How do economic policy uncertainty and geopolitical risk affect oil imports? Evidence from China and India

Abstract

To ensure energy security for emerging economies, it is imperative to explore the impacts of economic policy uncertainty (EPU) and geopolitical risk (GPR) on oil imports in China (COI) and India (IOI). An innovative wavelet quantile correlation framework is devised to dissect EPU-COI, GPR-COI, EPU-IOI, and GPR-IOI relations across quantiles and frequencies, utilising monthly data from January 2010 to December 2023. The relations between EPU and oil imports are initially positive due to inflexible plans, negative medium-term market readjustments, and favourable long-term diversification. GPR-COI relations are initially positive from inertia and price hikes, but they turn negative mid-term due to high prices, panic, and supply issues, reversing with diversification and regained confidence. GPR and IOI negatively correlate in the short-medium term but positively in the medium-long term. In comparison, GPR's negative impact on COI is more pronounced than EPU's, and the former's effect on IOI is quicker. EPU's impact on IOI is more detrimental than COI, while GPR's influence on IOI is faster. The study also uses wavelet quantile partial correlation to enhance robustness. Based on these findings, China and India will be offered crucial advice to stabilize oil imports amidst a complex economic and political backdrop.