Geopolitical Risk, Brent Volatility, and Oil Import Flow Dynamics: Evidence from Indonesia
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Abstract
Geopolitical risk can transmit to oil-importing economies through heightened market uncertainty and procurement-flow adjustment. This study tests two hypotheses: geopolitical risk (GPR) is positively associated with monthly Brent conditional volatility, and Brent volatility is negatively associated with Indonesia's oil and petroleum-product import volume. Monthly data from January 2014 to April 2026 are combined with daily Brent prices. Brent volatility is estimated using EGARCH(1,1), while dynamic relationships are assessed with ARDL-HAC models, bounds testing, long-run multipliers, and deterministic Dynamic ARDL simulations. H1 is supported: GPR has a contemporaneous coefficient of 0.0284 (p = 0.001) and a long-run multiplier of 0.0415. H2 receives marginal and delayed support: contemporaneous and first-lag effects are insignificant, while the second lag is -24,030 tons per volatility point (p = 0.078). Under a +1 SD GPR shock, volatility peaks at +1.81 points in month 3 and import volume reaches its largest decline in month 4 (-68,239 tons); the historical-extreme scenario raises these deviations to +4.33 points and about -163,220 tons. The results show strong transmission from geopolitical risk to oil-market volatility but a weaker and lagged response in Indonesia's import volume.
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