America's answer to high oil prices

It's all here. Thanks GM.

Shortages in everything

There's a shortage of large bills in Zimbabwe. The newly introduced $1 billion note will buy 4 oranges.

Maybe they should just print more money. Without withdrawing smaller bills from circulation. Heh.

The culture of the queue

One thing a westerner living in the UAE quickly notices is that in many places there is no concept of a queue. And if a queue is formed sometimes individuals will jump to the front of the line and demand to be served next.

The Abu Dhabi flagship paper, The National has taken note:

Dr Abouallaban, 44, the director of the new American Center for Psychiatry and Neurology in Abu Dhabi, says it is all about stress, disappointment and a lack of respect for others.

Most of the passengers using the buses, he says, are low-paid workers who are boiling with frustration. “They come to Abu Dhabi thinking they will make good money,” he says. “But they find they are not saving anything. They are disappointed. Their families are back home. They have a low tolerance.”

Dr Abouallaban was born in Syria, but has spent most of his career in the US. He moved to the UAE three years ago. So he has both a Western and a Middle Eastern perspective.

The wealthier and better educated might not suffer the same sort of stress but, he says, often they share this disturbing lack of respect for others. “You see it on the streets when people are trying to catch taxis. Sometimes people have almost run over me to get a taxi. They just do not respect others.”
...
Local pride that the UAE is so much more polite than the West is, he thinks, misplaced. “People here are more polite than in the States when they are in their family setting. But they are less polite in the street.”
...
queuing, in its many forms, is alien to the UAE, says Dr Alnajjar. This does not mean the country is rude. On the contrary, he says, the UAE, especially Emiratis and Asian workers, are scrupulously polite. But there are sharp differences between the Gulf perception of politeness and the West.

“Every society has its own ideas on what is polite,” he says. “In the UK, it is polite to ask a lady on a date. Here it is not. In the UK, it is polite to say to a lady, ‘You are beautiful’. Here it is not. If you go to a man’s house and invite his daughter out, he might kill you.

“In the UK, people will eat in front of you. Here, it is impolite not to offer food if you are eating.”

Irony watch: Fuel shortages in the oil-rich UAE

These shortages are caused by something like price controls: state-owned retail fuel companies that are not willing (and, perhaps, able) to meet market demand at the price they have set, but are also not willing increase price to stave off shortages.

Story 1

Employees at petrol stations in Fujairah and Ras Al Khaimah say the Special variety ran out days ago, insisting that they have not been informed when they could expect further supplies.

The shortages also affected Sharjah, Ajman and Umm Al Quwain, but the company does not have a presence in Dubai.

Story 2

Abu Dhabi: A diesel shortage affected many sectors in Abu Dhabi on Monday, with trucks stuck in massive queues waiting to refuel.

Households and restaurants suffered due to a lack of a supply of essential items. The transportation of labourers from worksites to their accommodation was also affected.

Diesel vehicles have had to queue at fuel stations in Mussaffah since Sunday morning, as the sale of diesel was stopped in Abu Dhabi City.
...
The huge difference in diesel prices between Abu Dhabi and Dubai has caused massive queues at Adnoc Distribution diesel pumps, where Dubai-registered vehicles queue up for cheaper diesel.

Most petrol and diesel consumed in the UAE is refined outside the country. Adnoc, owned by Abu Dhabi is not under pressure to be profitable. The Dubai-owned companies are, but have been reluctant to set prices above Adnoc's. This reluctance has broken as world prices for oil rose considerably in the last year.

Abu Dhabi aims to export caviar

You read that right: export, not import.

Financial Times

[T]he Abu Dhabi initiative aims to provide a lucrative export opportunity for the UAE as it seeks to diversify away from oil production, while also helping safeguard the future of the endangered species.

Bin Salem Group and United Food Technologies, its German partner, are investing $80m in the project, centred around a climate-controlled facility in an industrial park on the outskirts of the capital. Here 64 swimming-pool-sized basins will house thousands of sturgeon, ultimately providing up to 40 tons a year of caviar and 710 tons of smoked and sliced sturgeon meat.

Work has started on the farm, the world’s largest single-site plant, which should take 14 months to build. The joint venture, which has not yet been named, will take two years from the start of operations to bring fish to the maturity needed to produce the high-grade Ossetra caviar.
...
Five years in the making, Bin Salem Group forged ahead with the project when the United Nations Convention on International Trade in Endangered Species, known as Cites, limited the export of Caspian Sea sturgeon, squeezing the market for the prized delicacy.

“We saw the gap between supply and demand and then the UN resolution created a great opportunity for a new industry – caviar farming,” says Michel Nassour, Bin Salem’s financial adviser.

