UAE to scrap subsidized price controls on fuel

The United Arab Emirates said on Wednesday it would begin tying local fuel prices to the global market next month, marking another move by a big oil producing country to curb domestic energy subsidies. A new pricing policy linked to global prices will be adopted.

Suhail Al Mazroui, UAE Minister of Energy, said: “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”.

Gasoline prices are now set by the government at below-market rates. A committee will be responsible for announcing the prices for each month on the 28th.

The decision, related to gasoline and diesel, was aimed at “supporting the national economy, lowering fuel consumption, protecting the environment and preserving national resources”, said the ministry in Abu Dhabi.

Global oil prices have remained fairly low for most of this year, which should be good news for people in most of the industrialized world. Global Monitory Fund has requested all Arab nations to cut subsidies and to utilize the additional capital for infrastructure development, education and healthcare.

Mazroui went on to explain that the decision would encourage consumers to use less fuel while also encouraging the use of public transportation.

The announcement put the UAE at the front of economic reform among the rich Gulf oil states. Dubai residents might be more prone to hopping on the train to get to and from work now that the rules for fuel prices are about to change.

The global price of Brent oil is now around US$56 per barrel, not far from six-year lows.

Petrol prices are likely to rise, but with the fuel representing 3% to 4% of an average income in the UAE – “a reasonable percentage compared to worldwide costs” – deregulating prices would not have a notable impact on individuals’ costs of living, said the minister.

Fuel prices in the UAE are already the highest of any of the six Gulf Arab states but still among the lowest in the world because of the heavy subsidy.

The new prices effective on August 1 for gasoline and diesel will be announced on July 28.

Al Nyadi also said that the committee will urge distribution companies to increase their operational efficiency to lower their costs, and eventually impact positively the prices of gasoline and diesel at petrol stations.