Saudis Boost Gas Prices by 40%, Dismantle Welfare State To Wage War With U.S. Shale

Tyler Durden's picture

Earlier today, we parsed Saudi Arabia’s budget report in order to determine if the kingdom’s fiscal nightmare was better or worse than market expectations. 

As it turns out, it was better. This year’s deficit is expected to come in at around 15-16% of GDP, considerably below the 20% some analysts feared. For 2016, it looks as though the number should be somewhere in the neighborhood of 13%, broadly in line with expectations. 

Be that as it may, the Saudis are boxed in as long as they insist on, i) keeping oil prices depressed, ii) maintaining the riyal peg, and iii) holding subsidies steady. If something doesn’t give with at least one of those imperatives, then the kingdom will continue to burn through its SAMA reserves which fell by $12.55 billion in November from October.

The problem is that deviating from any of the points outlined above has consequences. Allowing oil prices to rise risks putting uneconomic US production back online, dropping the riyal peg would be a significant black swan event for markets and would represent a landmark break with three decades of precedent, and easing up on the subsidies risks creating the type of social unrest that occurred elsewhere in the region during the Arab Spring. 

Well it looks like when it came time to choose, the Saudis decided that the people will have to suffer because today, Saudi Arabia raised the price of domestic fuel by up to 40%.

And that’s not all. 

Prices for gas, diesel, kerosene, water and electricity were also raised.

Indeed, some Saudis were looking to fill up before the price hike:

"The kingdom's finance ministry also said it was considering plans to raise charges on public services and apply value-added tax (VAT) in cooperation with other Gulf Arab nations," Mid East Eye notes, adding that "public revenues are the lowest since 2009, when oil prices dived as a result of the global financial crisis." For those who might have missed it, here’s some helpful commentary and visual from Deutsche Bank which give you some insight into the subsidies and underscore just how “generous” the monarchy had been:

The largest energy subsidy beneficiary is the end-consumer in the form of fuel (petrol) subsidies. Bringing up the price of petrol to levels in the UAE, which earlier this year eliminated the petrol subsidy, could provide the government with USD27bn incremental revenues, or 20% of the budget deficit. However, this is a highly unlikely scenario given the demographic differential between KSA and UAE and the socio-economic impact that such an outcome (blended prices rising from USD0.11/l to USD0.5/l) could have within the country.

 


 

The Saudi government could look to increase electricity tariffs. This would be a challenge for residential consumption (51% of aggregate consumption) given the political/social impact, though it would present the highest incremental revenue benefit. Bringing up the electricity rates for industrial/commercial consumers to UAE levels could raise incremental revenues of USD3bn, which, while higher than those from the chemical sector feedstock impact, is still only 2.3% of the budget deficit. 

But even as the kingdom looks set to rollback the state assistance, one thing it's not skimping on is defense spending. Here's Bloomberg:

Saudi Arabia increased its military and security spending in 2015 by about 20 billion riyals ($5.3 billion), Economy and Planning Minister Adel Fakieh told reporters on Monday.

 

Fakieh attributed the rise to the kingdom's participation in Operation Decisive Storm, an intervention by a Saudi-led Gulf Arab coalition in Yemen's civil war.

 

The government had previously not disclosed the cost of its intervention in Yemen, which largely consists of air strikes.

We highlighted Saudi defense spending on Sunday when we noted that US foreign arms sales soared 35% in 2014 thanks in no small part to orders from Riyadh.

So while Saudi citizens may have to do a bit of belt tightening in the new year, the kingdom isn't about to ease off the regional warmongering because if there's anything more critical than preserving domestic stability, it's rolling back Iranian influence in the Arabian Peninsula by pushing the Houthis out of Sana'a. 

Actually, that's not true. There's something even more critical than that: persisting in the war of attrition against the US shale complex which much be crushed at all costs, even if means making life harder for everyday Saudis so the monarchy can buy itself some budget breathing room. 

We shall see if there's an attendant backlash among the Saudi populace. Who knows, it might just be that Saudi citizens decide to heed Bakr al-Baghdadi's recent call for a popular revolt, because at the end of the day, what's more absurd than soaring gas prices in the country with the most oil in the world?

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LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Dec 28, 2015 2:06 PM

WHAT?!?!?!?!?  Reductions in EBT?!?!?!  Attack, Dear Leader Obama, ATTACK!!!!  Fly Al Sharpton and Jesse Jackson over there to protest.

