Waves of Uncertainty: Crude Oil Under Geopolitical, Economic, and ESG Turbulence

Abstract

This study employs a dual-methodology framework combining time-varying copula analysis and wavelet coherence to examine the multiscale dependence between crude oil benchmarks (WTI and Brent) and three uncertainty indicators: Geopolitical Risk (GPR), Economic Policy Uncertainty (EPU), and ESG Uncertainty (ESGUI) from 2003 to 2025. Our results reveal a sharp divergence in market reactions: oil prices respond to geopolitical and economic policy shocks with immediate intensity, while reacting to ESG uncertainty through gradual, long-term repricing. Dynamic copula results demonstrate WTI's more transient, crisis-sensitive dependence, heavily influenced by domestic factors. Conversely, Brent exhibits more persistent and structurally stable linkages, particularly to global economic demand shocks, consistent with its international benchmark status. Wavelet coherence analysis provides critical frequency-domain insights, confirming the 2015 Paris Agreement as a catalytic event for ESG integration. Post-agreement, a significant low-frequency, anti-phase relationship emerged where rising ESG uncertainty leads to declining oil returns a structural shift confirming the pricing of “transition risk”. These findings underscore the increasing importance of integrating geopolitical, economic, and sustainability-linked uncertainties into oil market forecasting and energy risk management strategies.