Oil Price Fall Leaves Gulf States With Difficult Reform Choices

Subsidies distort markets, and because consumers take the low prices for granted, governments struggle to restore fair-market prices. States that rely heavily on oil revenues struggle over whether to dip into reserves to continue subsidies or enact unwelcome reforms. Stability for many oil-rich states in the Persian Gulf hinges on oil revenues. The price of oil has fallen by half since summer 2014. “Economists warn that the region will slip further into a hole of oil dependence unless rationalised spending combines with measures to boost private sector productivity,” writes Simeon Kerr for the Financial Times. Rich Gulf states invested in subsidies and infrastructure development, aimed at quelling anger after the wave of Arab spring protests in 2011, and slowing such investments could heighten public anger. Saudi Arabia is reportedly behind OPEC decisions to maintain oil production levels despite the sinking price. Meanwhile, the Saudi public sector is described as “bloated, inefficient and expensive.” – YaleGlobal

Oil Price Fall Leaves Gulf States With Difficult Reform Choices

Amid low oil prices, Gulf states struggle with timing on reforms to end subsidies and public spending – at the risk of provoking public anger
Simeon Kerr
Wednesday, February 4, 2015
Copyright The Financial Times Limited 2015.

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