Dynamics of green metal price volatility in times of geopolitical tensions: Effects of oil price shocks and carbon emissions futures

Abstract

This study analyses the effect of geopolitical tensions, oil prices, and carbon emission futures on green metal prices using the SVAR model. The study focuses on the Russia-Ukraine conflict and utilises a real-time daily dataset from December 1, 2021, to March 7, 2023. The findings show that geopolitical tensions and carbon emissions futures returns have a negative effect on green metal market returns, with oil price returns having a more significant negative impact than the observed temporary upticks. The study also identifies copper, nickel, silver, and zinc returns as negatively associated with geopolitical risk, while aluminium demonstrates a significant positive correlation after temporary downticks. The research further reveals that aluminium, copper, and zinc returns respond positively to carbon emissions futures, while nickel and silver returns correlate negatively. Additionally, oil price shocks negatively impact aluminium, copper, and zinc returns while exerting mixed influence on nickel and silver price returns, with more pronounced positive and negative shocks, respectively. The results have particular relevance in the context of the Russia-Ukraine War, with the positive response of carbon emissions futures to geopolitical risk potentially due to possible disruptions of policies aimed at reducing carbon emissions. The practical policy implications of the findings are discussed.