Examining the Relationship Between Oil Cycle Shocks and Financial Stability in Selected OPEC Countries
Keywords:
Oil shocks, Financial stability, NARDLAbstract
This study investigates the relationship between oil price cycle shocks and financial stability in six OPEC member countries (Iran, Saudi Arabia, Iraq, the United Arab Emirates, Algeria, and Qatar) during the period 2002–2022 using the NARDL method. In this regard, oil cycles were first extracted to be incorporated into the specified model. The findings indicate that in the long run, economic growth and inflation have a positive and significant effect on financial stability. Moreover, oil rents, by providing government financial resources, also play a positive role in enhancing financial stability. However, both positive and negative oil price shocks in the long run have a negative impact on financial sustainability. This result highlights the structural vulnerability of oil-dependent economies, where even an increase in oil prices—due to heavy reliance on unstable oil revenues and weak economic diversification—intensifies financial instability. Based on the short-run results, only negative oil price shocks exert a negative and significant effect on financial sustainability. A sharp decline in oil prices leads to budget deficits, reduced foreign exchange reserves, and pressure on the banking system. In contrast, positive shocks in the short run have no significant effect, which may be due to delays in allocating oil revenues to productive projects or conservative fiscal policies. This study provides a framework for designing macroeconomic policies in oil-dependent economies.
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Copyright (c) 2025 Haitham Ahmed Ghadhban; Jafar Haghighat, Mohammad Reza Salmani Bishak, Hossein Asgharpur (Author)
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