Saudis may follow UAE and cut fuel subsidies - report

Allowing prices to rise would be one of the biggest economic reforms in the country for years, a highly sensitive one politically
Saudis may follow UAE and cut fuel subsidies - report
(Getty Images)
By Reuters
Sun 06 Sep 2015 04:17 PM

Saudi Arabia was looking more closely at cutting
gasoline subsidies, a move it has been studying for years, after the United
Arab Emirates did so last month, with both states trying to save money in an
era of cheaper oil, a newspaper reported.

Saudi domestic
gasoline prices are some of the lowest in the world. Allowing them to rise
would be one of the biggest economic reforms in the country for years and a
highly politically sensitive one as many Saudis rely on cheap fuel.

United Arab
Emirates let gasoline prices rise 24 percent last month.

Al Watan's
Saturday edition quoted unnamed sources as saying Saudi Arabia cannot leave
gasoline prices at ultra-low levels indefinitely because that would hurt the
economy.

The newspaper
did not elaborate on when the government might make a decision and gave no
details on the possible reform.

However, a
source in the Gulf oil industry told Reuters that Saudi officials were
"seriously" thinking about reducing fuel subsidies gradually.

Riyadh would
probably not act as aggressively as the UAE because of political and economic
considerations, the source said. He said UAE officials had advised Riyadh to
"start small", possibly raising prices just a few percent.

Saudi energy
officials could not immediately be reached for comment.

Unleaded
gasoline costs only about 15 US cents per litre in Saudi Arabia, the world's
lowest price after Venezuela, according to website mytravelcost.com.

Economists
estimate removing gasoline subsidies would save the kingdom nearly SAR30 billion ($8 billion) annually, Al Watan reported. That would be a significant
saving in a budget deficit which analysts estimate could total $120 billion or
more this year if crude prices stay low, slashing state revenues.

The reform
could also help hold back burgeoning consumption. Domestic oil product demand
rose 5.1 percent year-on-year to a record 2.98 million barrels per day in June,
according to the Joint Oil Data Initiative.

Al Watan quoted
Fahad Al Anazi, deputy chairman of the economic and energy committee in the
Shoura Council, a top state advisory body, as saying any changes to subsidies
would have to be accompanied by other measures to preserve public welfare such
as providing cheaper public transport.

This implied
major reform might still be years away. The government is building public
transport systems but the Riyadh metro is only due to be completed in 2019, for
example.

Because higher
gasoline prices could fuel inflation in other goods, Anazi suggested the
government might introduce new subsidies for some food and consumer items, or
let poorer people keep their fuel subsidy.

Such subsidies
would be provided to Saudi citizens rather than the large number of foreigners
in the country, he said.

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