What is the effect of oil prices change on stock market of GCC Assignment

What is the effect of oil prices change on stock market of GCC countries - Assignment Example Of the seven countries, Qatar is the most sensitive to changes in oil prices and often responds in a quicker manner as compared to the others. The main objective of this paper is to discuss the effects of oil price changes on the Stock market of GCC countries. Over the last three decades, the drop in oil prices in the second half of 2014 qualifies as a noteworthy occurrence as compared to other episodes within that time. Between 1984 and 2013, there were five major declines in oil prices (Arouri, 2010). Notably, there were 30 percent or more price decreases within a period of six months. These declines in oil prices coincided with significant changes in oil markets and the global economy including; the increase in oil supplies and change in the OPEC policy, U.S recession, Asian crisis and the worldwide financial crisis of 1986, 1990, 1997 and 2007 respectively (Arouri, 2010). Interestingly, the latest episode of collapse in oil prices bears remarkable parallels with the1985-86 collapse. Saudi Arabia amended its policy in December 1985 leading to a 61 percent decline in the oil prices. Between January and July 1986, oil prices dropped from $24.68 to $9.62 per barrel and prevailed for more than a decade (Arouri, 2010). A repeat of this phenomenon was observed after the steep decline in oil prices intensified in the second half of 2014 following a policy alteration by Saudi Arabia in November 2013. Cumulatively, the decline in oil prices, from the peak that was experienced in 2011, became larger than that experienced in non-oil commodity prices. With this regard, oil prices affect the major economic variables of Oil producing countries, as well as, the stock returns of these involved countries (Arouri, 2010). The GCC is comprised of six countries including Qatar, Kuwait, Saudi Arabia, Kuwait, Bahrain and the United Arab Emirates. In 2007, these countries possessed about 47 % of oil reserves, produced 20% of oil in the