Arabs without oil hard hit by food price spiral

By Alistair Lyon, Special Correspondent

BEIRUT (Reuters) - While Gulf Arab oil producers reap windfall earnings, their poorer cousins elsewhere in the Arab world are struggling with soaring energy and food bills.

Inflation has surged in Gulf countries, fuelled partly by lavish spending of record oil and gas revenues. This is also spurring demand for everything from housing to power and water.

Gulf states with currencies pegged to the dollar have also been hit by the global weakness of the U.S. currency, which is driving inflation by making some imports more expensive.

But wrestling with rising prices is a grimmer business in Arab capitals not cushioned by oil wealth. From Cairo in Egypt to Sanaa in Yemen, mostly authoritarian governments have to weigh the fiscal costs of subsidizing fuel and food against the explosive political risks of social discontent.

"Nothing's inexpensive any more," griped Jihad al-Amin, who owns a dry-cleaning store in Damascus, Syria. "Even parsley, which has been dirt cheap for as long as I can remember, has tripled."

Food price rises hit the poor hardest in the Middle East, as in other food-importing developing countries around the world, but any instability here could ripple far beyond the region.

"Because the Middle East is such a sensitive area, we have to watch it that much more closely," said Robin Lodge, a Rome-based spokesman for the World Food Program (WFP), a U.N. agency which feeds nearly four million people in Egypt, Iraq, Syria, Yemen and the Israeli-occupied Palestinian territories.

"The consequences of discontent, anger in the Middle East can be more geo-political than they may be elsewhere -- the huge wealth disparity is another thing to take into account."

In the United Arab Emirates and Bahrain, the combination of rising prices and falling dollar purchasing power has sparked riots and protests by migrant workers, many of whom live in squalor among the skyscrapers and sports car showrooms.

Inflation has jumped across the region. In Saudi Arabia, the yearly rate hit 8.7 percent in February, a 27-year high.

A regional average compiled by the Economist Intelligence Unit and not weighted for gross domestic product put inflation in the Middle East and North Africa at 8.9 percent last year.

"We see it going up to 9.9 percent this year and 8.5 percent next," said Caroline Bain, an editor at the EIU in London. "It's not that high a figure, but it's coming from a region where historically inflation was negligible, with some exceptions."

POLITICAL REPRESSION

Discontent may be rising as inflation erodes the living standards of Arab middle classes and makes the poor hungrier, but some analysts doubt this will lead to political upheaval.

"The effect is poverty, social unrest, people living more miserably," said Louis Hobeika, an economics professor at Lebanon's Notre Dame University. "But it won't go beyond that because of political repression by Arab dictatorships."