Oil Crisis

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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).