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Crude Economics
When Cheap Oil Raises Meat Prices

Bahrainis are going to start paying more for their meat as the government phased out food subsidies this week in the face of budget pressures caused by cheap oil prices. Customers will have to shell out more than twice as much for chicken and beef now, as Reuters reports:

Like other Gulf oil-exporting states, Bahrain has for many years subsidised goods and services such as meat, fuel, electricity and water, keeping prices ultra-low in an effort to maintain social peace. But since its oil income began to plunge last year, the subsidies have become much harder for the government to afford.

The Bahraini government delayed this reform for months, fearing the inevitable popular backlash it’s sure to unleash. It went ahead with it anyways, convinced that the estimated $58 to $77 million it would save annually was worth the potential unrest it might cause. The Gulf country is stuck between a rock and a hard place, to be sure. Cutting social welfare spending could help destabilize an already vulnerable regime that struggled to weather the upheaval of the Arab Spring; tensions between the Sunni Al-Khalifa leadership, army, and police force and the country’s Shi’a majority remain high.

On the other hand, Bahrain stands to run a nearly $4 billion deficit this year thanks in large part to the fact that it’s getting well under half the value for its oil sales than it was last year. Many of the world’s petrostates face the same problem. They can’t help set a floor to oil prices by cutting production because of the need to compete for market share in a world suddenly awash in crude; but neither can they afford to cut spending enough to balance their budgets for fear of provoking domestic turmoil. The Saudis have talked a big game about facing down upstart non-OPEC producers in a game of who-can-endure-longer, but the longer prices stay below $50 per barrel, the more desperate these regimes are going to get. American shale production is driving up Bahraini beef prices, and that could threaten stability in the Middle East.

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  • Tom

    Couldn’t happen to a nicer bunch of guys.

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