Saudis Spend $55 of Every Barrel of Oil to Provide Welfare

And one final thoughtful note… from Joel Bowman, reporting from the Persian Gulf, on what happens to all those fat profits made by oil exporters… and how costs always rise to fill the space available to them… and why whenever a nation discovers that it has an unearned advantage, it quickly finds a way to disadvantage itself:

“A friend who visited Dubai recently remarked to me that the emirate seemed to have one foot in the 13th century and the other in the 21st. His wife was shocked to learn that the political structure of the Emirates is basically akin to a feudal society; Sheikhs at the top, appointed by birthright, and imported, increasingly disgruntled, serfs laboring away at the bottom. A benevolent dictator is a marvelous thing… until things turn bad, i.e., the oil stops a flowin’.

“I found it interesting to note that the Saudis, perhaps the most expansive central planners in terms of intervening in individual’s lives, now spend $55 of every barrel of oil sold just to provide welfare for their citizens. This is a country with the largest reserves of the hottest export around and it requires a price seen less than two years ago just to balance the books! The only thing outpacing the rise in crude price, it would seem, is the over-reaching arm of the planners.

“(Venezuela, according to a report someone forwarded me recently, needs an astonishing $97 per barrel of oil to meet Hugo’s financial obligations… Iran and Nigeria require something like $75… not that I think it’s going back to these prices, but the margin between profit and just covering their expanding welfare buttocks is getting rather thin.)

“There is a region-wide nanny state syndrome that, in my opinion, will eat into every last drop of oil revenue long before the final well is exhausted… that’s if the SWFs don’t blow it all by ‘bailing out’ all the west’s financial institutions in the process – a practice that has seen the loss of billions for the Abu Dhabi Investment Authority, Mubadala and other, centrally planned and controlled funds.

“Back to the point though. Assuming that humans will remain a constant in any centrally planned equation, governments come up with hair-brained schemes to promote the interests of ‘a class’ or ‘a culture’ rather than let the individual fellow sink or swim for himself. This almost never works. History is full of examples. Here’s just one from my neck of the woods.

“The GCC determines that employment of nationals is of utmost importance, regardless of talent, merit or resume. (I can only surmise that this is motivated by cultural pride, as any company would surely want to hire the vast array of talented Indian IT gurus, for instance, before they settled for an Emirati who waltzed in around 11am and clocked out at 2 after an hour and a half lunch.) So, the central planners go to work…

“Qatar just announced a 20% ‘Qatarization’ (not to be confused with ‘racism’) initiative to be implemented by March 31 2009. That means every company must [hire] one Qatari for every four non-citizens on their books… or lay off a bunch of ‘imports.’ The Emirates and Bahrain are employing similar tactics as are Kuwait and Saudi.

“One may find themselves sympathetic to the cause of preserving the culture of a particular region… or not… but the fact is, making it illegal for companies to operate an employment system based on meritocracy will cripple them, particularly the smaller businesses.

“There’s obviously much more to it, but you get my drift.

“So, to hell with good intentions. You don’t count your investment returns until point of liquidation. And woe to the man who ever said, ‘Well, I intended to make a big fat profit… that’s what I had planned on.'”

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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7 Comments on "Saudis Spend $55 of Every Barrel of Oil to Provide Welfare"

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The only reason the Middle East is still living in the middle ages is because of their old revenues. Without the oil, their governments would have crumbled long ago under financial strain.

not to sound too “anti-capitalist”, which i am in the sense that the limits to ‘free market’ expansion are environmental limitations to human exploitation and greed. on the other hand, our free choice laws that our universe is based on requires free trade and sound/honest money, private banks (public goal for the crook) societies go to war to take “their fair share” of resources, when in fact it’s not ours to take in the first place. shouldn’t we ponder the source and whence it came and it’s replenishment. there’s no shortage of resources, just an over supply of greed and… Read more »
A. Random Person

Just curious as to where these $55 per barrel for Saudi etc figures came from?

K. Majid
Interesting that you jump to the conclusion that hiring citizens instead of foreigners means one cannot hire by merit. Isn’t it the same as not having (or in this case merely reducing) a guest-worker program? You can still hire based on merit, just the available pool of potential employees does not include folks from outside the country. When you look at most guest-worker programs, they seem far less about “merit” than about lowering wages. When I was working my way through college in the 70’s I remember being jealous of male classmates who could earn much higher wages doing construction… Read more »
K.Majid: If you manipulate the free market, by constraining it, it is no longer free. Without taking into consideration the fact that most locals are probably of merit, this forced system gives a strong competitive advantage to local employees, such that it can be abused. Imagine if you will, an entire populace of lazy people, with no merit. Imagine if all companies had to have 20% of these lazy, meritless people on their employee rolls, at award wages. Now also imagine how this would affect their business. On the other hand, the entire populace could be highly energetic, highly merit… Read more »
K. Majid
Pete, isn’t deliberately importing people from abroad with few or no rights to compete w. the locals manipulating the “free” market? If the imports can’t vote, organize into unions, etc., how is this a “free market”? As for your last point, companies fire energetic, highly merit worthy people all the time when there is a cheaper alternative. Thus many middle-class jobs are being outsourced to other countries where wages and cost-of-living are lower. However, these same companies were perfectly capable of sustaining local wages before the technologies were invented that make outsourcing possible. The net result is to artificially cheapen… Read more »
if oil goes to a prolonged 50 a barrel, that will bankrupt the saudis……riots and looting would ensue with joblessness and no mone for welfare….. the saudis would then dump their us dollar sthey have accumulated to meet the peoples need and quell the rioting….. the dollar crashes and then the us gets rioting and looting, martial law, disarming the populous, then a perfect oportunity for russia and chine to open up a JV can of whoop ass, quite possibly WWIII, with us military stretched so thin…. US battle plan?? Bomb Iran to keep oil up to keep saudis from… Read more »
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