THE IMPACT OF THE GLOBAL FINANCIAL CRISIS ON THE WORLD OIL MARKET AND ITS IMPLICATIONS FOR THE GCC COUNTRIES

INTRODUCTION

This paper will examine the impact of the global financial crisis on oil prices and exports on the oil-exporting countries in the Gulf Cooperation Council (GCC) countries in 2009 and 2010. The paper is divided into four sections. In section two, we present forecasts for oil prices in 2009 and 2010; in section 3, one of the forecasts is used as a base scenario and two additional scenarios are developed for 2009 and 2010. Given the significant slowdown in the global economy and uncertain future prospects, the base scenario is used to forecast the main economic impacts on GCC countries. The other two scenarios are used to provide a measure of the sensitivity of the GCC economies to fluctuations in oil prices. The final section will present the conclusions of the study.

THE EXPECTED IMPACT OF THE CRISIS ON THE OIL MARKET CONDITIONS

Crude oil prices reached a record high of US$ 147 per barrel (US$/b) in July 2008 on the back of a six-year commodity boom cycle driven mostly by demand from developing countries.1 However, as of August 2008, oil prices plunged rapidly as demand from the Organisation for Economic Co-operation and Development (OECD) countries came to a sudden halt and recession loomed as the financial crisis severely impacted the global economy (IDS, 2008, p. 5). In an attempt to curb falling prices, the Organization of Petroleum Exporting Countries (OPEC) introduced a series of cuts in output. At the time of writing, oil prices have begun to stabilize at levels ranging in the mid US$ 40 per barrel. In what follows, we present the expected impact of the financial crisis on oil markets and the anticipated impact of the crisis on oil demand, supply and prices. The analysis draws heavily on data prepared by the Economist Intelligence Unit (EIU) in its latest report on the Middle East and North Africa region, and the United States Department of Energy. Indeed, current events suggest that EIU estimates appear to be the most plausible. It is still too early to predict the full impact of the crisis on oil prices, but the margin of error of these forecasts should not be negligible download