The impact of oil prices on GCC trade flows

This research examines how strategic crude oil prices influence bilateral trade flows between Gulf Cooperation Council (GCC) countries and their trading partners. Asymmetric oil-price effects between oil exporters and oil importers motivate our analysis of the region's implications. It uses panel data spanning several decades (1990-2020) to examine GCC trade patterns in exports, imports, and total trade. The paper moves beyond one-way trade models by incorporating two-way trade flows and distinguishing among GCC exports, imports, and aggregate trade. Our gravity model, estimated with Poisson pseudo-maximum likelihood (PPML) and country-pair fixed effects, accounts for heteroskedasticity. Total trade flows are calculated as the sum of GCC exports and imports, providing a comprehensive view of regional trade integration. The results show that these three categories respond positively to changes in oil prices but differ in magnitude and significance. While oil prices affect GCC exports more in magnitude, they are highly significant for imports. Total trade offsets these effects, with imports having a stronger influence than exports. Although trading partners' income levels influence the three trade flows, GCC GDP per capita has an insignificant effect on trade determination. These results have important implications for energy trade, regional stability, and economic diversification within the GCC.