Indirect Energy Subsidies and their Effects on Growth of the Local Demand in Saudi Arabia during 2001-2010

Abstract

Despite the fact that the Kingdom of Saudi Arabia is the largest oil exporter, it is also one of the largest energy consumers per capita in the world, which leads to more concern about the future of energy in the kingdom. This is due to the governmental subsidies in the form of restricted low prices for domestic oil, natural gas, gasoline, and diesel compared to worldwide prices. The study aims to clarify the size and effect of governmental subsidies. As a result, the price gap between domestic prices and international prices increased rapidly by an average of 5.5-8% annually. This led to a rapid growth of the subsidies during the period 2001-2010. The study showed that the subsidies reached one trillion and third of trillion of S.R. In addition, this study showed that a cointegration exists between the rapid growth of local energy demand and the indirect governmental subsidies with one direct Granger queasily from the indirect governmental subsidies. The results showed a great need for a reform in the governmental subsidies system and energy policy to achieve desired Sustainable development.