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Effect Of Oil On Middle East Economies

The economy of the countries contributed many factors including oil and gas. The government policies will be created according to the available sources within or outside the country. The economic growth of the industry of oil is one of the strongholds of the world as well as United States of America. Though the United States did not have oil sources comparatively with Middle East, yet the Country is one of the major economically growth country for the industry of Oil and Gas. It is true that most of world’s countries dependent on Persian Gulf oil. It means the modern economy depends upon the supply of oil and natural gas by the region of Middle East

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Organization of petroleum exporting countries i.e. OPEC is made up with 13 oil producing nations. OPEC coordinates the oil production policies to stabilize the oil market in order to achieve a reasonable rate of return on their investments. It also targets to ensure that the oil consumers will receive stable supplies of oil. Out of 13 members, the countries i.e. Iran, Iraq, Kuwait, Qatar, Saudi Arabia and United Arab Emirates are the OPEC members. In the national interest of their own, some oil-exporting countries joined in OPEC. Some industrialized and oil-importing countries joined with International Energy Forum.

The oil was discovered in Saudi Arabia in 1930s, yet the large scale of production was continued from World War II. Consequently the country developed economically and Saudi Arabia become world’s leading oil producer and exporter. In fact Saudi oil reserves are the largest in the world. Middle East Countries are Egypt, Turkey, Iran, Iraq, Saudi Arabia, Yemen, Syria, Israel, Jordan, United Arab Emirates, Lebanon, Palestinian Authority, Kuwait, Oman, Qatar and Bahrain. The Saudi Arabia has the reserves of 262.3 billions which is the highest amount other Middle East Countries. The Middle East and Oil Rich are synonyms as every country in the Middle East as the status of Oil-rich and oil-producing exporters.

2- Chapter I: Oil Company Investment in Middle East

The region is known for producing and exporting oil and significantly impact the entire region. The wealth generation through movement of labor. The standard growth in the Middle East is nearly four times faster than the world average, hence many countries interested to diversify their efforts in the Middle East to increase their economies.

The equity markets and ETFs steadily growing in Middle East. The present share of foreign investment is less than 3%, yet encouraged to acquire up another 57%. Similarly the financial institutions in the Middle East are considering strategic investment in BP. The Middle East sovereign wealth funds have a track record of supporting the big western companies which are in trouble. As the Bharat Petroleum is oil giant and racked by problems due to oil spill in Mexico. It is evidenced by recent credit crisis that the SWF of Qatar and Abu Dhabi acquired the share in western banks like City group and Barclays.

Like other oil import countries, the largest oil importer i.e. United States also facing negative economic consequences of wealth transfer. The US and other international economies are susceptible to economic disruptions that are caused by the oil trade and sudden interruption of oil supply.

The economic growth in oil consuming nations also increases the demand for oil. Such situation causes to rise the oil prices. Still strongest growth performances noticed in oil importing countries like United States and China. The economic growth linked to high levels of oil consumption in United States thereby demand of gasoline established. However better performance also observed in Japan and Russia besides Asian countries. The rise of oil price due to increased demand effects the decline of growth rate of GDP may be reasoned with increased costs due price inflation and reduction of expenditure level by consumers in other goods and services.

3- Chapter II: The cooperation between the countries of the oil-producing Middle East.

Middle East region has 21 countries and it is called Middle East as it was located between India and Arabia. The Regional has 21 countries including Algeria, Bahrain, Egypt, Iraq, Iran, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan Syria, Tunisia, Turkey, UAE and Yemen. All Middle East countries are not rich countries and some countries part of the Asia. The poor countries like Gaza, Yemen trying to their live best so that they can cope with richer countries like Saudi Arabia or UAE. The major parts of the Middle East countries are dependent on the export of oil. All countries in Middle East are regionally cooperative as their religion and languages are similar to other hence strong differences among them will not appear. In fact, the countries o of Middle East economy is solely contributed by petroleum products. They are cooperating each other as there were no traditional differences appear.

CCASG i.e. Cooperation Council for the Arab States of the Gulf has been established to consider many economic and social objectives among Arab Sates of Gulf. It is also known as Gulf Cooperation Council. The Council has 6 members i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. Unified economic agreement signed in November 1981. The agreement for economic integration with neighboring states. The country i.e. Yemen is negotiating to join with the GCC which is expected to join by 2016. Due to the GCC, all barriers said to be removed with the countries and that will influences spreading of investment in the member countries. The GCC and Yemen also members of the Greater Arab Free Trade Area. The objectives of the GCC includes setting up joint ventures, encouraging cooperation of the private sector, establishing common currency among the member countries, fostering scientific progress in the areas of industry, agricultural, water etc. Qatar Financial Centre also planned to access nearly $ 1 trillion of investment in order to support the economic development in GCC targeting for next decade.

