Technology and globalization have interconnected market forces across various industries and geographical borders. This implies that the occurrences within a particular economic system can potentially impact other economic activities that are not directly related, sometimes referred to as spillover effects. Over the course of recent decades, the regions of the Middle East and Asia have experienced a series of significant occurrences that have had far-reaching implications for global energy production as well as distribution.

Against the backdrop of an intensifying worldwide economic downturn, there was a notable upswing in investment within the energy industry, with a growth rate of 8% observed in 2022, culminating in a cumulative sum of USD 2.4 trillion. According to the 2023 report published by the International Energy Agency [1], it is anticipated that this particular investment will experience a further increase of 17%, reaching a total of USD 2.8 trillion in 2023. This development would establish it as the most substantial recorded capital investment thus far. The energy sector has not experienced a significant decrease in investor confidence despite the presence of several factors such as high prices, increasing expenses, economic uncertainty, concerns over energy security, and imperatives related to climate policy [2]. The integrated oil and gas business is a sector that has garnered significant international interest. The market under consideration has a notable degree of volatility, rendering it one of the most unpredictable and unstable markets on a global scale. It possesses a substantial market capitalization and offers considerable anticipated returns for shareholders and investors. However, the rapid expansion of both external and internal shocks to the industry in recent times has generated considerable conjecture. There is a growing public concern regarding potential disruptions to the oil supply, as shareholders express concerns regarding the potential consequences of such disruptions on their financial returns in both the short and long term.

The phenomenon of spillover effects in energy markets, specifically with regard to the returns of oil, has received considerable scholarly interest. Spillover effects manifest when disturbances originating in a specific segment of the global economy disseminate and exert an influence on other geographical areas or financial markets. Within the framework of oil markets, these shocks can materialize in the form of rapid price swings, delays in supply, or geopolitical tensions. The widespread nature of spillover effects in financial markets has been underlined in studies conducted by [3]. These studies shed light on the interconnectedness of global financial markets, illustrating how events occurring in a particular country or region can have reverberating impacts on a global scale. Spillover effects frequently arise as a result of the interdependence of energy markets, whereby disparities in supply and demand within a particular region can significantly influence global oil prices. The oil price shocks that occurred throughout the 1970s, such as the OPEC oil embargo, served as a notable illustration of the extensive implications resulting from disturbances within the oil market. The preceding shocks resulted in notable economic consequences, affecting not only states involved in oil production but also those reliant on oil imports. In the latter, escalating energy expenses had a role in exacerbating inflationary forces and precipitating economic contractions [4].

Furthermore, the examination of risk and returns has undergone significant development and increased intricacy due to the extensive integration of technology ^[5][6][5,6]. The spread of news and updates related to regional occurrences such as geopolitical incidents, natural disasters, and worldwide disruptions can cause disruptions in economic markets, hence prompting market participants to react in a corresponding manner. The shifts in the supply and demand dynamics of local crude oil markets have been observed, as noted by [7]. In the present context, the term “spillover” pertains to the influence imposed by non-oil-related occurrences, such as geopolitical events and natural disasters, on the oil market. The energy market holds significant importance in global market dynamics as it plays a crucial role in both industrial development and home sustenance. The research conducted by [8] demonstrates that oil markets display bidirectional spillover transmission characteristics, which are also heightened by significant occurrences such as the recent global COVID-19 epidemic. Moreover, it has been observed that significant geopolitical risk shocks in the oil market have been linked to Russia. Consequently, there exists a responsibility for investors and scholars to assess the potential impact of these unrelated occurrences on market prices and returns [9]. An effective initial step involves comprehending the extent of impacts exhibited by certain areas or nations, exemplified by the Asian members of OPEC+.

The Organization of the Petroleum Exporting Countries and its Allies (OPEC+) is a prominent international organization that aims to stabilize and regulate the global oil market. OPEC+ comprises both OPEC member countries and non-member countries. The main distinction between OPEC+ members and non-members relates to their formal membership status within the organization. OPEC member countries, including prominent oil producers such as Saudi Arabia, Iran, and Venezuela, have full voting rights and actively participate in decision-making processes. The member countries share the joint responsibility of managing oil production levels and implementing production quotas to regulate global oil supply and ensure price stability. Non-member countries of OPEC+ are typically prominent oil-producing nations that do not possess official membership within OPEC, yet have established collaborative alliances with the organization to effectively synchronize oil production plans. These countries are commonly referred to as “non-member OPEC+ countries” [10]. Prominent countries outside the OPEC+ membership, such as Russia, Oman, Malaysia, and Kazakhstan, are part of the Asian OPEC+ members. While those who are not members of OPEC do not possess the power to vote in the organization’s decision-making processes, they actively engage in collaboration with OPEC member countries to collectively manage oil output and foster stability within the market. The inclusion of non-member countries inside the OPEC+ framework holds major implications. These countries frequently coordinate their oil production strategy with OPEC decisions, willingly agreeing to cuts or increases in production to ensure market stability.

