Trends and Challenges after the Impact of COVID-19 and the Energy Crisis on Financial Markets

Abstract

This review aims to examine the impact of increasing energy costs on the global economy, social cohesion, economic growth, and capital markets, with a particular focus on the consequences of the COVID-19 pandemic and the energy crisis intensified by the war in Ukraine. The methodology involves an extensive review of recent academic literature to cast light on these impacts. The study identifies significant disruptions in supply chains and heightened volatility in international capital markets due to these crises. Furthermore, the findings highlight the resulting challenges for policymakers, academics, market analysts, and professionals in addressing corporate sustainability in an increasingly uncertain environment. This paper underscores the continued relevance of energy issues as a central concern, both independently and in connection with broader economic sectors. Additionally, it discusses the importance of policy measures to enhance energy security and the transition towards sustainable energy solutions to mitigate these challenges and foster economic resilience.

1. Introduction

The global economy has experienced successive shocks over the last 15 years, which have affected both economic growth and social cohesion [1]. The global financial crisis, marked by the collapse of Lehman Brothers in 2008, was followed by a long period of economic recovery [2,3,4], only to be interrupted by the COVID-19 pandemic in early 2020 [5]. As the world began to emerge from the initial waves of the pandemic, the geopolitical landscape was dramatically altered by the outbreak of the Russia–Ukraine war in early 2022.

The post-global financial crisis period encouraged researchers to thoroughly study the impact of high oil price volatility on energy market stability, and by extension on economies and financial markets, intensifying the already high investment uncertainty. In such cases, authorities are forced to bear additional energy costs, which strain the budget and jeopardize the provision of social benefits [6,7,8].

However, the crises deriving from the COVID-19 pandemic and the Russia–Ukrainian war occurred as back-to-back crises, at a time when world economy started to indicate positive growth rates after the global financial crisis of 2008.

Specifically, in early 2020, the rapid spread of the COVID-19 virus across all continents radically changed the lives of billions of people and tested the resilience and the prospects of the traditional economic system worldwide, both for private and state-owned enterprises [9,10,11].

The pandemic and the subsequent lockdowns caused abnormal fluctuations in energy demand, resulting in oil prices shocks and disruptions in energy and product supply chains, which prevented the development of new investments in the energy sector. In addition, since the end of World War II and until today, oil has been the cornerstone of international economic development. The demand for energy products comes from a variety of sectors, including transport and logistics industrial and manufacturing sectors, as well as other sectors of economic activity, whose performance is directly linked to the consumption of energy products. Thus, this situation contributed to the reduction in the production in energy products. It should be mentioned that during the lockdown, the energy demand corresponded to less than 50% of a normal period [12].

Reduced energy demand led to a significant fall in crude oil prices worldwide, raising concerns about the risks and resilience of energy systems that depend on international energy markets and that have experienced sharp and intense volatility during the pandemic crisis [13].

The end of the lockdown, the lifting of measures, and the return to normality [3] resulted in an increase in the demand for energy carriers, causing energy prices to rise and consequently increasing the price of electricity and natural gas [14].

The situation became so difficult that most EU member states introduced mechanisms such as tax exemptions to protect low-income consumers, while the European Commission introduced a “toolbox” [15] for the overall response to the crisis. However, the policies put in place to deal with high energy prices have sparked debates about the effectiveness of European energy and climate policies in increasing the security of the energy supply and upgrading the role of natural gas as a “bridge fuel” in the renewable energy transition [16].

The combination of the pandemic and the drop in oil prices probably signaled a long-term economic downturn, leading the global economy into the next recession. This led to unprecedented effects of stock markets volatility and economic policy uncertainty [17,18].

The pandemic crisis affected the stock markets through two channels. The first channel was the high level of economic policy uncertainty, which stemmed from the unpredictable spread patterns of the pandemic and the overall unknown situation. This uncertainty led to low expectations of future cash flows, resulting in stock market depreciation. The second channel refers to the direct impact on major sectors of economic activity worldwide, such as industry, tourism, and aviation. These sectors were severely affected, negatively influencing stock market indices as well as macroeconomic indices, investments, and consumption patterns [19,20].

