The Effect of the Energy Security Risk Index on Economic Stability in Iran

Abstract

Ensuring energy security is one of the most vital goals for countries that seek sustainable economic development because fluctuations in global energy markets lead to economic instability for energy-exporting countries (such as Iran). Also, developing countries (such as Iran) have reasons to worry about energy security. First, they cannot apply imported energy technologies, which leads to dependence on foreign know-how. Second, these countries need better governance to manage energy technologies effectively. Third, in cases of disruption due to natural or man-made events, the energy infrastructure in these countries is more vulnerable. In this regard, the current research seeks to investigate the role of the energy security risk index and inflation rate in improving the economic stability of Iran by using the very new approach of quantile-on-quantile regression (QQR) modeling in the annual period from 1991 to 2021. The results show that the quantile (0.5 to 0.7) of the energy security risk index and the quantile (0.4 to 0.9) of economic stability indicate a negative relationship. Therefore, the energy security risk index causes economic stability to decrease. Also, in quantile (0.1 to 0.95) inflation rate and quantile (0.1 to 0.7) economic stability have a negative relationship, and in quantile (0.6 to 0.95) inflation rate and quantile (0.7 to 0.95) economic stability has a positive relationship. Therefore, a high inflation rate hurts economic stability in the long run. Thus, the results show the importance of international cooperation in developing a more sustainable energy system that increases the security of energy supply and economic stability.

Keywords

• energy security risk index
• economic stability
• inflation rate
• unemployment
• quantile-on-quantile regression