Saudis Driven into Poverty by High Oil Prices
Aljazeera International explains how high oil prices are hurting ordinary Saudis, driving up the cost of their food and imports. The petroleum is owned by the government and profits go to it. It is hard for the government to inject the money into the economy without risking high inflation (too much money chasing too few goods), which would create an effect like a dog chasing its tail. High inflation would eat up the value of the extra money. The extra money is therefore invested abroad. Good for us, bad for most Saudis.
So, yes, high oil prices are making ordinary Saudis poorer, just as with the rest of us.
posted by Juan Cole @ 6/24/2008 12:30:00 AM
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So much for the argument that the Saudis are "happy" with the current energy situation. The Saudi poor get poorer, and the rich fear for their positions. Its impossible that either of the above are "happy" with the situation.
So, this problem is typical of the oil economies: virtually the entire GDP goes to the government.
It depends to what extent they decide to redistribute to the people - by jobs, for example, or subsidised basic necessities - or to what extent they invest abroad for the benefit of the state, (or indeed keep it in their own pockets, as with Saddam or the Shah).
Had to search a bit, and the most recent Saudi gasoline price I could find is dated 2 May 2008, but it certainly isn't breaking any Saudi family budgets at 45CENTS per gallon, a figure that's been stable for over 2 years. The al-Jazerra clip focused on food costs almost exclusively, and the point made about "importing inflation" is certainly valid. The elderly lady's welfare existence owes itself to Saudi immigration policies almost as draconian as the USA's, so her plight isn't a result of high oil price. Nice food market though; I didn't see any western junk food impoverished Americans are forced to buy because they cannot afford fresh foods. And we have no way of knowing how bad-off the two male complainers are since we don't know what percentage of their income is spent on food. The average of three estimates for per capita GDP is $22,080 for 2007 ($20,700: CIA World Factbook Estimate; IMF Estimate: $23,243;
World Bank Est: $ 22,296). Income from oil sales alone will probably top 1/2 Trillion for 2008 with oil at $135/bbl. With its population likely to top 30Million this year, Saudi does have a very legitimate concern over its food security and its fundamental contribution to societal functionality and stability. This is even more so since the decision earlier this year to rollback its ag programs, a decision many thought foolhardy.
Like any modern country with a young, exploding populace and a rather limited economic base to employ them, Saudi certainly faces challenges, which would be eased greatly without war on their doorstep. Abdullah seems more farsighted, thoughtful, and willing to take action when compared with his predecesors. I still think it possible for him to diffuse a lot of tension and defeat the US intent toward Iran by announcing the Saudi Peak and suggesting the world adopt the Oil Depletion Protocol or something similar. He has far more to gain than lose.
Saudi Arabia wants, like Iraq, to diversify its foreign currency reserves as well, i.e. away from the USD. But the US doesn't allow this to happen. They are being FORCE FED with US T-bonds. And an aircraftcarrier sailing in the Persian Gulf is a very good reason not to try to buy, say European T-bonds. Saudi Arabia imports a substancial amount of goods from Europe. The Euro went up against the USD in the last seven years. And that's precisely the reason why inflation is so high over there. Do combine that with the fact that the Saudi government is very corrupt and therefore very unpopular among the saudi population (does the name Osama Bin Laden and Al Qaida ring a bell ??) and one can see that this is the perfect recipe for large scale civil unrest in Saudi Arabia.
Inflation in Saudi Arabia is due, in no small part, to the fixed exchange rate between the US dollar and the Saudi currency. This prevents the Saudis from having their own monetary policy and setting interest rates suitable to their own situation. Also as the value of the dollar depreciates against other currencies, it contributes to inflation in the Kingdom by raising the price of imported goods. The dollar peg is a policy that serves the US well, because it helps to control the price of oil the US purchases from SA. But the peg does serve Saudi interests. They maintain it, for now, only to stay on good terms with the US. Here is a link to an article on the matter in the Financial Times:
http://www.ft.com/cms/s/0/d05f4672-3c6f-11dd-b958-0000779fd2ac.html
I think it is interesting that foreign policy teams haven't been seeing opportunity in the fact that most of the Gulf countries rely on imports to meet their food requirements.
After all, oil and energy commodities amount, ultimately, to the same thing: calories. Given that high energy prices end up in food prices, more understanding might be passed around. Since Argentina is in a mess, and Africa continues to have its production capacity unfilled, it is mostly left to the United States and Europe to fill the gap.
The notion that Saudi Arabia is being force fed Treasuries is hogwash. They have been talking about depegging for a while now; Kuwait did in 2007 ... http://www.marketwatch.com/news/story/kuwait-unhooks-dinar-dollar-signaling/story.aspx?guid=%7B8A343040-AA8A-4D07-948A-0E0D58C1AF98%7D and the rest of the Gulf is reported as thinking about following suit http://www.ajc.com/news/content/business/stories/2008/03/23/gulfdollar0323.html?cxntlid=inform_sr. Apparently the UAE rejected Greenspan's advice to do just that in February.
It is an inflationary policy when the dollar drops relative to world currencies, but, when the dollar is strong, it is deflationary in a low commodities price environment.
karlof1, do you believe these "CIA World Factbook Estimate; IMF Estimate: $23,243;
World Bank Est: $ 22,296" (sic) are actually separate, independent estimates? Considering the long running incestuous relationship between these three and their corporate masters, I think you're safe to cite just one, and figure that to be dubious.
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