Geopolitical Oil-Supply Scenarios and Macroeconomic Risks: A Bayesian Toolkit for Policy Analysis
Series: Occasional Papers. 2616.
Author: Irma Alonso-Alvarez, Iván Kataryniuk, David López-Salido and Javier J. Pérez
European Union
- Economic growth and convergence
- Regional analysis
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Abstract
Rationale
Geopolitical tensions can quickly reshape the economic outlook, influencing inflation, growth, and especially energy prices. Yet turning highly uncertain events such as international conflicts into concrete economic forecasts is far from easy. This paper presents a framework that combines market data, real-time indicators, and expert judgment to assess how different geopolitical scenarios could affect global oil supply and crude oil prices. As new information becomes available, the framework updates these assessments, providing a transparent and quantifiable way to track evolving risks.
Takeaways
- Not all geopolitical conflicts have the same economic impact. The framework distinguishes between different possible outcomes and assesses how each could affect oil production, energy prices, and economic activity.
- Probabilities evolve as new information arrives. The tool combines market data, real-time indicators, and expert assessments to continuously update risk estimates.
- Oil prices depend not only on the conflict itself, but also on the ability to absorb its effects. Factors such as strategic reserves and inventories can help cushion the impact of supply disruptions.
- The proposed framework helps interpret the risks that markets are pricing in. By using observed oil prices, it can identify which geopolitical scenarios investors appear to consider most likely.
- It is a tool designed to support decision-making. By translating complex geopolitical developments into quantifiable scenarios, it helps incorporate these risks into economic forecasts and policy analysis.