UAE slashes fuel subsidies, announces 24 percent price hike

The ministry will be deciding on the 28th of each month the levels of domestic fuel prices for the following month.

Following last week’s statement on the increase in petrol costs, the Ministry of Energy has confirmed prices for the month of August.

The distribution arm of Abu Dhabi National Oil Company (ADNOC) said on Tuesday that it plans to open more than 100 new fuel stations using the profits accrued from the deregulation of prices which starts on Saturday. However, Diesel prices have been reduced from Dh2. This has placed UAE’s fiscal position under pressure as more than 70 per cent of government revenue is generated by oil and gas-related activities.

“The context – of sustained lower oil prices – means that the UAE has chosen the right period to adjust oil subsidies”.

The UAE government is expected to cut down its spending by 4.2% due to oil price fall on the worldwide market and consequent drop of its oil export revenues.

Suhail Al Mazroui, Minister of Energy, said Wednesday, 22 July, 2015, that “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”.

The UAE, one of the world’s leading petroleum producers, decided last week to end subsidies on fuel, a move that is expected to save billions of dollars a year, but some analysts warn could cause tensions, especially in poorer emirates like Ras al-Khaimah.

The global Monetary Fund (IMF) has forecast that the UAE will post a budget deficit this year, its first since 2009, of 2.3 per cent of gross domestic product, or around $9.0 billion. 90 to Dh2. 05 per litre. This could make raising fuel prices politically much more hard.

This will enhance the competitiveness of the national economy, reduce the prices of commodities and eventually reflect positively on the economy.

The increase in gasoline prices will have “minimal” impact on individual motorists, said Alneyadi of the Price Review Committee.

“Such an increase would not create an additional burden on vehicle owners with limited incomes”.

He said cut in diesel prices indicates the priority given by the government to the development of the logistics sector, which accounts for 6 to 7 per cent of GDP and is a heavy consumer of diesel. “It will promote rationalized consumption and incentivize people to choose most fuel-efficient cars, while curbing the increase in the number of cars on the country’s roads”.