Economic sanctions (something on your choice) (but ask firstly)
Whether economic sanctions influence fluctuations in Global Oil Prices? A Research Proposal
Name of the Student
November 29th 2018
Whether economic sanctions influence fluctuations in Global Oil Prices? A Research Proposal
Section 1: Introduction
Economic sanctions are acknowledged as one of robust and coercive diplomatic measures next that influence international relations. Sanctions are also considered as an effective alternative to military aggression in regulating the unjustified and undesirable measures that are adopted by certain nations to disturb international relations. On the contrary, some economists believe that political motives play a major role in influencing the decision of imposing sanctions on the respective nations. Likewise, certain economists speculate that sanctions are often imposed to regulate global economy. Sanctions that are witnessed globally are classified into three types; diplomatic, financial, and trade sanctions. Financial and trade sanctions are jointly referred as “economic sanctions.” Any sanction is based on three principles; signaling (expression of genuine concern over the activities of a nation), restriction (dissuading the respective nation from future misconduct), and coercion (compulsion to change the undesirable behavior of the nation in question). The world has witnessed various episodes of sanctions over the past five to six decades. In fact, the history of economic sanctions is traced back to the Peloponnesian war (Yahia & Saleh, 2008).
Although the reason for sanctions varied, the impact of sanctions could be felt on the crude oil price (more commonly referred as oil price shocks) and fluctuations on the macroeconomic variables of those countries that imposed sanctions and nations on whom sanctions were imposed (Bahgat, 2004, Tyll et al., 2018, Yahia & Saleh, 2008). However, there is no conclusive evidence on the influence of sanctions on the macroeconomic variables of the sanction-imposing nations and the nations on whom sanctions are imposed as a function of fluctuations in the crude oil price of the respective nations.
Research Questions and Objectives of the Proposed Study
This research proposal will explore one primary research question “Whether economic sanctions influence fluctuations in Global Oil Prices?” The primary research question will be answered based on the comparison on the impact of sanctions on the Russian and Iranian economy. The proposed study will help to understand the fluctuations in global economy as a function of sanctions imposed on the major crude oil producing nations. Different SRQs (secondary research questions) will be explored for answering the PRQ (primary research question) comprehensively.
Section 2: Literature Review
The fluctuations in globe crude oil price have been historically influenced by strategic decisions. One such strategic decision is the imposition of financial and trade sanctions. Tyll et al. (2018) stated that developed nations are primarily involved with the imposition of sanctions. However, sanctions could be imposed on developed as well as underdeveloped or developing nations. The U.S. and the U. K. have been traditionally viewed as sanction-imposing nations. The EU (European Union) also evolved in imposing sanctions along with their western counterparts. An overproduction of crude oil by certain nations coupled with the imposition of sanctions on those nations (whose economy also depends on the export of crude oil) significantly influences the economy of the respective nations. Tyll et al. (2018) further suggested that the volatility in global crude oil price is stringently manipulated based on socioeconomic and geopolitical decisions. Abeysinghe (2001) stated that the imposition of economic sanctions create shocks in global oil price. Such shocks became evident from 1985 and continued for few years. However, the situation got reversed during 2000 to 2008.
During this period, the U.S. and the EU had to confront the pitfalls of the economic fluctuations that are traditionally witnessed before the onset of the global economic crisis. The growth of Russian and Chinese economy during this period prevented further shocks in the global crude oil price. Yahia and Saleh (2008) stated that the growth of these two economies played a significant role in preventing the monopoly of U.S. and their allies in the European Union in regulating the price of crude oil. The hostile measures adopted by the U.S. and the U.K. during time to time to regulate world economy forced Russia and China to develop strong bilateral trade relations with the Middle-East (including Iran) and Africa countries. Caruso (2008) stated that Iran would continue to play a strategic role in influencing major geopolitical and sociopolitical decisions. Nephew (2015) highlighted that the improved bilateral relations of Iran with Russia and China helped the nation to negate the effects of sanctions that were imposed upon them by the U.S. and their European allies from time to time. As a result, the United States and their allies reverted to the strategy of imposing sanctions on these nations that developed bilateral relationships to negate the austerity measures of the U.S. and their allies. Such strategy led to the development of historical shocks in global crude prices that was evident from 1985 and beyond. Although the motive of any sanction is to regulate the unlawful and undesirable act of any nation that imposes threat to the global socioeconomic and geopolitical scenario, there can be different factors that underpin the decision of such sanctions. The historical fluctuations in global crude oil price and their possible reasons are presented in Fig 1.