I suspect this can only make sense if the energy required to bring temperatures to Russian like levels is priced at well below market.

Such a plan has been around since at least 2006, as reported in the NYT at the time:

Perhaps the most ambitious project to make up for the reduced supply is the farm in Abu Dhabi in the United Arab Emirates, which will breed baerii, or Siberian, sturgeon. Backed by private investors, the $48 million facility is scheduled to be completed by the end of 2008, with the first caviar expected to be sold the next year. At its peak the farm will produce 32 tons annually, two times what is produced today in California.

Abu Dhabi may seem like an odd place to build a fish farm, but labor is cheap there and energy is cheaper. And there is a huge market for caviar on cruise ships that dock there, in the city’s hotels and among the Arab elite. Still, the project requires sophisticated water recirculation technologies to function in a desert. For the sturgeon to grow quickly and to produce eggs, for example, the water will need to be cooled to 68 to 72 degrees. And not a drop can be wasted. According to Christoph Hartung, chief executive of the German firm United Food Technologies, which has been hired to build and manage the farm, 95 percent of each day’s water will be filtered and reused.

As anyone living there knows labor is cheap in Abu Dhabi because it is imported. Other nations could imitate that policy -- except, I suppose, that it is political infeasible.

Dubai hotel occupancy rates

What's that rumble?

Kipp Report

Though nobody dares deviate from the official 'all is well' line, Dubai hotel occupancy is at record lows.
...
Reliable sources told Kipp Report that average occupancy in city hotels at the end of June was 56%; the swanky new Raffles was struggling thanks to a high-rate, no-beach double whammy at 19%, while the Grand Hyatt was at 40%. The latter denies this figure. It does admit occupancy is a little lower so far this summer, but says the current rate is around 70%. Raffles also denies 19% - it says June closed with 30% occupancy.

Even so, compared to last year, when DTCM claimed record occupancies of 85%, ahead of Hong Kong, Sydney, Tokyo and London and nobody was discounting rooms in Dubai, this year one can walk into most hotels at half price.
...
General opinion suggests the situation could be a combination of factors, some external - like the globally depressed economic scenario and higher cost of flights thanks to spiralling oil prices - but there is a nagging suspicion the city has been rumbled: strained infrastructure, choked roads, few transport options, ugly cranes and little to do beyond malls.

Via Secret Dubai.

On the same date as the Kipp Report article the AMEInfo "The ultimate Middle East business resource reported

The economic downturn in Europe and the US is having a negative impact on tourism throughout the much of the world, but no such slowdown is occurring in the Middle East, where the tourism industry in the region is expected to keep accelerating over the next few years.
...
Hotels are reaping a windfall from this growth, as the region now has the highest absolute occupancy and average room rates in the worldm, at 74.3% and $181.

Business travellers are the key drivers of the region's booming hotel business, as more than a quarter of fortune 500 firms now have a base in Dubai, leading to a strong demand for hotel rooms from the corporate sector.

Another factor boosting hotel occupancy rates in Dubai is its emergence as a key player in the meetings, incentives, conference, and exhibitions (MICE) industry, with more than 100 major international exhibitions being held in the emirate.

I wonder where the truth lies. An increase in cut-rate hotel deals tells a story.

All new meaning to pay toilets

Don't pay; get paid:

"We're motivating people to know the value of their urine," said Marathi Subburaman, who came up with the novel idea. "The urine that is collected goes into fields for paddy crops, and of course the feces becomes good compost in a matter of months."

Via Marginal Revolution.

A new UAE blog

Well, not so new. She's been blogging since August 2007.

Out and About in Dubai. Check it out. Because.

To peg or not to peg

The Financial Times answers the question

Countries such as the UAE cannot simply adopt a floating exchange rate, however. They are too small, and dependence on a volatile commodity makes it all but impossible to predict what their purchasing power will be the year after next, and what a sensible monetary policy might therefore be.

The Gulf needs to peg to something. A first step (after revaluation) would be to peg to a basket of currencies that included the euro and the yen. A bolder step would be to include the price of oil in that basket, so that currencies would appreciate when oil is strong, and depreciate when it is weak. That would make for smoother adjustments than double-digit inflation.

Brad Setzer has more.

Speculating on oil scapegoats

From a post entitled, "Defense of Oil Speculators" Mankiw points us,

Here and here and here and here.

UAE cancels Iraqi debt

BBC

The United Arab Emirates has cancelled the entire debt owed to it by Iraq - a sum of almost $7bn (£3.5bn) including interest and arrears.

