This paper aims at examining the dynamic impact of oil returns on Gulf Cooperation Council (GCC) countries GDP growth and stock market returns.We apply wavelet analysis model, VAR and co-integration test for examining the relationship between oil and GDP as well as oil and stock market return.This paper is divided in two parts.In the first part, we examine the effect of oil on GDP in GCC countries and the effect of each of these countries GDP growth on the other.Using quarterly data from Q1 1980 to Q4 2011 we find that, consistent with traditional view, GCC countries economies are positively correlated among each other as well as they do with oil price.We apply wavelet correlation and find that, generally, correlation between oil and each of the GCC countries GDP is positive and is very high in the short run.Nonetheless, in the long run this correlation is either strengthening or weakening.Two possible reasons may explain this weak correlation.Firstly, most of these countries are diversifying their government revenue so that they are not depending highly on oil revenues.Second, the impact of import on GDP weakens this correlation in the long run.Yet, we figure that a strong correlation exists between some GCC countries GDP and oil which is in line with our expectations and supports other studiesfindings for oil exporting countries.Similar to their correlation with oil, all GDP in the GCC region are positively correlated with each other in the short run, though they may not in in the long run, since the correlation of some of them weakens in the long run while others strengthens.The findings of VAR Granger Causality test suggest that the GDP growth of each of GCC countries, with exception of Bahrain and Kuwait, has a bidirectional relationship with oil.With regards to the causal relationship among GCC GDP growths, we find that some are unidirectional causal relationship while others are bidirectional or have no causal relationship.All GDP growth in GCC countries are co-integrated among themselves as well as they do with oil return.In the second part we assess the effect of oil returns on stock market returns in GCC countries as well as the impact of each of these countries stock market returns on the other using monthly data from May 2005 to December 2011.Our conclusion suggests that all stock market in GCC region have a positive relationship with oil price.Overall, stock markets in GCC have a positive relationship between themselves but they vary in the degree of correlation.Theoretically, positive strong correlation wont diversify the risk away.Therefore, investors should pick up stocks that with low correlation to benefit from diversification.On the low scale, our results from wavelet correlation of stock markets returns and oil suggest that stock market return in GCC countries have a low correlation with oil price but turns to have a highly, positive correlation in the long run indicating that oil returns have more influential power over stock return the longer the period is.Equally, all stock market returns in the GCC region are highly correlated in the long run, though they are not in in the short run, the longer the scales, the stronger the correlation between the stock returns.Furthermore, our findings from VAR suggest that oil returns dont have bilateral causal relationship with SMR in GCC region; rather it may have either unilateral one or no causal relationship exist between oil and some SMR.Only the SMR of Bahrain, Kuwait and Oman have casual relation with oil returns; where the SMR of these countries affects the return of oil.With regards to the inter-causal relationship between these SMR, we find they have either bilateral, unilateral or even no causality exists for some.All GCC stock markets returns are cointegrated in the long run.