On the other hand, the war in Ukraine led to immediate and significant hikes in energy prices and created substantial energy security challenges [14]. Specifically, as economies worldwide were already struggling to cope with rising energy costs, the outbreak of war in Ukraine further exacerbated these issues. It disrupted trade in energy products and intensified the existing energy crisis, leading to conditions of stagflation [21,22]. Numerous historical events, such as the Iran–Iraq conflict (1979), the Gulf War (1990), the Asian Economic Crisis (1997), 9/11 (2001), the Great Recession (2014–2015), and the Global Financial Crisis (GFC) 2007–2009, the novel Pandemic COVID-19 (2019 onwards), and most recently Russia–Ukraine crisis, have all significantly influenced oil prices [23].

It should be underscored that an unforeseen interruption in oil supply leads to a proportional reduction in global economic activity across any period and time horizon, while the effects exhibit these specific characteristics over time [24]. This was exemplified by the war in Ukraine and the imposition of sanctions on Russia.

In such an environment of uncertainty and vulnerability, the reinforcement of the growing level of international trade integration and the constant search for alternative investment assets for risk mitigation led to a high degree of borderless connectedness of financial assets and markets. In recent years, both scientific and business communities have observed a high degree of causal interdependencies among commodities, precious metals, and financial markets, with both risks and new opportunities in one sector easily spilling over into others. Commodities and precious metals are now considered as significant components of diversified investment portfolios, mitigating risks emerging from financial assets portfolios (i.e., stocks, cryptocurrencies, foreign exchange rates) and creating portfolios that combine both financial and non-financial assets. During periods of intense crises, these interdependencies among financial and non-financial assets can shake the economic system to its foundations, with significant consequences for firms, states, and societal prosperity. Within this framework, it is crucial to investigate how the scientific community perceives this emerging era in markets and the economy and to explore ongoing perspectives. Additionally, the increased integration of financial and non-financial assets due to rapid and radical financialization of commodities and precious metals markets worldwide has directly impacted price levels, returns, and volatilities, extending the spillover effects and prompting deep debates.

Understanding the compounded effects of the COVID-19 pandemic and the Russia–Ukraine war on the global economy is crucial for several reasons and important to various players. Policymakers need comprehensive insights into how these crises interact to formulate effective strategies that mitigate negative impacts and foster economic resilience. On the other hand, for businesses, especially those in energy-intensive industries, understanding the dynamic interplay between these crises is vital for developing strategies that ensure sustainability and competitiveness in an increasingly volatile environment. Additionally, the pandemic and the war have exposed significant vulnerabilities in global supply chains. The analysis and understanding of these disruptions and of critical points of failure can offer insights for the potential strengthening of supply chain resilience. Furthermore, investors and market analysts require a good understanding of how global events influence capital markets to make informed decisions. Finally, the crises have emphasized the urgency of transitioning to sustainable energy sources. This study discusses the importance of policy measures aimed at enhancing energy security and promoting renewable energy solutions, which are essential for long-term economic stability.

The aim of this review paper is to investigate the comprehensive impacts of increasing energy costs on the global economy, economic growth, and capital markets. Specifically, it places emphasis on the combined effects of the COVID-19 pandemic and the exacerbated energy crisis due to the war in Ukraine. This study synthesizes findings from the recent academic literature to identify the significant disruptions in supply chains, volatility in international capital markets, and the resulting challenges faced by policymakers, academics, and professionals in ensuring corporate sustainability amidst growing uncertainties.

The rest of the paper is structured as follows: In Section 2, we explore the effects of the Russia–Ukraine war on energy prices and energy security, together with its broader economic implications. In Section 3, we analyze how fluctuations in oil prices and interest rates have influenced financial markets and economic stability. In Section 4, we examine the relationship between oil price volatility and macroeconomic fundamentals, highlighting the interconnectedness between energy markets and financial markets. In Section 5, we discuss the dynamic interrelationships among commodity markets and financial markets, focusing on how volatility in one market can affect others. In Section 6, we provide a synthesis of the findings together with policy recommendations aimed at enhancing energy security, promoting renewable energy, and fostering economic resilience. Finally, in Section 7, we conclude by summarizing key insights and discussing the broader implications for the global economy.

