The price of petrodollars

Baking bread is no job for a soldier. You won't find the Foreign Legion's finest out making baguettes in times of crisis.

The Egyptian army however finds itself engaged in this very pursuit, having swapped their bayonets for rolling pins as the bread crisis in the country deepens.

The price of wheat and corn has soared over the last year for a number of reasons, not least of which is the shrinking acreage of land available to grow food crops such as corn that is instead being produced to make ethanol - an alternative fuel that has become increasingly viable as the price of oil has risen.

Now the corn-fed chickens are coming home to roost for Middle East economies that have been enjoying the benefits of the surging price of crude, in the form of record budget surpluses that are being spent on major infrastructure schemes and lavish tourism projects.

The less desirable side of the US$100 oil story is now emerging across the region as Gulf states begin to feel the economic impact of surging inflation and rising fuel costs.

The riots that have broken out in Egypt over recent weeks have provided a reminder of the unrest the country faced in 1977.

Inflation in Egyptian cities is running at more than 12% according to government statistics, while the cost of basic foods has increased at an even faster rate - with the price of vegetables up 15% over the year and cooking oil costing as much as 40% more than it did a year earlier - all this in a country where 40% of the population lives within sight of the poverty line.

But the scale of the Egyptian bread crisis may pale in comparison to what lies around the corner in Asia.

The price of rice, the staple for half of the world's population, has doubled in a year. It has prompted the World Food Programme to warn of a 'silent famine' across Asia.

The Gulf states are not immune from similar civil disturbances emerging as the rising cost of living begins to be felt by the vast migrant worker population upon which the region relies.

This has already happened in recent months in both Bahrain and Dubai, where construction workers have gone on strike over the rising cost of living - a situation that has been made worse by the decline in their dollar-linked wages when converted back into rupees and remitted home.

To some extent, the unprecedented rate of growth experienced over the last three years in Gulf states such as the UAE and Qatar has made inflationary problems inevitable.

Economies simply can't expand that quickly without experiencing at least some growing pains.

It is seen as the price of success. The question is whether it is a price that is ultimately worth paying.

Sean Cronin is the editor of Arabian Business.

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