Cognitive Dissonance's picture

Don't worry bro. They are still fully connected to the fractional reserve banking system via the Saudi Arabian Monetary Agency and bow to the almighty fiat $dollar.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Cognitive Dissonance Dec 28, 2015 2:19 PM

This is getting hard to follow.

 

So now, the Saudi ruling family wahhabi crypto jews, are gonna gash their own populace, to import oil from Cushing at a discount, to sell to the Turks, who, in turn sell it to Israel, to keep ISIS (& the dollar) alive.

 

It all makes perfect sense. (excuse me now, I gotta go & watch that documentary on the HISTORY CHANNEL to remind me about how evil Hitler was BEFORE the Balfour Agreement was even realized).

NidStyles's picture

Seems to me the Jews like setting themselves up for failure, and this is just another example of it. 

Clint Liquor's picture

This ends with the 'Kingdom' being a smoking hole in the ground.

Baby Bladeface's picture
Baby Bladeface (not verified) Clint Liquor Dec 28, 2015 2:49 PM

Yemeni hill people sink half of Saudi Navy already, so important is military spending to increase.

Especially expensive US junk...

sgt_doom's picture

I knew somebody would GET IT!

And KR12P obviously GETS IT!!!!!!!!!!!!!!!

+1,000

sgt_doom's picture

Contrary to that University of Chi. faculty fart in the White House, the ONLY regime change I want to see most of all in the ME is Saudi Arabia --- time those royals went!

GRDguy's picture

When the heats on the chief, the tribe gets burnt.

Z_End's picture

The House of Saud is in it's death throes...

True Blue's picture

in its death throes?

Suffering some minor pain in order to make maximum gain.

The target is the American shale oil industry.

The accomplice is CONgress and the rest of the bought and owned .gov.

CONgress just lifted BOTH bans on oil exports and on foreigners owning farm and oil producing land.

Saudi Arabia only has to hold out a little longer, then buy up all of those American oil producers at bankruptcy prices.

Then watch how Arabian production suddenly drops; allowing the market price to rise again, turning all those 'bankrupt' American wells into profit bonanzas for the House of Saud; allowing them to export our 'strategic reserves' whilst hoarding their own production.

Funny, that they flooded the market 'before' they 'knew' that CONgress was even considering lifting those two crucial bans... wonder what exactly went on behind closed doors this past summer when the House of Saud rented out -what was it, the ENTIRE Four Seasons in Washington and visited their sock puppets (or is it suck puppets?) on Capitol Hill...

They get the oil wells, we get the shaft. And so it goes...

I did not down vote you btw.

mkkby's picture

In any price war, consumers are the winners.  The domestic oil sheiks are not your friend.  Don't cry for them.  They were doing everything they could to fuck you too.

The only real losers here are the dumb fucks who bought junk bonds for insanely uneconomic tar sand.  To make a little money, they gladly polluted your wells and caused earth quakes.  They thought they were getting something for nothing, so don't feel sorry for them either.

Now is your opportunity to trade down from gas guzzling SUVs and pick ups, that most likely never leave city streets.  Otherwise in a few years most of us here will be saying don't cry for your self inflicted wounds either.

KnuckleDragger-X's picture

Be careful about predicting the future Tylers, because she is a fickle bitch.........

bamawatson's picture

a man said "do not predict the end of the world, you can only be right one time"

juggalo1's picture

And even if you are right, no one pats you on the back.

lazysunday's picture

lol....i didn't think i would see it in my lifetime when the house of saud would make the entire region nothing more than a barren desert again. Hey saudi's better freshin up on your camel skills. 

Normalcy Bias's picture

Camel borne nomads - that's the life the Wahhabists deserve.

OregonGrown's picture

I think it is a BRILLIANT move by the Saudi's.... Cant have the world extracting oil out of sand and everywhere else they find it, and still be King/Sheik of the mountain!

Go through a little pain (.40 cent petro, instead of .25) and get rid of all competition!  SMART SMART SMART.....

Librarian's picture

This would be similar IMHO to an ancient astronomist taking credit for solar eclipse or a comet.

Much of what has happened economically in the past 8 years can be explained simply and without resorted to any elaborate conspiracy.

If you run the economy into the ground for whatever reason, people (taxpayers ) don't have money to buy things.  If people don't buy things, then the government on all levels starts getting into financial trouble.  At that point, the systemic poison spreads.