The Gulf state also appointed a new ambassador to Iraq, in a move which eases Baghdad's diplomatic isolation.

The news was announced during a visit by Iraqi Prime Minister Nouri Maliki.

Correspondents say Iraq's Sunni Arab neighbours have been wary of fostering ties with Iraq's mainly Shia government because of its links with Iran.

Last month, the UAE's foreign minister became the highest-ranking official from an Arab nation to visit Iraq since the US-led invasion in 2003.

AP

The Emirates' official news agency quoted the country's president Sunday as saying the UAE was canceling all US$4 billion in debt owed by Iraq.
...
Last year, Saudi Arabia announced it would forgive the portion of Iraq's debt it holds, but the Iraqi government has said it has so far failed to do so. American officials have urged patience, saying debt relief takes time.

Emirati president Sheik Khalifa bin Zayed Al Nahyan said Sunday to WAM he hoped canceling part of the debt would "lighten the economic burden facing Iraqi people."

Khalifa also urged Iraqis to unite behind the Shiite-led government and praised its efforts to restore the country's stability and security.

Welcome news. Thank you, Sheik Khalifa.

Addendum: Iraqi electricity output is up. Thanks to Kerplonka! for the pointer.

Addendum 2: Menzie Chinn at Econbrowser shows great insight on Iraq. I'm not saying I agree with Chinn entirely, but the post is thoughtful and more than the kind of low brow analysis you'll get from the press.

Saudi Arabia creating cities from scratch

The Financial Times takes a look at the ambitions, the challenges, and the criticisms.

Maybe uppers will help.

Bahrain labor market reforms

The Financial Times reports:

When it comes to labour issues, Gulf governments have a habit of talking about reform but producing little in the way of action.

But two years after a law was passed – and in the face of opposition from the business community – Bahrain has pushed through a series of increases in the price that sponsors of foreign employees must pay for their work permits.

The increases, which came into force this week, form part of a package of reforms designed to make employing Bahrainis more attractive to employers.

A permit for a non-Bahraini worker has risen to BD200 ($533), payable every two years. Sponsors must pay a further BD10 monthly fee on every expatriate worker and BD90 for each family member of expatriate workers.

The additional revenues are being recycled into training schemes for Bahrainis.

Reformers say the old system of fees and quotas created disincentives to employing Bahrainis. Expatriates were cheaper.

The article doesn't say, but if there has been a thorough reform, then employers would be able to fire Bahrainis as easily as expats, and expats would be able to change jobs within Bahrain as easily as Bahrainis. See my discussion here.

On making the pie smaller, but getting a bigger slice

From the Annals of the Oldest Profession:

William Eastwick, 43, also of 92 French Ave., was arrested June 30 on a warrant for many of the same offenses, including maintaining a house of prostitution and deriving support from prostitution, at Dedham District Court when he allegedly went to pay Hu’s bail.
...
In January, police shut down a similar business on Linden Street. Eastwick tipped Wellesley Police off to that operation, said Cleary, although it is unclear why he did that. [Emphasis added]

Greg Mankiw explains why Eastwick did that. If that's not illegal it should be.

On the subject of stimulus, check out this on Viagra for the economy.

Grow the pie, or slice it differently?

The Spectator: 84% of Americans prefer the government concentrate on economic growth. "What's really interesting is that this is not a party divide, and it's not a divide across income groups, either." Eurobarometer polls show "64 per cent [of Europeans] think that competition is the best way to secure prosperity" but "64 per cent want to see 'equality' and 'justice', even at the expense of freedom."

Thanks to Adam Smith Institute blog for the pointer.

Eclectecon, have there been similar polls in Canada?

It would be interesting to see cross-country polls on this question: What do you think is the best to get ahead personally? Expend effort making sure you get a big share, or expend effort being productive?

Betting on a fall in the price of oil

If I weren't such a chicken, I'd go with #3. I've said before on this blog that oil won't stay above $100/barrel for long. I don't have a fancy model, just an intuition that there's plenty of oil out there in costly to extract places where extraction costs -- although well above Saudi levels -- are also below $100/barrel. It's a matter if doing the engineering. And then there's the factor energy saving technologies, and development of alternative energy sources.

By the way, I think it's kind of neat that the Iraqis sat on their oil, selling so little of it when prices just a few years ago were a fifth of what they are today. It's good to see them getting in now that prices are good.

And, while we're on the topic of the high price of oil, Carpe Diem points out that it isn't really all that high. Oh, and don't blame the speculators.

Addendum: Martin Feldstein explains why a price jump can happen today even if there is no change in current supply and demand conditions.