UAE First GCC Member to Cut Fuel Subsidy

30 Jul 2015
POSTED BY Y Magazine

The UAE’s move to deregulate petrol prices from August 1 has sparked fears that other GCC-member countries will follow suit as oil prices continue to drop.

The decision, announced by the UAE’s Ministry of Energy on July 22, will see the new policy linked to global oil prices that will be reviewed at the end of each month by the country’s newly formed fuel price committee.

“The decision to deregulate fuel prices has been taken based on in-depth studies that fully demonstrate its long-term economic, social and environmental impact,” said the UAE’s Minister of Energy, His Excellency Suhail al Mazroui.

“The resolution is in line with the strategic vision of the UAE government in diversifying sources of income, strengthening the economy and increasing its competitiveness, in addition to building a strong economy that is not dependent on government subsidies.”

The UAE is the first country in the GCC to end its generous fuel subsidies, which will see motorists pay up to 24 per cent more for their petrol from Saturday.

By linking fuel to market prices, the UAE government is expected to save billions of dollars, say experts, many of whom have welcomed the news. “Deregulating oil prices should support the national economy in the longer term whilst also helping consolidate government finances,” said Michael Armstrong, the Middle East regional director of the Institute of Chartered Accountants in England and Wales. “Households will start to think about how they can reduce their reliance on fossil fuels in case of future price hikes.”

Meanwhile, some economists in Oman are also calling on the Government to end its 50 per cent fuel subsidies in a bid to boost revenue and decrease harmful carbon emissions.

However, others are against the idea, arguing that, unlike the UAE, Oman doesn’t yet have a fully integrated public transport network in place to help cushion the impact of consumers paying more for fuel.

“The Omani Government is known to take decisions after carefully evaluating the impact of its fiscal policies on its population,” KPMG’s Ashok Hariharan told the Oman Daily Observer this week. “We have to wait for the Government to consider such impact; nevertheless, the UAE move is likely to spur the Omani Government to evaluate and take a decision on [the] fuel subsidy sooner than later.” According to Bloomberg, global oil prices have fallen by almost 50 per cent over the past year as “increased production from the Middle East to the US swelled supplies, leaving a global surplus”. On Monday (July 27), the price of Brent crude dropped 2.2 per cent to trade at US$53.44 a barrel on London’s ICE Futures exchange.

His Excellency Suhail al Mazroui said the cost of gasoline in the UAE represented “three to four per cent of an average income in the UAE, which is a reasonable percentage compared to international costs.

“Consequently, deregulating prices would not a have a notable impact on individuals’ cost of living.”

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