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Oil price uncertainly and sovereign credit risk in GCC countries: fresh evidence

Author

Listed:
  • Aktham Maghyereh

    (United Arab Emirates University)

  • Hussein Abdoh

    (The Citadel: The Military College of South Carolina)

Abstract

Given the significant oil price changes during the past two decades, this paper examines the effect of oil price uncertainty on the sovereign credit risk of four Gulf Cooperation Council (GCC) countries (United Arab Emirates, Qatar, Bahrain, and Saudi Arabia). By utilizing the nonparametric local linear dummy variable estimates (LLDVE), we unveil a significant effect of oil uncertainty on the credit risk mainly during the oil price crash of 2014–2015 and to a lesser extent during the early period of the COVID-19 pandemic. This effect, however, is heterogeneous across the GCC countries. Unlike previous studies, our study controls for structural shifts, nonlinearities, and long-term trends in the relationship between oil price uncertainty and credit risk. Our findings hold important policy implications for policymakers and investors.

Suggested Citation

  • Aktham Maghyereh & Hussein Abdoh, 2024. "Oil price uncertainly and sovereign credit risk in GCC countries: fresh evidence," International Economics and Economic Policy, Springer, vol. 21(2), pages 457-482, May.
    • Handle: RePEc:kap:iecepo:v:21:y:2024:i:2:d:10.1007_s10368-024-00607-x
    DOI: 10.1007/s10368-024-00607-x
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    Keywords

    Oil uncertainty; Sovereign credit risk; Nonparametric model; GCC; Oil crises; COVID-19;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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