Economic Analysis and Policy 82 (2024) 908–919

Contents lists available at ScienceDirect

Economic Analysis and Policy

journal homepage: www.elsevier.com/locate/eap

Is geopolitical oil price uncertainty forcing the world to use energy

more efficiently? Evidence from advanced statistical methods
Chien-Chiang Lee a, b, c, Godwin Olasehinde-Williams d, e, *, Oktay Özkan f
a
School of Economics and Management, Nanchang University, Nanchang, China
b
Research Center of Central China for Economic and Social Development, Nanchang University, China
c
Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon
d
Department of Management Information Systems, Istanbul Ticaret University, Turkey
e
Nizami Gajanvi Research Center of Sustainable Development & Green Economy, Azerbaijan State University of Economics, Baku, Azerbaijan
f
Tokat Gaziosmanpasa University, Turkey

A R T I C L E I N F O A B S T R A C T

Keywords: This paper argues that energy efficiency is a potent shield against oil price uncertainty in an
Energy security increasingly interconnected world fraught with geopolitical tensions. By reducing dependence on
Efficiency oil, enhancing economic resilience, and improving energy security, energy efficiency measures
Geopolitics
offer multifaceted benefits for both national economies and global stability. Specifically, a
Nonlinear analysis
Oil price
wavelet coherence analysis is conducted to study the response of global energy efficiency to
geopolitical oil price uncertainty. Quantile-on-quantile and quantile regressions are additionally
employed to separate the impacts of various geopolitical oil price risk quantiles on the quantiles
of energy efficiency. These methods are utilized in the examination of global time-series data
covering the timeframe 2004:Q1–2020:Q4. The wavelet coherence outcomes indicate a positive
correlation between geopolitical oil price uncertainty and energy efficiency, particularly during
the energy crisis of the 2000s and the COVID-19 pandemic. The results also reveal that geopo­
litical oil price uncertainty leads to energy efficiency, indicating that an upsurge in geopolitical oil
price uncertainty causes energy efficiency to increase. Moreover, the results from quantile-on-
quantile and quantile regressions affirm the predominantly positive effects of geopolitical oil
price uncertainty on global energy efficiency. Our conclusion therefore is that through strategic
investments, innovative policies, and international collaborations relating to energy efficiency,
nations can fortify themselves against the destabilizing effects of geopolitical conflicts on energy
markets. This would ensure a more sustainable and secure energy future for all.

1. Introduction

To date, oil is the primary energy source in the world; about one-third of global energy consumption is sourced from oil, and no
significant change is expected over the next few decades (Energy Information Administration, 2021; Śmiech et al., 2021). Oil prices
serve as a barometer for the global economy; extant literature shows that uncertainty in oil prices is a major challenge for the global
economy (Lee et al., 2023b; Lee and Yahya, 2024). Oil price uncertainty is therefore detrimental to economic planning and security.
Fluctuations in oil prices cause income redistribution between oil exporters and importers, volatility in exchange rates, inflation, lower

* Corresponding author at: Örnektepe, İmrahor Cd. No: 88/2, Beyoğlu, İstanbul 34445, Turkey.
E-mail address: gowilliams@ticaret.edu.tr (G. Olasehinde-Williams).

https://doi.org/10.1016/j.eap.2024.04.020
Received 4 February 2024; Received in revised form 9 April 2024; Accepted 20 April 2024
Available online 22 April 2024
0313-5926/© 2024 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.
C.-C. Lee et al. Economic Analysis and Policy 82 (2024) 908–919

