The Washington Post has an interesting story about the impact of lower gas prices — meaning the overall price drop since June, taking into account the recent uptick — on consumers in Saudi Arabia. While the government might one day have to make a decision about lowering oil output, thus letting prices climb again, regular citizens aren’t noticing much difference. That’s because Saudis pay about 45 cents a gallon to fill up their vehicles, thanks to government subsidies.
In Saudi Arabia, the general response to the drop in global oil prices by half — from more than $100 a barrel six months ago to around $50 now — is a shrug. Remember all those $60 fill-ups at U.S. pumps when gas was running close to $4 a gallon over the past few years? While your wallet was getting hammered, Saudi Arabia’s was getting stuffed thick. The kingdom has more than $750 billion in cash reserves, which is more than enough to keep the lights on and stave off panic over oil markets.
Not only is the government not sweating the reduced price of oil, it’s continuing with an ambitious program of public works to benefit citizens.
the government could go seven or eight years without trimming back its plans, simply by using its massive reserves, which are equal to 100 percent of annual gross domestic product, to cover budget deficits. More likely … the government would monitor oil prices closely for about 18 months and rethink strategy if they did not rebound.
Saudi Arabia has prospered over the decades thanks, in part, to protection from the U.S., the world’s most prolific consumer of oil. According to this timeline on PBS’s “Frontline” program:
1940-45: Although Saudi Arabia officially maintained neutrality through most of the war, the U.S. began to court the kingdom as it realized the strategic importance of Saudi oil reserves. In 1943, President Franklin Roosevelt made Saudi Arabia eligible for Lend-Lease assistance by declaring the defense of Saudi Arabia of vital interest to the U.S. In 1945, King Abdel Aziz and President Roosevelt cemented the tacit oil-for-security relationship when they met aboard the USS Quincy in the Suez Canal.