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Gasoline Price Reform in Saudi Arabia
Instant Insight
September 1, 2019 KS--2019-II08
Data Insights
Mohammad Al Dubyan and Anwar Gasim
Gasoline Price Reform in Saudi Arabia
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Gasoline Price Reform in Saudi Arabia
About KAPSARC
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Gasoline Price Reform in Saudi Arabia
Gasoline Price Reform in Saudi Arabia
Introduction
Saudi Arabia has been adjusting gasoline prices on a quarterly basis since the start of 2019, with the most
recent adjustment occurring on July 14, 2019. These adjustments depend on changes in international oil
prices, and are smaller than the major changes in gasoline prices that occurred because of the energy price
reforms of 2016 and 2018.
The negative effects of subsidized gasoline prices
Many governments around the world regulate domestic energy prices, allowing consumers to purchase
energy at low and stable prices. Cheap energy is particularly important for lower-income households.
However, subsidized energy prices lead to several negative effects. First, they are regressive: higher-income
households benet more from subsidized energy prices than lower-income households. According to Saudi
Vision 2030’s Fiscal Balance Program, lower-income households in Saudi Arabia accounted for only around
30% of energy subsidies. Providing subsidized energy is therefore an inefcient way of supporting lower-
income households. Second, low energy prices lead to above average consumption levels; in other words,
wasteful consumption. The overconsumption of gasoline is also associated with higher trafc congestion,
more trafc accidents, increased air pollution, and higher carbon dioxide (CO2) emissions. Third, subsidized
energy prices provide little incentive for households to invest in energy efciency measures. In Saudi Arabia,
subsidized gasoline prices encouraged households to purchase larger cars with lower fuel economies. Finally,
subsidized energy prices can also strain government budgets.
Energy price reform and the Fiscal Balance Program
Saudi Arabia’s economy is highly dependent on oil exports, which account for the majority of its government
revenues. However, revenues from oil exports can be volatile. After the fall in international oil prices in late
2014, the Saudi government recorded a budget decit of over 380 billion Saudi riyals (SAR) in 2015, according
to the Saudi Arabian Monetary Authority.
The Fiscal Balance Program, one of the ‘key executive programs’ of Saudi Vision 2030, was launched in 2016
to increase the sustainability of government revenues while optimizing government expenditure. It aims to
achieve a balanced budget by 2023 and encompasses several important initiatives, including the introduction
of a value added tax, expat levies, and energy price reform. Energy price reform is one of the Fiscal Balance
Program’s most important initiatives. It aims to remove the subsidies on energy, thereby increasing domestic
energy prices. The energy price reform is expected to continue gradually over the coming years until domestic
energy prices reach international benchmarks.
To minimize the negative impact of the Kingdom’s energy price reform on lower-income households, in 2018
the government launched the Citizen’s Account. This program provides cash transfers to eligible lower-
income Saudi households to compensate them for higher gasoline prices, higher electricity prices, and the
indirect negative effects of both policies. There are currently 12.4 million beneciaries (including household
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Gasoline Price Reform in Saudi Arabia
dependents) registered in the program. Energy price reform and the Citizen’s Account together provide
support to lower-income Saudi households while raising government revenues and delivering numerous
benets for the Saudi Economy.
Historical gasoline prices and energy price reform
Between 2007 and 2015, gasoline prices in Saudi Arabia were xed. Premium 95-octane gasoline was sold
at 0.60 Saudi riyals (SAR) per liter, while 91-octane gasoline was sold at 0.45 SAR per liter (Figure 1). On
December 29, 2015, Saudi Arabia increased gasoline prices (by reducing gasoline subsidies) for the rst
time in almost a decade. The prices for 95-octane and 91-octane gasoline went up to 0.90 SAR and 0.75
SAR per liter, respectively. This change was part of what is typically referred to as the rst wave of energy
price reform. On January 1, 2018, gasoline prices underwent even larger increases, rising to 2.04 SAR
per liter for 95-octane gasoline and 1.37 SAR per liter for 91-octane gasoline. This change was part of the
second wave of the Kingdom’s energy price reform. These price reforms brought the domestic gasoline
price in Saudi Arabia close to international market prices. There have been subsequent adjustments
(both up and down) to domestic gasoline prices, aligned with uctuations in international oil prices. The
adjustments have recently been implemented on a quarterly basis and are expected to continue to mirror
international oil prices.
