Comparative Analysis of the Impact of Oil Market Developments on European and Asian Natural Gas Markets in Light of the Russia-Ukraine War

Document Type : Research Paper

Authors

1 Student in Oil and Gas Economics, Department of Energy Economics and Management, Petroleum University of Technology, Tehran, Iran

2 Assistant Professor, Department of Energy Economics and Management, Petroleum University of Technology, Tehran, Iran

Abstract

The supply and production of energy, particularly fossil fuels, have reshaped the global balance of power. The ongoing crisis resulting from the Russia-Ukraine war and subsequent international sanctions against Russia highlights the critical importance of controlling the energy production and distribution cycle. This study examines the impact of recent fluctuations in crude oil prices—specifically, Brent crude and Russian Urals crude—on natural gas prices in the European Union and liquefied natural gas (LNG) prices in Asia within the context of the Russia-Ukraine conflict. Utilizing dynamic time-series regression models, including Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), Canonical Cointegrating Regression (CCR), and a short-term dynamic Error Correction Model (ECM), the analysis employs daily data from March 1, 2021, to January 26, 2024. The findings reveal that both European and Asian gas markets are highly sensitive to gas price volatility, geopolitical factors, and oil prices in the short term. Notably, the short-term model estimation reveals that the Asian LNG price index and the ongoing conflict are the most influential factors affecting the European gas market. Conversely, the Asian gas market is significantly influenced not only by these elements but also by fluctuations in European gas prices. Long-term model results indicate a strong positive correlation between European and Asian gas price indices, underscoring the importance of this relationship in shaping global energy markets. While the Russia-Ukraine war serves as a significant geopolitical variable with substantial impacts on both gas markets, the influence of Brent crude and Russian Urals crude oil prices appears limited and largely insignificant in the short term. Overall, this study highlights the crucial role of international factors and price linkages in shaping gas market dynamics, demonstrating the rapid adjustment of deviations from long-term equilibrium in both the European and Asian natural gas markets

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References

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Quarterly Journal of Applied Theories of Economics
Volume 12, Issue 44
June 2025
Pages 145-184

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