UAE/petrol: Gas pumps have been running dry for almost two weeks in a country that is home to some of the world’s largest oil reserves. This is an embarrassment for the United Arab Emirates, where no plausible explanation has been given for the incongruity.
One-off technical problems may be to blame, but more fundamentally the situation can be seen as a result of the absurd government subsidy policy, worsened by some industry flaws. This is the third time that pumps have run dry in the UAE in 10 months, amid growing signs the government-owned industry is struggling. It may be that a storage or maintenance problem is to blame for the current problem, centred on pumps belonging to two of the country’s four retailers.
But there are deeper causes for the mind-boggling situation. The finances of retailers are stretched because they don’t decide on prices. Petrol in the UAE, as in other Gulf countries, is heavily subsidised, with the federal government setting the price cap. The four retailers — Emirates National Oil Company (ENOC), Emirates Petroleum Products Company (EPPCO), Emarat and the Abu Dhabi National Oil Company — cannot unilaterally change the amount consumers are charged.
ENOC reckons it will cost it more than $1 billion to meet the cost of subsidised fuel in 2011. Emarat revealed in January that it was being restructured so it could “go back to making a profit”.
The government has taken some steps towards economic sanity and lifted gasoline prices by 26 per cent, to $0.46 per litre, or $1.7 per gallon, since last April.
That is the highest in the Gulf and will help improve the cash flow of retailers. But that still means it is cheaper to fill up a four-wheel drive than to eat lunch.
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The Arab unrest sweeping the region appears to have put further price hikes on hold, with the governments, worry about stirring unrest. The subsidy problem is compounded by a lack of refinery capacity. Despite its vast oil wealth, retailers in the UAE are buying petrol on international markets at international prices.
Now a system that was manageable has come under strain, as higher global oil prices combine with growing domestic demand.