Saudi Arabia to Hike Local Price of Gas by 50%

Saudi Arabia is running out of money.

While the world’s attention is focused on Saudi Arabia’s latest flare up with Iran, many Saudis are concerned about the “economic bomb” at home. The government is slashing a plethora of perks for its citizens.

The cash crunch is so dire that the Saudi government just hiked the price of gasoline by 50%. Saudis lined up at gas stations Monday to fill up before the higher prices kicked in.

“They have announced cutbacks in subsidies that will hurt every single Saudi in their pocketbook,” says Robert Jordan, a former U.S. ambassador to Saudi Arabia and author of “Desert Diplomat: Inside Saudi Arabia Following 9/11.”

Gas used to cost a mere 16 cents a liter in Saudi Arabia, one of the cheapest prices in the world. Many Saudis drive large SUVs and “have no concept of saving gas,” says Jordan.

Gas price hike is just the beginning

The gas hike is just the beginning. Water and electricity prices are also going up, and the government is scaling back spending on roads, buildings and other infrastructure.

Those cuts might sound normal for any government that is running low on cash. But it’s especially problematic in Saudi Arabia because the vast majority of Saudis work in the public sector.

About 75% of the Saudi government’s budget comes from oil. The price of oil has crashed from over $100 a barrel in 2014 to around $36 currently. Most experts don’t expect a rebound anytime soon.

The Saudi government used its vast oil wealth to provide generous benefits to its citizens. When the Arab Spring rocked the Middle East in 2011, the Saudi king spent even more in an effort to subdue any discontent in the country.

via CNN

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza