| November 19, 2008 | Wednesday | Ziqa'ad 20, 1429 |
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Pleasure and pain, loss and gain
As I grow older, I find that some books I read years ago have largely faded from memory. Characters and plots blur and only a few memorable phrases remain. For example, I recall struggling through William Burroughs’ chaotic The Naked Lunch in the Seventies, and now have only a hazy recollection of William Lee, the spaced out protagonist. And while I would not swear to it in a court of law, I think he said, in effect, that he would like to be around when the Arabs ran out of oil. I remember agreeing with him then, as I do now.
In those days, the oil boycott had caused the price of oil to shoot up, making several Arab royal families very rich indeed. The Western media was full of stories about sheikhs and sheikhlets losing millions at the gaming tables of Monaco and Las Vegas; of entire hotel floors booked for travelling Arab millionaires; and diamond encrusted watches being presented to cigar girls at nightclubs. Shopping sprees at Harrods’ in London would see hundreds of thousands of pounds being spent on garish clothes and chintzy furniture the owners of the store stocked for their Middle Eastern clients.
While this spending spree went on, the world laughed enviously, while fleecing the Arabs by selling them billions of dollars of arms that would never be used. And although the worst of these excesses abated (or perhaps we just got used to them), the oil-rich Gulf became a byword for opulence and tasteless spending. The recent construction boom in Dubai has done little to change this perception with an indoor ski lift in 45-degree heat; palm-shaped islands reclaimed from the sea; and garish, gigantic shopping malls. The recent spike in oil prices went hand in hand with a vast construction bubble that saw thousands of apartments being built at feverish pace. Underpinning this frantic building spurt is a vast army of underpaid, exploited workers from Pakistan, India and other developing countries. From time to time, they have agitated against rapacious builders who keep them in sub-human conditions, only to be ruthlessly put down by the local police. When the banking crisis hit Western economies, it was assumed that given their oil wealth, the Gulf states would escape the global recession. One Iranian ayatollah even exulted in the American predicament, saying that this was a sign of the wrath of God, directed at the West. I doubt if he’s still singing the same tune, now that oil is down to around $50 a barrel, as against the highs of $145 a few months ago.
The fact is that the world economy is now too closely integrated for any country to escape the downturn. Although the UAE’s official spokesmen and the controlled media are sending out the message that all is well, the truth is that the financial storm battering the rest of the world has not spared the Gulf states. This is an entry posted on an expat blog by somebody calling himself Easy Rider:
“Even in Dubai, it’s not pretty. The real estate market is crashing. People are starting to get fired. Banks are slowly beginning to stop lending. The stock market is in dire straits… I think Dubai will be affected by the crisis just the same as the rest of the world, maybe even worse. A bursting bubble hurts.”
Although several oil-rich states have built up vast sovereign funds to tide them over crises, their value has been severely eroded by the collapse of stock markets and the value of real estate, the primary areas most funds have invested in. Another problem with rich Gulf states is that all oil revenues flow into an account that belongs to their respective royal families which allocate funds to the hundreds of sons, nephews, uncles and aunts before any money reaches the public. Thus, Saudi Arabia, the richest of the lot by far, had foreign exchange reserves amounting to a relatively paltry $30 billion a couple of months ago, while China holds reserves worth $2 trillion.
So while rapidly declining oil prices have been good news for the rest of us, oil exporters are feeling the pain. Somehow, the heart does not bleed for them. Call it schadenfreude if you like, but the sight of nouveau riche characters, who struck it rich without doing a stroke of work in their lives, having to struggle makes me feel that there is some justice in the world, after all. Now that they have created the tallest building in the world in Dubai, I look forward to some greedy developers jumping off the top, saying to each other as they hurtle down: “So far, so good.”
A friend who has an office in Dubai and spends a lot of time there thinks that all the banks there are now technically bankrupt. According to him, they have lent massive amounts to entrepreneurs who have built thousands of apartments and offices, most of which are vacant, thus providing no income to their owners. These people cannot service their loans, and are beyond normal banking laws. But as many local banks are being propped up by their well-connected sponsors, they are making a brave front of it.
Russia is another country that is facing meltdown after years of swaggering around on the basis of its huge oil and gas reserves. After bullying and browbeating its neighbours, it has suddenly come down to earth. Indeed, the collapse of the USSR was probably a blessing in disguise for Russia: the oil and gas it sold to its East European satellites at heavily subsidised rates are now being sold at international rates, cash on the barrel. This changed scenario has given the Russians greater financial clout than the creaking Soviet empire ever had.
Other losers from the oil price slump are the governments of importing countries. As many experts have pointed out, national exchequers make more money from imports than exporters. In the UK, for instance, petrol was selling at around a pound a litre at pumps last month, and the government was skimming off half this amount, leaving 50 pence for profits, transport, distribution, etc. Again, the heart does not bleed for Gordon Brown and the Treasury.
