Oil Prices Once Again: The Link Towards Middle East Economies

Abstract

Recently, it is observed that current account surplus in oil exporting countries have been rising with the help of peaking oil prices. Expansionary monetary policies of major central banks boosting the speculation on commodity prices, political turmoil in Middle East region which is called the “Arab Spring,” and most importantly rising energy demand in the world economy due to high average growth rates of developing countries are argued to be the main reasons for the rising oil prices. This study aims to clarify the global stance of oil prices examining causes and how this affects Middle East economies (MEEs) separately from the rest of the world. The focus of the study will be on the demand pull factors for the rise in oil prices. As for causes, Chinese and Indian economic growth levels are examined since the oil demand of these countries constitutes a crucial ratio of the world oil demand. As for effects, the rise in oil price brings about a trade surplus which contributes to the growth of MEEs. Shortly, this study investigates whether there is a transmission mechanism from South and East Asia to MEEs via oil prices. For the time series analysis, Pesaran et al. (2001) bounds testing are used. Empirical findings confirm the link towards MEEs.