Oil Crisis

This report explains in detail how a blessing of an abundance of oil can act as a curse for the Gulf countries. It also elaborates the economic consequences caused by the increase in the price of oil and the measure taken by the countries to control the negative impact.

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RUNNING HEAD: OIL CRISIS
Oil crisis
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Oil Crisis
Oil has gained its importance in the international commodity market due
to its strategic nature. There is a geographical advantage to the Gulf
countries due availability of an abundance of natural resources. Gulf
Cooperation Council comprises of Kuwait, Qatar, Oman, Bahrain, United
Arab Emirates and Saudi Arabia. All these countries are chronically
dependent on high oil prices. The economies of these countries are
majorly supported by the supply of oil. Therefore, the countries were at
the advantage when the oil prices grew globally from 2000-2007 and were
also deeply impacted when the prices started falling from 2008 onwards
(Ijbssnet.com, 2019). This report explains in detail how a blessing of an
abundance of oil can act as a curse for the Gulf countries. It also
elaborates the economic consequences caused by the increase in the
price of oil and the measure taken by the countries to control the negative
impact.
Oil has proved to be both a blessing and a curse for the Gulf countries. It
has provided immense growth to countries such as the UAE and Oman in
a relatively short period of time. This has also made economic growth of
the countries more dependent on the oil. The geographical advantage to
gulf countries of having an abundance of natural resources has made their
economy overly dependent on oil (The Balance, 2019). Oil is a hard
commodity which is important not only for the household but is consumed
by almost all industry in production, generating electricity gasoline. This
quality of oil made it popular and significant in the foreign market. Not
only in the foreign exchange, oil act as a direct catalyst in the growth of
GCC countries. This overdependence of oil made had severe
consequences on the oil-rich countries. The countries which were earlier
self -sustainable in the agricultural growth were now reliant on the food
imports (Elwerfelli and Benhin, 2018). The main source of the GDP in the gulf
was the oil so when the oil price fell the GDP of the countries also faced a
setback. However, the very reason that resulted in the growth of the gulf
countries was also the reason for its crises.
One of the key indicators of economic crises is the fall in the GDP of the
countries. If the decline continued for a prolonged period that can raise a

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Oil Crisis
series of question for the government such as inflation, unemployment,
lost out etc. (Cristina and Marc, 2019). High prices of oil are one of the major
pillars of economic growth in the Gulf countries. The fall in the price of the
oil on a global level have resulted in erosion in the policies and have a
destructive impact upon the sovereign wealth fund holdings. Earlier the
major dependence of the Gulf countries for the budget was on the
revenues generated by oil, this has resulted in a rise in the budgeted
deficit. This major shift in the economy is the major cause of
unemployment in the Gulf Countries, it has made it difficult for graduates
in finding employment (East, 2019). The economy of GCC countries are
small open economies that rely majorly upon the oil revenues, it allows
them to buy capital, consumer goods, labour services and consumer good
in return. The trade policy of the Gulf countries is designed around the
premises that it provides sustainable development of the region. The
liberalization in the trade policies has not only provided a market for oil
but has also provided advancement by introducing to advanced global
technology and improving the efficiency of the process (Jonquil, 2019). The
free trade policies of the Gulf countries have also helped the countries to
maintain foreign exchange and control inflation. The hike in the global oil
prices has resulted in the minimizing the exports thus creating a financial
deficit (Meea.sites.luc.edu, 2019). The deficit in the budget leads to
minimization of imports to maintains the balance of trade. Fall in the
imports means less exposure to global technologies, which lead in losing
window of opportunities. If there is an increase in imports but it is not
balanced by an increase in exports that will lead to inflation. The fall in
exports also results in fall in the value of the currency in the foreign
market.
To control the economic imbalance caused by fall in the price of the oil globally, various
attempt has been made to reform the existing economic policies and introduce new policies.
The objective of the policies is to attract investment globally and improving financial sector
efficiency. However, it is not simple to introduce reform in such a large economy and in
addition, the government of Gulf countries are not elected (Ijbssnet.com, 2019).

