The Effect of Oil Supply Shock on Global Economy: Two OPEC Oil Giants

This study employs the gvar-oil model estimated for 27 countries/regions for the 1979q2-2019q4 timeframe to mainly concentrate on the global macroeconomic consequences of country-specific oil supply shocks. this strategy not only considers how shocks impact countries that are directly exposed to them, but it also highlights how secondary or tertiary channels can help shocks have an indirect effect. adopting this model makes it easier to analyze oil supply shocks in the context of individual countries, which is important given the significance of saudi arabia and iran in the global oil supply. therefore, depending on which country is affected by the shock, the results show various disruptions. in reality, our analysis demonstrates that, compared to saudi arabia, a negative shock to iran's oil supply has very little consequences on the world economy since it may be offset by a rise in saudi arabia's oil output. however, a negative shock to saudi arabia's oil supply leads to higher oil prices, which have a negative impact on the economy and