High oil prices take a toll on the Gulf's middle class

AMMAN: Even as it enriches Arab rulers, the recent oil-price boom is helping to propel an extraordinary rise in the cost of food and other basic goods that is squeezing this region's middle class and setting off strikes, demonstrations and occasional riots from Morocco to the Gulf.

In Jordan, the soaring price of oil led the government to remove almost all its costly fuel subsidies this month, pushing the price of some fuels up 76 percent overnight. In a devastating domino effect, the cost of basic foods like eggs, potatoes and cucumbers doubled or more.

In Saudi Arabia, where the inflation rate had been virtually zero for a decade, it has reached an official level of 6.5 percent, though unofficial estimates put it much higher. Public protests and boycotts have followed, and 19 prominent clerics posted an unusual statement on the Internet in December warning of a crisis that would cause "theft, cheating, armed robbery and resentment between rich and poor."

The resurgence of inflation has many causes, from rising global demand to the monetary constraints of currencies pegged to the weakening U.S. dollar. But one cause is the skyrocketing price of oil itself, which is creating unheard-of riches for governments in the Gulf even as it helps push many ordinary people into poverty.

"Now we have to choose: we either eat or stay warm," said Abdul Rahman Abdul Raheem, who works at a clothing shop in a mall in Amman and once dreamed of sending his children to private school. "We can't do both."

"We're not really middle class anymore, we're at the poverty level," he said.

Some governments have tried to soften the impact of high prices by increasing wages or subsidies on foods. Jordan, for instance, has raised the wages of public-sector employees earning less than 300 dinars, or $425, a month by 50 dinars. For those earning more than 300 dinars, the raise was 45 dinars. But that compensates for only part of the price increases, and people who work in the private sector get no such relief.

The fact that the inflation is coinciding with new oil wealth has fed perceptions of corruption and economic injustice, some analysts say.

"About two-thirds of Jordanians now believe there is widespread corruption in the public and private sector," said Mohammed al-Masri, the public opinion director at the University of Jordan's Center for Strategic Studies. "The middle class is less and less able to afford what they used to, and more and more suspicious."

In a few places the price increases have led to violence. In Yemen, prices for bread and other foods nearly doubled in the past four months, setting off a string of demonstrations and riots in which at least a dozen people were killed. In Morocco, 34 people were sentenced to prison Wednesday for participating in riots over food prices, the Moroccan state news service reported. Even tightly controlled Jordan has had nonviolent demonstrations and strikes.

Inflation has also been a factor - often overlooked - in some recent clashes that were seen as political or sectarian.

A confrontation in Beirut between Lebanese Army soldiers and a group of Shiite protesters that left seven people dead started with demonstrations over power cuts and rising bread prices.

In Bahrain and the United Arab Emirates, inflation is in the double digits, and foreign workers, who constitute a vast majority of the work force, have gone on strike in recent months because of the declining purchasing power of the remittances they send to their home countries. The workers are paid in currencies that are pegged to the dollar, and the value of their salaries - translated into Indian rupees and other currencies - has dropped significantly.

The Middle East's heavy reliance on food imports has made it especially vulnerable to the global rise in commodity prices over the past year, said George Abed, a former governor of the Palestine Monetary Authority and a director at the International Institute of Finance, an association of financial institutions based in Washington.

Corruption, inefficiency and monopolistic economies worsen the impact, as government officials or business owners artificially inflate prices or take a cut of such increases.

"We don't have free-market prices, we have monopoly prices," said Samer Tawil, a former economy minister in Jordan. "Cement, rice, meat, these are all imported almost exclusively by one importer here. Corruption is one thing when it's about building a road, but when it affects my food, that's different."

In the oil-producing Gulf countries, governments that are flush with oil money can soften the blow by spending more. The United Arab Emirates increased the salaries of public sector employees by 70 percent this month; Oman raised them 43 percent. Saudi Arabia also raised wages and increased subsidies on some foods. Bahrain set up a $100 million fund to be distributed this year to people most affected by rising prices. But all this government spending has the unfortunate side effect of worsening inflation, economists say.

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