Natural Resources and Geopolitical Risk Impact on Energy Security Risk: The Role of Renewable Energy Consumption and Foreign Direct Investment

Abstract

Natural resources and geopolitical risks significantly impact energy security risks. The availability and accessibility of natural resources play a significant role in determining a nation's energy vulnerability. Renewable energy consumption, particularly foreign direct investment in renewable energy projects, can help mitigate these risks by diversifying energy supplies and reducing the reliance on fossil fuels. This study examines the impact of natural resources and geopolitical risk in 38 countries at risk of geopolitical conflict between 1990 and 2021 using CO2 emissions, renewable energy consumption, and foreign direct investment as controlling variables. The long-run analysis is based on slope heterogeneity, Westerlund cointegration, Arellano–Bond dynamic panel-data estimation, and Robust, correlated panels corrected standard errors (PCSEs). The results indicate that the energy security index is positively associated with natural resources, geopolitical risk, CO2 emissions, and renewable energy consumption. Foreign direct investment is negatively associated with the energy security index in selected geopolitical risk countries. Improving energy security requires addressing multiple policy implications. Natural resource availability, geopolitical risk mitigation, CO2 emissions reduction, and increased renewable energy consumption are key factors. However, the negative association between FDI and energy security in selected geopolitical risk countries emphasizes the importance of careful evaluation of foreign investments to ensure their compatibility with energy security objectives. By implementing appropriate policies, countries can enhance their energy security, promote sustainable development, and mitigate risks posed by geopolitical uncertainties.