UAE petrol price rise fuels debate over living costs

After the UAE government said on Wednesday it would end fuel years of fuel subsidies, experts and residents expressed mixed views on how the increase in petrol prices will affect living costs.

“It’s not looking too good,” said Ahmed, whose daily commute from Sharjah to Dubai’s Jebel Ali freezone and back takes close to two hours. “The whole economy will shift drastically as a result.”

Every two days, the UAE resident, who wished not to be identified, fills his fuel tank with around $22 (80 AED). Yet from August 1, prices are expected to rise significantly – although the government has not yet provided an exact figure, which is says will be set monthly by a committee.

Analysts expect the current cost to shoot up from 0.47 cents (1.72 AED) a liter to a little under 80 cents (around 3 AED). The first round of de-subsidized prices will be published next Tuesday.

Vehicles wait to buy fuel at a petrol station on Wednesday, July 22, 2015, in Dubai, United Arab Emirates. UAE authorities plan to begin linking fuel prices to global prices starting Aug. 1. (AP)

Yet many of the UAE’s business leaders have lauded the increase, according to a report by the state-owned National daily.

However, the same paper said that residents have a “mixed response” to the subsidy lifts, lauding the likely reduction in emissions but unhappy at the prospect of rising living costs.”

A perk to the deregulation, which will set fuel prices at a market rate, will mean cheaper diesel, resulting in “lower operating costs for a wide number of vital sectors like industry, shipping and cargo among many others,” said the UAE’s energy minister Suhail bin Mohammed Faraj al-Mazroui.

Hybird boom

“It’s not a huge increase,” said Mashfique Chowdhury, the editor of UAE-based motoring site DriveArabia. “People who can afford gas guzzling cars should still be able to afford them. It might hit the low-income groups more if commuting costs double.

Mohamed Noweir, the managing director of UAE car classifieds site Carmudi, said that the higher prices could spur on sales and availability of hybrid vehicles – currently a rarity in the Gulf.

“Who knows, maybe we’ll see hybrids picking up in the UAE. There could be a chance for you to see as many Teslas in Dubai than you see in California,” added Noweir, referring to the all-electric sports cars produced by the upstart U.S. automaker.

All-electric Tesla cars could soon become popular in the UAE due to rising fuel costs, one expert said (File photo AP)

Due to subsidies lifting at a time of low global oil prices, UAE consumers will feel the effect “less sharply,” the UK-based ICAEW accountants said in a press release on Thursday.

However, it adds that with subsidies being lifted, “households will start to think about how they can reduce their reliance on fossil fuels in case of future price hikes.”

Inflation one-off

Robin Mills, head of consulting at Dubai-based firm Manaar Energy, downplayed the likely effect to consumers when prices rise as expected.

“It’s a fairly small impact on overall inflation and it’s only a one-off, unless the [oil] price rises again,” he said.

But with dearer gasoline and cheaper diesel, could consumer’s wallets be unaffected?

Unlikely, he said. While a decrease in diesel – used in heavy trucks transporting consumer goods – could lower costs for some items, more expensive taxi rides and goods delivered by light delivery vehicles would negate any savings to the consumer.

Some positive impacts could be less congestion on the roads, and less pollution, although those benefits “might take a few years to feed through,” he said.

Despite worries - and a lack of public transport links between Sharjah and his workplace in Dubai’s bustling industrial outskirts - Ahmed has plans to make the cost stay within his budget.

“I don’t really trust public transport. I’d prefer to carpool more often, and be more cautious in how I drive,” he said.