The macroeconomic effects of oil price and oil shipping costs shocks: Evidence from a GVAR model

Abstract

This paper investigates the role of oil shipping cost shocks in global crude oil and refined petroleum markets and their macroeconomic effects. Using a Global VAR (GVAR) model which includes the Baltic Dirty Tanker Index (BDTI) for crude oil shipping costs and the Baltic Clean Tanker Index (BCTI) for refined petroleum shipping costs, the analysis produces several key findings. Shocks to the cost of shipping petroleum commodities have a particularly severe negative impact on real economic activity and on refined petroleum consumption in most regions, while shocks to the price of crude oil and refined petroleum have inflationary effects, especially in net importing countries of those commodities. The Covid-19 pandemic appears to have disrupted the traditional relationship between commodity prices and shipping costs, with a counterfactual analysis showing that these variables have moved in opposite directions since the pandemic. A second counterfactual scenario implies a high likelihood that Russian oil sanctions increased oil shipping costs. The findings highlight the importance of modelling shipping costs when estimating the macroeconomic effects of oil market shocks.