rising inflation in oil rich nations

With oil prices hovering around the $100 mark one assumes that the oil bearing nations are rolling in the dough and not worrying about such things as inflation. To the contrary, even with huge profits from oil, many Middle Eastern nations are facing rising inflation and poverty. See here.

The NY Times article mainly focuses on Jordan, where inflation has risen due to a weakened American dollar but also because of the lifting of government subsidies. It almost seems absurd that oil producing nations have trouble providing fuel to their own citizens, but the reality is that as these subsidies are lifted, the prices increase dramatically. From the Times:

…in Jordan, the cost of maintaining fuel subsidies amid the surge in prices forced the government to remove almost all the subsidies this month, sending the price of some fuels up 76 percent overnight. In a devastating domino effect, the cost of basic foods like eggs, potatoes and cucumbers doubled or more.

We’ve seen stuff like this before though. Remember the riots in Iran last year? They’re oil rich but have limited refining capabilities, so while they produce ~4.3 billion barrels/day¹, they’re forced to import gasoline. So while they make money selling crude at high prices, they take a hit from importing gasoline.

In the case of rising inflation, some theories have been thrown out there mainly focusing on corruption within the government. I would suspect that these are part of the problem, but you have to look at the increasing costs of energy on the world market. The problem will only get worse as a lot of these countries don't invest in long term infrastructure (minus the U.A.E.) that will benefit them when the rest of the world isn't dependent on their oil. With that said, I don’t see a shortage of silver plated cars or Saudi Palaces.

¹ For 2006, BP Statistical Review 2007