Middle East: hard landing?

Almost every day brings news of rising inflation, fiscal strains or unrest from the Middle East.  Countries that are not cushioned by oil wealth will have the hardest landing.

Riots have broken out in Yemen and Egypt, two of the countries –- which also include Morocco, Jordan, Syria and the Palestinian territories –- which are not propped up by vast oil and gas revenues. In these countries, governments have to balance the need for social stability against the burden of subsidies on budgets.

Others are luckier. Algeria announced last week that the cost of its grain, flour and semolina imports almost doubled in the first quarter due to soaring world prices.  The country is actually better off than many in that it has vast fiscal resources to bring to bear, thanks to its oil and gas revenues. 

In the Gulf, the problem looks rather different.  Most Gulf states have resources to throw at the problem, except in Kuwait where the peg to the dollar increases imported inflation.  Here, the governments largely avoid costly and inefficient subsidies, and resort to price monitoring and hikes in public sector wages.  Wage rises help nationals, some of whom are poor, but not the vast army of expatriate labour, both skilled and unskilled, for whom the benefits of working in the Gulf are being eroded -- especially those on the bottom rung of the economic ladder, mainly from Asia. 

The combined total cost of imports to the Gulf Cooperation Council in 2003 was $150 billion; in 2007 it hit $370 billion, more than doubling the cost of living. If things get much worse, unrest is likely in the Gulf either from these labourers, or poor nationals, or both.