It's really that simple.

OregonGrown's picture

Baaaah... thank you for keeping it simple for us common folk to understand.

Dont you think that if the Saudi's capped production, the price of oil would go up? You know, economics 101, basic supply and demand...  The USA is notorious for asking the Saud's to do just that and have asked them to do just that many many times in the past. 

The reason the price is sliding ISNT because of declining demand, it is because of increased pumping AS WELL AS stolen Iraqi and Syrian oil flooding the market via Turkey via CIA USA elites.... plundering and stealing the riches of the occupied nation, during a time of crisis and war.  

Librarian's picture

I'm not sure which charts you are looking at (or not looking at) to conclude that demand is not soft.  If you can't show that demand is increasing then the rest of your argument doesn't follow.

We have arrived at an economic cul-de-sac as the end result of years of the Bernanke Put.  Even after years of QE priming, the economy did not magically spring back to life as Bernanke's Big Book of Economic Incantations and Spells (aka, textbooks) had promised.  Economic lessons that should have been learned over the past twenty years were simply ignored because they were not politically popular.  Not surprisingly the same systemic problems still plague our economic system.  If you have fouled your fuel source, it doesn't make any difference how often or how much dirty fuel (QE) that you use in efforts to prime the pump, your economy isn't going to restart easily, if at all. 

Here is another way to look at it.  By your same rationale, the governments of the US and Canada should pay to shut down half of the less profitable domestic oil producers.  Then oil prices and profits would then certainly rise.  Do you understand why that will not happen?  It's not due to any conspiracy.  It's simply that there is ever enough time to build a new seaworthy boat (economy) when the larger boat (economy) that you are on is sinking fast.  Even if you did manage to build that smaller seaworthy boat, would you truly be shocked if others more powerful than you voted to save themselves instead and voted you off your own boat?

If anybody wants to write a new book about how and why we are economically boned (schlonged?) going forward I have a good working title to offer: "The Economic Prisoner's Dilemma."

 

Farqued Up's picture

Yep, it's hard to get a rake on the velocity of money every time it changes accounts when there is no velocity. Eat it Snowdyke.

sgt_doom's picture

When it comes to chess, both the Russkies and the Persians are far, far more skilled than the Saudi camel fookers!

Francis Marx's picture

End of 25 cent saudi gasoline. Ok.. they are paying 35 cents now.

Normalcy Bias's picture

I'm looking forward to seeing the heads of Saudi royals rolling in their streets. It's only a matter of time.

mkkby's picture

Never happen.  As soon as the heat turns up, their private jets take the whole entourage to London.  Sitting on the tarmac and pilot on stand by as we speak.  Champagne on ice.

Antifaschistische's picture

The interesting take away is that much of the world is capable of scaling back their welfare state or public benefits if needed.  America on the other hand...ratchets the welfare state one direction only and can't scale back without a full scale revolt from Parasite Nation.   

Chuck DeBongo's picture

So the people of Saudi Arabia are going to pay higher prices so we can have cheaper petrol?

I might as well enjoy the ride while it lasts....!

FedFunnyMoney's picture

Daesh coup d'état in the KSA in 3...2...1...

Sudden Debt's picture

With Allies like that....

The US should raise oil import taxes to financially help it's own drillers.

Take a 25% rise for Saudi Oil and ZERO percent for domestic oil.

Let's see who wins that battle.

Duc888's picture

 

 

Sudden Debt : "The US should raise oil import taxes to financially help it's own drillers."

 

Nope, the deal was struck.  John Kerry,  Obama and NATO will never see that happen.

 

hongdo's picture

1970's gas lines in Saudi - Whoo hoo!

Dr. Engali's picture

Hey you dumb Saudi fucks, you know those people in the big palaces and multiple cars? They're the ones causing you pain while they continue to acquire sickening amounts of wealth. Maybe instead of taking the eCOnomic pain, that will continue to get worse regardless of what happens, you should string those goat humping fuckers up by their balls.

mkkby's picture

There's no pain.  The free shit army of goat fuckers are just as sedated as the free shit army of dindus here.   They ARE getting a slice of the pie, so there won't be any sheik beheadings until the free shit runs out.

honestann's picture

What a concept... predators-DBA-government willing to reduce spending.  Now, if only this starts to catch on.  Easy as 1, 2, 3.

step #1:  end the police state.

step #2:  end the welfare state.

step #3:  end the warfare state.

