Armed conflicts in the Middle East and international oil company returns

ABSTRACT

We investigate the effect of armed conflicts in the Middle East, which are representative geopolitical events, from an event study perspective. Specifically, we analyze the impact of conflicts in the Middle East on the stock returns of international oil companies in the countries engaged in the conflicts. We examine the stock returns of the top nineteen oil companies in nine countries during four conflicts from 1990 to 2011. By applying the market model of the event study methodology, we find that the abnormal returns of the companies in countries that did participate in the conflicts were higher than those of the companies in countries that did not participate. Furthermore, among the companies in countries that participated, those in the U.S. had higher stock returns than those outside the U.S. These findings suggest that political factors, such as military engagements, can have a statistically significant impact on oil company returns.

KEYWORDS:

• Event study
• Middle East conflicts
• oil companies
• stock returns
• conflict participation

Notes

¹ In particular, the so-called “Seven Sisters” dominated the world oil scene in the aftermath of World War II and, currently, ExxonMobil, BP, Chevron, Royal Dutch Shell, ConocoPhillips, Total, and Eni are commonly referred to as the “super majors” (Yergin 2008).

² Sources of this information include the official website of Multi-National Force-Iraq (www.mnf-iraq.com), the United States Department of Defense (www.defense.gov), and newspaper articles.