The United Arab Emirates, the third-biggest OPEC producer, will link gasoline and diesel prices to global oil markets starting next month, becoming the first country in the oil-rich Persian Gulf to remove transport fuel subsidies.
Fuel prices will be deregulated as of Aug. 1, the Ministry of Energy said in a statement on Wednesday. Diesel prices will also be linked to global markets, and are initially expected to decline, it said, Arabianbusiness reported.
Gasoline is now subsidized in the UAE, the second-biggest Arab economy and home to about 6 percent of the world’s oil reserves. Unleaded gasoline 98 octane in the UAE sells for 1.83 dirhams (50 cents) a liter, according to prices on the ministry’s website.
The US price of premium unleaded gasoline is $3.18 a gallon, or 84 cents a liter, according to AAA, the biggest US auto group. That compares with 16 cents in Saudi Arabia, the largest OPEC producer.
“There was no reason to subsidize in a country that is as rich as the UAE,” said Nasser Saidi, former chief economist at Dubai International Financial Center and head of Nasser Saidi and Associates. “All manufacturing and industry which is highly energy intensive will need to adjust. People will now have to think twice before buying gas guzzling cars.”
The UAE, which does not impose income tax or measures such as value-added taxes, comprises seven sheikhdoms, including Abu Dhabi and Dubai, the Persian Gulf business hub. Expatriates constitute about 80 percent of the country’s residents.
The change is part of the government’s plan “for 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,” Minister of Energy Suhail Al Mazrouei said in the statement. A committee will review fuel prices every month, it said.
The oil and gas sector in the UAE contributed 34.3 percent of its gross domestic product at current prices in 2014, according to the National Bureau of Statistics. With lower oil prices, the UAE will have a fiscal budget deficit for the first time since 2009, according to the IMF.
