How do geopolitical risks affect oil prices and freight rates?

The study unveils the association between oil prices (OP) and the Baltic Dry Index (BDI) in the presence of geopolitical risk (GPR) in time and frequency domains. The co-movement between OP and BDI is revealed in the short time. However, the connection between OP and BDI is more noticeable in the presence of GPR. It affects OP in the short period and translates into BDI in the midterm. The results are consistent with the Competitive Homogeneity Model (CHM), which clarifies that GPR is the dominant element in OP and can be replicated in BDI. This highlights the importance of OP for the shipping industry that geopolitical uncertainties are among the deciding factors for OP and BDI. Thus, the shipping industry performance is based on the accurate forecast of oil market behaviour and geopolitical conflicts. It is critical for the pertinent stakeholders and policymakers to monitor OP changes, which can help to avoid the potential GPR and wars. A well-coordinated global maritime security system needs to be upgraded to provide permanent solutions to security threats.