Oil Price Shocks, Financial and Macroeconomic Responses in the GCC Economies

Oil price shocks play a central role in shaping economic and financial outcomes in the Gulf Cooperation Council (GCC) economies, given their strong dependence on hydrocarbon revenues and close integration with global energy market developments. While a substantial body of literature has examined the relationship between oil prices and economic activity, less attention has been paid to the heterogeneous origins of oil price shocks and the channels through which they transmit across financial institutions, financial markets, and macroeconomic structures, particularly during periods of heightened uncertainty and across both short-run fluctuations and long-run economic dynamics.
The first empirical chapter investigates the impact of structural oil price shocks and geopolitical risk on the efficiency of listed banks operating in GCC countries. Using a stochastic frontier approach and multiple performance measures, the results show that oil inventory demand shocks and oil consumption demand shocks reduce bank efficiency, while positive global economic activity shocks enhance efficiency when market-based measures are considered. The analysis further indicates that geopolitical risk improves bank efficiency during major global crises, reflecting the interaction between global uncertainty, oil prices, and banking sector performance in oil-exporting economies.
The second empirical chapter examines the dynamic connectedness between oil prices, clean energy markets, emissions prices, geopolitical risk, and GCC equity markets using time-varying and frequency-domain connectedness approaches. The findings reveal that geopolitical risk initially acts as a short-term transmitter of shocks but evolves into a persistent receiver over time, while GCC stock markets shift from being net receivers during crisis onset to persistent transmitters as markets adjust. The inclusion of clean energy and emissions prices highlights the growing relevance of global energy transition dynamics for financial markets in the GCC.
The third empirical chapter analyses the permanent and transitory effects of exogenous global oil price shocks on oil and non-oil GDP in GCC economies. By explicitly modelling oil shocks as exogenous within a Permanent-Transitory decomposition framework, the results show that oil GDP remains volatile and weakly integrated, while non-oil GDP exhibits stronger and more stable long-run co-movement. These findings suggest that much of the observed co-movement in aggregate GDP is driven by external oil market conditions, while diversification policies may be associated with a stronger role of non-oil sectors in supporting long-run economic resilience. This may also reflect the influence of global common factors.
Overall, this thesis offers an integrated assessment of how global oil price shocks and uncertainty propagate across financial institutions, financial markets, and macroeconomic activity in GCC economies. By distinguishing between transitory and persistent effects and between different sources of oil price movements, the analysis contributes to a clearer understanding of economic adjustment in oil-exporting economies and provides insights relevant for policymakers concerned with financial stability, diversification, and long-run resilience.