Chesapeake Energy Corp (CHK)

[ogbull]

RIYADH, Saudi Arabia — Stung by falling oil prices, Saudi Arabia has cut spending and subsidies as part of harsh austerity measures that threaten the lavish welfare programs underpinning its stability.

The oil-exporting giant’s economy has gone from producing windfalls to deficits, and Saudi rulers increasingly struggle to provide the cushy government jobs, expensive state handouts and tax-free living that have long bought them domestic obedience.

The pivot to austerity — which also has been imposed by neighboring Gulf Arab oil monarchies — risks triggering unrest in a Saudi society that is conservative and particularly resistant to change, analysts and diplomats warn.

The cutbacks are seen as necessary by King Salman’s son, defense minister and head of economic planning, Mohammed bin Salman. The 30-year-old prince has raised eyebrows for overseeing leadership shake-ups at home and two wars abroad. Advisers say he also intends to wean the country off its overwhelming dependence on oil sales and reform a bloated and opaque public sector.

Oil prices have plunged by about 70 percent over the last year and a half. (Waseem Obaidi/Bloomberg)

“He understands that now is the moment to capitalize on low oil prices by cutting wasteful subsidies and reforming our economy to make us stronger,” said Fahad Bin Jumah, a Saudi economist and member of the country’s Consultative Assembly who has advised Prince Mohammed.

Oil prices have plunged by about 70 percent over the last year and a half, even falling below $30 a barrel this month, battering the world’s second-largest producer and jarring a society that has grown accustomed to easy money and extravagant consumerism. Oil revenue accounts for an estimated 90 percent of the Saudi government’s income, leading to last year’s large budget deficit of $98 billion, or about 15 percent of gross domestic product.

https://www.washingtonpost.com/world/middle_east/saudi-arabia-is-reeling-from-falling-oil-prices-and-it-could-get-much-worse/2016/02/25/0dee71a6-d1e2-11e5-90d3-34c2c42653ac_story.html?tid=a_inl