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Net-Zero Policy vs Energy Security: The Impact on GCC Countries

Gulf Cooperation Council countries have accumulated large oil portfolio revenues. However, the world economy is seeking to reduce carbon emissions, and in turn, its reliance on fossil fuel resources through investments in renewable energy resources. The aim of this research is to analyze oil portfolio risk from an exporters' perspective, highlighting how relevant determinants, such as the increasing penetration of renewables in the importer counterparties, and financial and policy uncertainty, increase the volatility of oil export portfolios.We construct oil portfolios for four Gulf Cooperation Council countries (Kuwait, Oman, Saudi Arabia, United Arab Emirates) from 2008 to 2018, and compute volatility spillovers à la Diebold and Yilmaz. Then, the effects of policy and economic variables on volatility spillover indices are estimated using different panel linear regression models.We find rising renewable market shares significantly affects oil export portfolio risks and reduces adverse impacts on importing countries of oil market fluctuations.

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Keywords: Portfolio theory, Risk minimization, Directional volatility spillovers, Renewables, Energy security, Gulf Cooperation Council countries

DOI: 10.5547/01956574.44.SI1.sbig

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Published in Volume 45, Special Issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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