aggregate demand, and also affect price competitiveness and distort public finances (Berument et al., 2010; van der Ploeg, 2011; Lee
et al., 2021; Śmiech et al., 2021; Lee et al., 2023c). Therefore, policymakers and economists closely monitor oil prices as a key indicator
of economic health and stability. As such, research interest in the causes and effects of oil price uncertainty continues to rise.
A newly developing area of interest in the oil price uncertainty-cum-volatility is that which considers the unique effect of
geopolitical occurrences. As global economic integration continues, commodity markets also continue to reflect major geopolitical
events (Lee et al., 2021; Luo et al., 2024a). The uncertainties arising from geopolitical events frequently extend beyond the realm of
politics into commodity markets (Antonakakis et al., 2017; Das et al., 2019; Su et al., 2019). This is especially true for the oil market.
Several oil crises in history have clearly shown that oil markets are vulnerable to geopolitical crises such as wars, ethno-religious
conflicts, political conflicts, terrorism, and diseases. For instance, oil-rich nations wield significant geopolitical influence due to
their abundant natural resources. Political unrest, regional conflicts, and strategic alliances emanating from such oil-rich nations are
able to create fluctuations in oil prices. Therefore, geopolitics plays a pivotal role in shaping global oil prices. The sudden spikes in
crude and gasoline prices across the world recently, resulting from the invasion of Ukraine by Russia, serve as a distinct illustration of
the close connection between geopolitical occurrences and oil price uncertainties.
In addition, the global distribution of crude oil resources is changing swiftly, further raising geopolitical oil price uncertainties in
the world. As the competitive search for new oil deposits progresses, regions where recent oil discoveries have been made have
suddenly acquired global prominence, whereas, regions with depleting oil wealth are losing their geopolitical significance (Lloyd and
Klare, 2008; Luo et al., 2024b; Pan et al., 2024). A typical example of the geopolitical implications of this energy resource redistri­
bution is the recent aggressive move by China in search of oil in regions of Africa, Central Asia, and Latin America, which have now
become major sources of global oil and gas supply. This continuing redistribution of oil resources is gradually changing the dynamics of
energy-related competition and geopolitical rivalries in ways that aggravate global geopolitical oil price uncertainties.
In this study, the contention is that the emergence and rapid growth of energy technologies that confer improved efficiency offer a
promising avenue to diminish susceptibility to oil price uncertainties triggered by geopolitical events. Specifically, this study explores
how exposure to geopolitical oil price uncertainty functions as a catalyst for decarbonization and energy security efforts through
energy efficiency. We argue that by reducing oil consumption, energy efficiency conveys enhanced energy independence. Overall,
these factors minimize the exposure of nations to the adverse effects of geopolitical oil price uncertainty. This is perhaps one of the
reasons why energy efficiency is regarded as one of the cornerstones of sustainable energy policy (Lee et al., 2023a; Lee and Yan, 2024).
This study attempts to fill a gap in the geopolitics-energy security nexus in the literature. Most previous discussions of energy
security and geopolitics deal with strategic oil pricing and supply issues. More recent discussions have focused on the significance of
utilizing renewable energy as an alternative to consuming fossil fuels (see Bekun, 2024; Khan et al., 2024; Yu et al., 2022). This study
frames its discussion in a different way, focusing instead on the motivation for more efficient energy use resulting from increased and
sustained geopolitical oil price uncertainty. Energy efficiency is an important energy security strategy that has so far failed to capture
serious attention from policymakers. İt has so far been treated as a less attractive option.
This study has a number of unique contributions. Firstly, it provides a unique empirical perspective on whether geopolitical oil
price uncertainty is a key motivator for increased global energy efficiency. The underlying premise is that energy efficiency and
geopolitical oil price uncertainty are significantly co-dependent. Secondly, this study effectively captures the degree of geopolitical oil
price uncertainty through the recently introduced index of Bonaparte (2019). The index adequately reflects a wide variety of
oil-related geopolitical events. Thirdly, this study employs advanced statistical methods in eliciting very reliable inferences. The
wavelet coherence approach used generates robust outcomes, even for series with discontinuities, nonlinearity, structural changes,
trends and volatility clustering. It also provides both frequency components and time locations of the frequency components. The
quantile-on-quantile regression is also used to ensure robustness. This approach permits the empirical investigation of relationships
across quantiles of two variables, while controlling for structural changes.
The subsequent sections of this paper are structured as follows: Section 2 reviews relevant literature. Section 3 outlines the utilized
data and the adopted econometric methodology. Section 4 presents the empirical findings. The concluding section offers a compre­
hensive summary.

2. Literature review

2.1. Geopolitical risks and energy prices

Recent geopolitical events have had profound impacts on energy prices on a global scale (Gajdzik et al., 2024). Factors such as
disruption of exports, imposition of sanctions, and supply-demand imbalances are identified as some of the channels through which
geopolitical events affect energy prices (Aslam et al., 2023; Banerjee, 2023; Pata et al., 2024). The recent proliferation of geopolitical
events that have had significant impacts on energy prices has led to an upsurge in the number of studies examining the link between
geopolitical occurrences and energy prices (Owjimehr et al., 2023; Cao et al., 2020; Irfan et al., 2023). The main objective of these
studies has been the examination of the effect of geopolitical occurrences on oil price fluctuations.
The analysis conducted by Plakandaras et al. (2019) on the link between geopolitical risks and oil prices using dynamic model
averaging shows that war-related geopolitical risks best predict short-term oil returns, whereas medium to long-term oil returns are
best predicted by composite geopolitical risks generated in emerging markets. Cunado et al. (2020), through a time-varying parameter
structural vector autoregressive model, investigate the dynamic effect of geopolitics on oil returns. The key finding from the study is
that oil returns are adversely impacted by geopolitical risks. Ivanovski and Hailemariam (2022) investigate the connection between oil
prices and geopolitical risks in a panel of 16 countries. The conclusion reached is that, on the one hand, oil prices are negatively

