Global energy markets are undergoing a significant shift in how financial risks move between clean energy, fossil fuels and international trade. While renewable energy equities are becoming less closely linked to traditional oil and gas investments, uncertainty surrounding tariffs and trade policies is emerging as a distinct source of market instability. The changing relationships challenge conventional assumptions about energy diversification, exposing vulnerabilities that may remain even as clean and fossil fuel markets move further apart.
A study titled “Differential Spillovers from Trade Policy and Energy Transport Uncertainty in Clean and Fossil Fuel Energy Markets,” published in the journal Risks by Siseko Mtunzi Merana of the University of KwaZulu-Natal and Simiso Msomi of Sol Plaatje University, South Africa, examines how these risks have evolved over more than two decades. Using monthly financial and uncertainty data from January 2004 to December 2025, the researchers identify a pronounced decline in connections between clean and fossil energy equities alongside a striking reversal in the sources of uncertainty transmitted across global energy markets.
Clean Energy Is Breaking Away from Fossil Fuels, but Financial Risks Remain
The relationship between clean and traditional energy investments has long attracted attention because both sectors operate within interconnected energy systems. Changes in commodity markets, investor expectations and economic conditions can influence their financial performance simultaneously. However, the strength of these relationships need not remain constant as energy markets develop and respond to different economic pressures.
The research provides evidence of a substantial long-term weakening in financial connectedness between the two sectors. Pairwise connectedness between clean energy and fossil fuel equities declined from approximately 70% in early 2004 to 18% by the end of 2025. The researchers interpret this as evidence of gradual financial decoupling, consistent with clean energy developing more distinct market characteristics.
The decline was not uninterrupted. During the 2008 global financial crisis, connectedness between the energy equity markets increased to approximately 64%. Another increase occurred at the onset of the COVID-19 pandemic, when the relationship strengthened to around 50%. Both episodes demonstrate how broad financial disturbances can temporarily reinforce connections between otherwise increasingly distinct markets.
The weakening relationship accelerated after 2022. Despite substantial disruption surrounding the Russia–Ukraine conflict and the associated energy crisis, the study did not identify a corresponding increase in overall connectedness. Instead, the downward trajectory continued, suggesting that the financial relationships captured by the model responded differently to this episode than to previous broad market shocks.
The findings distinguish declining financial integration from complete independence. Clean energy equities may no longer follow fossil fuel market movements as closely as before, but their exposure to other disturbances remains significant. Financial diversification based exclusively on the relationship between these two sectors may therefore overlook vulnerabilities originating elsewhere in the international economic system.
How Trade Policy Overtook Energy Transport as a Source of Market Uncertainty
One of the study’s most consequential findings concerns the changing relationship between two forms of uncertainty: trade policy uncertainty and energy transport uncertainty. Although both influence the environment surrounding energy markets, they capture different pressures and cannot be assumed to transmit financial disturbances in identical ways.
Trade policy uncertainty reflects concerns surrounding tariffs, trade agreements and changing international commercial conditions. Energy transport uncertainty captures risks associated with the physical movement of energy through shipping routes, pipelines and related networks. These pressures can interact, but their respective positions within energy-market relationships vary considerably over time.
For much of the period examined, energy transport uncertainty functioned as the principal net transmitter of shocks within the model. This means that disturbances associated with transport uncertainty accounted for more forecast uncertainty elsewhere in the system than disturbances from other variables accounted for in transport uncertainty itself.
The relationship shifted dramatically during the 2025 tariff escalation. Trade policy uncertainty emerged as the largest net transmitter, reaching approximately +40 on the study’s net connectedness measure. Energy transport uncertainty moved into a net receiving position near −30, reversing the hierarchy that had characterised much of the earlier period.
The reversal was especially pronounced in the relationship between the two uncertainty indicators. During 2025, trade policy uncertainty accounted for a substantially greater share of forecast uncertainty in energy transport than the reverse. The findings are consistent with a stronger trade-policy transmission channel during tariff stress, although they do not establish a direct causal sequence.
