The Impact of Russia–Ukraine War on Brent Crude Oil Market Risk Evaluations

Abstract

The Russia–Ukraine war, beginning in February 2022, has profoundly disrupted global commodity markets, with particularly severe impacts on the energy sector. Sanctions and trade restrictions on Russian oil exports intensified supply chain disruptions and contributed to heightened crude oil price volatility. This study examines the effects of the conflict on Brent crude oil price dynamics, develops forecasting models suitable under conditions of geopolitical tension, and evaluates associated market risks. Using daily Brent crude oil prices from July 1, 2020, to April 3, 2025, we compare pre-war and wartime return series. The wartime period is characterized by higher volatility, reflected in greater standard deviations and more extreme fluctuations. Return distributions exhibit negative skewness and high kurtosis, indicating fat tails and frequent extreme values. To capture these dynamics, we estimate several ARMA–GARCH family models. The ARMA(1,1)–EGARCH(1,1) model with Student’s t residuals best fits the data by effectively capturing asymmetric and persistent volatility. For short-term forecasting, however, the ARMA(1,1)–GJR(1,1) model provides superior predictive performance over a 29-day horizon. Market risk assessment, conducted via Value at Risk (VaR) and Expected Shortfall (ES), reveals that risk models assuming normality consistently underestimate the likelihood of extreme losses. In contrast, historical simulation and Student’s t-based approaches yield more accurate estimations, underscoring the importance of robust, fat-tailed models. Overall, the findings demonstrate that the Russia–Ukraine war has substantially intensified volatility in the crude oil market. The study highlights the need for advanced econometric modeling and risk measures that incorporate asymmetry and fat tails, thereby supporting more informed decision-making by investors and policymakers.