Figure 1. Gasoline prices for 91- and 95-octane gasoline (Q4 2015-Q3 2019).
Source: KAPSARC.
0.0
0.5
1.0
1.5
2.0
2.5
Q4-2015 Q2-2016 Q4-2016 Q2-2017 Q4-2017 Q2-2018 Q4-2018 Q2-2019
Domestic gasoline prices
(SAR per liter)
91 gasoline 95 gasoline
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Gasoline Price Reform in Saudi Arabia
Gasoline Price Reform in Saudi Arabia
Sources: GIZ, KAPSARC and GlobalPetrolPrices.com.
In 2010, Saudi Arabia had some of the lowest domestic gasoline prices globally (Figure 2). The price of
premium 95-octane gasoline was 0.60 SAR (0.16 US$) per liter, almost one tenth the price in France, for
example. This large price differential was due to the Kingdom’s fuel subsidies and the high gasoline taxes
in France, as in many other European countries, where more than half of the price of gasoline can be tax.
Following Saudi Arabia’s two waves of energy price reform and several subsequent price adjustments, the
Saudi 95-octane gasoline price is now 2.18 SAR (0.58 US$) per liter, almost at the level of the international
market price. Nevertheless, gasoline in Saudi Arabia is still cheaper than in many other countries due to its
lack of gasoline taxes.
Figure 2. Comparison of premium (95-octane) gasoline prices in mid-November 2010 and mid-July 2019.
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1
2
3
4
5
6
7
8
Saudi
Arabia
Saudi
Arabia
Kuwait Nigeria Egypt Malaysia U.S.
U.S.
Russia
Russia
China
China
Canada
Canada
Japan
Japan
U.K.
U.K.
France
France
95 - Occtane gasoline price
(SAR per liter)
2010
0
1
2
3
4
5
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Kuwait Nigeria Malaysia Egypt
95 - Octane gasoline price
(SR per liter)
2019
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Gasoline Price Reform in Saudi Arabia
Figure 3. Annual gasoline consumption (2002-2018).
Source: JodiOil
The impact of fuel price reform on gasoline consumption in Saudi
Arabia
Access to energy is central to human well-being and economic growth, facilitating important services such
as heating, cooling, and transportation. Gasoline is a key transportation fuel in many countries. In 2018,
Saudi consumers used over 30 billion liters of gasoline. Most of this fuel was used in cars, motorcycles, and
light trucks, while a small percentage was used in light aircraft.
Gasoline consumption in Saudi Arabia has grown rapidly over the past several decades. Between 2002 and
2015, gasoline consumption grew from 14.9 to 32.9 billion liters (Figure 3), growing by an average of 6.3%
annually. Following the implementation of energy price reform in Saudi Arabia at the end of 2015, gasoline
consumption appears to have attened out. Gasoline consumption in Saudi Arabia decreased by 6.4%
between 2017 and 2018, following a large increase in the price of gasoline.
0
5
10
15
20
25
30
35
40
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Gasoline consumption (billion liters)
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Gasoline Price Reform in Saudi Arabia
Gasoline Price Reform in Saudi Arabia
Figure 4. Net exports of gasoline from Saudi Arabia.
Source: JodiOil
The impact of fuel price reform on Saudi Arabia’s gasoline imports
and exports
Saudi Arabia’s fuel price reform has also had an impact on its gasoline trade. Between 2002 and 2015,
Saudi Arabia was a net importer of gasoline, despite expansions in its domestic rening capacity. During
this period, economic development, population growth, and low gasoline prices contributed to a rapid
growth in the country’s gasoline consumption. Over the past several years, Saudi Arabia has accelerated
the expansion of its rening capacity, which, combined with fuel price reform, has helped reduce the growth
in its domestic gasoline consumption. This, in turn, helped Saudi Arabia become a net exporter of gasoline
from 2016 (Figure 4).
