Geopolitical risk and crude oil security: A Chinese perspective

This paper employs the mixed-frequency vector autoregression (MF-VAR) to assess the causal relationship between geopolitical risk (GPR) and crude oil security (COS) for China. In contrast to prior papers, we regard GPR as an independent variable rather than including it in the indicator system and construct oil supply and price channels to better understand how GPR influences Chinese COS. The mixed-frequency data regression provides a new insight that quarterly geopolitical risk threatens Chinese oil security, and a time-varying nexus is discovered in different quarters within a one-year period. Therefore, the Chinese state-owned oil giants should implement diversified strategies such as equity acquisition and oil field investment to ensure a stable crude oil supply. China also needs to construct friendly relations with oil-exporting countries and join United Nations activities such as Somali escorts and peacekeeping in Africa to protect oil production and transportation. The establishment of crude oil futures dominated by the RMB is an effective way to strengthen oil affordability to cope with the oil price volatility caused by geopolitical instabilities.