Striking the Right Balance? GCC Energy Reforms in a Low Price Environment

In 2015, the Gulf Cooperation Council (GCC) countries began implementing and accelerating pricing reforms targeting the removal of energy subsidies. While the price increases were from a low base and domestic energy prices are still well below international levels and among the cheapest in the Middle East and North Africa (MENA) region, the recent increases represent a fundamental shift in the GCC’s economic and social policies. In this Comment we analyse the fiscal pressures which led to the acceleration of pricing reforms, which we argue were building even during the period of record high oil prices preceding it; we review recent energy pricing reforms in GCC countries; and we analyse the implications of these reforms for the social contract between GCC governments and their citizens. We conclude that recent energy pricing reforms have been driven primarily by short-term revenue needs, and, while the implicit social contract is not as rigid as originally perceived, it may not prove sufficiently elastic to accommodate further price increases. Deeper reforms will therefore not be viable unless governments introduce mitigation measures and implement effective communication strategies which emphasize the importance of energy pricing reform for national transformation.

By: Bassam Fattouh , Anupama Sen , Tom Moerenhout

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