The UAE took a major step last year by starting to dismantle energy subsidies, a far-reaching move that used the unprecedented oil price slump as an opportunity to introduce changes that many felt were an essential step toward fully modernising the economy.
Subsidising energy – especially transport fuel – had seemed an intractable policy for many countries, especially the petro-powers of the Arabian Gulf. It was seen as part of the social contract between the citizens and rulers of oil-rich countries in the Arabian Gulf and elsewhere, despite long-standing arguments from a range of respected institutions that it was a wasteful and counterproductive policy.
The International Energy Agency – the OECD countries’ energy watchdog – the IMF and the World Bank had teamed up early last year to press countries to reduce their fuel subsidies on grounds that it made little economic sense in the current environment. The argument had gained force because the oil price slump had put pressure on oil-dependent economies to trim budgets that were rapidly heading towards deficit, with subsidy spending an obvious target.
But there was also a compelling case to be made – especially in a year when the international community was hoping to reach a landmark climate-change deal in Paris – that it was high time for reform by countries that were among the world’s highest per capita emitters of greenhouse gases.
When it made its move on transport fuels in late summer, the force of logic for the UAE’s policy change was quickly recognised by its Arabian Gulf neighbours, which soon began instituting similar policies.
“The timing ... was well chosen,” said Jean-Michel Saliba, an analyst at Bank of America Merrill Lynch, “because the lower oil prices reduce the differential between market and subsidised prices, and make the size of the initial one-off adjustments more manageable”.
In other words, with the oil price slump having dragged down transport fuel prices, the impact on consumers would not be great, at least not in the short term. In fact, UAE prices for January were about 6 per cent lower for petrol compared to a year earlier, and about 12 per cent lower for diesel.
Before it moved to liberalise the transport fuel market, the IEA had ranked the UAE the eighth-most generous country in the world in terms of fuel subsidies, which it estimated to have an economic value of more than 5 per cent of the country’s GDP in 2013.
The flip side of the minimal consumer impact is that the low oil price environment means the budget impact of reducing subsidies will be lower than it otherwise would have been.
The policy change was not just about saving money, however, and the government spelt this out. It was about changing the culture, changing attitudes on the environment and the underlying need to diversify the economy.
“The UAE’s decision to cut energy subsidies was a strong signal for the Emirates’ willingness to implement long overdue fiscal and economic reforms,” said Kevin Koerner, an analyst at Deutsche Bank, noting that “the UAE government justified the move with environmental, generational and economic development reasoning rather than fiscal considerations.”
Saudi Arabia introduced its more modest cuts in fuel subsidies, as well as selective increases in utilities bills, which the UAE also had instituted last year, as part of 20 billion riyals (Dh19.5bn) of cuts in next year’s 840bn-riyal government budget.
Although subsidy reform has been announced for Oman, Kuwait and Bahrain, it remains to be seen how deep it will go.
While the IMF estimated the fuel subsidy burden for the UAE at US$12.6 billion in 2014 – or about 2.9 per cent of GDP – it was greater for some other countries in the region. It was more than 4.5 per cent for Saudi Arabia and Bahrain, for example, although less at between 1.2 and 1.8 per cent for Oman, Qatar and Kuwait.
The fuel subsidy burden was greatest for Iran, which two years ago spent more than 20 per cent of its GDP on it.
The UAE's move also inspired countries further afield. Nigeria, Africa's biggest oil producer and a member of Opec, said it would scrap fuel subsidies this month, allowing petrol to fall initially to 85 naira (Dh1.56) per litre from 87 naira.
Nigeria’s system has been particularly costly and ineffective, as the poor condition of its refinery sector means it has had to import most of its transport fuel, with the government paying overseas refineries for the product it sells at a loss domestically.
Nigeria’s previous government had attempted to end fuel subsidies in 2011, but that led to a week of strikes and protests across the country, which meant they had to be rolled back.
The country’s president, Muhammadu Buhari, who took office last May, had continued the subsidies, which – at more than 1 trillion naira – accounted for almost a quarter of last year’s budget.
Previous attempts at reform by Saudi Arabia and Kuwait had been rolled back. The real test of the policy reforms will be how firmly the governments in question are committed to sticking by them if, and when, oil prices begin to rise again and consumers feel the effect.
amcauley@thenational.ae
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UAE currency: the story behind the money in your pockets
The Bio
Hometown: Bogota, Colombia
Favourite place to relax in UAE: the desert around Al Mleiha in Sharjah or the eastern mangroves in Abu Dhabi
The one book everyone should read: 100 Years of Solitude by Gabriel Garcia Marquez. It will make your mind fly
Favourite documentary: Chasing Coral by Jeff Orlowski. It's a good reality check about one of the most valued ecosystems for humanity
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The Bio
Favourite Emirati dish: I have so many because it has a lot of herbs and vegetables. Harees (oats with chicken) is one of them
Favourite place to go to: Dubai Mall because it has lots of sports shops.