2. The Impact of the Russia–Ukrainian War

The Russian–Ukraine war shook the world. This event produced a significant impact on global financial markets. The prices of oil and other commodities rose sharply, creating uncertainty and volatility in the markets. This event occurred during the post-pandemic market recovery, which followed a decade of economic growth and prosperity. The recent literature has shown that the interconnectedness between financial variables increases significantly during periods of turmoil [20,25]. The Russia–Ukraine War has significantly impacted energy markets, food security, stock markets, and the environment [26,27,28].

The outbreak of the Russian–Ukrainian conflict has exacerbated the Eurozone countries’ dependence on Russia for energy resources. Since the beginning of the war, the Eurozone has implemented a mutual response aimed at sanctioning Russia. Simultaneously, the European countries tried to limit the importation of energy and fossil fuels from Russia to limit their commercial ties [29]. It also has to be mentioned that the United States is less affected and partially independent of the shocks of the Russian–Ukrainian conflict compared to European and Asian markets. The beginning of the Russia–Ukrainian war led to an intense fluctuation in GDP and economic recession, mainly in European countries [30].

So far, the problem of the energy crisis, as a consequence of the war, appears to be more intense in EU countries, as the EU has a very large trade connection of energy products with Russia. Moreover, in 2019, approximately 50% of coal, 40% of natural gas, and 25% of oil of total EU countries’ import energy products needs were imported from Russia [14]. Moreover, in recent years, the EU has adopted a policy of disengaging from conventional energy sources and transitioning to greener, more environmentally friendly energy solutions. However, despite the extensive efforts to implement this policy, crude oil and other conventional energy sources continue to dominate, accounting for 75% of global energy consumption [31,32,33]. On the other hand, war, sanctions, and the creeping geopolitical conflict have exacerbated the energy crisis, and this has led to ongoing consultations for taking the appropriate measures and implementing such policies to lead the EU to greater energy autonomy and energy security. This condition can be achieved through finding and exploiting multiple sources and partnerships in the energy sector, creating a well-diversified energy portfolio, and through the creation and implementation of the eco-friendly 2030 action climate target plan, which aims at the reducing of greenhouse gas emissions to at least 55% below 1990 levels by 2030 [34].

The combination of these conditions has accelerated energy poverty, even in developed countries, where consumers and businesses find it difficult to access the minimum required level of energy autonomy to meet their needs [35]. This situation disrupts both the supply and food chains, thus shaking the fundamentals of social cohesion. Another important impact of the energy crisis, with both economic and social implications, is the limitation in acquiring and developing new skills, which leaves a negative imprint on economic development [36,37]. In addition to households facing difficulties in accessing affordable energy resources to meet their basic needs, firms also encounter increased production costs, worsening their financial situation and jeopardizing their future sustainability [35,36,37].

There are studies that come to the outcome that a strong connection between financial assets during the Russian–Ukraine military conflict has been established. It has also been concluded that oil was a net transmitter of the shock to other financial markets during the initial two weeks of the war. These findings indicate that the war harmed global financial markets. The recent conflict has generated increasing interest in the commodities market, as Russia is one of the world’s largest exporters. The impact of the war on oil prices has been a particular concern, as it has created uncertainty and volatility in the market. Being closely related to other commodities, the rise in crude oil prices had a knock-on effect on different sectors, such as gas and coal [38]. The impact of the Russian–Ukrainian conflict on the energy crisis has been significantly higher than that of the COVID-19 pandemic, especially in the short term. Moreover, there is observed volatility transmission between financial markets and intense instability in crude oil price when overall market volatility increases [29]. The most significant contributor to these shocks is the Russian market, as Russia is a major oil exporter globally and its market is closely correlated with Brent prices. Similar results emerged from the study by [39], which found that after the outbreak of COVID-19 and the subsequent Russian–Ukraine war, there was a transmission of shock and volatility from oil to stock markets. Specifically, after COVID-19 and the Russian–Ukraine war, investors were advised to buy oil assets to hedge their portfolios against the ensuing volatility.