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correlated with geopolitical risks, and on the other hand, oil price volatility is positively associated with geopolitical risks. Qian et al.
(2022) show that geopolitical risks are able to trigger fluctuations in global oil markets and are therefore useful for forecasting
volatility in oil markets. The study further reveals that the forecast ability is more powerful in periods of recession. Zhang et al. (2022),
via a moving average technique, investigate risk uptrends in crude prices. The findings indicate that geopolitical risk patterns are
significant predictors of crude prices. The study also concludes that the disruptive effect of geopolitical risks is bigger on future oil
demand than on supply. Li et al. (2022) analyze the spillover effects of geopolitical risks into the oil markets through nonlinear
causality testing and connectedness networking. The study shows that geopolitical risk is a net recipient from WTI price and net sender
to Brent price. Olasehinde-Williams et al. (2023b), through a nonparametric time-varying coefficient panel data model with fixed
effects, show that energy prices surge as European countries get exposed to geopolitical tensions.

2.2. Energy prices and energy efficiency

In response to the energy crisis often triggered by geopolitical events, countries generally take steps to minimize reliance on foreign
energy imports (Albuquerque and Dos Santos, 2023; Banerjee, 2023). The promotion of energy efficiency is one of the important policy
options often proposed as a means of mitigating geopolitical energy price uncertainty (Gajdzik et al., 2024). According to Zhang et al.
(2023), the ability of geopolitical conflicts to cause fluctuations in energy prices has underscored the important role of energy effi­
ciency in minimizing dependence on fossil fuels and improving energy security. By improving energy efficiency, nations are able to
lower energy consumption, conserve energy resources, minimize dependence on energy suppliers, and enhance resilience against
geopolitical shocks (Gajdzik et al., 2024). Birol and Keppler (2000) argue that elevated energy prices might promote more conservative
usage by fostering improved energy efficiency. In the short term, for instance, increased energy costs could incentivize firms to
selectively utilize relatively more energy-efficient capital, thereby causing contractions in energy demand (Berndt and Wood, 1984;
Berndt et al., 1991). Higher energy prices, in the long run, could also lead to the adoption of relatively more efficient new capital (Boyd
and Karlson, 1993; Doms and Dunne, 1995; Newell et al., 1999, 2006; Linn, 2008; Steinbuks and Neuhoff, 2014). It could also boost
innovations (Newell et al., 1999, 2006; Popp, 2001; Wing, 2008). Perhaps, for these reasons, aggregate energy intensity (efficiency)
has been on a steady decline (increase) since the industrial revolution (Nakicenovic and Swart, 2000; Stern, 2011). Due to the
established connection between energy prices and energy efficiency, it is becoming increasingly common in econometric analysis to
treat energy price as an important determinant of energy efficiency (see Sanstad et al., 2006; Hang and Tu, 2007; Wing, 2008;
Huntington, 2010; Mulder and De Groot, 2012; Wu, 2012; Adom, 2015; Gamtessa and Olani, 2018; Antonietti and Fontini, 2019; Zhou
et al., 2023).
In spite of the clear theoretical consensus that movements in energy prices influence energy efficiency, the empirical findings on the
relationship are not unanimous (Owjimehr et al., 2023). For instance, Liu et al. (2020) claim that rising energy prices lead to improved
energy efficiency because it lowers the profit of firms. To remain profitable, the study argues, firms are forced to lower their use of
energy as a production input through the adoption of more energy-efficient technologies. Antonietti and Fontini (2019) similarly argue
that energy prices positively impact energy efficiency in a panel of 120 countries. They however observe that the intensity of this
impact varies across regions. Valizadeh et al. (2018) likewise conclude that fluctuations in energy prices positively impact energy
efficiency in Iran’s petrochemical industry. In contrast, however, Wang et al. (2019) report a negative relationship between energy
prices and energy efficiency. They posit that rising energy prices are capable of limiting energy efficiency in cases where energy price
management is ineffective. Yang and Wei (2019), in like manner, claim that energy prices are negatively associated with energy ef­
ficiency. According to their study, due to rising energy prices, companies could decide to opt for low-quality inputs which result in
reduced energy efficiency and increased pollution. Some studies do not provide specific conclusions on the nature of the relationship
between energy prices and energy efficiency. For example, Gorus and Karagol (2022) conclude instead that the nature of the rela­
tionship between both variables varies across countries, making it impossible to arrive at a specific verdict on the direction of impact.