Through collaboration with OPEC, non-members of the organization play a role in stabilizing the worldwide equilibrium between the supply and demand of oil. This collaborative effort has the potential to provide favorable outcomes in terms of oil prices and enhance market confidence. Yet, non-member countries within the OPEC+ framework encounter specific limitations and challenges. Non-members lack direct authority over OPEC’s decision-making processes and may not possess an equivalent level of influence compared to member nations. The absence of official membership may impose constraints on their capacity to influence policy and exert direct influence over crucial aspects pertaining to oil production quotas and pricing. Additionally, non-member countries have individual interests and priorities that may diverge from those of OPEC member countries. They face the challenge of balancing their domestic economic objectives, such as maximizing revenue from oil exports, while also contributing to the joint endeavors aimed at achieving stability within the worldwide oil market. Occasional conflicts or tensions may arise between non-members and OPEC member countries regarding production levels and market strategies. Extensive studies have been conducted on volatility spillover effects of OPEC oil prices and returns ^[11][12][13][11,12,13]. Nevertheless, it is imperative to have a more profound comprehension of the intricacies inherent in non-member nations and their engagements with the OPEC+ alliance.

Several scholars have analyzed the volatility and movement of oil returns and prices, particularly in relation to significant risk events such as the financial crisis of 2007–2008 [2], the uncertainty surrounding economic policies in the BRIC countries [14], and declarations made by OPEC [15]. Additional events that have been subject to research include the Gulf War of 1990–1991, the Iraq War of 2003, the occurrences of Hurricanes Rita and Katrina in late 2005, the Arab Spring of 2011, the ongoing COVID-19 pandemic, and the Russia–Ukraine conflicts from 2022 [16]. These studies provide further evidence of the significance of spillover effects on market returns. The current geopolitical landscape has prompted a closer examination of the involvement of significant non-member countries of OPEC+ in the oil trade and financial benefits. This scrutiny is particularly relevant in light of the European sanctions and restrictions imposed on the industry. Given the ongoing challenges faced by OPEC in maintaining global energy pricing and supplies, as well as addressing the Russia–Ukraine crisis, it is pertinent to explore the potential impact of these external factors on the oil returns of non-member countries.

2. Market Contagion Theory

Market contagion theory refers to the spread of shocks or disturbances from one market to another unrelated market, leading to correlated and synchronized movements across multiple markets ^[17][18][19][24,25,26]. It suggests that interdependencies and linkages among financial markets can amplify the transmission of shocks, causing contagion effects. According to ^[17][24], market contagion occurs when shocks or disturbances in one market lead to significant and rapid spillover effects onto other markets. These shocks can be triggered by various factors, such as geopolitical events or natural disasters. The contagion effect implies that the initial shock spreads beyond the affected market and affects other markets, leading to a broad-based reaction. Market contagion theory assumes that markets are not perfectly efficient and that participants’ reactions to shocks are not always rational ^[17][24]. It recognizes the presence of behavioral biases, such as herding behavior and information cascades, which can magnify the transmission of shocks across markets ^[18][19][25,26]. Herding behavior refers to the tendency of investors to imitate the actions of others and follow the crowd during times of uncertainty or crisis. This behavior can lead to overreactions or underreactions, contributing to the contagion effect. The theory also acknowledges that the connectedness and linkages among markets play a crucial role in the propagation of shocks ^[18][25]. Globalization, financial integration, and the speed of information dissemination are identified as key factors influencing the contagion effect ^[17][18][24,25]. These factors enhance the transmission channels and make markets more susceptible to contagion. Empirical studies have provided evidence of market contagion in various contexts. For instance, ref. ^[19][26] found evidence of contagion effects during episodes of financial crises, where shocks originating in one market spread to other markets, both domestically and internationally. Similarly, ref. ^[17][24] documented the contagion effect during the Asian financial crisis of 1997, where shocks in the affected countries spilled over to other emerging markets. Contagion effects have been observed to manifest in the context of natural disasters within the oil market, underscoring the significance of incorporating non-economic factors into the analysis of this sector ^[20][27]. In the context of the spillover of geopolitical events and natural disasters on the oil market among Asian OPEC+ countries, market contagion theory is highly relevant. It helps to explain how shocks in one country or region, such as conflicts, political instability, or natural disasters, can propagate to other oil markets and impact supply, demand, and prices. Understanding these spillover effects is crucial for assessing the vulnerability and resilience of non-member countries of OPEC+ to external shocks.