According to [40], exchange rates, oil and gas prices, and both food and non-food inflation reached unprecedented levels during the Russian–Ukraine war, compared to other shocks such as COVID-19 and the Global Financial Crisis. This reflects the worst record of economic growth during the Russian–Ukraine war compared to all other shocks. The ongoing Russia–Ukraine war has already affected commodity prices, such as wheat, fertilizer, and oil, since Russia is among the world’s largest oil suppliers [41]. From the demand side, high food and input prices have resulted in higher inflationary pressure and a surge in interest rates, consequently hindering business growth and expansion. On the supply side, the increase in energy prices due to the war has raised production costs and restrained domestic and overseas investment. Additionally, Brent crude oil shocks have the most rapid response to surging inflation compared to other proxies, rebounding to a positive level within just one month. While the impact of inflation shocks is strong in the first quarter, it tends to diminish in the long run. [30].

The Russia–Ukraine war, through its impact on speculative activities, inventory, and supply–demand balance, has led to sharp short-term fluctuations in international oil prices and rapid price increases. Among these factors, speculative activities, inventory, and supply have had substantial impacts. Relevant entities can mitigate war’s effects on oil prices and macroeconomic factors by intervening in these transmission channels. [42]. Events such as COVID-19 and the Russia–Ukraine war have caused crude oil prices to exhibit a trend of high volatility and rapid changes. For instance, the West Texas Intermediate (WTI) crude oil futures price fell to a negative value for the first time on 20 April 2020. The Russia–Ukraine war and subsequent events led to a rapid increase in crude oil prices.

Additionally, the war has widened the price disparity between the highest and lowest values. In the event window following the war, the average difference between the highest and lowest prices amounted to 9.79, whereas in the absence of the war, the average difference stood at only 6.87 [42]. Therefore, the Russia–Ukraine war played a crucial role in sustaining the mid-term upward trend in oil prices through its impact on inventory levels.

3. The Impact of the Cost of Money and Oil Prices on Financial Markets

In this context, energy prices surged by 50% in 2022 [43], marking the highest inflation since the end of the second world war. This prompted central banks to implement significant interest rate hikes to restrain inflation, thereby increasing the risk of recession.

A rise in interest rates creates a negative climate in the financial markets. The increased cost of money, combined with the ominous outlook and increased investment risk, leads investors to be more risk averse, demanding higher returns for their investments. The Russian–Ukraine war affected firms’ purchasing parity due to the limited and expensive access to funds, resulting from inflation rate hikes. Additionally, non-economic factors affected firms’ sustainability and growth, testing their endurance during the preceding COVID-19 crisis, deteriorating their profitability, and putting pressure on them to meet fixed liabilities [44,45]. It is important to note that one of the main drivers of the inflation rate increase was the restart of the global economy, following the end of the pandemic-induced lockdown and its gradual attempt to revert to normality [46].

The supply shock triggered by the war in Ukraine led to a decline in economic growth and further increased inflation at a time when global inflation expectations were already volatile [47]. As a result, a surge in oil and food prices directly affected the international supply chain, driving the already high inflation rates even higher [48]. Additionally, it should not escape from our attention that the increased inflation rate is part of a structural issue, and its decline requires the implementation of policies to raise interest rates and reduce the energy prices. The combination of rising interest rates and inflation directly affects the cost of debt and production costs for both firms and states, further deteriorating the already obscure, unsafe, ominous, and volatile investment environment [45]. According to ECB [49], the increased level of corporate debt since the beginning of the pandemic has made firms more vulnerable to external shocks, which have worsened following the war in Ukraine. This risk extends not only to firms, but also to the banking sector and sovereign debt, particularly in weaker economies, as demonstrated during the global financial crisis of 2008 [50].

Several studies have already been published revealing that an increase in oil prices leads to an increase in inflation and the price of gold. This correlation of the price of gold with the price of oil enables us to explain the fluctuation of gold prices through the prices of oil [51,52,53].

