Saudi Arabia may cut fuel subsidies

The oil-rich state is considering removing its regulation on fuel prices, as the UAE did last month. 

Neil Churchill September 7, 2015

Saudi Arabia is looking at cutting fuel subsidies in the oil-rich state, following in the footsteps of the UAE’s deregulation last month. 

Saudi’s fuel prices are some of the lowest in the world – around $15 cents per litre – and any move to increase them would be seen as a big economic reform. 

With the era of cheaper oil showing little sign of a turn around – and with Saudi facing a budget deficit this year estimated at $120 billion – Al Watan newspaper quoted an unnamed source as saying that the Kingdom cannot leave the country’s fuel prices at such low levels indefinitely. 

Last month the UAE deregulated its cost of fuel, leading to a rise of 24 per cent at the pumps. However that rise has already dropped in September by eight per cent.

A Reuters report said that it is unlikely Saudi Arabia would act as aggressively as the UAE initially did, but that the emirates has advised Riyadh to ‘start small’, initially raising prices by just a few per cent. 

Economists estimate that removing fuel subsides would save Saudi Arabia nearly $8 billion annually. It is also thought deregulation would curtail burgeoning consumption in the Kingdom – domestic oil product demand rose 5.1 per cent year-on-year in June, to a record 2.98 million barrels per day. 

Fahad al-Anazi, deputy chairman of the economic and energy committee in the Shura Council, said that any changes to subsidies would have to be accompanied by measures to preserve public welfare, such as cheaper public transport. 

This would suggest that fuel deregulation might still be years away as major public transport projects are not yet completed, such as Riyadh’s metro system which is due to be completed in 2019, and the Gulf-wide GCC Rail which is still a long way off. 

Anazi also said that the government might introduce new subsidies for food and consumer goods, or let poorer people keep their fuel subsidies, should a rise in fuel prices lead to inflation in other sectors. 

However such subsidies would only be offered to Saudi citizens, rather than foreigners and expats, he said.