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Fuel subsidies are a growing burden for Riyadh and state oil giant Saudi Aramco. But comprehensive reform may be some way off given that laying the groundwork has barely begun.
Fuel subsidies and related pricing schemes are seen as a way to distribute hydrocarbon wealth across the Saudi population, thereby preempting social unrest. Riyadh subsidizes a range of products – including transportation fuel and gas feedstock for petrochemical producers. Beneficiaries include giant state-owned petrochemical firm Saudi Basic Industries Corporation (SABIC). Cheap gas enables its petrochemical exports to undercut other countries’ production costs, even when shipping costs are added.
But overall, the Kingdom’s economy is beginning to feel the weight of its ballooning subsidy program. The IMF estimated in 2011 that Saudi Arabia spends about 20% of its GDP supporting subsidies, including fuel subsidies. This proportion has continued to grow as subsidized prices in turn fuel ever higher demand growth. (CONTINUED - 727 WORDS)