Working Paper: NBER ID: w31496
Authors: Christiane Baumeister
Abstract: The COVID-19 pandemic as well as the Russian invasion of Ukraine have had profound effects on the global energy landscape, with some of the longer-lasting effects still unfolding. This paper discusses how these events have reshaped the supply side of the global oil market by focusing on structural changes in each of the three main oil-producing countries. The demand side has responded to geopolitical developments by devising a set of policy tools to stabilize oil markets and counter inflationary pressures. In particular, the price cap policy was introduced to supplement the EU embargo on seaborne Russian oil exports, and record volumes of oil were released from government-controlled emergency stockpiles. The sources of oil price fluctuations associated with these events are also discussed, as is their role in the recent surge of inflation, with a particular focus on the heterogeneity in the pass-through of oil supply shocks within the Euro area.
Keywords: COVID-19; oil markets; inflation; geopolitical events
JEL Codes: E31; E58; Q41; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| COVID-19 pandemic (H12) | drop in oil demand (Q47) |
| drop in oil demand (Q47) | US oil production plummet (L71) |
| Russia's refusal to cooperate with OPEC (L71) | crash in oil prices (G01) |
| market turmoil (G10) | structural changes in US shale oil sector (L16) |
| EU embargo and G7 price cap policy (E64) | stabilize oil markets (Q02) |
| oil supply shocks (Q43) | inflationary pressures (E31) |
| supply constraints (D10) | market responses (D49) |
| heterogeneous passthrough of oil supply shocks (Q43) | impact varies across euro area countries (F69) |