Effects of civil conflicts on global oil prices and their impact on the energy sector

Ang’u, C., Muthama, N., Oludhe, C., & Kong’ani, L.

Recent research has increasingly interrogated the association between oil and civil conflicts within the political context while overlooking the primary use of oil. This paper examines three aspects of the claim “oil is a curse”. First, is it true? Second, is there a link between oil and civil conflicts? And third, do higher oil prices affect the energy sector, specifically electricity generation and pricing? By employing correlation matrices with data spanning from 1970 to 2016 at both global and local scale, the results of this analysis indicate that oil may be a curse or a blessing. Observation of oil prices and civil conflicts suggest a relationship between higher oil prices and severe civil conflicts with foreign state intervention. Severe imperial/colonial conflicts are associated with lower oil prices while no relationship is observed between oil prices and state based civil conflicts. These findings demonstrate that civil conflicts can arise in cases when oil prices are low and that foreign states have a bearing on oil related conflicts. Both electricity generation from conventional thermal sources and the fuel cost charge component of electricity prices are highly affected by global oil prices with correlations of 0.54 and 0.74, respectively. Renewable electricity sources - hydropower and geothermal were unaffected by global oil prices. This study does not endorse the use of conventional thermal sources for electricity generation while inviting more in-depth case studies on the link between civil conflicts and oil price shocks and their effects on the energy sector.