The UAE has become the first Gulf country to liberalise the price of fuel. As of August 1, petrol prices will increase by an average of 24%. The government has decided to remove subsidies on fuel and make the price of petrol and diesel variable in line with average global prices.
Until now both have been subsidised by the government, and fuel in the UAE has been paid for at a flat rate despite the fluctuations in oil prices worldwide.
Starting this week, the Fuel Price Committee, which consists of representatives from the Ministry of Energy, Ministry of Finance as well as representatives and CEOs of ADNOC (Arab National Oil Distribution Company) will establish the new prices on the 28th of each month. The calculation will be based on average global prices for petrol and diesel, while adding costs of transport, distribution and operation expenses. The UAE government has kept very low fuel prices for years, and this step was deemed necessary to support the country’s economy.
The decision has been in the pipeline for some time. Several international agencies, including the International Monetary Fund (IMF) and the World Bank have advised the United Arab Emirates and other Gulf countries to eliminate or at least reduce energy subsidies to support their budgets. This year, IMF projections predict, for the first time since 2009, a budget deficit of 2.3%. Last year GDP showed a surplus of 5.0%.
The increase is said to have been carefully thought out and is being implemented in a time when oil prices worldwide are at multi-year lows, just above USD 50 a barrel.
“With the current low oil prices, which might last for years, subsidies will become a rising problem in the region. These changes are unavoidable and the sooner the governments start the more they will be in control of the process and avoid social unrest,” said Francisco Quintana, head of economic research at Asiya Investments in a statement to a local newspaper.
While petrol prices go up, the diesel price goes down. In a statement, the Ministry of Economics makes it clear: the price for diesel has been reduced to safeguard consumers.
There should be no worries, then, about a consequent increase in consumer goods prices. Projections show that diesel will continue to decline significantly, triggering a relative reduction of costs for vital sectors such as industry and commercial transport of consumer goods.
The recent changes in international politics and most notably in the region, will inevitably be reflected in the oil price. According to the latest expectations of the IMF and the World Bank, the global price of crude oil will stay well below the USD 60 mark this year.