The effect of energy risk on political stability in Europe

This study investigates the effect of energy risk on political stability in 35 European countries, for the period from 2000 to 2022. To this end, different regression techniques such as the Method of Moments Quantile Regression, the Difference-in-Differences method, Two-Stage Least Squares, and fixed effects estimators are employed. Results provide that: 1) In general, energy risk negatively impacts political stability in Europe according to the regression analysis. 2) Chinese energy investment also causes political instability in Europe. 3) Endogeneity check presents that energy risk is not a threat to political stability in Europe when energy sources diversification is used as an instrument. 4) The findings of fixed effects reveal that among US Presidents, Bush and Obama have no adverse effect on political stability-energy risk in Europe, whereas Trump and Biden administrations cause political destabilization in Europe. 5) Further robustness estimations examined by Hausman-Taylor Amacurdy and 2-step system generalized method of moments estimators also show that energy risk reduces political stability in Europe. Policy implications comprise promoting energy source diversification, strengthening oversight of foreign energy investment, developing an independent European energy strategy, and addressing institutional weaknesses related to energy governance are suggested in order to reduce political instability caused by energy risk in Europe.