Middle East subsidy cuts will evoke mixed reactions

Subject

Fuel subsidy cuts in the Middle East and North Africa.

Significance

Regional leaders, acknowledging that subsidy reductions are essential, are gradually raising domestic fuel costs. However, the plans are more controversial in some countries than others. Many Gulf Arab states have scope to compensate populations. Elsewhere, protests are increasing -- as in Iran in January, prompting parliament to water down the government’s plans for further energy price hikes.

Impacts

• Higher prices will cut domestic consumption, enabling countries such as Iran and Saudi Arabia to boost exports when OPEC restraints loosen.
• Lifting subsidies will stunt fuel-demand growth, enabling energy importers such as Jordan and Morocco to buy less from abroad.
• Rising fuel costs will boost efforts in Gulf Arab states to develop renewables and start catching up with technologies in other regions.