Geopolitical risks and energy affordability in Europe: spatial econometric evidence for policy

This study examines the impact of geopolitical risks on energy affordability in Europe from 2000 to 2023, with a particular focus on spatial interdependencies across countries. Geopolitical disruptions to energy supply chains increase price volatility and reduce access to affordable energy, especially in import-dependent economies. To capture these dynamics, the study employs spatial econometric techniques using two alternative spatial weight matrices: a geographic (shared boundary) matrix and an economic (trade-based) matrix. Lagrange Multiplier tests and Moran’s I statistics confirm the presence of significant spatial dependence, while Local Indicators of Spatial Association (LISA) maps reveal clustering of geopolitical risks in key countries such as the UK, France, Germany, and Turkey. The Wald and Likelihood Ratio tests identify the Spatial Durbin Model (SDM) as the most appropriate specification. The results show that geopolitical risks have a significant negative effect on energy affordability under both spatial matrices, directly and indirectly. The magnitude of spillover effects differs across matrices, with trade linkages transmitting geopolitical shocks more persistently, while geographic proximity captures more localised diffusion patterns. These findings highlight that geopolitical risks propagate not only through economic integration channels but also through neighbouring countries. Thus, to mitigate these adverse effects and enhance energy resilience, policymakers should prioritise diversification of energy sources, strengthen regional cooperation, and improve the robustness of international trade networks.