Her motivation: My performance because I know that whatever I do, if I put the effort in, I’ll get results
During her free time: I like to drink coffee - a latte no sugar and no flavours. I do not like cold drinks
Pet peeve: That with every meal they give you a fries and Pepsi. That is so unhealthy
Advice to anyone who wants to be an ironman: Go for the goal. If you are consistent, you will get there. With the first one, it might not be what they want but they should start and just do it
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Q&A with Dash Berlin
Welcome back. What was it like to return to RAK and to play for fans out here again?
It’s an amazing feeling to be back in the passionate UAE again. Seeing the fans having a great time that is what it’s all about.
You're currently touring the globe as part of your Legends of the Feels Tour. How important is it to you to include the Middle East in the schedule?
The tour is doing really well and is extensive and intensive at the same time travelling all over the globe. My Middle Eastern fans are very dear to me, it’s good to be back.
You mix tracks that people know and love, but you also have a visually impressive set too (graphics etc). Is that the secret recipe to Dash Berlin's live gigs?
People enjoying the combination of the music and visuals are the key factor in the success of the Legends Of The Feel tour 2018.
Have you had some time to explore Ras al Khaimah too? If so, what have you been up to?
Coming fresh out of Las Vegas where I continue my 7th annual year DJ residency at Marquee, I decided it was a perfect moment to catch some sun rays and enjoy the warm hospitality of Bab Al Bahr.
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Tips to stay safe during hot weather
- Stay hydrated: Drink plenty of fluids, especially water. Avoid alcohol and caffeine, which can increase dehydration.
- Seek cool environments: Use air conditioning, fans, or visit community spaces with climate control.
- Limit outdoor activities: Avoid strenuous activity during peak heat. If outside, seek shade and wear a wide-brimmed hat.
- Dress appropriately: Wear lightweight, loose and light-coloured clothing to facilitate heat loss.
- Check on vulnerable people: Regularly check in on elderly neighbours, young children and those with health conditions.
- Home adaptations: Use blinds or curtains to block sunlight, avoid using ovens or stoves, and ventilate living spaces during cooler hours.
- Recognise heat illness: Learn the signs of heat exhaustion and heat stroke (dizziness, confusion, rapid pulse, nausea), and seek medical attention if symptoms occur.
Conflict, drought, famine
Estimates of the number of deaths caused by the famine range from 400,000 to 1 million, according to a document prepared for the UK House of Lords in 2024.
It has been claimed that the policies of the Ethiopian government, which took control after deposing Emperor Haile Selassie in a military-led revolution in 1974, contributed to the scale of the famine.
Dr Miriam Bradley, senior lecturer in humanitarian studies at the University of Manchester, has argued that, by the early 1980s, “several government policies combined to cause, rather than prevent, a famine which lasted from 1983 to 1985. Mengistu’s government imposed Stalinist-model agricultural policies involving forced collectivisation and villagisation [relocation of communities into planned villages].
The West became aware of the catastrophe through a series of BBC News reports by journalist Michael Buerk in October 1984 describing a “biblical famine” and containing graphic images of thousands of people, including children, facing starvation.
Band Aid
Bob Geldof, singer with the Irish rock group The Boomtown Rats, formed Band Aid in response to the horrific images shown in the news broadcasts.
With Midge Ure of the band Ultravox, he wrote the hit charity single Do They Know it’s Christmas in December 1984, featuring a string of high-profile musicians.
Following the single’s success, the idea to stage a rock concert evolved.
Live Aid was a series of simultaneous concerts that took place at Wembley Stadium in London, John F Kennedy Stadium in Philadelphia, the US, and at various other venues across the world.
The combined event was broadcast to an estimated worldwide audience of 1.5 billion.
GAC GS8 Specs
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Qosty Byogaani
Starring: Hani Razmzi, Maya Nasir and Hassan Hosny
Four stars
ELIO
Starring: Yonas Kibreab, Zoe Saldana, Brad Garrett
Directors: Madeline Sharafian, Domee Shi, Adrian Molina
Rating: 4/5
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Killing of Qassem Suleimani