Saudi Arabia may cut energy subsidies and start to wean its citizens off ultra-cheap gasoline

While it’s still cheap.
While it’s still cheap.
Image: Reuters/Fahad Shadeed
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Saudi Arabia is reportedly contemplating a cut in subsidies for gasoline and other fuel, a move that could entail political risk in a nation where pampered citizens are accustomed to lavish social perks.

The notion, floated by oil minister Ali al-Naimi (pdf) in response to a question by reporters in Riyadh, was the apparent first official public confirmation that the Persian Gulf giant might increase fuel prices.

Nawaf Obaid, a visiting fellow at the Belfer Center at Harvard who is close to an important branch of the Saudi royal family and familiar with the government’s thinking on oil policy, said the move will go ahead. “It’s a done deal and this will happen,” he told Quartz via email.

Until now, the Saudis had seemed highly reluctant to tamper with one of the most generous system of government handouts on the planet, cash that has helped to keep the sprawling Saud family on the throne. One of the most popular perks is subsidized gasoline, which locally costs about 49 cents a gallon at the pump.

Subsidies and payouts have seemed so crucial to Saudi stability that in 2011, then-King Abdullah handed out an extra $130 billion in an apparent effort to stave off a spread of the unrest of the Arab Spring. Just eight months ago, King Salman—who took the throne last January on Abdullah’s death—uncorked another $32 billion in payouts in the form of one-off bonuses and stipends.

Obaid said he foresees no political fallout from a cut in subsidies for gasoline. “This has been in the works for a while now and it’s expected. It won’t come as a surprise,” he said.

If fuel prices are raised, the action would be meant to relieve tremendous financial pressure on Saudi Arabia, which along with the rest of OPEC has suffered a 16-month blow from plunging oil prices.

Edward Morse, an analyst with Citi Research, tells Quartz that the country ought to both raise fuel prices and the cost of electricity, noting that two months ago, the United Arab Emirates eliminated fuel subsidies “with little backlash.”