The Effect of Settlement Currency Exchange Rates on Oil Prices: Examining the Effect of Geopolitical Risk

In this paper, we study the effect of the three main settlement currencies (U.S. Dollar, Euro, and Chinese Yuan) on oil prices. in particular, it analyzes the effect that geopolitical risk (GRI) has on this relationship. The latter fills the gap in the literature. We find that geopolitical risk exhibits non-negligible impacts on the relationship between the individual settlement currencies and oil prices, but these affects vary by currency. Our work underscores the significance of geopolitical events in understanding the exchange rate-oil price nexus for policy workers and investors.