2.3. Gap in literature

As can be understood from the previous subsections, it is well-established in extant literature that geopolitics plays a significant role
in energy price fluctuations and that movement in energy prices significantly influences energy efficiency. It however becomes quite
obvious that little effort has been invested in evaluating the connection between global energy price uncertainty and energy efficiency,
hence this research framework. Moreover, no existing study so far has investigated the impact of geopolitical oil price uncertainty on
energy efficiency. The identified gap is specifically filled by studying the response of global energy efficiency to oil price uncertainties
created by geopolitical events. The drive toward more effective energy utilization, arising from heightened and sustained uncertainty
in geopolitical oil prices, is the central focus of this research.

3. Data and methodology

3.1. Data

To assess whether uncertainties in oil prices triggered by geopolitical events serve as a catalyst for decarbonization and energy
security efforts through energy efficiency, quarterly frequency data beginning from 2004:Q1 to 2020:Q4 (the longest dataset that is
currently available) is analyzed. The novel Geopolitical Oil Price Risk (GPRX) index introduced by Bonaparte (2019) is used as a proxy
for geopolitical oil price uncertainty. This index is a recently constructed text-based index. The GPRX index was composed using a total

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of 17 different worldwide texts divided into 4 groups associated with "sanctions," "countries under political stress," "political events,"
and "economic uncertainty," which are searched in Google trends. The value of the index ranges between 0 and 100, and the latter
represents the maximum geopolitical oil price risk.
Furthermore, following Ahmad and Wu (2022), energy efficiency data is generated using the formula written below:
ENEFFIt = GDPt /ENCONt (1)

Where ENEFFIt , GDPt , and ENCONt are energy efficiency, per capita gross domestic product and per capita energy consumption at time
t, respectively. Energy efficiency measures energy consumption per unit of economic output (Paramati et al., 2022; Ye and Yue, 2023).
The lesser the consumption, the higher the energy efficiency score. It should be noted here that the data mentioned above is first
obtained at the annual frequency. The logarithm of the annual data of the GPRX index and energy efficiency is then taken to minimize
dimensional differences.
Moreover, following Jebli et al. (2022), the quadratic match-sum method is applied to annual frequency series to obtain quarterly
frequency series since the high-frequency data is required for the econometric approaches used in this study.
The quarterly logarithmic values of the study series from 2004:Q1 to 2020:Q4 are plotted in Fig. 1. The plots indicate that energy
efficiency follows an increasing trend, whereas, the GPRX index follows a decreasing trend except from 2013:Q1 to 2014:Q4 and from
2017:Q1 to 2018:Q2.

3.2. Econometric methodology

To begin with, the flow of all the analyses performed in the study is illustrated step by step in Fig. 2.

3.2.1. Wavelet coherence

The Fourier transform (FT), one of the widely favored mathematical transformation techniques, enables the acquisition of addi­
tional details that are not readily available from data series. However, the FT only provides information about the frequency of a series,
not about time, and cannot give satisfactory results for aperiodic or non-stationary series. These shortcomings of the FT are removed by

Fig. 1. Plots of the logarithmic series.

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Fig. 2. Flow of the analysis.

the wavelet transform (WT). More specifically, the WT produces robust results for series that include discontinuities, nonlinearity,
structural changes, trends, and volatility clustering. Furthermore, the WT provides not only frequency components of series, but also
time locations of these frequency components (Adebayo and Odugbesan, 2021; Yilanci and Pata, 2023).
Although WT-based methods were developed in the 80 s, the wavelet coherence (WC) approach has been especially used widely in
recent years to examine the interactions between two financial and/or economic variables (see Adebayo and Kalmaz, 2020; He et al.,
2023; Ahmed, 2022; Mahmood et al., 2022; Olasehinde-Williams et al., 2023a; Villanthenkodath et al., 2022; Yilanci and Pata, 2023;
Zhang et al., 2022). Since the WC method incorporates the frequency and time domains, this non-parametric technique allows the
comprehension of the simultaneous time-varying short-, medium-, and long-term interrelationships and causality between two var­
iables by presenting a visual plot. As stated by Rej et al. (2022), the wavelet coherence between two time series—p and q—is
obtainable in the following manner:
⃒ ( −1 )⃒
⃒C f Wpq (k, f) ⃒2
R2 (k, f) = ( ⃒ ⃒ 2
) ( ⃒ ⃒2 ) (2)
C f − 1 ⃒Wp (k, f)⃒ C f − 1 ⃒Wq (k, f)⃒

