Most people are surprised by how cheap petrol is in this part of the world. With minimal transport costs and no taxes to pay, filling the tank here is not the cause of anguish it is in places like Europe and parts of Asia, where prices can be many times that of the UAE. But cheap fuel comes at a cost, not just in the billions of dirhams used to keep prices in check but also to the environment.
The Ministry of Energy's announcement yesterday that the price of petrol and diesel will be deregulated from next month, with the new prices more in keeping with global levels, will not just free up money the government can use for more beneficial purposes. It ought also to encourage more restrained and responsible use of a finite resource.
It is no coincidence that the countries with the highest fuel prices tend to have higher patronage of public transport and lower rates of car ownership, with those who choose to drive tending to buy far smaller, more fuel-efficient vehicles. The archetype of the expatriate from Europe swapping their small hatchback for a gas-guzzling 4x4 when they arrive in the UAE has its foundations firmly founded in reality.
While nobody should expect the revised fuel prices, which will be announced on Tuesday, to prompt a sudden exodus from Cadillac Escalades to Toyota Priuses, it will nonetheless have a moderating effect on choice of car, among other things. Even before this deregulation, petrol prices in the UAE were the least regulated in the GCC, with drivers in Saudi Arabia paying about one third of our pump prices.
Price controls have a distorting effect on more than just choosing your next car. Whether applied to fuel or staples such as flour and sugar, they tend to be politically popular but economically troublesome – the higher the level of subsidy, the greater the impact on the economy.
As countries like Egypt and Yemen have found, lowering subsidies in times of economic distress comes at a high social cost. Our government has timed the fuel price deregulation wisely – petrol and diesel are at global lows.
Few in the UAE will welcome an increased expense, especially at a time of generally stagnant wages and rising living costs, but the overall benefits of this decision are clear and compelling.
