150THE POLITICS OF REFORMreduce welfare spending, especially on the energy subsidies that have
undermined their export- led economies. Reforms weakened the notion
that citizens were somehow entitled to the discounts they were getting.
In most cases— and indeed everywhere until December 2017— prices
were raised without replacement benefits.
That month, however, Saudi Arabia began distributing its Citizen’s
Account cash replacement benefits for low- and middle- income families.
Outside Saudi Arabia, none of the other Gulf monarchies converted lost
subsidies to cash. None of the sheikhdoms increased democratic partici-
pation either, as some scholars prescribed.
How could this happen, given that decades of scholarship suggest that
such reforms are illegitimate? Were the scholars wrong? Or did some-
thing change on the ground? The correct answer is probably the latter. A
new understanding of energy pricing has emerged. These days, subsidies’
harmful effects on demand overshadow their beneficial effects on polit-
ical legitimacy. At the same time, intervening circumstances provided
political cover for reforms.
The chief driver for this momentous policy change is the unmistak-
able creep of domestic consumption into overall production, rising from
5 percent in 1973 to 14 percent a decade later, 18 percent in the mid- 2000s,
and 25 percent today (recall figure 6.1). The unmistakable and burgeon-
ing threat to oil exports was itself a call to action.
A second factor is the cost of the subsidies, in fiscal terms. In late
2014, oil prices fell and stayed low for several years. Prices recovered
somewhat in 2017 but remained far below earlier boom levels. Since
governments in the region depended on oil revenues for up to 90 per-
cent of their budgets, reduced oil prices created pressure to reduce
state spending. Subsidies were the preferred target.
But oil prices don’t explain the full story. Fiscal pressure was much
more intense during previous periods of low oil prices, yet Gulf states
left domestic subsidies untouched. In 2015, regimes responded to low
prices quickly, launching subsidy reforms that technocrats had prepared
in advance (see figure 9.3). Two of the wealthiest petrostates, Kuwait and
Qatar, raised prices despite fully funded national budgets. Most of the
others had crossed into deficit spending, but some retained substantial