Impact of geopolitical and energy security risks on energy consumption patterns

Abstract

This study analyzes the impact of energy security and geopolitical risks on energy consumption in countries with geopolitical risk from 1985 to 2021, with the aid of financial development, economic growth, and human capital as moderating variables. Employing robust panel data econometric techniques, the analysis reveals that heightened geopolitical risks and compromised energy security significantly affect energy consumption patterns. The increase in energy security risk by 1% has a dual impact on energy consumption patterns in countries with high geopolitical risk, as renewable energy consumption increases by 0.1227%, while non-renewable energy consumption also increases by 0.113%. As geopolitical risk increases by 1%, energy consumption patterns change, decreasing renewable and non-renewable energy consumption. Specifically, renewable energy consumption decreases by 0.00010% with a 1% rise in geopolitical risk. A 1% increase in financial development significantly impacts energy consumption in these countries. The adoption of sustainable energy solutions is positively correlated with the development of financial markets in high-risk countries, with non-renewable energy consumption decreasing by 0.0187% as financial development progresses. Additionally, an increase in economic growth of 1% leads to a 0.6750% increase in renewable energy consumption, indicating a preference for renewable sources as economies expand, aligning with global sustainability efforts. The findings underscore the importance of resilient energy policies considering geopolitical uncertainties while promoting sustainable economic development. This study offers critical insights for policymakers aiming to balance energy security with financial stability in geopolitically sensitive regions, providing a comprehensive framework to guide strategic decisions in the face of evolving global risks.