The Impact of Oil Price Shocks on Oil and Gas Production Amidst Geopolitical Risk in OPEC: Insights from Method of Moments Quantile Regression

Abstract

The livelihoods of individuals in the contemporary era are primarily contingent upon the accessibility and affordability of natural energy sources. Among these, oil and gas are paramount as foundational resources that contribute to the modernization of lifestyles. However, the accessibility and affordability of these indispensable commodities can be disrupted by global oil price shocks and geopolitical tensions. Considering this, we employ the “method of moments quantile regression,” the panel “augmented mean group,” and GMM-style PVAR granger non-causality test approaches to investigate the impact of decomposed oil price shocks on OPEC’s oil and gas production in the presence of geopolitical risk during the period from January 2013 to October 2023. Our findings indicate that oil price risk shocks harm OPEC countries’ oil and gas production with lower production capacity. Additionally, geopolitical risk hampers the gas production of these countries. Conversely, countries with higher production capacity experience an intensification in oil and gas production due to increased oil price demand shock. Furthermore, oil price risk shock has a Granger-causal effect on oil and gas production. This article provides policy implications for OPEC countries, highlighting the need to address the challenges of oil price shocks and geopolitical risk to ensure stable and sustainable oil and gas production.