Ending fuel subsidies could be good for the UAE

Currently the UAE spends $3.5 billion a year to subsidise pump prices, which are consequently among the lowest in the world, with petrol costing around $0.47 a litre. The government has now announced that this subsidy will end from July 28, to be replaced by a market related pricing policy linked to global levels, to be fixed monthly by the government, with a built-in margin for forecourt companies like Adnoc Distribution.

“The idea of liberating the market,” said Under-secretary at the Ministry of Energy Matar Al Nyadi, (who is also Chairman of the Gasoline and Diesel Prices Committee), “is that it is healthy to have an open market. It will help reduce consumption and bring more efficient use and encourage a more efficient type of car that will be introduced.”

However if the idea is to discourage automobile usage, it is unlikely to succeed, as for most car owners there is little alternative in the form of public transportation, and neither walking nor cycling is really an option. With oil prices at historic lows, the termination of subsidies at this time will have less impact than it would have had a couple of years ago. It will be when the prices firm that citizens and businesses will feel the pinch. Meanwhile there has been a cautious welcome from business leaders in the Emirates, who feel the change is a step along the road to a real-world economy, no longer artificially sustained by subsidies.