Saudi Arabia to follow UAE on fuel subsidies?

Reports suggest the UAE has "advised" Riyadh to "start small" as it considers the removal of fuel subsidies to combat plummeting oil prices and stabilise state expenditure and revenue

Riyadh has been advised by the UAE to "start small" while deregulating fuel prices.
Riyadh has been advised by the UAE to "start small" while deregulating fuel prices.

Saudi Arabia is likely to follow the UAE's route in removing gasoline subsidies, in a bid to reduce the country's dependence on oil and encourage state-savings. 

Gasoline prices in the Kingdom are some of the world's lowest, and increasing them is said to boost economic reforms in the country. 

The move could also come with political ramifications, however, since Saudi citizens tend to rely on cheap fuel. 

The UAE increased gasoline prices by 24% in August 2015. 

A report by Arabian Business cited Al Watan newspaper, which quoted unnamed sources saying Saudi Arabia "cannot leave gasoline prices at ultra-low levels indefinitely, because that would hurt the [Kingdom's] economy". 

No information was provided about when the government's reforms, if at all, might be implemented. 

A source within the Gulf's oil sector, however, told newswire Reuters, that Saudi officials "were seriously thinking about reducing fuel prices gradually". 

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

Unleaded gasoline costs around 15 cents per litre in Saudi Arabia, the world's lowest after Venezuela, Arabian Business' report added. 

Estimates suggest removing gasoline subsidies will save the Kingdom up to $8bn annually, Al Watan's report said. 

That figure is expected to hugely benefit savings in a budget deficit, which analysts believe could be worth $120bn, if not more, this year, considering crude prices stay low, and thus reducing state revenues. 

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.

While major reform might be years away, the government will have to take speedy measures to reduce dependence on fuel. 

This includes the formation of a public transport network, but even the Riyadh Metro is due for opening only in 2019, the report added. 

Food and consumer item subsidies could also be encouraged to reduce the pressure of higher gasoline prices and consequent inflation, Anazi said. 

An alternative would be to let "poorer people" keep their fuel subsidy.

all these subsidies, however, may only be provided to Saudi citizens, and not the burgeoning foreigner population in the Kingdom, the report added.  

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