Effect of geopolitical risk on resources prices in the global and Russian-Ukrainian context: A novel Bayesian structural model

Abstract

This study evaluated the impact of geopolitical risk (GPR) on natural resources (NRs) by employing monthly from January 1990 to January 2023 and daily data from 3rd January 2022 to 31st March 2022. The outcomes using wavelet QQ and novel Bayesian structural model reveal that GPR has a more profound impact on oil prices (in a quantile range of 0.4–0.8), natural gas prices (range of quartiles from 0.4 to 0.8) and gold prices (in a range of lower to upper quantiles) exhibiting that they are more sensitive to geopolitical uncertainties at all levels. The effects of geopolitical risk are also prominent on palm oil in lower to upper quantile (0.2–0.7) and urea in medium or upper quantile, showing that higher uncertainty drives their prices. In contrast, the response of iron ore (IO) was observed only in upper quantiles (0.7–0.8). The results of the causal analysis reveal that the Russia-Ukraine conflict positively impact NRs prices and that there was a rapid divergence from counterfactual projections. Our findings bear significant implications for sample economies highlighting the alternatives to cope with the GPR and its consequences for natural resource prices.