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  • Writer's pictureRyan Lynch

Oil Price Volatility and the Effect Upon Russian Risk Premiums

A working paper from 2019 is particularly relevant amidst today's energy supply crisis, inflationary and expansionary fiscal policy trends, and potential monetary tightening to come. While not exhaustive, nor exclusive to oil, the findings may generally be applied to exporting nations with an outsized share of GDP derived from energy exports.



The price of oil is an important determinant of economic stability for exporting nations and shocks to oil volatility can have a destabilizing effect which may perversely impact sovereign risk. This paper surveys a time series of 146 months and determines that oil price volatility is causal to changes in Russian bond-yield premium using liquidity, market volatility, credit ratings and nominal oil price as control variables. This research compares two VAR models and examines an impulse-response framework to understand the impact of this causality; finding, the Russian bond yield spread increases for two months after a shock to oil price volatility by a cumulative 300-400 basis points and then sharply declines. As the purpose of this analysis is the initial response of Russian risk spread to changes in oil price volatility, the causality of positive and significant changes to Russian risk spread due to oil price volatility shocks can be confirmed.


MOIC 01 Nov
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