The effect of economic policy uncertainty and geopolitics on LNG freight rates across different market conditions

This paper examines the effects of economic policy uncertainty and geopolitics on LNG freight rates under different market sentiments, employing Markov – switching Vector Autoregressive (MS-VAR) models. Considering the crucial role of diversification and security of energy supply, we aim to fill this gap in the literature, referring to the transportation cost of LNG. Economic policy uncertainty impacts in a negative way the freight rates in the USA-China trading route and increases the freights at the USA-Europe trading route despite the market conditions. We found that the effect of a shock on National security index is more pronounced at the USA-Europe route. A shock on Geopolitical indices creates an upward trend in the freight rates for both routes under bullish market conditions, which is more intense in the USA-Europe trading route. Our results bear significant implications for both shipowners and charterers related with the LNG trade. This article is a revised and expanded version of the respective research which presented at the International Association of Maritime Economics(IAME) 2024 annual co nference, Valencia, in June 2024.