The Transmission of Oil Market Shocks to Iranian Financial Markets: Evidence, Stress Dynamics, and Policy Implications

Articles in Press

Document Type : Research Paper

Authors

Department of Economics, University of Isfahan, Isfahan, Iran.

Abstract

This study investigates the transmission mechanisms through which global oil market dynamics propagate systemic financial stress within the Iranian economy. Given Iran’s persistent reliance on oil revenues, analyzing the transmission of external shocks into domestic financial markets is imperative for maintaining macroeconomic stability. We construct a composite Financial Stress Index (FSI) incorporating the stock, money, debt, and foreign exchange markets. Subsequently, we utilize a Structural Vector Autoregression (SVAR) framework to analyze the dynamic responses of these sectors to four primary oilmarket shocks: real oil prices, global crude production, OECD inventories, and global economic activity. Empirical results reveal that oil market shocks exert significant, heterogeneous, and dynamic effects on the Iranian financial system. The equity market emerges as the primary transmission channel, displaying the highest sensitivity to external shocks over time. Furthermore, we identify temporal asymmetries where initial responses frequently reverse in the medium term, indicating complex adjustment dynamics within the domestic financial network. These findings demonstrate that “one-size-fits-all” stabilization policies are ineffective. Consequently, policymakers should prioritize liquidity-anchoring mechanisms and volatility mitigation strategies in equity markets, while implementing coordinated monetary interventions to contain spillover effects across other financial sectors. By integrating global oil-market proxies into early-warning systems, this research provides a robust framework for proactive risk management in oil-dependent Iran economies. 

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Main Subjects

Iranian Journal of Economic Studies

Articles in Press, Accepted Manuscript
Available Online from 15 September 2026

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History

  • Receive Date: 08 July 2026
  • Revise Date: 14 September 2026
  • Accept Date: 15 September 2026

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