Gulf inflation threat mounts as oil hurdles to $150

DUBAI (Reuters) – Oil’s rapid acceleration toward $150 a barrel threatens to spur Gulf Arab inflation to new records as currency pegs to the ailing U.S. dollar prevent the oil producers from mopping up excess liquidity.

As Gulf central bankers prepare for a key meeting in Doha on Monday, the oil price surge places more pressure on Gulf states preparing for monetary union to follow Kuwait’s lead and revalue their currencies to fight inflation.


Oil jumped nearly 9 percent to a record $139 a barrel on Friday — and could top $150 in less than a month as strong demand in Asia triggers a slowdown in shipments of crude to the United States, investment bank Morgan Stanley said last week.

For Saudi Arabia and the five other states that form the world’s biggest-oil exporting region, rocketing oil revenues could drive public spending, fuelling money supply and stoking inflation in economies that doubled in size from 2002 to 2006.

But Gulf states — bar Kuwait — are constrained in their fight against inflation by dollar pegs which have forced them to track seven U.S. interest rate cuts totaling 325 basis points since September.

Reuters