UAE to cut $7 billion petrol subsidies

UAE to cut $7 billion petrol subsidies
The United Arab Emirates will remove its price subsidy on fuel sold in the Emirate from 1 August, saving the rich Gulf state about $7 billion a year.
3 min read
28 July, 2015
Public transport is not widely used in the UAE [Getty]
The United Arab Emirates (UAE) is to end petrol subsidies from 1 August, in a move that will save $7 billion a year for the Gulf state and curb car usage.

The UAE, like many other countries in the Middle East, subsidises the price of a range of commodities. These subsidies have meant many commodities like food and fuel in many countries of the region are much cheaper than market rates, and this has led to overconsumption and waste.

Energy surpluses in the emirate cost $29 billion, 6.6 percent of the UAE's gross domestic product (GDP).

Financial pressures

However, the collapse of international oil prices from around $100 per barrel a few months ago to around $55 now put severe pressure on the budgets of all oil exporting states.

The UAE has one of the most diversified economies of the region and ranks favourably on competitiveness indicators.
According to the Financial Times, the Emirates needs about $75 a barrel for its budget to break even, while Gulf states like Oman need over $100 to break even. However, the Emirates have significant financial reserves, bolstered by years of high oil prices, which will cushion the blow on the tiny nation's budget.

The International Monetary Fund (IMF) projects moderate economic growth of 3.4 percent in 2015, noting that the UAE had one of the most diversified economies of the region and ranked favourably on competitiveness indicators.

The ending of fuel subsidies in a rich country whose citizens have come to expect generous cradle-to-the-grave welfare provision is controversial.

However, Nasser Saidi, a Lebanese economist currently working in the UAE, said the current low price of oil made the differential between the price of oil in the international market and the subsidised local price extremely small, making price rise manageable for most Emirates, the Financial Times reported.

Suhail al-Mazroui, the UAE Energy Minister, said the price increase would not have a significant effect on the cost of living as petrol only cost 3-4 per cent of average income in the UAE.

The ministry did not provide an estimate of how much price would increase in August.

Going green?

However, there are other reasons for the Gulf state may want to reduce its consumption of fuel.

The UAE is one of the worst emitters of Greenhouse gases per capita, and according to the World Bank's annual report on global environmental indicators has the worst air quality in the world.

Transport was responsible for 22 percent of the country's total emissions of greenhouse gases, 199.65 million tonnes in 2013, according to the Ministry of Energy's latest figures.
Currently, public transport accounts for a mere 14 percent of all journeys, according to Emirates 247. Dubai inaugurated its first Metro line in 2009.

Sharjah, the third-largest of the UAE's seven emirates after the capital Abu Dhabi and the commercial centre Dubai, recently announced it plans to cut water and electricity use by 30 percent over the next five years.

It plans to achieve this ambitious goal by improving infrastructure, introducing energy saving measures and a public campaign against wasting energy and water.