The Causes and Consequences of the Saudi Crude Discount

New paper by Peck: Between 1991 and 2003, Saudi Aramco sold its crude to U.S. refineries at a substantial discount relative to Asian refineries at a total cost of approximately 8.5 billion USD. Using variation in discount receipts across refineries over time, I find that the discount rents were entirely captured by refiners as profits and were not passed through to consumers in the form of lower retail gasoline prices.
There is also evidence that the discount policy affected refiners’ political action. In particular, I find that discount receipts are associated with an increase in refiners’ overall political donations, and that other types of profit shocks were not associated with changes in political giving. This suggests that the effect of the discount was not simply a consequence of the increase in refining profits. Finally, I show that the discount resulted in a reallocation of contributions toward members of congressional committees that reviewed bills of interest to Saudi Arabia and away from those who received donations from pro-Israel interest groups.