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Economic crisis is a circumstance in which the economy of nation encounters an unexpected downturn brought on by a financial crisis. The economy confronting a financial emergency and experiencing a falling GDP, an evaporating of liquidity and rising prices due to deflation. An economic crisis can appear as a recession or a depression.
Our planet experienced many crises, such as the Great Depression in 1930s which is known as the mother of all financial crisis and lasted about 10 years, some of other crisis such as the 1970 also the 2000 recession and then the 2008 crisis is considered one of the greatest financial crises since the greatest depression. The 2008 crisis have impacted different nations and economies, especially the gold countries. The 2008 shock struck the prices of oil around the world. Bahrain, Kuwait, Oman, Saudi Arabia, Qatar and the United Arab Emirates are nations that since 2008 were greatly impacted by this strike which was caused by the fall of oil price. These nations experienced slowdown of growth, falling revenue of export and budget deficit. This essay will discuss how oil which is considered a blessing turned into a double-edged factor, especially this essay will focus on the consequences of oil crisis of the gold countries and the procedures which was adopted by them to control the negative impact.
Growth in energy use during the 20th century is unprecedented and increasing of oil supply is supporter to that growth. At the same time the falling of oil price helped create parallel development. Oil has become the world most important source of energy since the mid 1950s mainly providing vitality to control industry, heating for homes and give fuel to vehicles and planes to carry products and individuals everywhere throughout the world.
When it comes to oil production, GCC countries are the biggest supplies as 50% of world reserves are located there, furthermore Saudi Arabia have 22% of the world reserve and typically considered to be the relevant actor in the global oil industry (by Joe Bahamas, KAS Energy Security Fellow). In 2000, Saudi Arabia economy grew by 5.6% and by 2008, the GDP reached 6.3% due to largely rise of oil prices (Rubina Vohra). When Saudi Arabia economy grew also it increased their spending on other industries, in the same period, Kuwait experienced economic growth due the rise of oil prices resulting in an increase of GDP from 4.7% in 2000 to 6% in 2007. In addition, Qatar experienced an economic growth, and its GDP grew from 3.9% in 2000 to 18% in 2007. UAE benefited also from the rise of oil and gas sector and still accounts more than 25%, it is very important to note that its highest growth rate recorded was 32.7% in 2006 due to sharp increase in price. This rise helped to increase investment and many sectors benefited from the rise such as real estate, construction and trade (Emirates 24/7). So, EAU depends on petrodollars as its main source of income and any fall of oil price will have an impact on its oil economy.
Bahrain and Oman also benefited from the highest price of oil. Bahrain GDP grew by 7% In 2000 and in 2007 it grew by 8.3%, this growth of economy is followed by high budget revenue. Lastly Oman experienced an increase of GDP by 6.5% in 2000 to 8.2% in 2007. In general, all these countries have benefited from oil, some invested in better infrastructure, some in construction and building stadiums, and others focused on decreasing unemployment.
After all the above stated, the world economy has experienced a huge shock, this period marked a huge drop of oil. Oil prices dropped from 144.29 in July 2008 to 33.7 5 months later, and since gold countries benefit from oil and since oil takes large place in their economic growth, they experienced sharp decline in their GDP from 2008-2009. More especially, the recession caused a decrease in the demand of oil, most of these counties reduced their spending and couldnt provide their citizens subsidies and reduce their sponsorship and social spending.
According to the International Monetary Fund latest estimates, KSA recorded a fiscal deficit of up to 3.1% of GDP and marked a decline from surplus of 22.8% of GDP in 2008 (Hassan Hakiman, Wednesday February, 2009). Kuwait has suffered from the fall of oil prices which impacted several sectors including the real estate, made the companies from doing business in residential sector which prevented banks from offering financial support for real estate market (Essays, November 2018). Qatar has been impacted by the fall of oil price; it has experienced a deficit of 6% of its GDP which forced its government to put on hold all projects of construction in relation with football stadiums. The UAE also experienced a budget deficit in 2009/10 of 17.7% to 3.1% of its GDP due to oil price. During this period UAE was working on many projects related to construction and real estate investment, so when the market crashed, the country was facing difficult financial issues that forced the government to temporarily forfeit all the ongoing economys planning affairs. Lastly, Bahrain and Oman, both experienced a budget deficit in 2009 with Bahrain budget deficit being 9.8% of its GDP, while Oman was 3.7% of its GDP. Both countries have largely struggled to deal with the fall of oil prices due to the lack of economys diversity.
All these GCC nations reacted differently to the consequences of oil prices. Saudi Arabia committed 373 billion (The World Fact Book, 2016). For social and monetary and advancement extents, and trying to differentiate its business to protect its economy from the effect of falling of oil cost. Kuwait protected itself from the falling of oil price by using programs which required the nation to spare 10% of government income every year for such occasion. Kuwait and Qatar lower subsidies on electricity and water fees to decrease government spending. The UAE reacted by increasing investment in education and job creation to elevate human capital. UAE eliminated subsidies on fuel to help reduce national consumption of oil. Lastly, Bahrain and Oman focused on cutting spending to enhance their economies by focusing more in industrialization and education in private sector.
In general, Saudi Arabia and other countries are paying attention to these challenges more. They are investing large sums in upstream hydrocarbon tasks to get more values from their oil, and try to diverse their economies rather than petroleum product. They additionally made interest in alternative energy to reduce domestic demands for oil and gas, thus freeing up more for export.
Oil has been a blessing for GCC nations, these countries have benefited from the rise of oil prices that help working on many projects relating to construction and real estate investment. Since oil is a main factor and have an impact on GDPs and current accounts, governments should switch to other policies that allow them to protect their economies of any oil market crash. Oil and gas trading nations are routinely encouraged to differentiate their economies so as to cradle themselves against ware value unpredictability, make new occupations outside the asset area (Michael L. Ross, December 19, 2017). Gulf countries need to reduce their dependence on foreign skills and governments should switch to policies that increase the level of labor skills and be able to benefited from its own labor forces.
References
- The Global Financial Crisis Impact on Kuwait Economie Essay. Essays, UK (November, 2018).
- Santos et al. (2013). Runnimg the Economy. The open university.
- Arezki, R., & Nabli, M. (2012). Natural Resources, Volatility, and Inclusive Growth: Perspectives from the Middle East and North Africa. International Monetary Fund.
- Bruno, M., & Jeffrey S., (1985).Economics of Worldwide Stagflation, Harvard University Press: Cambridge Massachusetts.
- Central Intelligence Agency (CIA), (2016). The World Factbook: Bahrain. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/goes/ba.html (June 7, 2016)
- Central Intelligence Agency (CIA), (2016). The World Factbook: Kuwait. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/ku.html (June 7, 2016).
- Central Intelligence Agency (CIA), (2016). The World Factbook: Oman. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/goes/mu.html (June 7, 2016).
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