Estimating a Model of Future Energy Returns in Selected Oil-Producing Countries with Emphasis on the Financial Stress Index and Political Stability
Keywords:
macroeconomic variables, oil-producing countries, principal component analysis, composite index, energy returns, Financial stressAbstract
Objective: The present study aims to analyze the impact of the financial stress index and political stability on future energy returns in selected OPEC member countries and to present a hybrid model for forecasting the future behavior of the energy market.
Methodology: This study is applied in purpose and descriptive–analytical in nature, falling within the category of post-event studies over the period 2005–2023. The statistical population includes developing countries, and the sample comprises Algeria, Iran, Iraq, Kuwait, Nigeria, Qatar, Saudi Arabia, and the United Arab Emirates. The financial stress index was calculated using the Principal Component Analysis (PCA) method to reduce the dimensionality of economic data and to construct a composite index of variables such as government size, tax revenue, the ratio of money to liquidity, non-governmental debt, real interest rate, and real exchange rate. Data were collected from international databases, and their stability was confirmed through LLC and Kao tests. Subsequently, a panel regression model was estimated using the Panel Smooth Transition Regression (PSTR) approach to examine the nonlinear relationship between the financial stress index, political stability, and future energy returns.
Findings: The results showed that the financial stress index has a negative and significant effect on future energy returns (β = -0.11, p < 0.05), and this effect intensifies at higher levels of financial stress. Moreover, the political stability index has a positive and significant effect on future energy returns (β = 0.49, p < 0.1). In addition, the variables of Gross Domestic Product (GDP) (β = 0.08) and Information and Communication Technology (ICT) (β = 0.17) also demonstrated positive and significant effects on energy returns. Panel cointegration tests and diagnostic analyses indicated a long-term relationship and coefficient stability within the model. The adjusted coefficient of determination (R² adj = 0.82) showed a high explanatory power of the model in predicting future energy returns.
Conclusion: The study revealed that high financial stress can lead to a decline in energy returns among OPEC member countries, while political stability and economic growth have reinforcing effects. Therefore, managing financial risks, enhancing economic transparency, and improving political governance are essential requirements for ensuring the sustainability of the energy market and boosting future returns in oil-producing nations.
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Copyright (c) 2025 Arash Shakouri, Gholamreza Abasi, Kambiz Peykarjou, Azadeh Mehrabiyan (Author)
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