Lowering fuel prices would harm economy

Calls to reflect the current oil price at the petrol pump miss the big picture

Lowering petrol prices would not be a wise move for the UAE. Photo: Fatima Al Marzooqi /The National

Suggestions by Federal National Council members that the retail price of petrol be lowered have missed the point that cheaper fuel would have a negative impact on the country's economy. As The National reported yesterday, FNC member Hamad Al Rahoomi said that the 60 per cent drop in crude oil prices worldwide should be reflected in the domestic price of petrol, which is currently the highest among the GCC states.

The recommendation looks at the issue from a consumer perspective. Every driver wants cheaper petrol and, at first glance, it would make sense for us all to benefit from the global drop in oil prices. (Despite the fact that the price is already below international market rates.) But we must look at the big picture from a national standpoint.

The economy remains dependent on oil exports as a major source of income. Despite myriad efforts to diversify energy sources, the government still uses huge quantities of fossil fuels to desalinate water and generate electricity. Heavy subsidies also create an environment where conservation of energy resources is not a pressing issue. Our national priority must be to export as much of our fossil fuels as possible – after all, there is an opportunity cost to using subsidised fuel, it means we do not reap the financial rewards of selling that fuel abroad.

While we may pay more than the average price for petrol among GCC states – with a price closer to the current rate in the United States – pump prices still remain among the cheapest in the developed world. Consumers in the UAE pay less than half of the global average price for a litre of petrol. Put simply, lowering petrol prices would increase the level of consumption,the opposite of what the government is trying to achieve.

The only logical thing to do now with crude oil prices falling, as we argued on these pages before, is to reduce fuel subsidies and strengthen oil conservation efforts to ensure that oil is available in the future. The current low oil prices provide the UAE with the opportunity to re-evaluate its fuel subsidy policy – to either reduce government subsidies or remove them completely – because the effect of such a move will hardly be felt in the current circumstances. It's important to think about the interests of the country, not individual motorists' pockets.