In Eq. (2), C denotes a smoothing operator situated in scale as well as in time (frequency), R2 (k, f) is the estimated WC values.
Estimated values are represented on the WC plot by colors ranging from blue to red. The blue color implies no relationship, whereas,
the red color indicates a strong relationship. In other words, moving towards the red color means that the relationship is getting
stronger. Statistical significance is denoted via a surrounding black line.
Since the estimated WC values are squared values, as seen in Eq. (2), it is challenging to determine whether the relationship be­
tween the variables is positive or negative. To address this limitation, phase difference was introduced by Torrence and Compo (1998),
Pal and Mitra (2019). With the phase difference, Eq. (2) changes to the following form:
( { ( −1 )} )
L C f Wpq (k, f)
Øpq (k, f) = tan− 1 { ( −1 )} (3)
O C f Wpq (k, f)

In Eq. (3), L shows the imaginary operator, O the real part operator, and Øpq (k, f) the WC estimates through phase difference. These
WC estimates are represented on the WC plot by black arrows. Arrows moving toward the right imply a positive interrelationship
between the variables, whereas, arrows moving towards the left mean a negative interrelationship. Moreover, the arrows directed
towards the bottom-right or top-left signify the leading role of the first variable, whereas, arrows pointing towards the bottom-left or
top-right indicate the leading role of the second variable (Kirikkaleli and Alola, 2022).

3.2.2. Quantile-on-quantile regression

The impact of a particular quantile of a regressor on an explained variable can be investigated by utilizing the conventional or­
dinary least square (OLS) developed by Stone (1977) and Cleveland (1979). Additionally, the impact of a regressor on various quantiles
of an explained variable can be analyzed via the conventional quantile regression (QR) developed by Koenker and Bassett (1978). On
the other hand, the quantile-on-quantile regression (QQR) of Sim and Zhou (2015) enables the empirical investigation of the rela­
tionship across quantiles of two variables. This recently developed approach merges the conventional OLS and QR approaches through
non-parametric estimation (Mallick et al., 2019) and is robust to structural changes (Caporin et al., 2021). This novelty has made the
QQR approach one of the most widely used methods in recent studies examining the relationships between two variables (for example,
see Naeem et al., 2021; Kartal et al., 2022; Meo and Karim, 2022; Ren et al., 2022a, b; Shuai et al., 2022). In this study, the QQR method

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helps to model and assess the effect of the quantiles of the GPRX index on the quantiles of energy efficiency. Following the study of
Adebayo et al. (2023), the QQR representation of the study can be written as below:
ENEFFIt = δq (GOPRXt ) + ωt (4)
q

In Eq. (4), ENEFFI represents energy efficiency, GOPRX stands for the geopolitical oil price risk index, q indicates quantiles (0.05,
0.10, …, 0.95), t shows time, and ω specifies residual term. Moreover, δq (.) demonstrates the indeterminate function, which has no
prior information about the association between energy efficiency and the GPRX index. The QQR method is competent enough to
examine and determine the degree of relationship between energy efficiency and the GPRX index in their functional forms.
Since the bandwidth directly affects how smoothly the results are predicted, it is very important for the QQR approach to select the
optimal bandwidth (Tweneboah et al., 2022). Following the studies of Sim and Zhou (2015), Irfan et al. (2022), and Rubbaniy et al.
(2022), 0.05 is used for the bandwidth.

4. Empirical findings

4.1. Stationarity tests results and summary statistics

The empirical analysis of this study commenced by discussing the stationarity status and providing summary statistics of the
variables. As observed from the results of all three stationarity tests represented in Table 1, logarithmic series are not stationary.
Therefore, they are transformed into the first-difference, and the stationary series required for the analysis are obtained.
The summary statistics are plotted in Fig. 3. The mean values illustrate that the quarterly average of energy efficiency is positive,
while that of the GPRX index is negative. The maximum and minimum figures show that GPRX fluctuates over a broader range than
energy efficiency. Standard deviation estimates disclose that GPRX is more volatile than energy efficiency for the sample period. Also,
while energy efficiency is negatively skewed, GPRX is positively skewed with excess kurtosis. These results suggest that both the GPRX
index and energy efficiency have distributions that are non-normal in nature. The non-normality detected is further confirmed by the
Jarque-Bera test.

