DUBAI, United Arab Emirates — Just a few years ago, fuel was cheaper than bottled water in the oil-rich United Arab Emirates. Now, long queues snake past gas stations on the eve of price hikes each month.
Fuel prices in OPEC’s top producer, in line with global oil benchmarks, have soared more than 70% since Russia’s invasion of Ukraine, accentuating differences with neighboring oil states which heavily subsidize gasoline.
The contrast has fueled complaints from Emiratis who receive generous cradle-to-grave welfare and prompted the government to increase social spending for low-income citizens.
The easing of fuel subsidies by the UAE in 2015, which had cost the government billions of dollars, put the country at the forefront of long-delayed fiscal reforms in the region as oil prices fell . Even now, Gulf Arab leaders profiting from soaring oil prices know this cannot last forever as global economies shift away from fossil fuels.
“The UAE really stands out,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “His policy remains firmly focused on reform.
At around $1.23 per litre, or $4.66 per gallon after July’s price hike, the UAE’s record fuel cost remains below the record claims set in the US and Britain then. that the war in Ukraine is triggering the biggest commodity shock in decades. But local citizens have long considered cheap fuel a birthright. In the lavish welfare state of Kuwait, the cost per gallon is only about a quarter more.
“Everyone is complaining,” said Emirati engineer Suhail al-Bastaki. “It’s just too expensive.”
Unlike the rest of the world, the war is an unexpected boost to the public finances of the United Arab Emirates and its hydrocarbon-dependent neighbours. With the most diversified economy in the region, the flashy city of Dubai has also benefited from an influx of wealthy Russians since the war.
But the recent price spike in the United Arab Emirates has shown that the region is not immune to global market forces.
As pressure mounted earlier this month, the United Arab Emirates and Saudi Arabia allocated $13 billion in social spending to low-income citizens – an option clearly unavailable to the region’s less wealthy economies such as Egypt and Lebanon, where the price of bread is rising. and hunger spreads.
Also in the United Arab Emirates, where expats outnumber locals nearly nine times, fuel price hikes are the costliest for the legions of workers from Africa, the Middle East and South Asia who fuel the economy. Inflation slashed workers’ already meager wages, triggering a rare outburst of illegal strikes this spring.
Other Gulf Arab countries have also cut state benefits to balance their budgets in recent years. But fearing backlash from angry consumers, none have gone as far as the United Arab Emirates, where fuel prices are nearly double the average for Arab Gulf states.
The country can get away with it partly because the burden falls on its 9 million expatriates, experts say. Meanwhile, in Saudi Arabia – a country of 35 million people, two-thirds of whom are citizens – a government-imposed fuel price cap has kept inflation in check even as food prices soared.
“The impact is not really on the local (UAE) population,” said Nasser Saidi, an economist in Dubai. “They feel the increase in fuel prices, but they remain protected under the social contract.”
The tiny Emirati population enjoys a generous welfare state that helps with everything: free education, health care and housing, marriage scholarships, scholarships to foreign universities, and well-paying government jobs.
This contract emerged across the region as leaders took advantage of the oil boom and handed out part of the bounty to citizens in return for their political loyalty.
In times of good fortune — and discontent — governments know what to do: Distribute the wealth. International benchmark Brent crude has jumped some 50% to over $100 a barrel since sanctions on Russia stoked shortage fears.
“The spending is an acknowledgment that citizens know oil revenues are really high right now,” said Karen Young, senior fellow at the Washington-based Middle East Institute. “This is a traditional sharing mechanism.”
After the latest fuel price hike in the UAE, grumbling among Emiratis on social media and in traditional meeting spaces has intensified.
“People were suffering,” said Emirati social media influencer Hassan al-Amiri. “People think the Emiratis are very rich but I don’t have an oil rig. Our needs are increasing.”
The grievances escalated to President Sheikh Mohammed bin Zayed Al Nahyan’s weekly majlis, a gathering at which any citizen can apply to voice their concerns, Emirati political expert Majed al-Raeesi said.
Earlier in July, Sheikh Mohammed unveiled plans to double state social support for low-income Emirati families, categorized as those earning less than $6,800 a month. The $7.6 billion package will cover 85% of recent fuel price hikes and 75% of food inflation, among other things like housing allowances and support for job seekers.
The government portal received so many applications that it crashed.
“The leaders listened to the streets,” said al-Amiri, who faced backlash from some Emiratis online over his complaints. Citizens are cautious when expressing public criticism lest they be mistaken for dissent, which is prohibited.
From Saudi Arabia, the world’s second largest oil producer, King Salman announced $5.33 billion in direct cash transfers to citizens “to protect beneficiaries from the effects of rising global prices”.
But this help will not reach those who need it most. Desperation over the cost of living is growing among low-wage migrant workers in the region.
Uber drivers and food delivery people who pay for their own fuel in Dubai say they are barely breaking even. Drivers from two major delivery companies went on strike over their meager wages in May, defying the United Arab Emirates’ ban on labor demonstrations.
Uber has said it will raise fares by up to 11% for some rides to account for new petrol fees in Dubai, but some drivers say that’s insufficient.
Muhammed, a 38-year-old Uber driver from Nigeria, was lured to Dubai 12 years ago by the prospect of a good salary. But now he has very little to send to his wife and newborn daughter.
“I can’t stay here any longer,” he said, giving only his first name for fear of reprisals. “I have been working in Dubai for 12 years and I have nothing.”