Global economic conditions and future prospects systematically affect energy prices. Specifically, oil price shocks may occur because the market price of oil, like many other commodities, is determined by changes in global demand and supply [54,55]. The daily price of oil is influenced by various factors, among which is political stability. Political disputes and disagreements are primary drivers of significant and intense energy crises. Thus, discussions and consultations regarding the implementation of the 2015 Paris Treaty to address climate change, combined with the war in Ukraine, have highlighted the importance of producing more renewable energy. A direct advantage of renewable energy sources is their local production, which reduces the fluctuations caused by political disputes at the international level.

The war in Ukraine has led to costlier trading patterns and a significant diversion of energy sector products. This in turn has led to the estimation that commodity markets have become highly and directly dependent on the duration, the intensity of the war, and the extent and depth of the imposed sanctions [21]. Moreover, the war triggered a massive and one of the most powerful negative supply shocks to the global economy, with numerous consequences [47]. The war will exacerbate the supply chain problems, driving commodities prices to even higher levels. Sectors that rely heavily on energy and metal supplies, as well as production supply chains, will particularly feel the impact of the war’s consequences [45].

4. Financial Markets, Oil Price Fluctuations, and the Impact on Economic Growth

As crude oil arguably remains one of the most important drivers of global economic conditions and outlook, oil price fluctuations are bound to have a significant impact on economic growth and prosperity. While the demand for oil is expected to remain relatively stable, primarily due to economic growth and, to some extent, climate policies, the supply will remain highly uncertain. This uncertainty is due to continued volatility in oil- exporting countries and the challenges related to discovering new resources. These uncertainties, combined with the fact that oil is a commercial commodity traded in international stock markets, result in continuous and intense price fluctuations [56,57]. According to the international literature, there is evidence that oil price shocks have a negative impact on economic growth for net oil-importing countries, while they positively impact net oil-exporting economies [24,54].

The policy uncertainty index is considered the most important indicator of uncertainty. Crude oil price uncertainty directly and significantly affects economic stability and financial markets [7,58]. In this context, economic policy uncertainty could predict crude oil volatility and its returns [59,60]. Additionally, implied volatility has significant predictive power for crude oil volatility, as it is proved to have a significant predictive power [59,61,62].

Due to many possible exogenous supply shocks, oil prices are always subject to uncertainty. Even when prices remain relatively stable for extended periods, sudden exogenous events can disrupt this stability and cause significant price movements. When prices are stable, policymakers may overlook the underlying uncertainty when making economic decisions. However, in volatile environments, policymakers are more likely to consider future price uncertainty when making investment decisions. Overall, oil price volatility usually leads to increased economic uncertainty, while the absence of volatility can provide a misleading sense of stability.

Crude oil prices’ volatility diffuses uncertainties in financial markets and causes negative shocks in the global economy [58,63,64].

The impact of oil prices on macroeconomic fundamentals and financial market dynamics has been extensively studied, revealing a strong connectedness and integration between the energy market and financial markets. There is an intuitive substitution effect between conventional and renewable energy markets, promoting economic energy consumption and the recovery of energy sources needed by households and businesses.

During both the pandemic and the energy crisis, there appeared to be robust coherence across different geographical areas, times, and frequency bands, indicating both positive and negative correlations between ESG indices, economic indicators, traditional energy resources, precious metals, and investors’ output [65]. Notably, stock indices of leading ESG companies in North America and Europe seem to constitute safe investment havens during major upheavals and crises, providing a means for investors to mitigate risk and generate positive returns while contributing to economic sustainability [56].

The role of oil price uncertainty in corporate financial management is particularly noteworthy. The interaction between oil price uncertainty and corporate financial management reveals that uncertainty in oil market movements has a negative and asymmetric effect on corporate investment in energy-related firms. Specifically, downward volatility in oil prices significantly influences investment behavior, overshadowing the effects of upward trends [66]. Therefore, oil market uncertainty interacts with economic policy uncertainty as a key determinant of corporate investment behavior, particularly in oil-producing economies [67]. Using the implied cost of capital as a measure of firm-level risk preferences, [68] imply that oil uncertainty increases risk-taking among firms through hedging strategies or real investment choices associated with business development opportunities.

