Tuesday, July 08, 2008

Saudis Feel the Economic Pinch

The price of gasoline has been around $.45/gal the last few days in Ryadh, Saudi Arabia. That's only about one-tenth of the price US drivers are paying. But, don't get too hot under the collar, all is not rosy in the magic Kingdom.

Saudi Arabia is experiencing 11% inflation and many Arabs say they are worse off now than they were in the first oil crisis in the 1970s. That boom raised the desert kingdom from rags to riches, but today the price of everything is higher, except fuel.

"Gas prices are low here, so what?" said Muhammad Abdullah, a 60-year-old retiree. "What can I do with gas? Drink it? Take it with me to the supermarket?"

Al-Mazeen says his monthly grocery bill has doubled — to $215 — compared to last year, when oil was at around $70 a barrel. During that time period, the price of rice has doubled to about 72 cents a pound, and a pound of beef has gone up more than a third to about $4.

Moreover, Saudis are grappling with unemployment — estimated at 30 percent among young people aged 16 to 26 — and a stock market that is down 10 percent since the beginning of the year.
Although the kingdom controls most of the oil wealth and distributes the wealth to all citizens, there are more citizens today than in the 1970s. Back then, the population was only 9.2 million and has exploded to 22 million Saudi citizens today with 5.6 million more foreign workers who must be paid. The King's subjects are not the wealtiest in the region. Per capita income in the Kingdom is 20,700USD, while the Qatari per capita income is 67,000USD. Qatar, however, has only a half-million people.

Last week, "the Economy and Planning Ministry said the rental index, which includes rents, fuel and water, has soared 18.5 percent, while food and beverage costs have increased by 15 percent."

The Saudi government does not believe the high oil prices can be sustained. On March 31, the Cabinet reduced customs duties "on 180 major foodstuffs, consumer goods and construction materials for at least three years." Yet, the budget surplus is expected to about $260 billion in 2008 compared to 47.6 billion in 2007. Because of declining supplies of in-ground oil, the Saudis invest much of the nations wealth abroad in capital growth vehicles, stocks, and real estate as a hedge against the day when oil prices fail. These investments put greater strain on the national budget.

We may be having economic problems today and the future looks bleak, but the US has the capacity to weather the current economic down turn and again turn a profit in the future. In the meantime, buckle up; it's going to be a bumpy ride.

h/t: Indigo Rose

The life of Indigo Red is full of adventure. Tune in next time for the Further Adventures of Indigo Red.


Gayle said...

I'm buckled, Donald. I'm just glad I and hubby are retired and I don't have to go anywhere every single day. At one time my husband had to commute 70 miles each way and I had to drive 40 miles each way. Glad this didn't hit at that time. There are always things to be grateful for if we think about it! :)

Gayle said...

Ack! I've been calling you "Donald!" Sorry! Sheesh!

Indigo Red said...

Yes, there are always good things to find in the miserys of life. With so much of my money going to gas, I spend less on food and I'm losing weight. That's a good thing.