ABU DHABI — The United Arab Emirates said on Wednesday it would begin tying local fuel prices to the global market next month, marking another move by a big oil producing country to curb domestic energy subsidies. Beginning on Aug. 1, the UAE's energy ministry said it would begin formulating prices for gasoline and diesel based on an average of global prices. The price would be set on the 28th of each month and go into effect on the first of the next month. The statement didn't give more details of the pricing formula or indicate if prices would rise or fall all the way to match global levels. It comes after oil producers such as Egypt, Angola, Gabon and Indonesia cut domestic fuel subsidies under pressure from collapsed prices for their crude-oil exports. In Egypt, the government action led to the price of mainstream fuel products rising by almost 80%. The UAE has also been rocked by oil prices that have been cut in half in the past year, to about $56 a barrel for the global benchmark crude, Brent, from highs of more than $114 last July. The country is pumping record amounts of crude—almost three million barrels a day—to maintain its current customers and fight for new ones in a fight for market share with other exporters such as Saudi Arabia, Russia and Nigeria. Energy subsidies encourage domestic consumption, cutting into exports and government revenue. Energy subsidies have long been a big part of the emirates' budget, something they have tried to address in recent years. Energy subsidies have fallen from more than $17 billion in 2013 to about $12.6 billion in 2015 and now stand at less than 3% of the Emirates' gross domestic product, according to Emirates NBD, the banking group. There have also been subsidy cuts in Kuwait, Oman and Bahrain. With the budgets of Gulf oil-producing countries going into deficit this year, Emirates NBD said, "we expect increased discussion on how best to manage subsidies across the region." In a statement, the UAE's Energy Minister Suhail Al-Mazroui said the government was pushing toward "diversifying sources of income, strengthening the economy and increasing its competitiveness in addition to building a strong economy that is not dependent on government subsidies." The move could cause gasoline prices to rise in a country with some of the lowest-cost fuel in the world. A liter of gasoline—at the commonly used octane 98—costs about 50 cents in the UAE, higher than Saudi Arabia's16 cents but still lower than much of the world. In a country with a proud car culture, any rise could be unpopular. In Nigeria, the government was forced to backtrack on cuts to subsidies in 2012 following riots. Mazroui said prices for diesel could go down after the price is tied to global averages. "This will stimulate the economy as lower diesel price would mean lower operating costs for a wide number of vital sectors like industry, shipping and cargo among many others," he said. — SG/Agencies