4.2. Preliminary analysis results

The distribution of the series is an easily accessible indicator from which (non)linearity can be deduced (Akadiri and Adebayo,
2022; Liu et al., 2023; 2024). As evidenced above, the distributions of the GPRX index and energy efficiency are not normal. This
implies the nonlinearity of the series. Following the study of Jiang et al. (2022), the BDS test of Broock et al. (1996) is employed to
analyze the nonlinearity of the series and of the relationship between them. The BDS test results (see Table 2) empirically support the
finding that the GPRX index and energy efficiency are nonlinear in the sample period. The results also demonstrate a nonlinear
relationship between the GPRX index and energy efficiency.
Furthermore, the Max-F, Exp-F, and Ave-F parameter stability tests of Andrews and Ploberger (1994) are utilized to investigate
structural changes in the study series and in their relationships. The results in Table 3 empirically reveal structural changes in energy
efficiency and in the link between the GPRX index and energy efficiency.

4.3. Wavelet coherence results

The plot generated from the wavelet coherence analysis is presented in Fig. 4. As can be inferred from the figure, very high
coherence is visible in the short, medium, and long term between 2006 and 2010 and in the short term between 2019 and 2020. This
indicates that there is a strong relationship between geopolitical oil price uncertainty and energy efficiency in the identified periods.
This finding provides empirical confirmation of the claim made by past studies that in response to the energy crisis often triggered by
geopolitical events, countries generally take steps to minimize reliance on foreign energy imports through improved energy efficiency
(see Albuquerque and Dos Santos, 2023; Banerjee, 2023; Zhang et al., 2023; Gajdzik et al., 2024).
Moreover, the periods during which the strong correlations between energy efficiency and geopolitical oil price uncertainty are
identified correspond with periods of major geopolitical events in the world. For instance, the correlation visible in 2006 and 2010
corresponds with the period of the energy crisis of the 2000s. From the mid-1980s to the end of 2003, crude oil prices remained

Table 1
Unit root test results.
Variables GPRX ENEFFI

Tests I0 I1 I0 I1

ADF − 2.504 − 4.640* − 2.332 − 3.836*

PP − 2.568 − 4.587* − 2.563 − 3.894*
KPSS 0.696* 0.128 0.892* 0.347

Note: (1)ADF, PP, and KPSS represent the Dickey and Fuller (1979), Phillips-Perron (1988), and Kwiatkowski et al. (1992) tests, respectively. (2) I0
and I1 stand for level and first-difference respectively. (3).
*
indicates stationarity for the ADF and PP, and nonstationarity for the KPSS tests at 5 %.

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Fig. 3. Radar-based summary statistics.

Table 2
BDS test.
D =2 D =3 D =4 D =5 D =6

GPRX 5.531* 4.998* 4.724* 7.946* 12.202*

ENEFFI 14.608* 18.882* 25.360* 36.190* 48.230*
VAR(1) 4.100* 4.146* 6.361* 10.432* 17.339*

Note: D represents embedded dimensions.

*
refers to the rejections of the null of linearity at 1 %.

Table 3
Parameter stability tests.
Max-F Exp-F Ave-F

GPRX 3.800 0.857 1.423

ENEFFI 19.214* 6.859* 7.316*
VAR(1) 21.622* 8.586* 6.116*

Note:.
*
indicates the rejection of the null hypothesis of no breakpoints at a 1 % level of significance.

Fig. 4. Wavelet coherence plot between the GPRX index and energy efficiency.

