Journal of Energy Markets

Kostas Andriosopoulos
Alba Graduate Business School

In a globalized society, characterized by a disproportionate escalation between the path toward systemic homogenization and the fragmentation of states, the resilience of energy systems, energy security and climate change pose some of the greatest challenges of the twenty-first century. The latest geopolitical developments – in particular rising tensions in the hydrocarbon-rich countries and disruptions at critical maritime choke points and in the key minerals supply chains – have exposed the structural vulnerabilities of global energy systems. These events underscore the fragility of fossil fuel supply chains.

The papers in this issue of The Journal of Energy Markets together highlight a central theme: energy markets are increasingly defined by structural asymmetry between traditional and renewable systems, stability and disruption, and perceived and actual market exposure. Recent events, including the disruption in the Strait of Hormuz and the extension of hostilities into energy infrastructures, prove that oil and gas markets are vulnerable to geopolitical shocks. Renewable sources, despite being stochastic in nature, can act as an alternative, although their system integration remains conditional on addressing issues of intermittency, storage and system readiness.

This issue therefore invites readers to reconsider a fundamental point: as the energy markets evolve, risk is not eliminated but transformed, requiring new mechanisms, from financial instruments to policy and innovative technology, to help them turn into more resilient ecosystems and avoid future disruptions.

The first paper in the issue, “Managing geopolitical risk in petroleum markets” by Lawrence Haar, Rob Hayward and Andros Gregoriou, examines the role of geopolitical risk in petroleum markets. Petroleum has evolved into a globally traded and highly liquid commodity. By examining historical shocks to petroleum markets, the authors highlight the use of futures and options derivatives to manage risk during extreme conditions, challenging the view that concerns over supply disruption are warranted. Although the utility of futures and options markets in managing “day-today” firm-level exposure is acknowledged, concerns remain that derivatives markets can neither handle the risks associated with historic geopolitical shocks nor yield macro benefits. Using historical data on trader intentions and commercial and noncommercial activity from various US exchanges, Haar et al find that when faced with geopolitical risk, price instability and stochastic volatility, positions can be taken to mitigate exposure while yielding social benefits in stabilizing markets. Further, notwithstanding perceptions of insecurity, the authors show using option theory that market participants attach a low probability to illiquidity or price extremums during geopolitical events.

Our second paper, by Nesrine Dardouri, Abdelkader Aguir and Myriam Ben Saad, looks at “Analyzing the asymmetric effect of renewable energy on economic growth in a transitional economy”. Using a nonlinear autoregressive distributed lag (NARDL) approach, the authors examine the relationship between renewable energy consumption and economic growth, proving that it is inherently asymmetric, with positive and negative shocks having divergent impacts. Their case study on Tunisia highlights the multifaceted nature of the energy transition in developing countries, where structural constraints, regulatory frameworks, institutional factors and dependency on traditional energy sources continue to affect outcomes and development trajectories. The issues raised by this paper are multidimensional, including the need for institutional, financial and governmental reforms.

Finally, in “Sunny days and market swings: risk assessment in the Indian green venture landscape”, the issue’s third paper, Mukul Bhatnagar, Sanjay Taneja, Zelhuda Shamsuddin and Amar Johri explore volatility and risk dynamics within the Indian green investment landscape. Their novel approach, which combines autoregressive–moving-average (ARMA) and exponential generalized autoregressive conditional heteroscedasticity (EGARCH), models how shocks and information flows affect renewable energy markets in India. The paper’s findings indicate asymmetric volatility and persistence dynamics, reinforcing the notion that green investments, while promising, are subject to heightened uncertainty, and they also highlight the need for effective risk assessment frameworks.