Analysis of Economic Crisis Caused by Falling Oil Prices in Gulf Countries

DD209A (Economics and Economic Change I)

Introduction
This essay brings out an analysis on the economic crisis caused due to falling of the oil prices
in Gulf countries. This essay has a detailed analysis of factors that contributes to falling of the
prices. Economic crisis is a situation of the country that experiences falling GDP, dried
liquidity and rising inflation. Economic crisis considers decline in the prices of financial
assets whether consumers are not able to pay off their debts, crashing stock prices, currency
crisis. For example- during the shrinkage of world`s economy in 2008, it is observed that oil
prices have been collapsing from July 2008 at $ 147 to $32 in December 2008. It has claimed
that law of supply and demand of oil are responsible for 80% drop in the oil prices. Another
example of economic crisis can be increasing demand in the economies such as India and
china, it is seen that the production had cut down by the (OPEC) Organization of Petroleum
Exporting Countries. Apart from this, various other factors affected the oil prices in 2014.
The discussion will also analysis socio-economic factors that has affected the economic
growth and economic development due to boom in oil sector as well as bullish condition in
the sector.
The global financial crisis identified mitigation strategies failing at every level. 2008 global
crisis has negative impact on oil sector as it declined the oil price. The tight credit conditions
resulted in producers paying high rate of interest when increasing capital. Price of oil fell
from high $147 in 2008 to $33 during February. This decrease is due to felling and
diminishing demand. Other recession faced by the oil industry was the rapid increase in the
demand of oil products. The economy recovered from the oil backs and the price again
reached $100 and hovered from $100 to $125 in 2014 (Alsayegh, Saker, and Alqattan, 2018).
Again, in 2014, various factors contributed to drop in the oil prices. As china is a major
contributor to the global economy as china is the largest country in terms of population,
whereas when huge demanding population lowered the oil demand, the sector suffered from

price ramification. Other huge economies such as India, Brazil, and Russia has faced the
same economic trajectories in 21 century, as their demand too decreased in 2014.
Other negative effect caused by high prices, countries named Canada and US increased its
efforts to produce their own oil. In US, private companies started extracting oil by using a
process called as fracking. Canada started extracting from oil sands of Alberta, which is the
third largest crude oil reserve of the world (Hemoud et al., 2017). In result of which, two
American countries cut down its oil imports that further created downward pressures on
global prices. Due to above consequences, gulf countries started suffering from low demand
as other countries who were dependent on them for oil supply. Middle Eastern countries kept
their production stable, as they have realised that low prices offered more long-term benefits
rather than just giving up better market share. Saudi Arabia`s contributed to falling of the oil
prices in 2014. Apart from this, extracting methods are more expensive and are not profitable
too when oil price falls too low. By supporting the low price of oil, Saudi Arabia anticipates
that country such as US and Canada might abandon the costly affair of production method
(Vohra, 2017).
Economic condition of gulf countries