Oil Shocks as Gateways for New Political and Trade Networks

• In Event: Trade Policy and Trade Networks

Abstract

Studies on oil price shocks in the global markets focus either on their macro-economic consequences or on their effects on bilateral political relations between oil suppliers and consumers. Such studies overlook the effect of these shocks on second-degree political and economic relations created through oil trade. This article posits that periods of price shocks allow countries with limited oil resources an opportunity to increase their degree of centrality within trade networks by using their need for oil as a strategic entry point into previously inaccessible regional markets, potentially yielding politically advantageous long-term outcomes. They do so by turning their connections with new client-seeking oil producers into a central node from which they can access broader regional trade networks connected to that oil producer. This, in turn, facilitates the establishment of additional economic connections and partnerships that persist beyond the oil price shocks. To support this argument, we investigate the impact of periodic oil shocks on the trade networks’ positions of oil-importing nations. Our case studies are Israel and Turkey's oil trade in Latin America during the 1970s-1980s, and South Korea's oil trade in the Arab Gulf region. Employing social network analysis and difference-in-differences methods, while referring to the oil shock as the treatment, we find that oil shocks help insert the oil importing country into its newly acquired oil supplier's regional trade networks.

Authors

• Nizan Feldman, University of Haifa

• Elai Rettig, Bar-Ilan University

• Ziv Rubinovitz, Ben-Gurion University of the Negev