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-6
-4
-2
0
2
4
6
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Net exports of gasoline (bilion liters)
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Gasoline Price Reform in Saudi Arabia
The economic and environmental impact of fuel price reform
Fuel price reform leads to several positive economic and environmental effects. A KAPSARC study,
“Gasoline Demand, Pricing Policy, and Social Welfare in Saudi Arabia” (Atalla, Gasim and Hunt 2017),
modelled gasoline demand in Saudi Arabia. It showed that higher gasoline prices in 2016 resulted in an
increase in government revenues of 8 billion SAR and an overall annual economic gain in excess of 2
billion SAR for the economy. Since higher gasoline prices reduce gasoline consumption, they also help
reduce congestion and car accidents, and mitigate CO2 emissions and other forms of air pollution from
cars. Reducing these external costs raises the total welfare gain for the Saudi economy to over 6 billion
SAR annually. An update to that study, currently in print, reveals that higher gasoline prices at the start of
2018 generated an additional revenue uplift of around 25 billion SAR for the government and a total annual
welfare gain of almost 10 billion SAR. Some of the revenue uplift was used in the Citizen’s Account, to help
lower-income households pay for their energy consumption.
Energy price reform has signicantly contributed to Saudi Arabia’s climate change mitigation efforts.
Typically, burning one liter of gasoline produces around 2.3 kilograms of CO2 emissions. Gasoline
consumption in Saudi Arabia resulted in around 74.9 million tonnes of carbon dioxide emissions in 2018.
KAPSARC’s decomposition analysis in the forthcoming paper shows that the rst wave of gasoline price
reform in 2016 resulted in almost 3 million tonnes of avoided CO2 emissions. It also shows that the second
wave of gasoline price reform in 2018 resulted in more than 4 million tonnes of avoided emissions. These
avoided emissions (measured on an annual basis) will likely accumulate over the coming years, delivering
larger cumulative reductions in CO2 emissions compared to a business-as-usual scenario in which gasoline
prices did not change.
Saudi Arabia’s energy price reform has provided many benets associated with helping mitigate the rapid
growth in Saudi Arabia’s domestic gasoline consumption. These include helping the Kingdom to improve
its position as a net exporter of gasoline, increasing government revenues, generating economic/welfare
gains for the Kingdom, and reducing the country’s CO2 emissions, supporting its climate change mitigation
efforts. Furthermore, the reforms will likely encourage consumers in Saudi Arabia to invest in more fuel
efcient cars, leading to further economic and environmental benets in the long run.
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Gasoline Price Reform in Saudi Arabia
Gasoline Price Reform in Saudi Arabia
Atalla, Tarek, Anwar Gasim and Lester C. Hunt. 2017. “Gasoline Demand, Pricing Policy, and Social Welfare in Saudi
Arabia.” KAPSARC Discussion Paper.
https://www.kapsarc.org/wp-content/uploads/2017/03/KS-2017-DP04-Gasoline-Demand-Price-Policy-and-Social-
Welfare-in-Saudi-Arabia.pdf
References
About the Authors
Mohammad Al Dubyan
Anwar Gasim
Mohammad is a researcher in KAPSARC’s Climate and Environment program. His
research focuses on energy demand and energy efciency. He is currently part of a project
modelling energy demand in Saudi Arabia and estimating the economic impacts of energy
price reform. He is also modelling Saudi Arabia’s residential building stock to assess energy
efciency retrot options. Mohammad holds an M.Sc. in Renewable and Clean Energy from
the University of Dayton, United States.
Anwar is a Research Fellow in the Climate and Environment program at KAPSARC. His
research focuses on energy demand, energy prices, and energy efciency. He leads a
project modelling energy demand in Saudi Arabia and estimating the economic impacts of
energy price reform. He has published several journal articles in leading energy economics
journals. Anwar holds an M.Sc. in Electrical Engineering from KAUST, Saudi Arabia.
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Gasoline Price Reform in Saudi Arabia
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