OPEC uses $1 trillion earnings to help poor

By Ayesha Daya and Vivian Salama, Bloomberg News
Posted Sept. 26, 2011, at 9:22 p.m.

ABU DHABI, United Arab Emirates — Organization of Petroleum Exporting Countries members are poised to earn an unprecedented $1 trillion this year, according to the U.S. Energy Department, as the group’s benchmark oil measure exceeded $100 a barrel for the longest period ever. Countries like Saudi Arabia, Kuwait and the United Arab Emirates are promising to plow record amounts into public and social programs after pro-democracy movements overthrew rulers in Tunisia, Egypt and Libya and spread to Yemen and Syria.

Unlike past booms, when Abu Dhabi bought English soccer club Manchester City and Qatar acquired a stake in luxury carmaker Porsche, Gulf nations pledged $150 billion in additional spending this year on their citizens. They will need to keep U.S. benchmark West Texas Intermediate crude oil at more than $80 a barrel to afford their promises, according to Bank of America.

“A sharp increase in spending to accommodate social pressures has averted potential disquiet over governance in most countries, though in the longer-term economic reforms will be needed to buoy private-sector growth and job creation,” Jean-Michel Saliba, a London-based economist at Bank of America, said in an email. “Without the social spending, Gulf protests would possibly move the nations toward constitutional monarchy.”

Saudi Arabia, OPEC’s biggest member, is funding housing, salary increases and the creation of 60,000 new jobs at the interior ministry, according to royal decrees announced on March 18. At least $267 million has been allocated to the Saudi Ministry of Islamic affairs and The Commission for the Promotion of Virtue and Prevention of Vice after clerics backed a ban on domestic protests.

The religious establishment’s new funds include $133 million to restore mosques and $80 million to support Islamic call and guidance offices, according to the decrees. Money is being spent on installing devices in public squares, markets and schools to deliver audio and video broadcasts with “advice and moral lessons,” the Commission’s President Muhammad al-Eidy said.

“They probably feel like they’ve got to do a lot more spending this time and they are focusing on social spending, whereas previous investments were business or private-sector driven,” said Gabriel Sterne, associate director in London at Exotix, an investment bank, and a former economist at the International Monetary Fund and the Bank of England.

OPEC will need WTI at above $80 a barrel to maintain the increased social spending because the costs of Persian Gulf budget obligations have more than doubled since 2006 to $77, with Saudi Arabia needing an average $82, according to Deutsche Bank. OPEC’s basket price at more than $100 puts it on course to earn $1.01 trillion this year, the U.S. government said.

http://bangordailynews.com/2011/09/26/news/world-news/opec-uses-1-trillion-earnings-to-help-poor/ printed on July 11, 2014