3. Spillover Theory

Spillover theory, however, differs from contagion theory in that it is a broader concept that encompasses the gradual transmission of both positive and negative effects between assets, markets, or sectors within the financial market. Unlike spillover theory, market contagion theory describes widespread adverse market conditions across different markets or asset classes. Spillover theory therefore refers to the transmission and propagation of shocks or disturbances from one economic entity to another, thereby influencing the behavior and performance of the receiving entity ^[21][28]. Both concepts are relevant to understanding the connectedness and interdependence of various economic agents and markets, emphasizing the potential for one market or entity to impact others. According to ^[22][29], spillovers can occur through various channels, such as trade linkages, financial connections, and informational flows. These channels enable the transmission of shocks and the diffusion of economic effects across markets and countries. Spillover effects can be both direct, where shocks are transmitted immediately and directly, and indirect, where the effects are transmitted through intermediate channels. Recent studies show that spillovers can be transitory or permanent ^[23][24][25][30,31,32]. Transitory spillovers refer to short-term or temporary effects that arise from the transmission of shocks. These effects are typically observed in the immediate aftermath of the shock and tend to dissipate over time. Transitory spillovers can be driven by factors such as investor sentiment, market reactions, or temporary disruptions in specific sectors or regions. On the other hand, permanent spillovers represent long-lasting or persistent effects resulting from the transmission of shocks. These effects can persist beyond the initial shock and have a more sustained impact on the receiving entities or markets. Permanent spillovers may be driven by structural changes, fundamental shifts in economic conditions, or persistent linkages between markets or sectors. Spillovers may also be unidirectional or bidirectional. Unidirectional spillovers occur when the effects of a shock or disturbance in one market influence another market without reciprocal feedback. On the other hand, bidirectional spillovers refer to the reciprocal influence between two or more markets, where the shocks or disturbances in one market can transmit to another market and vice versa. The literature recognizes the distinction between positive and negative spillovers ^[26][33]. Positive spillovers refer to beneficial effects that arise from the transmission of positive shocks, such as increased investment or technological advancements. On the other hand, negative spillovers entail adverse consequences resulting from the transmission of negative shocks, such as financial crises or economic downturns ^[27][34]. Furthermore, spillover theory acknowledges the role of both domestic and international factors in shaping the transmission of shocks. Internal factors refer to the composition and behavior of the national economy, whereas external factors encompass worldwide economic circumstances, geopolitical occurrences, and policy choices undertaken by foreign nations.