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relatively low and stable, mostly below 25 US dollars per barrel. However, towards the end of 2003, a spike in crude prices began,
reaching about 60 US dollars by 2005 and peaking at 147 US dollars as at the end of 2008. A combination of factors, such as the North
Korean missile tests,1 the 2006 Israel-Lebanon conflict,2 worries over Iran’s nuclear plans in 20063 and oil production disruptions in
Nigeria4 were identified amongst others as causes of the energy crisis. Also, the correlation recorded between 2019 and 2020 coincides
with the COVID-19 pandemic outbreak. This stands to reason as energy markets plummeted significantly due to the economic shut­
down that occurred during the pandemic; oil price volatility also increased during this period for the same reason. .5
In addition, the plot shows that the arrows face rightwards, implying a positive interrelationship between the GPRX index and
energy efficiency. In addition, since most of the arrows are moving towards the top right, it is determined that the GPRX index leads to
energy efficiency, indicating a causality effect of the GPRX index on energy efficiency. These findings empirically reveal that an
upsurge in geopolitical oil price uncertainty causes an increase in energy efficiency. This particular outcome not only buttresses the
claim that energy price fluctuations positively impact energy efficiency (see Valizadeh et al., 2018; Antonietti and Fontini, 2019; Liu
et al., 2020). This study also further extends the findings of these previous studies by specifically showing that geopolitical oil price
uncertainty positively impacts global energy efficiency.

4.4. Quantile-on-quantile regression (QQR) results

The QQR method is used to empirically investigate the effect of the quantiles of the GPRX index on the quantiles of energy effi­
ciency. The plot provided by the QQR method is presented in Fig. 5. This plot represents quantile-specific coefficient estimates of each
study variable. According to the plot, the effect of the middle quantiles (0.30–0.65) of the GPRX index is negative on the lower
(0.10–0.25) and middle (0.40–0.65) quantiles of energy efficiency. Also, the middle and higher quantiles (0.50–0.95) of the GPRX
index have a negative impact on the higher quantiles (0.70–0.95) of energy efficiency. On the other hand, lower quantiles (0.05–0.35)
of energy efficiency are strongly positively affected by the lower quantiles (0.05–0.30) of the GPRX index. Furthermore, the lower and
middle quantiles (0.05–0.50) of the GPRX index positively affect the higher quantiles (0.75–0.95) of energy efficiency. Moreover, there
is a strong positive effect of the higher quantiles (0.70–0.95) of the GPRX index on all quantiles of energy efficiency except the 0.90 and
0.95 quantiles. Overall, although the GPRX index has a negative effect on energy efficiency in some quantiles, its effect on energy
efficiency is observed to be mostly positive. In summary, as it was with the wavelet coherence analysis, these results also empirically
reveal that energy efficiency will increase as geopolitical oil price uncertainty rises. We are thus able to once again infer that in
response to the energy crisis often triggered by geopolitical events; countries generally take steps to minimize reliance on foreign
energy imports through improved energy efficiency.

4.5. Robustness test

In the extant literature, quantile regressions are commonly used to determine the validity of QQR results (see Sinha et al., 2020;
Çıtak et al., 2021). In this regard, the QR method is employed to check the validity of the QQR results. The estimated coefficients by the
QR approach and the average of the estimated coefficients by the QQR method are compared for various quantiles in Fig. 6. The figure
shows that the estimated coefficients move in almost the same way. This finding supports the validity of the QQR results.

5. Conclusion and policy İmplications

Although the global energy transition is being accelerated through global sustainable energy targets and major technological in­
novations, fossil fuels such as oil remain a key energy source for the moment. Uncertainties surrounding oil prices have important
impacts on its demand as well as supply patterns, and consequently, on global energy security. This paper therefore builds on extant
literature related to energy security by focusing on the role of uncertainties in the global energy architecture. It is argued that oil price
uncertainties resulting from geopolitical events act as a catalyst for decarbonization and energy security efforts through energy ef­
ficiency. This study is an attempt to rekindle interest in the importance of energy efficiency in the global energy security architecture.
As well-documented, efficient energy use is the preferred strategy for the present, as the world carefully manages the transition from
fossil fuels to renewables. Primarily, effective energy utilization has the capability to decelerate the growth in energy demand,
allowing for the gradual adoption of renewables over time.
In contrast to previous studies, firstly, the focus of this study is specifically on the impact of geopolitical oil price uncertainty.
Secondly, a wavelet coherence analysis is constructed to study the response of global energy efficiency to geopolitical oil price un­
certainty. Thirdly, additional analysis is conducted through QQR regression to unravel the impacts of distinct geopolitical oil price risk
quantiles on energy efficiency quantiles. Subsequently, the validity of the QQR results is tested using the quantile regression technique
as the final step. All these econometric methods are applied in the analysis of global time-series for 2004:Q1–2020:Q4.
The outcomes from wavelet coherence analysis reveal a positive link between geopolitical oil price uncertainty and global energy

1
https://edition.cnn.com/2006/BUSINESS/07/05/oil.price/index.html
2
http://news.bbc.co.uk/2/hi/business/7083015.stm#lebanon
3
http://news.bbc.co.uk/2/hi/business/4684844.stm
4
https://slate.com/business/2008/01/gas-bubble.html
5
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8691958/

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C.-C. Lee et al. Economic Analysis and Policy 82 (2024) 908–919

Fig. 5. QQR regression plot between the GPRX index and energy efficiency.

