Jim_Krane]_Energy_Kingdoms__Oil_and_Political_Sur

90WE HAVE A SERIOUS PROBLEM

be tricky. The policies other governments might respond with— reducing
spending or imposing taxes— are unavailable to the Saudi regime, in
Gause’s view, since they would “challenge the basis of the oil state the
al- Saud family has built since the early 1970s, with uncertain political
consequences.”^16
Whether stated outright or inferred, the subsidies- as- rights theme
remains a bedrock tenet of rentier scholarship: Benefits such as energy
subsidies are sacrosanct. My price elasticity exercise in the previous
chapter— showing the potential for dramatic reductions in energy
demand— is a pipe dream. Or is it?
By 2010, the bloated Gulf social contract was headed for its first stress
test. Years of oil prices near $100 per barrel had brought temporary relief
but had also further cemented the Gulf regimes’ dependence on cash
from oil and gas exports. Meanwhile, their growing populations were
clamoring for more of those same export commodities. Regimes were
locked into providing increasing amounts of exportable energ y at prices
that, for the most part, didn’t even cover their costs. Rulers had painted
themselves into a corner. The more energy they gave away at home, the
less they could sell at market prices. Al- Rumhy was right. Subsidies were
a governance trap. Left unaltered, they could strangle the economy.
Rulers were forced to address subsidies. But they didn’t need to reduce
or abolish all welfare benefits, only the most damaging ones. And to see
which are most damaging, we have to look deeper at the fundamental
difference between subsidies on energy and other welfare benefits, such
as subsidized housing or state jobs. It’s a distinction that may prove cen-
tral to the survival of the monarchies.

ENERGY SUBSIDIES ARE DIFFERENT

There are important differences between the distribution of rents and
the giving away of in- kind resources. Both represent sources of fiscal
pressure on governments, which become especially relevant at times
when oil export earnings are down. But the domestic distribution of