The Impact of Political Risk and Crude Oil Price Shocks on Gross Domestic Product in Iran Using Structural Cyclical Models
Keywords:
Political Risk, Crude Oil Price, Gross Domestic Product, Structural Cyclical Models, Governance IndicatorsAbstract
Oil-dependent developing countries are characterized by a high degree of uncertainty in macroeconomic variables. Economic growth, inflation, oil prices, liquidity, exchange rates, and other macroeconomic indicators are more volatile compared to those in industrialized economies, and the persistence of such fluctuations can lead to the emergence of structural problems across different sectors of these economies. Fluctuations in these indicators, through the generation of risk and uncertainty, influence investment and investors’ decision-making processes, thereby affecting production. In Iran, such fluctuations have significant impacts on liquidity, investment, exports and imports, and overall production, making them highly important for economic policymakers. Consequently, instability in global oil markets can result in imbalances and even crises. The present study examines the impact of political risk and crude oil price shocks on gross domestic product (GDP) in Iran using structural cyclical models. This research is applied in nature and adopts a descriptive-analytical approach. In terms of data collection, it is categorized as an ex post facto study. The statistical population pertains to Iran, and the study period spans from 1991 to 2023. The results obtained from the estimation of the Structural Vector Autoregression (SVAR) model indicate that the coefficients of the main variables and the interacting shocks in the matrix equations are statistically significant and consistent with the conditions of the Iranian economy. The key variables identified in the SVAR model reveal that shocks arising from oil price volatility and inflation lead to a decrease in GDP, whereas shocks related to political stability, rule of law, government effectiveness, regulatory quality, and the interaction term (PS*OP) contribute to improvements in GDP. Specifically, a shock stemming from oil price volatility reduces GDP by approximately 32%, while an inflation shock leads to a 43% decrease in GDP. In contrast, a shock related to political stability improves GDP by approximately 35%. The response of GDP to shocks in rule of law, government effectiveness, and regulatory quality is estimated at approximately 12%, 15%, and 2%, respectively.
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Copyright (c) 2026 Mohsen Sarikhani (Author); Marjan Daman Keshedeh; Azadeh Mehrabian, Roya Saifipour (Author)
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