Fig. 6. QQR vs QR estimates.

efficiency. This connection proves to be notably robust in the short to long term between 2006 and 2010, as well as in the short term
between 2019 and 2020. As anticipated, the findings suggest that geopolitical oil price uncertainty precedes changes in energy effi­
ciency, indicating that an escalation in geopolitical oil price uncertainty results in an improvement in energy efficiency. Overall, the
results from the QQR affirm a predominantly positive influence of geopolitical oil price uncertainty on global energy efficiency. The
findings from the quantile regression further support the outcomes derived from the QQR analysis. Consequently, the research
questions posed in this study are affirmed. The overall conclusion drawn is that geopolitical oil price uncertainty is compelling the
world to enhance energy efficiency.
The study findings provide valuable insights with far-reaching policy implications. It is shown that energy efficiency is a useful
means of improving resilience to oil price shocks during geopolitical crises. Energy efficiency enhances energy security by reducing the
overall demand for oil. As economies become less reliant on oil for their energy needs, they are better insulated from geopolitical
events, supply disruptions, and sudden changes in oil prices. Improved energy efficiency is therefore able to lower dependence on
energy imports, thus bolstering short- to long-term energy security in a manner that is cost-effective. Energy efficiency thus lowers the
adverse effects of oil price uncertainties related to geopolitical events.
Overall, in the event of increased geopolitical oil price uncertainties, energy efficiency measures can be employed alongside
emergency conservation measures by policymakers to lower imports, and consequently, susceptibility to external shocks. The study
findings underscore the significance of adopting policies that actively promote research, development, and deployment to enhance
energy efficiency. As such, continued investment in research and development is essential to advance energy-efficient technologies and
practices. Governments, academia, and industry stakeholders should collaborate to drive innovation in areas such as energy storage,
renewable energy integration, and smart energy management systems. In addition, governments should allocate resources to develop

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energy-efficient infrastructure, including public transportation systems, smart grids, and energy-efficient buildings. Financial in­
centives and regulatory mechanisms can stimulate private sector participation in energy efficiency initiatives. Moreover, investments
in energy-efficient technologies and infrastructure lead to cost savings for businesses and households, enhancing their capacity to
withstand oil price fluctuations. This resilience strengthens national economies against the disruptive effects of geopolitical conflicts
on energy markets.
Aggressive pursuit of policies incentivizing energy efficiencies, such as appliance standards, building codes, retro-commissioning,
decoupling, energy benchmarking and disclosure, and energy efficiency resource standards, are also required. Raising public
awareness about the importance of energy efficiency should also be prioritized as it fosters widespread adoption of energy-saving
behaviors and technologies. Educational campaigns, incentives for energy-efficient appliances, and energy efficiency labeling pro­
grams empower consumers to make informed choices and contribute to overall energy conservation efforts. Also, given the global
nature of energy markets and geopolitical dynamics, international cooperation is crucial. Diplomatic efforts to promote energy effi­
ciency cooperation, technology transfer, and capacity building can strengthen resilience against oil price uncertainty caused by
geopolitical conflicts.
There are however some caveats that need to be mentioned. Firstly, the econometric techniques employed necessitated the
rescaling of data sequences from lower to higher frequencies. The effect of this act is not known at the moment on the results obtained.
It is therefore proposed that this topic be revisited as higher frequency data becomes available in the future. Secondly, a key limitation
exists in the construction of news-based uncertainty measures. This is due to the fact that all news statements referring to ‘uncertainty’
(irrespective of whether it documents a rise or fall in it) increase the value of the uncertainty index. There is therefore likely to be an
upward bias in the index. As superior measures become available in the future, this topic may once again be revisited.

CRediT authorship contribution statement

Chien-Chiang Lee: Funding acquisition, Project administration, Supervision, Writing – review & editing. Godwin Olasehinde-
Williams: Conceptualization, Writing – original draft, Writing – review & editing. Oktay Özkan: Formal analysis, Methodology,
Writing – original draft.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper.

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