TY - JOUR

T1 - Oil, sanctions, and survival: fresh insights into Iran’s financial (in)-stability

AU - Kalina, Irina

AU - Sohag, Kazi

PY - 2025/7/16

Y1 - 2025/7/16

N2 - We construct a comprehensive financial stress index (FSI) by leveraging all available time-series data for the Iranian economy, which has long contended with extensive financial and non-financial sanctions. To this end, we measure the dynamic response of this devised FSI to different exogenous shocks including expected and unexpected changes in oil price and production, well as Middle-East geopolitical crisis over Nov. 1997 to Dec. 2023 considering quantile and time frequency connected approaches. We find that the Iranian financial market is relatively more sensitive to changes in oil price than oil production shocks. Besides, the Iranian financial market is exposed with the hike of geopolitical events concerning Turkey and Israel, while it is less responsive to those events concerning Egypt and Saudi Arabia. Besides, Iranian financial market demonstrates resilience to oil price shocks before 2008. We also find that outbreak of COVID-19 or the escalation of the conflict between Russia and Ukraine did not cause financial stress in the Iranian financial market.

AB - We construct a comprehensive financial stress index (FSI) by leveraging all available time-series data for the Iranian economy, which has long contended with extensive financial and non-financial sanctions. To this end, we measure the dynamic response of this devised FSI to different exogenous shocks including expected and unexpected changes in oil price and production, well as Middle-East geopolitical crisis over Nov. 1997 to Dec. 2023 considering quantile and time frequency connected approaches. We find that the Iranian financial market is relatively more sensitive to changes in oil price than oil production shocks. Besides, the Iranian financial market is exposed with the hike of geopolitical events concerning Turkey and Israel, while it is less responsive to those events concerning Egypt and Saudi Arabia. Besides, Iranian financial market demonstrates resilience to oil price shocks before 2008. We also find that outbreak of COVID-19 or the escalation of the conflict between Russia and Ukraine did not cause financial stress in the Iranian financial market.

KW - Financial stress

KW - geopolitical risks

KW - islamic Republic of Iran

KW - oil price shock

KW - oil production shock

UR - https://www.mendeley.com/catalogue/33774801-d2fd-3234-8b29-88afb01679fd/

U2 - 10.1080/00036846.2025.2532891

DO - 10.1080/00036846.2025.2532891

M3 - Article

JO - Applied Economics

JF - Applied Economics

SN - 0003-6846

ER -