5. Spillover Effects

Several studies have revealed the dynamic interrelationships among commodity markets and/or between financial markets. Commodities specializing in oil and precious metals are the most important benchmark commodities globally, and most of the studies focus on the dynamics and the level of spillover effects [69]. Specifically, energy and industrial markets seem to be net receivers of volatility spillovers from the financial system during the global financial crisis, the European debt crisis, and the pandemic crisis. The extent of this interconnection is time-varying, with strong evidence of volatility transmission from stock markets to gold and oil markets.

Intense crises have indicated significant connectedness between stock returns and market volatility. This interlinkage seems to be more pronounced in stock markets that lack previous experience in confronting severe crises [17].

Numerous studies emphasize the interconnection between stock markets, oil markets, and commodity markets, revealing that stock markets are intensively affected by oil shocks, either directly or indirectly. A primary reason for this interlinkage is the financialization process, which has strengthened the interconnectedness between oil and stock markets [51,70,71].

In terms of both volatility and returns, the contribution of stock market shocks to other markets is substantially more important than that of other commodities. However, the total link between markets is larger in the short run, than in the long run [69].

It should be noted that the oil price–stock return relationship is mainly determined by the nature of the oil price shock and that demand shocks are much more relevant than supply shocks while trying to explain the potential of stock markets [72,73].

This condition occurs regardless of a country’s oil export/import orientation [70,74,75]. A key feature in the relationship between stock returns and oil prices is the existence of an asymmetry, where positive oil price shocks due to unexpected global economic activity increase stock returns, as opposed to positive oil price shocks due to factors contributing to an unexpected increase in demand [73,76]. However, a country’s position on the worldwide oil map affects its financial system stress. In oil-importing countries, financial system stress is negatively affected by supply and aggregate demand shocks but positively by specialized oil market demand shocks, contrasting with the effects in oil-exporting countries [77].

The co-movement between oil price volatility and financial stress is more likely and more intense during periods of economic turmoil. The patterns and strength of such co-movements are time-varying, while the direction of the relationship is mostly positive, with oil volatility (OVX) being the leading indicator in this relationship [78].

In the case of oil-importing countries, rising oil prices reduce economic activity and lead to a current account deficit. Higher production costs relative to higher oil prices deplete corporate profits, resulting in lower stock prices [79]. Conversely, the expectation of falling oil prices would reverse the economic order in oil-exporting countries.

Another aspect of this relationship is that financial stress, often linked with lower economic activity, can lead to lower energy consumption and, subsequently, lower oil prices. Moreover, given that oil is a tradable commodity, investors consider oil-derived assets as viable alternatives to traditional financial markets. The financialization of the oil market has resulted in a close relationship between oil and financing, meaning that oil prices are determined not only by supply and demand market pressures, but also by financial market conditions [79,80].

Liquidity also impacts the cost of capital, as it is a persistent systematic driver of stock performance [81,82]. Higher volatility in oil prices increases the perceived risk of less creditworthy firms, reducing the demand for illiquid instruments and increasing the cost of capital.

However, the role of liquidity in stock performance varies depending on whether oil shocks are driven by demand or supply factors. Specifically, oil shocks due to demand factors have a negative impact on stock liquidity, while oil supply shocks have a positive effect. Furthermore, large oil companies are affected by oil demand and supply shocks, while small oil companies do not show significant changes at the levels of their stock liquidity [83,84].

Fluctuations in oil prices affect input costs, cash flows, profitability, valuation, investments, and firms’ payoffs [85,86,87]. The literature focuses on three ways that crude oil prices affect stock markets. First, the change in the crude oil price affects the stock prices through cash flow effects. Second, increases in the crude oil price trigger price increases that lead to inflation. In this case, if central banks hike interest rates in order to restrain inflation boost, the cost of capital will increase, and this will have a negative impact on firms’ stock market prices. Third, rising crude oil prices lead to an increase in commodity prices through spillover effects, which in turn lead to a reduction in market demand and ultimately to a reduction in firms’ production scale [88,89].

