Skyscrapers and residential property sits on the city skyline seen through the window of a skyscraper under construction in Riyadh. Saudi Arabian stocks led Gulf Arab markets lower after oil extended its slump from the lowest close since 2004. (Waseem Obaidi/Bloomberg)

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.

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Light trails from traffic illuminate highways surrounded by residential buildings in Riyadh. 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.

Saudi Arabia, a U.S. ally and absolute monarchy, has for decades managed to ride out manic oil-price fluctuations, amassing astonishing revenue that has financed a healthy cushion of backup foreign-currency reserves worth hundreds of billions of dollars.

But in October, the International Monetary Fund warned that the government, which projects a deficit of $87 billion for 2016, could run out of money within five years if it did not tighten spending.

In response, Prince Mohammed pushed a raft of cost-cutting measures late last year that included a partial lifting of costly subsidies on gasoline, electricity and water. Authorities have reined in public spending, imposed hiring freezes and halted work on infrastructure and real estate projects. Officials talk about privatizing industry, including the prized national oil company.

The prince even discussed imposing taxes, a sensitive subject for Saudis, during an interview published last month by the Economist. “We’re talking about taxes or fees that are supported by the citizen,” he told the magazine, although he explicitly ruled out imposing income taxes.

For many here, austerity has not been easy.

Shopping centers no longer fill with patrons as they used to. Business owners complain of anemic sales. And many Saudis, even those who flaunt luxury cars and live in palatial homes, seem increasingly concerned about personal finances.

“Look, I’m not going shopping as much, and I’m not spending like I used to,” said Mohammed Abdullah, 25, an employee at a government-run charity in the capital, Riyadh. “I’m spending more money on gas these days.”

Businesses say they have had to increase prices to cope with the rising costs from subsidy cuts. “We’ve basically stopped hiring, too,” said Mohammed, a manager of a company in Jiddah that imports European foods. He asked that his full name not be used because of concerns over repercussions for his business.

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The oil crash has rippled beyond Saudi Arabia, spurring similar subsidy cuts and hiring freezes among fellow members of the Gulf Cooperation Council (GCC), a regional political and economic union of six petroleum-rich Gulf Arab monarchies. The United Arab Emirates, Qatar, Oman and Bahrain have joined Saudi Arabia in austerity and appear close to finalizing a GCC-wide value-added tax that could come into effect in 2018.

Analysts say the moves signal recognition in these countries that rising international competition in energy production means the days of $100 or more for a barrel of crude oil may forever be a thing of the past.

“I think there is growing recognition here that we need reform,” said Khalid al-Dakhil, a Saudi analyst based in Riyadh.

But reforms could undo a bargain that for decades has preserved stability in Saudi Arabia and its smaller neighbors, where inflated government salaries and benefits including free health care and education, as well as handsome cash transfers, have also largely pacified citizens and fostered a high-spending culture. Range Rovers, Gucci bags and other luxuries are consumed like mundane objects in these countries.

“The Gulf Arabs are looking vulnerable, and I don’t know if they can weather the storm,” said Labib Kamhawi, a Jordan-based analyst.

In recent years, Saudi Arabia’s bulging young population — more than two-thirds of its 22 million citizens are younger than 30 — has stretched the welfare state thin and caused unemployment to balloon. Thousands of low-level princes rely on a vastly expensive royal payroll. And the austere form of Sunni Islam observed in the country denies adequate job and other opportunities to women, whose participation in the workforce is generally a key component of economic prosperity.

“The bottom line is that this is a state that is resistant to change, opaque in how it functions at almost every level and looking especially vulnerable at the moment,” said Christopher Davidson, an expert on Persian Gulf countries who teaches politics at Durham University.

Whether the Gulf Arab oil producers — all U.S. allies — can avoid Arab Spring-like instability may depend on what happens with Saudi Arabia, analysts and diplomats say. The kingdom acts as a big brother in terms of defense and political leadership for the GCC, but the kingdom’s attention has shifted to costly foreign entanglements overseen by Prince Mohammed.

The prince became second in line to the throne after his father became king last year. The prince then launched a war in Yemen against Iranian-aligned insurgents and has boosted support for rebels in Syria’s civil war.

[Yemeni rebels pose a rising threat in southern Saudi Arabia]

The moves are meant to parry the influence of Iran, Saudi Arabia’s regional chief competitor, but they have alarmed rival royals who prefer the kingdom’s traditionally cautious approach to foreign policy. Saudis, moreover, quietly express concern over the sustainability of Prince Mohammed’s expensive foreign projects during lean domestic times.

“I think there is a sense here of recklessness at the top levels,” said one prominent Saudi with links to senior leaders who spoke on the condition of anonymity because of concern over retribution.

Still, in public, Prince Mohammed earns praise here.

“He knows how to keep our economy strong,” said Faisal bin Ahmed, 36, co-owner of an events management company in Riyadh. He owns four luxury vehicles, including a Bentley, and flashes around a snakeskin wallet.

Yet even the wealthy aren’t immune to the prince’s cost-cutting policies.

Fatn al-Shehir, 23, said her father has started suggesting that she curtail her daily excursions in her Chevrolet Tahoe with the family driver. (Because women are still forbidden from driving in the kingdom, they rely on taxis and chauffeurs.)

She just graduated with a degree in business but has been unable to find a job. She spends her days dropping off résumés at businesses and state-run institutions.

“Now, when I go out, my dad tells me, ‘You’re leaving again? It’s getting expensive to pay for all your bills!’ ” Shehir said.

“In a way, he’s joking. But in a way, he’s not.”

Sheikha Aldosary contributed to this report.

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