The impact of financial stress, governance, and geopolitics on Europe's energy transition mineral trade

Abstract

This study investigates how intra- and extra-territorial imports of energy transition minerals (ETMs) by the 27 Member States of the European Union respond to its energy transition parameters amidst the interplay of financial stress, mineral prices, electoral and political governance, and geopolitical turmoil. It utilizes monthly data from January 2004 to December 2023, also subdivided into two distinct periods covering the pre-Russia-Ukraine crisis period (January 2004–December 2021) and the Russia-Ukraine crisis period (January 2022–December 2023). The study applies the partial cross-quantilogram and wavelet local multiple correlation methods to manage heavy-tailed data characteristics. The findings indicate that Europe's ETM imports rise in line with the transition to clean energy despite volatility shocks from mineral prices and geopolitical events across all three periods. The combined effect of financial stress and ETM prices negatively affects Europe's mineral imports in bull markets, particularly due to volatility shocks during the Russia-Ukraine crisis period. In contrast, the interaction between electoral and political governance and geopolitics positively influences mineral imports, again except during the Russia-Ukraine crisis period. This study contributes to disentangling the transmission and volatility effects of pricing and geopolitical risk issues within the modeling framework. Finally, this research emphasizes the need for strategic resource management, risk mitigation, and improved governance to support Europe's mineral trade-driven energy transition.