MoneyNews reports a surprising reality. Inflation -- particularly high fuel prices -- is stirring violence in the Middle East. It turns out that just like in the U.S., there's a minority of royal family members -- here we call them Exxon Mobil Corp. (NYSE: XOM) executives -- who benefit from $103 a barrel oil and a majority of regular people who actually have to pay the higher prices. This creates political problems for the ruling class.
This is different than in the U.S. Here people grumble at the gas pumps and grocery stores and pay the higher prices. In the Middle East, by contrast, strikes, demonstrations and riots are becoming commonplace as inflation causes prices for basic foods and other necessities to skyrocket from Morocco to the Persian Gulf. In Jordan, the cost of some fuels spiked 76% overnight after the government removed almost all fuel subsidies. Rising fuel immediately doubled prices of food staples like eggs, potatoes and cucumbers.
How would you react if instead of paying $3.30 for a gallon of gas this week, you had to pay $5.80 next week? Such price increases sparked violence in the Middle East. Protests over the cost of bread culminated in violence in Yemen, where 12 protesters were killed; a confrontation between Lebanese Army soldiers and Shiite protesters triggered by rising bread prices killed seven more. 34 Moroccans are in prison for taking part in riots over food prices and even tightly controlled Jordan has seen nonviolent demonstrations and strikes.
Why are Americans so calm about inflation? One reason might be because it happens relatively gradually. Back in January 2001, the price of oil was $24 a barrel -- it's risen 329% since. But since it happened nice and gradually -- only 23% a year -- you hardly noticed the increase. When it rises 76% overnight, that gets people into a rioting mood -- at least in the Middle East.
This reminds me of the story of the frog. If you throw one in a pot of boiling water, it jumps right out. But if you place it in a pot of warm water and gradually turn up the heat, it stays in the pot until it boils to death.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Exxon Mobil.
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Reader Comments (Page 1 of 1)
2-29-2008 @ 11:04AM
steve moscatello said...
AS AN AMERICAN I KNOW A CPL OF THINGS NAMELY WE ARE SHEEP ,AND OUR FORE FATHERS ARETURNING OVER IN THIER GRAVES AT HOW WE LET THE GOVERNMENT AND CORPRS GET AWAY WITH THIS !
2-29-2008 @ 11:11AM
John said...
I think the prices your industry charges are highway robbery,and they have been highway robbery for decades. You guys should work for half the price.
High oil prices are great, and I'm no ExxonMobil executive.
2-29-2008 @ 11:37AM
thebigkill said...
Agreed. US income growth has usually been commensurate to price increases. I strongly feel if Americans saw a price jump of 76% overnight, they'd also take to the streets. That's how American business learned to chop ounces of flesh over time instead of going after the full one pound all at once.
This is somewhat distressing though. It signals global fuel inflation is driving up food inflation much more dramatically than I might have previously imagined. Just when I thought I was done building the position.
I wonder if OPEC may now be experiencing an added incentive to place oil prices against another currency given the increased US dollar volatility and the increasing global resistance to rising prices.
2-29-2008 @ 11:39AM
john said...
Having people in the middle east pay the market price is how we are going to get the prices to eventually come down for us. It will cause people to economize and change thier behavior. China has a similar problem, subsidizing gasoline only encourages people to use more of it.
I don't understand those who are critical of the companies that produce the oil, nobody felt their pain when they were laying off workers and capping wells in the late '80's.
2-29-2008 @ 11:52AM
Steve in Denver said...
This is what happens when you let government get involved with things. Lets all see how we behave when the 'Gumnt" is running our health system and we get told were not elegible for a procedure because the "Gumnt's" quota of that procedure has already been used up, and you have to wait for the next quota.
2-29-2008 @ 12:56PM
gremlin said...
You are so right, Steve in Denver. I don't think people really understand the meaning of "universal health care" - universally BAD!!
2-29-2008 @ 2:12PM
John said...
Apples and oranges.
You obviously never lived in a country that has universal healthcare.
Are the Japanese stupid? Are the English stupid? Are the Australians stupid? Are the Swedes stupid? Are the Swiss stupid? Are the Germans stupid?
No, they're not. They all have universal healthcare.
Are Americans stupid? Well, when it comes to attitudes about universal healthcare, Americans are dumber than rocks. You've been had by propaganda. Wise up.
2-29-2008 @ 7:38PM
gumby said...
Universal health care is bad until you are denied coverage by a private insurer seeking proifts....
You will change your view like day and night...