UAE drops fuel subsidies to boost finances, cut emissions

The collapse of oil prices from more than $100 a barrel a year ago to the current level of about $55 has put pressure on the budgets of oil-producing countries, Financial Times reported Wednesday.

Oil-dependent economies in the Gulf have come under pressure from the International Monetary Fund to reduce fuel subsidies.

The IMF said petroleum subsidies in the UAE amount to $7bn a year and are part of a package of energy subsidies that total $29bn, or 6.6 per cent of gross domestic product, and also include support for natural gas and electricity.

The UAE needs an oil price of around $75 a barrel to balance its budget, but has substantial reserves. Other Gulf states, such as Bahrain and Oman, are dependent on prices of more than $100 a barrel to break even and have smaller reserves than the UAE.

The UAE said on Wednesday a government-appointed committee chaired by Matar al-Neyadi, energy ministry undersecretary, would set petrol prices in accordance with global oil price benchmarks, from the beginning of next month.

Suhail al-Mazroui, the minister of energy, said the move would build a stronger economy not dependent on government subsidies.

The UAE’s move is the latest in a series of steps governments have taken to cut fossil fuel subsidies that totalled $548bn in 2013 in emerging and developing economies alone.
India, Indonesia, Mexico and Egypt are among those to have started reforming energy subsidies.

These economies largely subsidise the consumption of fossil fuels while wealthier nations support the production and exploration of oil and gas as well, with measures estimated to amount to $55bn-$90bn a year in OECD countries.

“It’s an excellent move,” said Nasser Saidi, an economist who has been calling for subsidy reform for years. “It will point out the direction for other countries in the Gulf.”