4- Chapter III: The impact of the oil industry on country’s economy in the Middle East

The Middle East and Central Asian economies are dependent on oil exports. Like other countries in the world, Middle East also faced financial crisis during 2009. But such crisis caused by change in oil prices whereas other countries did not have such reasons. The prime cause of the decline in GDP for Middle East countries is associated with cut in oil production by the OPEC.

Before discovery of oil, the region seems to be influenced with religious conflicts and wars over other resources. But now the modern Middle Eastern region is successful and been given much importance. At present, the Middle East becomes backbone of western economies. The expected economic growth rate of Middle East 4.1% and 5.1% for the year of 2010 and 2011 respectively. The change is just because of OIL. With the unparallel energy and feedstock, the revenues from oil and gas production supports further investment and development in Middle East. The GDP of Middle East countries are encouraged without any interruption from 1980s.

High oil prices causes the gulf countries to maintain share of oil markets but such higher prices negatively impact the world economy. On the other side low oil prices will have negative effect of inherent advantage for Middle East countries. It clearly indicates that the economy of Middle East influenced with oil industry.

According to the CIA World fact book, all nations in the Middle East are maintaining a positive rate of growth. The largest Middle Eastern Economies are Turkey, Saudi Arabia and Iran. The lowest ranking countries in the Middle East are Gaza and West Bank. The nations like Saudi Arabia, UAE and Kuwait heavily dependent on export of oil/oil-related products, yet Banking is also an important sector of the economies particularly countries like UAE and Bahrain. The FDI and other financial services are interconnected with the economy of the government. Therefore the Middle East Countries are also influenced with the financial sector. Some countries like Cyprus, Israel, Turkey and Egypt diversifying to agriculture, cotton, cattle, textiles, leather products, surgical instruments, defense equipment besides continuing main base of oil/oil-related products.

The oil can be found anywhere of the earth. Many countries have large reservoirs of oil and hence they play key role on the world affairs. Place like Australia, has very little sources of oil. The oil is measured in barrels and the sources evidenced that about 1.3 trillion barrels are available in the earth. (1 barrel = 42 gallons). The region i.e. Middle East holds more than 700 billion barrels of oil in its various fields and reserves. Such figure accounts 56% of world’s resources. Out of the Middle East, especially Saudi Arabia has more than 250 billion barrels. Interestingly, the second largest proven oil reserves country is Canada which is closer to 200 billion barrels of sources of oil/oil products.

World’s most important commodity is Oil. The nations who control the bulk of the supply of oil will have power to influence the affairs of the local economy and world’s economy too. The fluctuations of prices passed to the consumers and fluctuations are caused by many factors. The investors on oil futures themselves influence the price of oil that effect the world’s economy.

5- Chapter IV: Oil consuming countries, and the reasons for its dependence on Middle East oil.

During the year of 2009, the United States produced the petroleum products of 17,862000.5 which are approximate produces for the past four years. The consumption of the petroleum products for 2009 is 18,096,000.1. It indicates that the United States is not dependent on oil consuming countries and also can be estimated that industrial growth of the country may not be increased due to low consumption of petroleum products. The highest user in the world is North America and used about 20,168,000.6 and whereas North America produces around 19,806,000.6 which equivalent to consumption.

In fact, the US will not completely depend on Middle Eastern oil as the country imports its energy needs from other countries like Canada, Mexico, Venezuela and Nigeria. Most of the oil is controlled by OPEC and naturally Middle East influences the economy of the world. But Oil-rich Canada is dependent on the Middle East and at about forty five percent of Canada’s oil imports originate from Middle East. It indicates the global dependency on the Middle East going to grow. So the health of US economy is under the tight control of the oil market i.e. OPEC. In order to counter balance the OPEC’s influence, the resources of Africa is being utilized as it has 15 percent of US Oil imports. Such counter will break the hold of OPEC on the oil market.


It can be agreed that as well as production of petroleum products decline indicates automatic price upward increase. It means if the consumption increases tend to increase of the price. Therefore the countries in the world always try to decrease the consumption and attempt to produce the petroleum products. In fact, the OPEC owns about 75% of the proven reserves and they will be supplying at least of the total oil supply to the world by the end of 2020.

