August 15, 2016


Why Low Oil Prices Might Increase Economic Freedom in the Persian Gulf (Owen Morgan & James M. Roberts / August 15, 2016, Daily Signal)

In 2014 the International Monetary Fund reported that Saudi Arabia needed oil prices of at least $106 per barrel to maintain the government spending level.

Today, the House of Saud recognizes that oil prices might not come back any time soon. To cut back, it has increased gasoline, diesel, and kerosene prices, although they remain far below international averages. It also increased prices on water and electricity. In the future, Saudi leaders plan to implement a sales tax and privatize health care and education.

Saudi Arabia isn't the only oil producer suffering. Thanks to substantial oil and natural gas reserves, Qatar is the wealthiest nation in the world per capita. But, because the country produces few products other than oil, its budget was also hard hit by the collapse of oil prices.

In November 2015, the ruler of Qatar, Emir Sheik Tamim, announced that the country could "no longer provide for everything" and admitted that heavy subsidization had led to "dependency on the state to provide for everything".

As a result, Qatar is ending its fuel subsidies to reduce its budget deficit. This reform represents a significant change of policy from 2014, when the IMF reported that Qatar had the highest per person energy subsidies in the world.

Saudi Arabia and Qatar are not alone--several other nations have recently cut subsidies that had been in place for a long time. These include big oil producers United Arab Emirates, Kuwait, and Oman.

We should have done this for them decades ago via gas taxes.

Posted by at August 15, 2016 8:17 PM