Fig 1: Historical fluctuations in global crude oil price and their possible reasons (Source: Energy Information Administration, June 2016 and Deloitte University Press)
One such factor that underpins the decision of sanctions is the regulation of global economy by the superpowers of the world. It is contended that sanctions can influence the macroeconomic variables of different nations either through the fluctuations in global crude oil prices or without these fluctuations. For example, the sanctions imposed by the U.S. and the U.K. were to address the Russian aggression in the Ukrainian territories. However, the underpinning motive of such sanctions was to prevent the emergence of Russia and China as the superpowers in regulating world economy (Niblock, 2001). The U.S. significantly increased their production of crude oil before they decided to impose sanctions on Russia. A Bloomberg report suggested that the U.S. produced almost 14MBD (Million Barrels Per day) from 2014 onwards and became the highest producer of crude oil in the globe. To complement the decision of the United States, their Arabian allies also started to overproduce crude oil. Such strategic decisions translated into a significant fall in the Russian crude oil price.
To recall, the European Union was the highest buyer (almost 12%) of Russian crude oil before sanctions were imposed on Russia. Tyll et al. (2018) highlighted that a fall in Russian crude oil price led to the devaluation of the Ruble against the U.S. dollar. Hence, there are implications that sanctions could influence macroeconomic variables of the nations on which sanctions are imposed. Hence, Dreyer and Popescu (2014) highlighted that economic sanctions are effective tools for the developed nations in regulating global economy. Baghat (2004) and Yahia & Saleh (2008) highlighted that economic sanctions imposed on Libya not only set fluctuations in the Libyan crude oil price but also impacted the macroeconomic variables such as unemployment rate and inflation rate of the nation. Likewise, Tyll et al. (2018) highlighted that the sanctions imposed by the United States and the United Kingdom on Russia increased its rate of inflation along with the shocks in Russian crude oil price.
Lee, Ni, & Ratti (1995) highlighted that imposition of sanctions have traditionally impacted the crude oil price across the nations on whom sanctions are imposed. On the contrary, certain authors (Tiwari, Dar, & Bhanja, 2008) showed that fluctuations in crude oil price can influence currency exchange rates by interacting with different macroeconomic variables (including crude oil price). However, the nations on whom sanctions are imposed respond by undertaking stringent countermeasures that help them to negate the impact of sanctions. For example, India emerged as one of the highest buyers of Iranian crude oil post-imposition of sanctions on Iran by the U.S. and their allies. Although the preliminary literature review reflected that sanctions could influence global crude oil prices and macroeconomic variables, evidence is lacking regarding the possible interaction between these variables and its impact on sanction-imposing nations, nations on whom sanctions are imposed, and nations with whom such nations continue to maintain bilateral trade-offs post-sanction.
Section 3: Investigative Approach and Methods
Data Collection and Study Design
The proposed research would incorporate a mixed-methodology approach for addressing the research questions. Therefore, this research would incorporate different qualitative and quantitative data to answer the PRQ and SRQs. The secondary data for this study would be obtained for the period March, 2014 to October, 2016. The reason for such period will be to gauge the impact of international sanctions on the two global crude oil-majors; Russia and Iran. The data were collected based on two classifications; oil-importing nations and oil-exporting nations. The major oil importing nations that would be considered in the proposed study would include the United States, the United Kingdom, China, and India. On the other hand, the oil-exporting countries that would be considered for the proposed study will include Russia and Iran. The study would explore how the sanctions imposed on Russia and Iran impacted their crude oil price and macroeconomic variables and the result of the sanctions on the crude oil price and macroeconomic variables of the oil-importing nations (who were one of the highest buyers for Russian and Iranian crude oil).
