Saudi Arabia hikes petrol prices by 40% at the pump

After $98bn budget deficit announcement, world’s leading oil producer to privatise state corps and slash subsidies.

Shaybah oilfield complex, Rub'' al-Khali desert, Saudi Arabia
Despite low oil prices, Saudi Arabia has maintained high output [Ali Jarekji/Reuters]

Saudi Arabia has raised domestic energy prices by as much as 40 percent after the world’s leading oil producer announced a record $98bn budget deficit on Monday citing rock-bottom global petroleum prices.

The budget deficit is the highest in the history of Saudi Arabia, but was not as big as some expected. The International Monetary Fund had projected a deficit of $130bn.

The kingdom has seen a sharp drop in revenues as oil prices have fallen more than 60 percent since mid-2014 to below $40 a barrel.

Public revenues are the lowest since 2009 when oil prices dived as a result of the global financial crisis. Saudi income for 2015 was 15 percent lower than projections and 42 percent less than in 2014.

In order to address the situation, the Gulf kingdom has set the price of 95 octane gasoline at 0.90 riyals ($0.24) per litre up from 0.60 riyals per litre – a hike of 40 percent. The price increase takes effect on Tuesday, the official SPA news agency said on its Twitter account.

The decision came hours after the ministry of finance said it will slash subsidies for electricity, water, diesel and kerosene over the next five years.

 Why is OPEC refusing to cut oil production?

Revenues were estimated at $162bn – well below projections and 2014 income, while spending came in at $260bn, finance ministry officials announced at a press conference in the capital, Riyadh.

“About 80-90 percent of government income comes from oil,” Walid Arab Hashem, an economist and former member of the Saudi Shura Council, told Al Jazeera.

But he said Saudi Arabia has huge foreign reserves above $700bn that it can use to finance the gap in the budget.

“It may also issue some bonds to borrow from the market depending which is better for it,” Hashem said from the Saudi city of Jeddah.

Huge reserves 

The budget document said any changes would be structured to minimise the negative effects on lower and middle-income citizens.

A number of structural economic reforms – including “privatising a range of sectors and economic activities” – would also be planned, the finance ministry added without giving details.

“If we look at the actual spending in 2016, it is very similar to the budget of 2015,” Hashem said. “There was no strain on banking and there was no strain on liquidity.”


Riyadh maintained high spending this year and launched an expensive military intervention in Yemen by tapping into the huge fiscal reserves it accumulated when oil prices were high.

“I don’t think Saudi Arabia is in any difficult position. It’s a very rich economy. It has huge reserves that have been piled up from 2005,” Hashem added.

“It has enough reserves that will last several years in the future even it draws $100bn a year.”

The leading member of Organisation of Petroleum Producing Countries (OPEC) has maintained high output despite requests from some members such as Venezuela to cut production to fix the prices.

“$140 a barrel was not sustainable and $30-45 still not sustainable. It is going to change,” Hashem said.

“Saudi Arabia has one of the lowest costs to produce oil in the world. By what logic are we expecting Saudi Arabia to increase the price of oil when Russia, America, or even Iran and Iraq – who have much higher costs for producing oil – are maintaining their prices.”

Source: Al Jazeera, News Agencies