Skip to main content

How will Saudis adapt to low oil prices?

Saudi Arabia will have to rely on its reserves and cut its projects and other aid to cope with falling oil prices, a tall task for a rentier state.
An employee fills a container with diesel at a gas station in Riyadh December 19, 2012. Saudi Arabia could as early as next year do something it has resisted for decades: raise what is currently the world's lowest price for natural gas, in order to reduce expensive subsidies and curb energy waste. A price hike would be an important economic shift for the country but a difficult one, as it would risk hurting the competitiveness of industries such as petrochemicals. To match Analysis SAUDI-GAS/PRICE REUTERS/F

As oil prices plummet, media reports give the impression that Saudi Arabia is comfortable with the situation. The International Monetary Fund (IMF) report released in October urged Gulf states, led by Saudi Arabia, to reform their economies, cut their spending and government support, create jobs in the private sector and address their domestic energy consumption. knowing that Saudi Arabia had stopped the exportation of 1 million barrels of oil during the past five years.

However, the IMF is simply ignoring the elephant in the room, exemplified by the Saudi social contract. Oil accounts for approximately 90% of the state's income, supporting the entire Saudi economy. In Saudi Arabia, the rentier state is the guarantor of political stability. Government projects constitute the backbone of the economy and ensure the income of the wealthy classes as well as well-paid jobs for low- and middle-income classes. On the other hand, the state is the ultimate arbiter of the distribution of wealth.

Access the Middle East news and analysis you can trust

Join our community of Middle East readers to experience all of Al-Monitor, including 24/7 news, analyses, memos, reports and newsletters.

Subscribe

Only $100 per year.