Six years after the second oil shock, Saudi Arabia and the other wealthy Arab kingdoms along the Persian Gulf are facing hard times.

The recession caused by falling oil prices is biting heavily into local spending programs, welfare measures are being cut severely and some once-rich merchants have been reduced to bankruptcy. And, while the recent rise in OPEC crude prices is providing some respite, few expect any major improvement in these Arab economies until the early 1990s.Unfortunately, the fall-out is not limited to the local citizenry. U.S. businesses with interests in the Arabian peninsula - oil companies, construction firms, transporters and shippers - are facing contraction in a market that was once one of their most lucrative abroad.

U.S. banks, too, are facing demands for rescheduling loans made to Arab merchant houses during the heady days of expansion at the same time that their own profits are falling.

And even the U.S. trade balance has been adversely affected: figures recently released for the first half of 1986 show that instead of earning almost $1.5 billion from trade with Saudi Arabia in the January to June, 1985 period, the U.S. suffered a deficit in its Saudi trade by the end of June, 1986 - amounting to just under $500 million - as oil imports tripled but sales to the Kingdom shrank by almost one-quarter.

Adding to the woe are still other figures showing that Arab investments in the United States - in the form of both financial paper and real estate purchases - are falling too, thereby exacerbating the U.S. current account deficit.

The main problem, of course, stems from falling oil revenues. Saudi Arabia has seen its income from this vital natural resource fall from about $100 billion a year in the early 1980s to only $20 billion last year.

Kuwait's exports of crude oil and refined petroleum products - which account for 85 percent of total export earnings - plummetted from just under $16 billion in 1980 to around $8 billion at the end of 1985 and are expected to have fallen even further, about $6.5 billion, in 1986.

Even the tiny emirate of Qatar, with a population of only 400,000 and one of the world'shighest per capita incomes, is suffering; OPEC officials estimate that its oil earnings fell to only $716 million during the first half of 1986, compared with $1.3 billion during the same period in 1985 and a yearly peak in 1980 of $5.4 billion.

As a result, virtually all the oil exporting countries in the Gulf are announcing severe cuts in budgetary spending this year. Saudi Arabia's budget is down by 15.7 percent, with even higher cuts in transport and communications as well as in infrastructural development - three fields which, in the past, produced important contracts for U.S. firms.

Kuwait's cuts in fiscal year 1986/87 will amount to at least 11 percent compared to 1985/86, with public works particularly hard hit. Although Qatar has not yet announced its current budget, several important projects are already being delayed, including the construction of a huge new power and desalination plant at Wusail.

Expenditure in the island country of Bahrain is down by 15 percent, and there is talk of the government having to borrow on the international markets to cover its budget shortfalls.

The Sultanate of Oman, which has suffered less of a fall in its oil

revenues because of its favorable export position - away from the fighting in the northern Gulf - nevertheless is raising tariffs on imported goods and cutting local subsidies to help offset a projected budget deficit.

The government of the United Arab Emirates has already borrowed $2.3 billion from local banks to stay afloat and is facing a budget deficit this year of more than $325 million after years of a surplus.

For U.S. firms, the situation is compounded by the increased competition they are facing from European and Asian firms, who can supply labor at costs far less than those prevailing in the United States.

The award of a $7 billion military aircraft purchase contract by the Saudis to Britain after Congressional opposition to the sale of U.S. fighters last year was a particular blow. U.S. Assistant Secretary of State for the Near East, Richard Murphy, has reported that the lost order cost the U.S. economy an estimated $12 billion to $20 billion in all in terms of lost exports and lost jobs at U.S. factories supplying the Saudis.

Meanwhile, the fall of the U.S. dollar has added to the drop in oil

revenues in the Gulf states - because oil is paid in dollars - and encouraged some governments to delay payments to foreign contractors. U.S. businesses in Saudi Arabia now claim that Riyadh is behind in its payments to U.S. contractors to the tune of $1 billion to $2 billion.

While some U.S. firms are cutting their stake in the country as a result, others are simply adding on the costs of the delays to their bids for future projects. U.S. banks located in the Kingdom - as partners with Saudi interests - are also suffering. With few projects getting the official go-ahead, there is less demand for bank financing from U.S. and Saudi firms.

Some, like Manufacturers Hanover Trust, are also having to spend time rescheduling loans to Saudi firms such as Ghaith Pharaon's Saudi Research and Development Corporation (Redec) that has been unable to service its debts in the wake of the cuts in government spending.

Meanwhile, talk of another boom in the region in the early 1990s continues, and this may explain why some U.S. firms are staying put; having ridden out the storm they will be well-placed to win government contracts once oil prices rise again. And, on that point, few observers doubt that another oil shock is in the offing for the early 1990s.

Former Energy Secretary James Schlesinger added his voice to the chorus of warnings when he testified to the Senate Energy Committee in January. We are today sowing the seeds of the next energy crisis, he said, noting that oil imports are currently supplying 40 percent of U.S. demand, about the same level as before the 1973 Arab oil embargo.

With the figure expected to rise to 50 percent by 1990, and with world oil prices due for a rise then as well, the Saudis, Kuwaitis, Qataris and other Arab Gulf oil producers could again be calling the tune.

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