Crude oil security in a turbulent world: China's geopolitical dilemmas and opportunities

Abstract

China's economic and social development relies heavily on crude oil, which it imports and consumes more than any other country. Thus, the country's oil security is crucial. Geopolitical risk (GPR) is used to describe the instability and uncertainty resulting from political conflicts, terrorism, wars, sanctions, and other events that affect the production, transportation, and consumption of crude oil. Therefore, we use MF-VAR to examine how geopolitical risk GPR causes changes in Chinese crude oil security (COS). Unlike previous studies, we treat GPR as an outcome variable and use oil demand and cost channels to analyse its effects on COS. Quarterly government hazards endanger Chinese oil safety, and combined frequency data fixation reveals a dynamic link in various quarters of the year. Hence, to ensure a consistent supply of crude oil, the Chinese government's oil corporations must implement several initiatives, including purchasing shares and developing oil fields. To protect oil production and transportation, China should also forge strong links with nations that export oil and participate in UN initiatives such as the Somali escort and peacekeeping in Africa. To better manage oil price volatility brought on by geopolitical dilemmas, RMB-based crude oil futures are a smart approach for increasing affordability.