A New Era for Saudi's Drivers

Long lines of cars stretched from the filling stations around the block in a scene never before seen in the world’s largest oil exporting nation as motorists rushed to fill up their cars before price rises were due to come in in the evening. A new era in Saudi motoring may have also been ushered in as this simple act underscored the economic impact of dramatically lower crude prices on a government budget that relies on it.

The rapidly announced deadline to chop government subsidies on petrol, water and electricity surprised Saudis, and some stations ran out of petrol and shut down in the storm of demand.

Global commentators and economists alike were not surprised by the move by the finance ministry, after the desert nation's deficit hit a historic high of more than US$80 billion following the collapse of oil prices last year, plummeting to below US$40 per barrel from US$100 just a year and a half ago.

The Saudi royal family has controlled the country for decades, with the simple rule of no taxation, hence no representation. Citizens do not pay income tax and they receive free education, healthcare and heavily subsidized utilities. After the cuts were announced on Monday, and if the reaction on social media is an accurate gauge of public sentiments, there is the possibility of economic and even political reforms.

Hashtags on the budget became a trending topic on Twitter as Saudis reacted, tried to comprehend and debated the unfamiliar situation. A social media observer, who opted to remain anonymous, said, "The views run the gamut from totally angry to extremely defensive to celebratory." 

The 2016 fiscal budget revealed the proposed reforms in detail. The government’s strategy to reduce deficit includes cutting spending and raising revenues from taxation and privatization. Even the prices of tobacco and soft drinks could rise through new taxes. These are signals that a change is coming for the region.

"The era of plenty has come to an end. This is it. The party is over," a local journalist wrote about a government that did not adequately address the challenge to diversify an oil-based economy as long as prices were high. Now, the government is signalling that "oil will be in the US$30-US$40 range for some time".

All the oil-dependent Gulf States are grappling with the new reality of lower revenues, and they have begun tightening the belt, something they are probably not used to doing. But Saudi Arabia, which is the largest economy in the region, has taken it further with measures that have a direct effect on local prices.

Read about how the UAE is weathering the storm.

"I think the tension is that a lot of people feel that 'the state is spending a lot, but I still don't have a lot' and it's not going to get easier, and people know that," said one observer.

The neighbouring monarchies will be observing the situation and the reaction of the Saudi people – whether they will complacently accept the less-but-still generous welfare system without compromising social peace.

Some observers think that in some ways, it's a blessing. But as the lines grow at the petrol stations, many have commented on the crazy waiting lines for petrol. From an outsider’s point of view, though, the price at the pump may have gone up by 50%, but it is still less than US$1 a gallon.

Read also: Will Iran save the world's carmakers?

image: npr.org