The researchers explicitly caution that their statistical framework cannot distinguish whether policy uncertainty directly generates transport uncertainty or whether both respond to a common external disturbance. Consequently, the observed reversal should be interpreted as a change in measured financial connectedness rather than proof that particular tariff decisions caused subsequent transportation disruptions.
A separate robustness specification reinforces the importance of the distinction. When the researchers extended the forecast horizon to 24 months and applied logarithmic transformations to the uncertainty measures, trade policy uncertainty became the dominant net transmitter across the system. The result suggests that conclusions about the principal source of uncertainty depend partly on the modelling horizon and specification.
Why Trade Wars Expose Clean Energy to a Different Kind of Financial Pressure
The declining relationship between clean and fossil fuel equities presents only part of the changing risk environment. The study also identifies temporary increases in overall market connectedness during episodes of trade conflict, revealing that weakening links between energy sectors can coexist with stronger connections involving policy uncertainty.
During the 2018–2019 US–China trade war, the system’s corrected connectedness measure rose to approximately 34%. Another pronounced increase occurred during the 2025 tariff escalation, when connectedness climbed from around 18% to 29% within several months before retreating toward 22%.
These increases were not primarily driven by clean and fossil fuel equities becoming more closely connected again. Instead, the research attributes the temporary rises to stronger relationships between trade policy and energy transport uncertainty, together with increased connectedness between uncertainty indicators and clean energy equities.
In 2025, the connection between clean energy equities and trade policy uncertainty reached approximately 13%, while connectedness with energy transport uncertainty approached 11%. Comparable relationships involving fossil fuel equities remained relatively weak. The findings indicate that clean energy financial markets were more closely linked to these uncertainty measures during the tariff episode.
The authors suggest that clean energy’s dependence on international supply chains for batteries and critical minerals may be consistent with its exposure to trade uncertainty. However, the analysis does not directly examine these supply chains or establish that they caused the observed movements in equity-market connectedness.
The distinction has consequences for interpreting energy transition investment risks. The weakening relationship between clean and fossil fuel equities may offer a basis for examining diversification, but the study does not directly test portfolio performance or establish the size of potential diversification benefits.
Trade-related uncertainty introduces a separate dimension that conventional comparisons between clean and fossil energy returns may overlook. Investors monitoring only oil-market disturbances or physical transport disruptions could miss changes in the relative importance of trade policy uncertainty during periods of international commercial tension.
A Changing Risk Landscape for Energy Investment and Global Trade Governance
The research contributes to energy-finance analysis by placing trade policy uncertainty, energy transport uncertainty and two major energy equity markets within a single changing system. Rather than examining average relationships independently, it identifies how the direction and strength of statistical spillovers evolve across economic crises and trade disputes.
Across the full sample, the conventional total connectedness index averaged 21.82%, indicating that approximately one-fifth of forecast error variation was associated with shocks from other variables in the model. The broader pattern was one of declining interconnectedness, interrupted by temporary increases during particular episodes of financial or policy stress.
For governments and financial regulators, these findings support distinguishing trade-policy risks from physical energy transportation risks when assessing market vulnerability. Monitoring them as a single uncertainty category could conceal shifts in the relative importance of policy-related and logistical disturbances.
For energy investors, the findings suggest that historical relationships between asset classes may provide an incomplete basis for evaluating exposure during trade conflicts. The changing transmission hierarchy indicates that risk assessments should consider which uncertainty indicators are becoming more influential rather than relying exclusively on average market correlations.
The research also raises questions for developing economies seeking investment in clean energy. International trade conditions and the organisation of energy supply chains may warrant attention when evaluating financial exposure. However, the study uses global equity indices and does not separately estimate effects on emerging-market industries, investment costs or national energy transitions.
Important methodological limitations constrain wider conclusions. The statistical approach measures how forecast uncertainty is shared across variables rather than identifying causal economic mechanisms. Its results also depend on the selected equity indices, uncertainty indicators and forecast horizons, while the alternative specification changes both the horizon and the treatment of uncertainty data.
Further work could investigate how trade-related disturbances interact with critical mineral supply chains, national clean energy industries and emerging-market financial systems. Examining these mechanisms directly would help establish whether the changing statistical relationships correspond to identifiable economic transmission channels.