... and then ...

step #4:  end the debt state.

step #5:  end fiat and all fractional reserve practices.

... and finally ...

step #6:  end the state.

-----

I am quite certain that 99.999% of human beings on the planet have not even the faintest hint of an inkling how much better life would be at the end of this process.  Which is why it won't happen, and why humans are a failed species.

falak pema's picture

you are a walking talking syllogism : A perfect world for perfect people.

All good men are perfect. To live in perfect world let the good men rule.

Only problem: You are Alice in Wonderland.

Power does not belong to the perfect; as the perfect do not exist; when they get power they become the opposite.

C'est la vie !

honestann's picture

Here is one way to describe my "theory".

-----

No state (which is a fiction anyway, just a name for the worst human predators).

Everyone wears guns on their hips, or in their purse.

Human predators get shot dead the first, second or at most third time they try to screw with someone.

Then yes, the world would mostly be good people.  Why?  Two reasons.  The bad ones would be dead.  And the ones who consider being bad see how terrible are their odds, and change their minds (become good).

Many people answer the above with "but... but... what about bad people, they might hurt me".

Well, yes.  But the solution is not to give $100,000,000,000,000 to the absolute worst human predators to buy endless guns, ammo, tanks, bombers and so forth.  They killed far more human beings in the 20th century than ALL others.

The problem with "government" or any "authority" is this.  Not only are the people with the most power "not perfect"... they are the worstEvery.  Single.  Time.

In my life, the biggest risk and danger was always someone who considered themselves an "official" or "authority" or "the law".  And I don't try to harm anyone... ever.  And that's how it is for virtually all honest, ethical, productive, benevolent human beings.

Will earth ever be free of predators-DBA-government?  No.  Why?  Because humans are too insane and too stupid.  Will I ever be free of predators-DBA-government?  I am, out here in the middle of nowhere, 125km from the nearest human being and 250km from significant population.  Will I ever be 100.00000000% free of absolutely any risk of predators-DBA-government?  A few years after we finish our project, yes.  But then, I'll be living in outer space.

darteaus's picture

Just move to Detroit to see how life is without any state.

Have a nice time!

honestann's picture

It was mostly the state that destroyed Detroit.  I much prefer living out here in the extreme boonies, 125km from the nearest human being (no state).

Dark Daze's picture
Dark Daze (not verified) Dec 28, 2015 2:25 PM

Salman and his son are sick, sick, sick. Off with their heads.

css1971's picture

And so... It begins...

Librarian's picture

How many east Asian guest workers does it take to change a light bulb in the KSA?

Baby Bladeface's picture
Baby Bladeface (not verified) Librarian Dec 28, 2015 2:46 PM

How many east Asian guest workers it take to sharpen head chop axe?

Better double that figure and axes going overtime to be working.

NumberNone's picture

Is it a war on US shale or a continuation of a price war against Russia/Iran?  Does it matter?  

Duc888's picture

 

 

NumberNone: "Is it a war on US shale or a continuation of a price war against Russia/Iran"

 

BINGO!

It is IMPORTANT to note that John Kerry made a DEAL with the Sauds to flood the market to wallop Putin.

So all you out of work frackers out there.... you got John Kerry to thank for your unemployment.

Farqued Up's picture

Horseface is a mere puppet, a stupid Western Union type gofer.

Farqued Up's picture

Double posts suck, sorry

juggalo1's picture

The problem is there is currently a glut of oil resources with all the development and the economies not firing on all cylinders.  Saudi should have been more forceful when oil crossed $100 the other way.  Would have been better for all parties.  Now they are stuck as price takers, since not pumping would only reduce revenue further since no one else would cut back.

samjam7's picture

Well this is NOT the way to do it announcing a 40% price hike overnight and then spending the revenue on war toys! Bad boys!

Then again the Sauds needn't follw the IMF, World Bank playbook they won't have to worry about scolding from Lagarde. If anything we will have to see how the populace responds to this, as fuel price hikes of this magnitude usually seep through to other basic consumer goods and increase overall inflation quite substantially (thinking of Nigeria and Venezuela as two examples that went terribly wrong). 

The sauds must expect to have this under control otherwise they wouldn't pull it off, either this or they're super desperate!