Coupon-Clipping Saudi Style

Coupon-Clipping Saudi Style
Coupon-Clipping Saudi Style

Maybe it's time to quote Churchill to the Saudis: Some words about "blood, sweat, and tears" and "never, never surrender." Because fortitude will be needed. A country that has been propped up by oil, where most nationals experienced "a cozy lifestyle," is starting to experience a little turbulence -- ironically much of it, the Wall Street Journal points out, of its own making.

Saudi Arabia is suffering low oil prices caused by a global oil glut, a glut, the Journal notes, "in part caused by Saudi Arabia itself." The country refuses to slow its output "in an effort to protect market share." That's a nice way of saying in-an-effort-to-bankrupt-the-upstart-US shale patch-and-arch-rival-Iran.

So far the starve-out strategy hasn't worked. US Shale has proven surprisingly resilient and the Saudis are stuck staying the course in this game of who-will-fold-first.

The government posted a "record budget deficit last year" and that deficit is beginning to be felt down the income chain to the middle classes, two thirds of whom work for "government entities." Heretofore they've enjoyed a tax-free life and government subsidides for water, fuel and electricity. Now those subsidies have been cut, wages may be cut and even taxes (like VAT) are debated.

What makes this situation a little dicey is that Saudi Arabia has remained a relatively tranquil island in the middle of a roiling Arab Spring, much of it a rebellion against overbearing governments, because its nationals were kept so fat and happy.

With faint tremors of middle class unrest, the Saudi government is beginning to see a more urgent incentive to do what it lately has refused to do, cut production in an effort to lower supply and raise prices.

Time and the OPEC summit in Algiers next week will tell.

http://www.wsj.com/articles/kingdom-comedown-falling-oil-prices-shock-saudi-middle-class-1474623003

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