DOI: 10.11648/j.ijefm.20261403.16 ISSN: 2326-9561

Geopolitical Conflict and Oil Price Volatility: Economic Consequences of the 2026 US–Israel–Iran War

Ibrahim Roba, Maxwell Kyalo
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The study examined the impact of the US- Israel-Iran conflict on the volatility of Brent crude oil prices and how the volatility of oil prices was transmitted to the macro-economic implications in a frontier oil importing economy. The study employed the daily spot price of Brent crude oil, and the Geopolitical Risk (GPR) index. The EGARCH (1,1)-X model was estimated to determine the relationship between geopolitical risk and conditional volatility of oil prices. The results indicated high volatility persistence of returns on Brent crude oil. The geopolitical risk coefficient was positive, although not statistically significant. The persistence of price volatility that occurred during the conflict period indicated strong reaction of oil markets to the perceived risks of supply disruption caused by closure of the Strait of Hormuz. The study also determined that Kenya was highly vulnerable to external shocks in the oil market due to its high reliance on imported refined petroleum products. Oil price volatility, via trade and import channels, led to rising cost of importing refined petroleum products, rising consumer prices, exchange-rate pressures, and a growing national fuel import bill. The research recommends i) diversification of energy supplies, ii) strengthening foreign exchange management and iii) increasing investment in alternative energy sources to better prepare for future geopolitical oil shocks.

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