected a different energy variable to support the multiple regression model constructed by the “blocks” (hierarchical linear regression) method. The results suggest that geopolitical risks cause adverse effects on both the energy and other corporate sectors. The future direction of this research is to estimate how statistical model relationships may assist the corporate sector, and investors, in adopting mitigating measures to control upcoming geopolitical risks due to energy risks caused by geopolitical unrest.