The qualitative data would include the subjective responses of the study participants (n= 6 to 10). A semi-structured interview would be implemented to understand the views of the participants regarding the reasons and impact of economic sanctions on the global economy (Appendix-1). The participants would have a strong academic background on economics and econometrics who could be either employed in the industrial or the academic sectors. Hence, a purposive sampling would be undertaken to select the participants for the semi-structured interview. The verbatim of the study participants would form the basis of primary data. The quantitative data would be obtained from different online sources such as www.tradingeconomics.com, published reports of the International Monetary Fund, World Databank, and the International Energy Agency. The multiple sources would be accessed to ensure the viability and reliability of the secondary data analysis. The secondary data that would be considered for the proposed research include crude oil price, oil and natural gas price, unemployment rate, lagged oil price variable (crude oil price in the previous year), GDP growth rate, interest rate, Debt to GDP ratio, and inflation rates of the nations that imposed sanctions, on whom sanctions are imposed, and on those which continued to have bilateral trade-offs post-imposition of sanctions.
The macroeconomic variables such as crude oil price, oil and natural gas price, unemployment rate, GDP growth rate, interest rate, Debt to GDP ratio, and inflation rates for both oil-importing and oil-exporting nations would be collected for the period from March, 2014 to October, 2016 from the specified data sources. Logistic regression analyses would be constructed with crude oil price as the dependent variable and oil and natural gas price, unemployment rate, lagged oil price variable (price of crude oil in the previous year), GDP growth rate, interest rate, Debt to GDP ratio, and inflation rates as the independent variables. The first regression analysis would explore whether macroeconomic variables play a key role in influencing crude price and vice-versa. On the other hand, a second logistic regression analysis would be also constructed with crude oil price as the dependent variable and status of sanction (sanctions imposed/sanctions not imposed) and lagged oil price variable as the independent variables. The second regression analysis would explore whether the price of crude oil in the previous year and economic crisis (such as sanctions) play a key role in influencing crude price and vice-versa that is independent of the influence of macroeconomic variables. The step-wise regression analysis would help to explore the reasons that underpin the imposition of sanctions beyond its primary motive of regulating the unlawful behavior of nations on whom sanctions are imposed.
Secondary Research Questions and Hypothesis Testing
The secondary research questions (SRQs) that would be explored in the proposed study are as follows:
SRQ1: Whether economic sanctions significantly influence oil-price in the nation on which sanctions are imposed?
SRQ2: Do economic sanctions imposed on a nation influence oil prices in other nations with which it had bilateral relations before the sanction?
SRQ3: Whether countermeasures adopted by a nation to overcome the effects of economic sanction are effective in stabilizing oil-price in that nation?
SRQ4: Whether countermeasures adopted by a nation to overcome the effects of economic sanction are effective in stabilizing oil-price in a nation with which it had bilateral relations before the sanction?
SRQ5: Whether different economic indicators confound or interact with each other in influencing oil-price and vice-versa in the nation on which sanction has been imposed?
SRQ6: Whether different economic indicators confound or interact with each other in influencing oil-price and vice-versa in the nation with which it had bilateral relations before the sanction?
SRQ7: Whether economic sanctions on a nation influence oil-price in another nation that continues to maintain bilateral trade agreement with it irrespective of the sanction?
SRQ8: Whether different economic indicators confound or interact with each other in influencing oil-price and vice-versa in the nation that continue to maintain bilateral trade agreement with a nation on which sanction has been imposed?
