Saudi Arabia’s Energy Pricing Reform in a Changing Domestic and Global Context

It is often implied that economic adjustments and structural reforms are very difficult in the context of rentier economies. Yet recent experience shows that in response to the declines in oil price and uncertainties surrounding oil markets, GCC countries have been able to introduce some limited reforms with relative ease and, so far, without much public opposition. Perhaps most visible are the recent energy price increases in Saudi Arabia. While low energy prices are associated with wide distortions, inefficiencies and inequities, increasing domestic energy prices without introducing compensation measures has both direct and indirect adverse impacts on households’ welfare. In Saudi Arabia, low energy prices have another dimension, as they have been central to the country’s industrialization strategy, which is based on the competitiveness of energy intensive industries such as petrochemicals, aluminium and steel. This paper addresses the following key questions:

  •  How deep have the recent energy price increases in Saudi Arabia been?
  • Can these reforms be accelerated without the government facing serious public opposition? What are some of the policies that governments can pursue to increase the acceptability of energy price reforms?
  • Will energy price reforms reverse the long-term industrialization strategy based on developing energy intensive industries?
  • Can energy price reforms (and economic reforms more generally) be implemented without greater accountability and openness?

By: Bassam Fattouh

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Oil & Middle East Programme

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