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Oil Crisis
Controlling demand and supply of Bank Credit in the Gulf countries: Bank credit serves as an
important catalyst to transmit oil prices in the economy of the Gulf countries(Bernard, 2019).
In order to control the supply of bank credit serves as an important tool to control the oil
prices. Higher prices of oil influence the demand for credit from the private sector.
Working on financial Stability: Monetary Policy can be understood as manipulation of
interest rates to influence the economic activities (Bernard, 2019). However, the monetary
policy play a limited role in mitigating the risk, but it assists in tightening the domestic
liquidity.
Accelerating Diversification: The growth of GDP in gulf countries are overly dependent upon
the oil. In order to minimize the dependency, the government focused on diversification in
the non-oil sectors and Private sector development. However, larger economic changes take
time and are to be properly monitored but are essential for raising productivity and generating
employment opportunities. Several strategies have been developed by the to develop various
sectors such as financial services, tourism, health care, manufacturing and energy (Imf,
2019).
Attracting FDI: In order to create growth in the economy, it is essential to attract Foreign
Direct Investment. FDI boost the foreign inflows in the countries that help to cope up with
the deficit caused by the fall in the prices of oil. It not improves the deficit situation of the
Gulf countries but also create employment and leads to innovation(Imf, 2019)..
The geographical location of Gulf countries have blessed them with an abundance of oil
resource, but this blessing has also resulted as a curse to these countries. Oil has gained
its importance in the international commodity market due to its strategic
nature. Oil was the major source of the growth in the Gulf Countries, the
fall in the prices of oil was a major set back. The economy of GCC
countries are small open economies that rely majorly upon the oil
revenues, it allows them to buy capital, consumer goods, labour services
and consumer good in return. We can comprehend from above the reasons and the
consequence of the oil crises occurred in the Gulf countries. We also understand from the
economic policies adopted by the Gulf countries to overcome the deficit caused by the fall in
the prices of oil.

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Oil Crisis
References
Bernard, W. (2019) Chapter 5 Monetary policy [online].
https://ccourse.arabou.edu.kw/LMS_eBooks/OU_Amazon_drive/AOU_DD209_16J/PDF/
ebook_dd209_book1_e2i1_n9781780079547_l1_noepub.pdf [Accessed 10 Mar. 2019].
Cristina, S. and Marc, W. (2019) Economics, recession and crisis [online].
https://ccourse.arabou.edu.kw/LMS_eBooks/OU_Amazon_drive/AOU_DD209_16J/PDF/
dd209_book1_chpt_1.pdf [Accessed 10 Mar. 2019].
East, M. (2019) Oil: A Blessing And A Curse For The Middle East [online]. OilPrice.com.
Available from: https://oilprice.com/Geopolitics/Middle-East/Oil-A-Blessing-And-A-Curse-
For-The-Middle-East.html [Accessed 10 Mar. 2019].
Elwerfelli, A. and Benhin, J. (2018) Oil a Blessing or Curse: A Comparative Assessment of
Nigeria, Norway and the United Arab Emirates. Theoretical Economics Letters, 08(05),
pp.1136-1160.
Imf.org. (2019) Economic Prospects and Policy Challenges for the GCC Countries [online].
Available from: https://www.imf.org/external/np/pp/eng/2016/102616b.pdf [Accessed 10
Mar. 2019].
Jonquil, L. (2019) Chapter 6 Policy choices [online].
https://ccourse.arabou.edu.kw/LMS_eBooks/OU_Amazon_drive/AOU_DD209_16J/PDF/
dd209_book1_chpt_6.pdf [Accessed 10 Mar. 2019].
Meea.sites.luc.edu (2019) Oil Economies and Globalization: The Case of the GCC Countries
[online]. Available from: http://meea.sites.luc.edu/volume6/al-yousif.pdf [Accessed 10 Mar.
2019].
The Balance (2019) The Truth About the 1973 Arab Oil Crisis [online]. Available from:
https://www.thebalance.com/opec-oil-embargo-causes-and-effects-of-the-crisis-3305806
[Accessed 10 Mar. 2019].
Ijbssnet.com. (2019) The Impact of Oil Prices on GCC Economies [online]. Available at:
https://ijbssnet.com/journals/Vol_8_No_2_February_2017/2.pdf [Accessed 10 Mar. 2019].

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