Oil supply shocks consistently have a positive effect on the cost of capital, particularly for emerging economies and net oil importers, indicating that supply-driven oil price uncertainty significantly increases firms’ financing costs, regardless of market liquidity levels. However, market liquidity plays an important role in moderating the impact of demand shocks on oil consumption, suggesting that the impact of oil demand shocks on firms’ financing costs spills over through the liquidity channel [73].

There is a significant interconnectedness between energy sources, whether conventional or renewable, and stock markets. Both crude oil and renewable energy sources are major transmitters of spillovers to financial markets, especially during periods of stress and crisis [31,32,33,90,91].

Intense crises, such as the pandemic, have proved to be responsible for risk transmissions as investor anxieties and policy uncertainties proliferated globally. These factors contributed to alterations in the international financial cycle, leading to movements in global capital flows and asset prices across different markets [51]. There appears to be a clear substitution mechanism between financial (i.e., stocks, cryptocurrencies, foreign exchanges) and non-financial (i.e., commodities, oil, gold, and other precious metals) assets, making the latter appear as safe-haven investments during the global financial crisis [92] and pandemic crisis [51]. In addition to this, spillovers in returns and volatilities of financial markets can be driven by policy uncertainty through its impact on investment decisions and household consumption [51,93].

In this context, it is important to highlight the correlation between WTI oil price returns and the returns of listed firms in the energy sector [94]. The results reveal that the oil and gas industries dominate other industries within the energy sector. However, there are studies that indicate that the responses of stock markets to oil price shocks vary among G7 countries, linked to the different structures of each country’s capital markets and firms’ future strategies [95,96]. There is also evidence of a negative and significant impact of oil price changes on most European stock markets [97]. Conversely, some argue in favor of a positive correlation between oil and stock prices, with oil price increases having a positive impact on stock prices [98,99,100,101]. The main factor influencing the direction of this correlation is whether the country is an oil exporter or importer [63,102].

Another aspect of the relationship between oil and stocks prices concerns whether oil price volatility can predict stocks volatility. Recent studies argue that oil market volatility includes additional information beyond the information conveyed by traditional macroeconomic variables, enabling the prediction of stock markets [103] and derivatives markets [64] instability. In addition, it should be noted that volatility spillover is being diffused from oil prices to stock prices [58,104,105,106,107,108,109].

Regarding the connection between financial stress and the oil market, it is observed that oil market uncertainty is mainly linked to economic stress in developed countries [110], while this spillover is more intense during periods of severe crises, such as the global financial crisis and the COVID-19 pandemic. Additionally, oil price volatility positively affects financial stress in emerging markets [63], with the impact intensified during periods of economic turmoil.

6. Discussion, Recommendations, and Further Implications

Amid the Ukraine war and the aggressive energy crisis, it is currently necessary for official authorities and governments to keep designing and implementing plans to achieve the goal of eliminating greenhouse gas emissions in the near future, as set in 2023. Regulatory actions affecting the energy market must include carbon pricing, renewable energy mandates, energy efficiency requirements, and grid modernization initiatives.

These regulations should aim to reduce carbon emissions, increase the use of renewable energy sources, improve energy efficiency, and enhance the flexibility and reliability of the grid, as this can lead to a more resilient, flexible, and efficient grid infrastructure capable of supporting increased renewable energy penetration and accommodating variable renewable energy generation. Renewable energy resources have lower carbon footprints compared to fossil fuels, leading to environmental benefits such as improved air quality and reduced environmental impact.

It is a major priority for renewable resources to play a crucial role in this transition by providing clean and sustainable energy. Renewable energy sources like solar, wind, hydro, and geothermal power are becoming more cost-competitive and technologically advanced, making them a viable alternative to traditional fossil fuels. As regulatory actions prioritize the transition to clean energy, renewable resources are expected to contribute significantly to reducing greenhouse gas emissions, enhancing energy security and diversifying the energy mix.

