Energy Costs in Saudi Arabia if Brent Oil Hits $60 — Impact on Low-Income Households

A Brent crude price of \$60 per barrel would significantly alter the energy cost landscape in Saudi Arabia. While historically benefiting from subsidized energy, low-income households earning under €1,500/month could face rising expenses as the Kingdom adjusts domestic pricing policies in response to lower global oil revenues. Understanding these changes is crucial for managing household budgets.

How \$60 Brent Crude Affects Domestic Energy Prices

Saudi Arabia, as a major oil exporter, relies heavily on crude sales for government revenue. When Brent crude trades at \$60 per barrel, compared to higher price points, government income decreases. This reduction often prompts a review of costly domestic subsidies, including those on electricity and transportation fuels. Since 2016, Saudi Arabia has gradually reformed these subsidies to improve fiscal sustainability. At \$60/barrel, the impetus for further subsidy reductions strengthens, directly linking international oil prices to the tariffs paid by consumers. For instance, the price adjustments of 2018, which saw increases in electricity and petrol, were partly driven by such fiscal pressures.

Country-Specific Factors: Subsidy Reform and Household Consumption

Saudi Arabia's energy consumption patterns are characterized by high per capita usage due, in part, to historical subsidies and climate. An average low-income household in Saudi Arabia uses significant amounts of electricity for air conditioning, especially during hot summer months. While the government has implemented tiered pricing structures that charge higher rates for greater consumption, even the lowest tiers are subject to adjustments. For unleaded 91 gasoline, a popular fuel, prices are set by the government based on a benchmark related to international prices, albeit with a lag and a ceiling/floor. If Brent crude stabilizes at \$60, the government is less able to absorb the difference between international market prices and heavily subsidized domestic rates. This scenario increases the likelihood of further tariff hikes, even for basic consumption.

Concrete Cost Example for a Low-Income Household

Consider a low-income household in Saudi Arabia earning €1,000/month. Based on historical consumption patterns and potential subsidy adjustments at \$60 Brent crude, let's estimate energy costs. Assume monthly electricity consumption averaging 2,500 kWh, typical for a household with air conditioning. Under a revised subsidy scheme, the first 2,000 kWh might be priced at approximately SAR 0.18/kWh, and the subsequent 500 kWh at SAR 0.30/kWh. This would result in an electricity bill of (2,000 * 0.18) + (500 * 0.30) = SAR 360 + SAR 150 = SAR 510 (€127.50). For transportation, if the household consumes 100 liters of unleaded 91 gasoline per month, and the price is adjusted to SAR 2.00/liter, this adds SAR 200 (€50) to expenses. Total estimated monthly energy costs for this household could reach SAR 710 (€177.50). This represents 17.75% of their €1,000 monthly income, a significant portion that could impact disposable income for food, housing, or healthcare.

What Low-Income Households Can Do

At a Brent price of \$60/barrel, proactive steps become essential.

1. Energy Efficiency: Invest in energy-efficient appliances where possible, especially air conditioning units, which are major electricity consumers. Even smaller, gradual upgrades or diligent maintenance can yield savings.

2. Transportation Optimization: Carpool, combine errands, or consider public transport if available in your area to reduce fuel consumption. Regular vehicle maintenance also improves fuel efficiency.

3. Budgeting and Awareness: Closely monitor monthly energy bills and track consumption. Understanding the tiered pricing structure can help identify consumption patterns that lead to higher costs. Some government programs or utilities might offer advice on energy-saving practices.

4. Seek Government Assistance (if available): Stay informed about any potential government support programs or social safety nets designed to mitigate the impact of rising costs on low-income families, which may be introduced or expanded during periods of fiscal adjustment.

While a \$60 Brent crude price might seem low on a global scale, its implications for Saudi Arabia's fiscal health can lead to domestic energy price adjustments that disproportionately affect low-income households. Proactive management of energy consumption and close attention to government policies are key to navigating this scenario.

Try the PriceShock simulator at https://priceshock.app to model your own scenario.