Geopolitical risk spillovers and interconnectedness: evidence from the MENA region and key global powers

This study explores the geopolitical risk spillovers among MENA countries–Egypt, Israel, Saudi Arabia, Tunisia, and Turkey–while incorporating the influences of two key global actors, Russia and the United States. Specifically, it examines how geopolitical risk in each MENA nation is influenced by geopolitical risks within the regional group and by these external actors. Using monthly data from January 1950 to November 2024, we apply Bayesian Model Averaging and Time-Varying Parameter Vector Autoregressive methodologies to analyze dynamic connectedness. The findings reveal moderate yet significant geopolitical risk spillovers within the MENA region, with each country’s risk shaped by three to five other nations. Notably, Egypt, Russia, Saudi Arabia, and the US emerge as primary net transmitters of geopolitical risk, while Israel, Tunisia, and Turkey function as net receivers. These results underscore the strategic significance of the MENA region for global powers, highlighting their ongoing competition for influence. The study offers critical policy recommendations, emphasizing the need for MENA countries to enhance economic resilience, diversify trade and investment partnerships, and strengthen regional security frameworks. Proactive diplomacy and robust crisis management strategies can help policymakers mitigate geopolitical risks and enhance regional stability in an interconnected world.