A new era: UAE lifts fuel subsidies

A new era for UAE fuel prices began on Saturday with new prices of petrol and diesel implemented following last week’s announcement.

From today, the price of a liter of Special 95 went up more than 23 percent from 1.72 AED ($0.72) to 2.14 AED ($0.58).

Super 98 costs 2.25 AED ($0.61), and E Plus 2.07 AED ($0.56). Diesel will drop 29 percent from 2.90 AED ($0.79) to 2.05 AED ($0.56).

The state has said it was making the price changes in an effort to save the government money and encourage motorists to use fuel more efficiently.

Energy Minister Suhail al-Mazrouei recently told UAE newspaper The National that fuel prices would remain relatively low.

He said he did not believe motorists would give up their cars any time soon, except for those on low wages.

Impact

Despite the initial rise in the UAE, the overall cost remains relatively low compared with other countries around the world, especially in Europe.

The UAE boasts approximately 6 percent of the world’s oil reserves, and until now had the region’s third-highest fuel subsidy after Saudi Arabia and Egypt. The subsidy has enabled many businesses to provide relatively low-cost services.

Changes in fuel prices in Europe regularly impact households, with road miles proving to be the heaviest burden on the budget as farmers, hauliers and supermarkets all have to transport their produce long distances.

In a statement issued to Al Arabiya News this week, a spokesman for Fine Fare Food Markets - the company that manages the Spinneys and Waitrose supermarkets in the country - said fuel prices were of little concern.

Hybrid cars?

Hybrid cars have been proven to be cheaper for drivers – over a long period of time. With the semi-electronic cars shifting between battery and fuel operated motors, the rise of fuel prices in Dubai makes such vehicles an option to consider.

But are UAE car dealers likely to see a change in the types of cars people buy? Will there be a sudden rush to replace fuel guzzlers with hi-tech hybrids? ‘Probably not’ UAE car dealers told Al Arabiya News last week, and that is despite the long term savings motorist would stand to make.

Under average driving distances, a regular petrol-powered car would use around $12 (44 AED) in fuel every day, while a hybrid may use only $4 (15 AED). Calculated over a year the total cost of fuel would be about $3,000 (11,000 AED).

Compared to hybrids the savings are significantly less with the annual fuel consumption costing roughly $1,000 (3,600 AED).

Thomas Milz, Volkswagen Spokesperson, told Al Arabiya News: “Volkswagen welcomes the decision by the UAE Government to deregulate fuel prices and ultimately reduce fuel consumption in the Emirates.”

Hybrid cars are different from other cars in that the vehicles are powered by two sources: an internal combustion engine, and an electric motor.

Living costs

After the UAE government announced 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,” Ahmed, whose daily commute from Sharjah to Dubai’s Jebel Ali freezone and back takes close to two hours, told Al Arabiya News last week. “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.

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.