Furthermore, such actions will provide economies with specific and great economic benefits by creating economic opportunities and jobs in the renewable energy industry. Renewable energy mandates promote competition among developers to meet the set targets. This competition drives innovation in renewable energy technologies, processes, and business models, leading to cost reductions and efficiency improvements in the renewable energy sector.

Renewable energy mandates create a demand for renewable energy generation, leading to an increase in investments in renewable energy projects. This in turn stimulates the growth of the renewable energy market and encourages the deployment of new renewable energy technologies. So far, the active participation of local authorities, international organizations, and governments worldwide is more necessary than ever before in order to proceed to the deliberation, voting, and implementation of needed reforms and regulations in favor of humanity, societies, and economies worldwide.

Overall, renewable energy mandates play a key role in shaping the energy market towards a more sustainable, diverse, and environmentally friendly future. By setting targets for renewable energy deployment, these mandates drive investments, promote innovation, create economic opportunities, and contribute to reducing carbon emissions and advancing energy transition efforts in favor of economies, societies worldwide, and most importantly providing a safe future for humanity.

Another issue arose in 2023 with the turmoil in the Middle East following Hamas’s attack on Israel and Israel’s military operation in the West Bank and Gaza Strip, which could further deteriorate the current volatile situation and affect the energy sector, economies, and markets worldwide in multiple ways.

The conflict between Israel and Hamas can disrupt the flow of energy resources, such as oil and natural gas, through key transit points like the Suez Canal, leading to a disruption in global energy supply chains. This uncertainty and instability caused by the new conflict can lead to price volatility in energy markets, further affecting the cost of oil and gas globally and setting prices even higher than the current prices, affecting the smooth performance of firms, the flexibility of meeting households needs, causing higher cost of debt, and intensifying the volatility of capital markets.

Moreover, heightened geopolitical tensions can deter investments in energy infrastructure and projects in the region, affecting long-term energy security and raising investment confidence issues. In addition, a potential deterioration in relations between the countries involved could result and long-standing alliances could be disrupted, affecting energy cooperation and other agreements critical to addressing the energy crisis.

Overall, the war in Israel could worsen the existing energy crisis in different sectors by affecting supply chains, prices, investments, security, and diplomatic relations in the energy sector.

7. Conclusions

The back-to-back crises of the last fifteen years (global financial crisis, COVID-19 pandemic, Russia–Ukraine war) have created persistent shocks on a global level. These events have stimulated academic research, providing valuable information for policymakers, firms, and investors to manage investment risks and uncertain returns.

According to Joseph Schumpeter, the most important impact of the pandemic was “Creative destruction”, as it contributed to the reinforcement of specific sectors like technology, communications, and healthcare while weakening traditional economic activities.

This shift moved resources to the faster-developing industries, altering the global investment landscape and changing perceptions of the labor market and work practices.

Firstly, the outbreak of COVID-19 imposed travel and mobility restrictions, which severely affected labor markets, business performance, profitability, and the demand for goods and services, having a significant impact on stock prices.

Secondly, the war in Ukraine has greatly increased economic and business uncertainty. A direct result of the war is the escalation of the crisis between Russia and Western economies, creating a long-term negative impact on most European companies and economies due to the high cost imposed by the war. However, the full extent and consequences of this impact are still not entirely apparent.

As far as firms are concerned, the main challenge has been the pressure on profits. Rising energy costs, accompanied by high inflation rates and interest rate hikes by central banks aimed at curbing inflation, have negatively impacted debt costs, investment opportunities, and prospects. The increase in inflation in 2021 and 2022 was mainly due to higher demand and increased energy prices. In addition to that, both crude oil and renewable energy sources are the main transmitters in financial markets, strongly influencing global financial systems and stock markets, especially in times of crisis and turmoil. This is reinforced by the strong correlation between oil and stock markets, as oil is a major commodity.

Additionally, the reduced purchasing power of households has exerted pressure on the demand side. Moreover, sovereign debt is at risk as its cost rises, affecting both social policy implementation and debt obligations. Finally, the accumulated economic and policy uncertainty from these successive crises, along with the new flashpoint in the Middle East, should not be underestimated.