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Wednesday, February 24, 2016

Demography and Oil in Saudi Arabia and Venezuela

Venezuela and Saudi Arabia have, respectively, the two largest proven reserves of oil in the world, according to the CIA World Factbook. In both cases, the governments have used the income from oil to support the population. Thus, in both countries, there is relatively little going on economically beyond oil production. But there are two problems: (1) the price of oil has dropped, while (2) the populations keep growing. At the moment, the two countries have nearly equal population sizes of 31 million, and in each case 37% of the population is under 20. You can imagine that these young people have expectations. Indeed, here's a list of some of the "perks" for Saudis, according to a CNN Money story from last month:
-Heavily subsidized gas (It used to be 16 cents a liter. Now it's gone up to 24 cents.)
-Free health care
-Free schooling
-Subsidized water and electricity
-No income tax
-Public pensions
-Nearly 90% of Saudis are employed by the government -Often higher pay for government jobs than private sector ones
-Unemployment benefits (started in 2011 in reaction to the Arab Spring)
-A "development fund" that provides interest-free loans to help families buy homes and start businesses.
Venezuela is not quite as generous with its citizens, although I suspect the average Venezuelan wishes it were so. In Venezuela, as in Saudi Arabia, the price of gasoline has risen as the government revenues have declined. This contrasts, of course, with most of the rest of the world, where lower oil prices actually translate to lower prices at the gas pump.

It seems unlikely that oil prices will remain at this low price into the future, but it may be a long time before they reach the levels of just a couple of years ago. For the moment, Saudi Arabia seems to be trying to drive competitors away, especially as Iran re-enters the world market. But all the while both Saudi Arabia and Venezuela have growing numbers of young people--numbers that will continue to increase into the foreseeable future since the TFR in Saudi Arabia is 2.9 and it's 2.5 in Venezuela. The result of population growth in the face of low oil prices in Venezuela will probably be a change of government. It is hard to see how Maduro can hang on. In Saudi Arabia the result will probably be a disgruntled population that has to swallow the consequences. It is not a country that tolerates dissent. Indeed, in Richard Engel's new book, which I discussed yesterday, he suggests that Saudi Arabia has provided a role model of sorts for ISIS.


  1. Great material on KSA. Question is: when will this system of patronage (bribing citizens) be no longer economically viable? And then what happens? Would love to hear your thoughts.

    1. I think Saudi Arabia has enough other wealth (investments outside of the Middle East) and a sufficiently repressive government to hang on for quite a while. Venezuela is much more precarious.