The contribution of world oil reserves as follows:

Asia and Oceans 3%

North America 16%

Central and South America 8%

Europe 1%

Eurasia 7%

Middle East 56%

The consumption is petroleum products are shown somewhat nearer to the output. It means theoretically no country is dependent on other. Interestingly, though there is no petroleum resource in many countries, still they are producing and consuming as well due to using import facilities and investing in oil countries. Practically, these investors of such countries invest the funds in the Middle East companies and focus them as their own. As the Middle East companies also encouraging private participation, foreign direct investment etc, the countries in the world started to investment amount in Middle East. Thereby Middle East Countries is developing their economy and other parts of the world sustaining and growing their business. Some of the following Middle East Countries statistics are provided hereunder:

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Qatar is one of the leading natural gas producers in the world. The country imports major share food grains from the outside. At about 70% country’s economy shared by of is contributed by oil and natural gas. The Qataris are one of the highest per capita incomes in the world. The industrialization is only partial success towards economy. The country also offering tax holidays for 12 years to encourage foreign investors. Even the foreign companies in Qatar are allowed 100% foreign ownership. The country also seeking membership in WTO.

Qatar’s economy accounts more than 70% government revenue with more than 60% gross domestic product. The country also has 85% export earnings. Qatar has per capita GDP and ranked highest among the world. As per the rankings of World Economic Forum, the Qatar has topped among Middle East and Arab Countries. The country also has got 17th rank on Global Competitiveness.

In the 1974, Qatar ranked among poorest countries in the world. The Qatar changed its ranks from world’s poorest countries to one of the highest per capital income. At present the country’s economic growth is more attractive with average GDP growth rate of 15%, and it is expected to even 19%.


Among other regional Gulf economies, Abu Dhabi economy become landmark which was associated drastic reforms taken through the past few years. One of the drastic steps is privatization of government institution and boosting the role of private sector and liberalizing economic policies to get more diversified sources of income. It indicates the private sector is being given more access and being given relaxations, incentives etc. the growth of the economy also noticed with effective partnership of state government private sector relation. During 2005, the private sector in GPD is only 15.5% whereas it was increased to 17% in 2006 and 18.2% in the year of 2007. By the end of 2010, the share increase to 21.4% and projected as 32% for the year of 2015.

The Government of Abu Dhabi concentrating the private sector for future economic development of the country. Accordingly it has planned a strategic partnership between private and public sectors. At this juncture, the sector needs structural economic changes. The related measures have been recommended by the government. The measures including identifying the industrial investment opportunities so that such opportunities allows bigger role in industrial development.


The country has oil and gas based economy and run with strong government controls. Saudi Arabia economy contributed with more 90 percent export revenues and 40% of GDP comes from private sector. Consequently, the government encouraging private sector growth particularly in areas of power generation, telecommunications, natural gas exploration and petrochemicals. During the year of 2010, the country noticed a GDP growth rate of 3.424%. Saudi Arabia ranked as largest exporter of petroleum and plays leading in role in OPEC.

The Saudi economy also influenced with 6 million foreign workers who plays prominent role for which the country struggling itself to reduce unemployment for its own nationals. In the year of 2005, the country associated with WTO to attract foreign investment. Besides, the government established economic cities in different regions to promote the foreign investment to advance economic development. The country has one fifth of world’s proven oil reserves and it the largest oil producer to total petroleum liquids in the world. Besides the country is largest oil producer and exporter, still largest oil consuming nation in the Middle East which considers strong economic and industrial growth.

6- Conclusion

The economy of country is affected many factors. The spending level of consumers influences the overall economy of a country. The policies of the government on industry, technology and environment affect the prosperity of an economy. Out of other areas, the oil industry holds stronghold in world’s economy.


The rise of oil price also happened due to weak dollar. For example the oil exporting nation gets money in terms of dollar where the profit decreases as dollar becomes weak. In order to protect the profit margin, the exporting countries increases the oil cost.

The price of crude oil fixed on the base of demand and supply gaps. Normally the higher growth developing countries increases their demand that will cause to rise oil price.

Other reasons like war between oil exporting nations and oil importing nations, shut down of refineries due weather etc.

The rise of oil prices increases in cost of product of goods and services. Such increase of cost of production pressures the profit margin of the companies to causes the decrease of profit. It is true that the companies cannot independently bear such increase oil prices and hence it passes to the consumers. Moreover the higher oil prices lead to inflation, increased input costs discourages the consumers to make on spending on other goods and services. Simultaneously the tax revenues come down and thereby budget deficit increases which invites rise of interest rates.

Due to Hike oil prices, the oil importing countries will have to spend more money on oil. As such countries may have less money, naturally it effects on the growth of the economy of the country. When the government has less money, it supposed to borrow money from capital market by reducing the amount of free money in the market. Such borrowing results increase of interest rates. The higher interest rates will lead to reduction of growth. When the interest rates rise, the flow of money started from stock markets and bond markets by way of fixed deposits. And the oil prices will have significant impact on financial markets too. Further imbalances also occur when the government tries to give subsidized fuel to the consumers during oil price increase. The country imports the oil and will loose its revenues due to such subsidies which also effects on growth of economy.


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