Statistical Tests and Software
The SRQs will be analyzed based on hypotheses testing (involving the acceptance or rejection of the null (Ho) or the alternative hypothesis (H1). The statistical tests of inference that would be undertaken in the proposed study will be appraised at the 0.05 level of significance. The R-program software would be used to conduct the statistical analyses for the study.
Section 4: Ethical Considerations
Since the proposed research would not impose physical or mental harm to the study participants, the ethical considerations for conducting research with human samples would not be compromised in the proposed study. Moreover, the study participants who provide informed consent would be only included in the proposed research. The ethical guidelines governing the privacy of primary and secondary data would be also ensured at every step of the proposed research. Any violation on the ethical guidelines governing data privacy would be subjected to legal and academic litigations. Finally, any work (publications) done by the previous authors that would be used in the proposed research would be appropriately cited.
Section 5: Time Plan and Resources
The time plan and the resources that would be required for the proposed study is presented in table 1.
Deliverables Time line Resources
Literature Review and Constructing the semi-structured questionnaire 2 months Access to University library
Financial support for accessing paid articles for the Literature review= 200$
Travelling allowances for conducting the interviews=
Data Analysis 1 month Access to R-program software=Free access
Preparation of the Dissertation (Initial Draft) 1 month Stationary= 50$
Preparation of the Final Draft (after Professor’s comments) 15 days Total: 4 month 15 days USD: 400$
Abeysinghe, T. (2001). “Estimation of direct and indirect impact of oil price on growth.”
Economics Letters 73(2), pp. 147.
Bahgat, G. (2004), “Oil Terrorism and Weapons of Mass Destruction: The Libyan Diplomatic
Coup.” The Journal of Social, Political, and Economic Studies 29(4), pp. 373.
Caruso, R. (2003). The impact of international economic sanctions on trade: An empirical analysis. Peace Economics, Peace Science and Public Policy, 9, pp.2.
Dreyer, I., & Popescu, N. (2014). Do sanctions against Russia work. European Union Institute for Security Studies, pp. 35.
Lee, K, S. Ni and. Ratti. R (1995), “Oil Shocks and the Macroeconomy: the rol of Price
Variability.” The Energy Journal 16(4), pp. 39-56
Niblock, T. (2001). The regional and domestic political consequences of sanctions imposed on
Iraq, Libya and Sudan. Arab. Stud. Q.,23 (4), pp. 59-67.
Nephew R (2015). Issue Brief: The Future of Economic Sanctions In A Global Economy, Columbia SIPA, Center on Global Energy Policy, pp. 4-25
Tyll, L., Pernica, K., & Arltová, M. (2018). The impact of economic sanctions on Russian economy and the RUB/USD exchange rate. Journal of International Studies, 11(1), pp. 21-33.
Tiwari, A.K., Dar, A.B., Bhanja, N. (2013). Oil price and exchange rates: A wavelet based analysis for India. Economic Modelling 31, pp. 414–422
Yahia A & Saleh A (2008). Economic Sanctions, Oil Price Fluctuations and Employment: New Empirical Evidence from Libya American Journal of Applied Sciences 5 (12), pp.1713-1719,
Do you consider that economic sanctions have impacted global oil prices including your nation?
Responses: Yes, all nations are affected
Do you feel that economic sanctions are secondary to other macroeconomic variables in influencing global oil prices and vice-versa?
Responses: I feel they interact with each other
Do you feel that countermeasures that are planned to overcome the impact of sanctions are effective? If so, what is the basis of your response?
Russia was good in negating the U.S. sanctions
Do you feel that sanctions have a short-term impact or a long-term impact on the global oil prices or do you feel that both these impacts are waned off through appropriate trade offs?
The duration does not always count; it’s the impact for which they are imposed
Please express your views on the fluctuations in oil-price as a function of predetermined political motives or it is actually a pseudo-crisis?
Fiscal health of the nation is the key decision making issue before sanctions are imposed. No pseudo-crisis
Free Economic sanctions (something on your choice) (but ask firstly) Dissertation Example
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