Not all political relation shocks are alike: Assessing the impacts of US-China tensions on the oil market
Yifei Cai
Valérie Mignon
Jamel Saadaoui
Yifei Cai
Valérie Mignon
Jamel Saadaoui
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- Trade tensions between the two countries threaten world economic growth, pulling down oil demand.
- Conflicting relationships between these two major players in the oil market may lead to the development of new strategic partnerships.
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This paper assesses the effects of US-China political tensions on the oil market. Relying on a quantitative measure of these relationships, we investigate how their dynamics impact oil demand, supply, and prices over various periods, starting from 1971 to 2019. To this end, we estimate a structural vector autoregressive model as well as local projections and show that political tensions between the two countries pull down oil demand and raise supply at medium- and long-run horizons. Overall, our findings show that conflicting relationships between these two major players in the oil market may have crucial impacts, such as the development of new strategic partnerships.
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