Lutz Kilian (Federal Reserve Bank of Dallas) - Geopolitical Oil Price Risk and Economic Fluctuations

Research seminars

Research Seminar - Lutz Kilian (Federal Reserve Bank of Dallas) - Geopolitical Oil Price Risk and Economic Fluctuations

Co-authors: Michael D. Plante (Federal Reserve Bank of Dallas) and Alexander W. Richter (Federal Reserve Bank of Dallas)  

Abstract:
Market participants and policymakers are concerned about major oil production shortfalls driven by geopolitical events. Even when such events never materialize, unanticipated increases in the probability of a production shortfall may generate a surge in the price of oil and oil price uncertainty. Our analysis provides the first systematic account of the quantitative importance of time-varying geopolitical risk to oil production for the global economy. We quantify the impact of actual and anticipated global oil production shortfalls on the price of oil and global growth, including the 2026 closure of the Strait of Hormuz, under alternative scenarios.

 

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