The United Arab Emirates, OPEC’s third-biggest producer, will raise unleaded gasoline prices by 24 percent next month when it becomes the first country in the oil-rich Persian Gulf to remove subsidies on transport fuel.
Motorists will pay 2.14 dirhams per liter (58 cents) for 95-octane unleaded gasoline starting Aug. 1 as the country deregulates fuel prices, the official WAM news agency reported Tuesday. The gasoline grade currently sells for 1.72 dirhams per liter, according to the Ministry of Energy’s website.
“It does seem to be one of the more ambitious reforms within the Gulf countries to tackle the impact of lower oil prices,” said William Jackson, senior emerging markets economist at Capital Economics Ltd. in London. “The U.A.E. is strong to start off, so this may just reassure investors that its fiscal position is unlikely to deteriorate badly any time soon.”
Gasoline is now subsidized in the U.A.E., the second-biggest Arab economy and home to about 6 percent of global oil reserves. Gulf members of the Organization of Petroleum Exporting Countries provide some of the largest per capita energy subsidies in the world, according to the International Monetary Fund. The payments have cost U.A.E. state energy companies about $1 billion a year over the last decade, Energy Minister Suhail Al Mazrouei said in February.
“U.A.E. drivers have enjoyed unusually low fuel prices for decades,” the Dubai-based Gulf News said in an editorial Wednesday. “But long-term government subsidies are not good for any economy, and the new system puts the country on a more sure footing.”
Oil extended declines Wednesday amid signs producers will continue adding supplies to a global glut. Brent crude, which fell more than 50 percent in the last 12 months, lost as much as 79 cents and was at $52.74 a barrel in London.
The energy ministry set prices for 98-octane unleaded gasoline at 2.25 dirhams per liter and 91-octane grade at 2.07 dirhams per liter, WAM reported. Prices for diesel will drop 29 percent to 2.05 dirhams per liter, it said.
“I pay 99 dirhams for a full tank and it lasts a week, now it will definitely be 130 dirhams,” said Kavitha Ponnambalam, a banking saleswoman, as she filled up her Ford Escape SUV at an Emirates National Oil Co. gas station in Dubai. “That will really hit my budget.”
Cheaper diesel will reduce costs for industry, shipping and cargo, said Matar Alneyadi, head of the ministry’s Price Review Committee, according to WAM. The committee will review fuel prices on a daily basis and announce them on the 28th day of each month, he said.
The current U.S. price for premium unleaded gasoline is $3.15 a gallon, or 83 cents a liter, according to AAA, the biggest U.S. auto group. That compares with 26 cents in Qatar and 21 cents in Kuwait, both of them OPEC members, and 15 cents in Saudi Arabia, the group’s largest producer, according to data compiled by GlobalPetrolPrices.com. The worldwide average price for gasoline is $1.10 a liter, the data show.
The U.A.E., which doesn’t levy income or value-added taxes, comprises seven sheikhdoms including Abu Dhabi and Dubai, the Gulf business hub. Expatriates number about 80 percent of the country’s residents. Removal of fuel subsidies is part of the government’s plan to make the economy more competitive and diversify sources of income, Al Mazrouei said in a July 22 statement.
The increase in gasoline prices will have “minimal” impact on individual motorists, said Alneyadi of the Price Review Committee. “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.”
For Shaukat Mahmoud, a Pakistani living in Dubai for 13 years, costlier gasoline will mean less purchasing power. “I’m worried,” he said at the ENOC gas station. “I have family at home. I earn money to feed them and fulfill their needs. Now there will be less money for them. It will affect me.”