The Impact of Oil Price Shocks on Dependent Industries - an Empirical Simulation in Times of the Russian War

The past shows strong dependencies between the crude oil price (WTI) and certain industries that are influenced by its volatility. In this context, the Russian war in particular leads to a reassessment of the reactions of these industries. In this paper, we examine this influence for different periods including the war period. For this purpose, we use an impulse response func- tion and plausible its results with an event study. Following the existing literature, we find that the shock responses of industries as a result of war induced WTI volatilities have a high ex- planatory power and a significant correlation, which is also proved by the event study. We show a short-run and fast-expiring 8% increase in the return of oil-producing firms and a 5% drop in the return of oil-processing firms on the same trading day, and attribute this to the volatile period in which investors make daily adjustments to their oil-price-related underlyings in their portfolios, which quickly dilutes the shock reactions. We further provide implications for companies and investors subject to operational and strategic realignments as a result of oil price volatility