Oil Shocks and MENA Stock Markets: Nonlinear and Asymmetric Causal Evidence Across Crisis Regimes

Abstract

This study investigates the asymmetric and nonlinear causality between MENA stock markets and oil price shocks from 2005 to 2024 during crisis and post-crisis periods. Using daily data and advanced econometric techniques—the nonlinear Granger causality test, the quantile causality approach, and the NARDL model—we discover heterogeneous causal relations that are not identified by linear models. The findings reveal robust asymmetric channels of transmission, with stronger and more persistent effects of oil price increases on stock market volatility and returns than decreases, especially during the situations of crisis, such as the Global Financial Crisis (2008–2009), the COVID-19 pandemic, and the Russia–Ukraine conflict. Furthermore, the strength and direction of causality vary significantly across oil-exporting and oil-importing MENA economies, suggesting structural differences in sensitivities. These conclusions reiterate the necessity for integration of energy and finance, market diversification, and macro prudential policy coordination to alleviate the destabilization effects of oil price instability.