DUBAI, United Arab Emirates – Drivers in the car-loving Emirati cities of Dubai and Abu Dhabi can no longer count on below-market rates at the pump after the OPEC nation unveiled plans Wednesday to scrap existing fuel price controls.
The surprise move announced by the Energy Ministry comes as the oil-rich United Arab Emirates, the second-largest Arab economy, weathers a sustained slump in oil prices over the past year.
Authorities plan to begin linking fuel prices to global prices as of Aug. 1. Gasoline prices are currently set by the government at subsidized rates, with a litre of regular gasoline selling for 1.72 dirhams (47 cents), or about $1.78 a gallon.
Officials will still have a hand in setting prices. A committee will meet once a month to set prices for the following month using average international prices as a benchmark.
Energy Minister Suhail al-Mazroui said the change aims to strengthen the country’s economy and could help lower fuel consumption by encouraging the use of public transportation.
Gas prices in the Emirates, a seven-state federation where foreign guest workers far outnumber locals, are already higher than those in its Gulf Arab neighbours. A gallon of gas in Saudi Arabia, for example, only costs around 60 cents.
The International Monetary Fund recently estimated that governments will offer $5.3 trillion in energy subsidies this year.
Energy expert Robin Mills, a non-resident fellow at Brookings Doha Center, said the timing is right to cut subsidies. It will help alleviate pressure on a federal budget constrained by lower oil prices but thanks to lower costs should have only a “modest impact” for drivers for now.
“They can get the reform without making much of a difference on prices,” he said.