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The rumblings in Saudi Arabia may well be cracks in the façade of the House of Saud. Shaken by political earthquakes in neighboring countries, King Abdullah Abdul Aziz is keeping one eye on the events in his country and with the other is looking for a “place to take shelter.”
On Friday, March 11, a “Day of Rage” was organized by the younger Saudi generation. According to Prince Alwleed Bin Talal, a Saudi royal, the divide between the middle and lower classes is expanding. He has called for “unwavering enduring and sincere” change.
Demonstrations in the Eastern Region began earlier than planned after reports of Saudi security forces opening fire on a group of protesters in the mostly Shiite area. The unrest caused a spike in oil prices and a corresponding drop in the stock market. However, the actual publicized event failed to materialize as most Saudis elected instead to take a day of rest.
An upheaval in the Kingdom could endanger the petroleum-based export reserves of the world’s largest seller of oil abroad. Even with a gross domestic product that is higher than normal, the Saudis have not escaped an 11 percent unemployment rate and a reported 5 percent rate of inflation. Those near the bottom of the social pyramid are suffering the most from the economic disparity.
â€¨Unfortunately, those most deeply affected are the younger Saudis between the ages of 20 and 25. This is a critical situation especially in a country where 23 is the median age. In an attempt to try to avert turmoil and disruption, King Abdullah infused the economy with $36 billion to aid the jobs market, bolster living allowances and provide interest-free loans, among other options. It appears that throwing money at the problem worked for King Abdullah, at least for the moment.
The question we hear most often is: How high will oil prices go? Oil began the year at $91.38 per barrel, a 15 percent increase from 2010. Already this year oil has risen to $105 per barrel, and with turmoil in Libya, Bahrain, Egypt and other oil-producing states, could go higher. Early predictions are that oil could rise to $150 to $200 per barrel. The increase would not be from economic growth as first indicated, but rather from the crisis that has now gripped the Middle East.
â€¨Ben Bernanke, chairman of the U.S. Federal Reserve, has apparently taken up the crystal ball as a hobby. He recently assured the Senate Banking Committee that the rise in oil prices would be “modest and temporary.” How could he possibly know?
Later the same week, in his twice-yearly report to Congress, Bernanke assured lawmakers that the Fed was prepared to step in if the economic trickle-down from inflated prices for petroleum-based products “represent a threat to both economic growth and overall price stability, particularly if they were to cause inflation expectations to become less well anchored.” Huh? Inflation expectations? How can Mr. Bernanke hope to retain any measure of credibility on Wall Street or Main Street? â€¨
The deciding factor for a barrel of oil will most certainly be whether or not the Saudi police can keep demonstrators in check in the Kingdom. The economic future of the world will be determined by what transpires in the oil-producing states in the Middle East. Stay tuned! Mr. Bernanke’s crystal ball may prove to be more unpredictable than is stability in the Middle East.