A Time Series Forecast of Geopolitical Market Concentration (GMC) Risk: An Analysis of the Crude Oil Diversification Portfolio of India

摘要

The oil-rich Middle East region is always seen as a politically volatile region, but it has been the source of crude oil supply to all major consumers worldwide for decades. The article makes an empirical analysis of the geopolitical risk of India's diversification portfolio, which is skewed towards the Middle East. The article attempts to forecast the Geopolitical Market Concentration (GMC) risk of India's crude oil diversification portfolio in the worst and best case scenarios by forecasting and by a substitution of selection parameters of the existing William Blyth and Nicolas Lefevre GMC risk model (2004). For the forecast, the article takes into account, the 'suppliers concentration' and the 'political stability' of the countries supplying crude oil to India. The research uses the Holt-Winters method of trend fitting and forecasting of the time series data of the variables. It also forecasts the GMC risk of an alternative diversification portfolio, based on a hypothetical situation where there is a complete stoppage of supply of crude oil from the Middle East region. This empirical research will help us to consolidate or contradict whether 'the Middle East is risky' by making a comparative case-by-case analysis of sourcing from other regions in the present and future worst and best case political risk ratings as provided by International Country Risk Guide (ICRG) along with other factors such as proved reserves, reserves to production ratio (R/P), geographical proximity, etc.