The Effect of Oil Price on United Arab Emirates Goods Trade Deficit with the United States

TL;DR

This study examines how fluctuations in oil prices influence the UAE's goods trade deficit with the U.S., finding that higher oil prices increase imports but do not affect exports, thus widening the trade deficit.

Contribution

It provides new empirical evidence on the specific impact of oil prices on UAE-U.S. trade deficit, focusing on a significant but understudied trade segment.

Findings

Oil price significantly increases UAE imports.

Oil price has no significant effect on UAE exports.

Higher oil prices lead to a larger trade deficit.

Abstract

We seek to investigate the effect of oil price on UAE goods trade deficit with the U.S. The current increase in the price of oil and the absence of significant studies in the UAE economy are the main motives behind the current study. Our paper focuses on a small portion of UAE trade, which is 11% of the UAE foreign trade, however, it is a significant part since the U.S. is a major trade partner with the UAE. The current paper concludes that oil price has a significant positive influence on real imports. At the same time, oil price does not have a significant effect on real exports. As a result, any increase in the price of oil increases goods trade deficit of the UAE economy. The policy implication of the current paper is that the revenue of oil sales is not used to encourage UAE real exports.