4. Spillover of Geopolitical Events on Oil Stock Returns

Previous research has established that a variety of geopolitical risk events, such as macroeconomic announcements ^[15][28][29][15,35,36], significant political occurrences ^[30][31][20,37], and economic policy uncertainties ^[14][32][14,38], affect asset price returns. Geopolitical risk, as defined by ^[33][39], refers to the “efforts of states and organizations to assert control and vie for territory...the risks arising from wars, acts of terrorism, and tensions between states that disrupt the usual and peaceful progression of international relations”. This study employs a Geopolitical Risk Index (GRI) to investigate the effects of geopolitical events on asset returns. In the context of the oil market, there is an indication of a negative impact on asset prices and returns ^[30][31][33][20,37,39]. These studies also emphasize a concurrent increase in price volatility ^[34][40] and a detrimental effect on market sentiment ^[35][41]. It is important to note that the extent of these effects varies depending on the specific characteristics of the event under investigation ^[36][42]. Collectively, these findings contribute to a comprehensive understanding of the implications of events on various aspects of the market. One of the most significant geopolitical events within this time range was the 9/11 terrorist attacks, which had a significant impact on oil prices. Ref. ^[37][43] found that the attacks led to a persistent increase in oil prices due to increased geopolitical risk and higher oil demand from military operations. Similarly, the Arab Spring, a series of anti-government protests and uprisings across the Arab world in the early 2010s, was considered a relevant event in the volatility of oil prices and returns according to ^[38][44]. This event was closely followed by the Libyan war in 2011. Ref. ^[39][45] suggested that the Libyan war had a short-term impact on oil supply and returns, with Brent prices rising by 20% in the short run. This assertion aligns with ^[40][46], who found that the impact of political tensions is significant in the short term. The most recent geopolitical event within the study’s time domain is the Russia–Ukraine conflict. Ref. ^[41][47] performed an event analysis and found limited correlation between the oil market and capital markets in both importing and exporting countries. Ref. ^[42][48] assert that the event inflated international energy prices because the two countries involved are major international oil producers and suppliers. The impact of geopolitical events on oil returns is not symmetrical for both oil-importing and oil-exporting countries. Negative events in exporting countries may present the opportunity for higher returns in other exporting countries due to increased demand and price ^[43][49]. Economic policy uncertainty (EPU) in some BRICS countries shows a weak effect on oil returns that gradually strengthens in the long term [14]. Ref. [14] found strong volatility spillover effects in Brazil and Russia in the short and medium term. They examined these events from a multiscale perspective using a wavelet-based BEKK-GARCH model that focused on the frequency of the original data. The findings of ^[44][45][50,51] suggest that economic policy uncertainty is significant in determining oil price and return changes. Other literature presents slightly different results in the analysis of economic policy uncertainty in different time domains. Ref. ^[46][52] found a negative dependence between crude oil returns and EPU during the financial crisis and Great Recession but observed a positive dependence in prior periods. Ref. ^[47][53] observed an increase in spillover effects between oil prices and EPU during the Great Recession of 2007–2009 using the spillover index. In general, political instability resulting from civil wars, military conflicts, sanctions, and regime changes increases oil prices, especially in Arabian and East European countries ^[48][49][54,55]. Ref. ^[50][56] recognized that geopolitical events may not be the primary determinant of oil return volatility within this period and that other factors such as trade disruptions and natural disasters may play contributory or even superior roles. Additionally, it is worth noting that not all macroeconomic announcements are tied to geopolitical risks. In reality, many of these announcements are shaped by various factors including domestic policy choices, global economic patterns, and natural disasters. Most literature on oil spillover focused on the magnitude and direction of spillover.

5. Spillover of Natural Disasters and Oil Stock Returns

Natural disasters play a significant role in impacting oil returns, as they can lead to disruptions in oil supply, changes in oil demand, and increased volatility in oil prices. In the context of infectious diseases, such as the COVID-19 pandemic, some research suggests a strong impact on both equity and the oil market. Ref. ^[51][57] assessed time–frequency volatility spillovers across global crude oil markets and major energy future markets in China during the pandemic. The study found increased volatility spillovers across different time intervals, indicating heightened transmission of volatility. Similarly, ref. ^[52][58] demonstrated that COVID-19 significantly affected short-term stock returns, with economic and health policies contributing to uncertainty and reduced economic activity, subsequently impacting energy production and consumption. Natural disasters such as hurricanes can disrupt oil production and transportation, leading to temporary increases in oil prices. The impact of Hurricane Katrina in 2005 highlighted supply disruptions in the Gulf of Mexico, resulting in temporary oil price increases ^[53][54][59,60]. Conversely, the Fukushima disaster in Japan in 2011 led to reduced oil demand and lower prices due to decreased economic activity ^[55][61]. Earthquakes and typhoons in Japan, Indonesia, and China have similarly caused temporary oil price increases due to supply concerns and reconstruction needs ^[56][62]. However, research findings also indicate that the impact of natural disasters on oil returns is nuanced. While natural disasters can cause short-term volatility in oil prices, their long-term effects might be less significant, with other factors such as geopolitical tensions and economic growth having a more prominent influence ^[57][58][63,64]. The relationship between natural disasters and oil returns becomes particularly relevant in the context of climate change. As climate change contributes to more frequent and severe natural disasters, the implications for the oil market become substantial. Ref. ^[59][65] suggested that climate change could lead to higher oil prices due to the increased occurrence of natural disasters, causing supply disruptions and higher demand for emergency reserves. Additionally, the transition towards renewable energy sources prompted by climate change could affect the demand for fossil fuels, leading to both short-term price volatility and long-term stability in the oil market ^[60][66]. In summary, natural disasters have a notable impact on oil returns, with their effects often being temporary and contingent upon the nature of the disaster and its influence on supply and demand factors. As the frequency and severity of natural disasters increase due to climate change, the implications for the oil market become more complex, potentially leading to both short-term volatility and long-term shifts in market dynamics.