Macroeconomic Effects of Oil Price Volatility on the Economy: The Case of Morocco

Abstract

Oil remains a valuable commodity in the world, accounting for approximately 3% of the global GDP. Recently, energy discussions have taken the central space in major global economic forums: major multi-national forums have focused on oil price trends and control, energy diversification, and environmental impacts of oil-based energy sources. There is no doubt that oil runs a proportionate section of the global economy. The purpose of this study is to assess the impacts of oil price volatility on Morocco’s major economic variables, including inflation, trade, and GDP, based on data collected in the last two decades. A simple supply and demand model is applied to investigate and explain the relationship between oil prices and Morocco’s crucial economic variables. The results show a direct correlation between oil price shocks and the country’s major economic sectors: production, agriculture, and transport. The study found that crude oil price hikes have a significant impact on the GDP and a subsequent detriment to the country’s economic growth. The Moroccan economy’s high dependency on imported fossil fuels (petroleum, diesel, and oil products) could face notable destabilization in the event of a permanent upward oil price change. The long-term increase in the cost of importing oil induces gradual deterioration of major economic agents, lowering government income, savings, and exports. Additionally, the results of the study show that a gradual oil price rise could hike the prices of virtually all consumer goods, which would result in direct effects on household income and the population’s purchasing power. The repercussions could trickle down to the budgetary balance, resulting in social and economic devastation.