Flip through the latest issue of Gulf Weekly.
With oil at over $127, top oil consumers and major global producers face the common problem of subsidised fuel prices for their growing economies.
Countries selling below-market transport fuel account for more than half of the world's growth in consumption, so in theory their subsidy regimes have a crucial market impact.
Oil subsidies are a drain on all the economies of the Middle East region, but are often politically difficult to abandon. And rising oil revenues seem to be delaying plans to reform subsidy systems in several countries.
Three Dubai-based oil retailers collectively lost more than Dh2 billion during the year 2007 on petrol sales because the state-controlled prices of the fuel remained at a standstill at a time when global crude oil prices soared to record highs.
Emirates National Oil Company (Enoc), Emirates Petroleum Products Company (Eppco) and Emarat are more susceptible to spikes in crude prices since they buy gasoline at market rates from multiple sources. In contrast, Abu Dhabi-based Adnoc Distribution sells fuels sourced entirely from the Abu Dhabi National Oil Company (Adnoc), the UAE's main crude oil producer and refiner.
A spokesman for Emarat says that in the current scenario, the more they sell the oil product, the more they lose money, but it was up to the government to decide on the price.
However, economists and investment bankers have cautioned against any increase in domestic fuel prices corresponding with prevailing international crude oil prices which are at all-time highs.
Such a move is certain to exert inflationary pressures on the country's thriving oil-driven economy, they say.
Fuel prices in the country are currently much cheaper than those in Europe and the United States and experts say the federal government should do all it can to hold fuel prices at the pumps since domestic consumption is a fraction of the UAE's oil exports, and given the current global oil prices, even if some extra crude is allocated for use locally, there would hardly be any noticeable change in the country's burgeoning oil export revenues.
Fuel subsidies continue to stimulate rampant energy demand across the region, and imports of products have become a regular fixture in Saudi Arabia, the region's key demand centre.
In the smaller states, refinery intake of crude has marginally increased owing to higher domestic demand led by transport fuels such as gasoline and diesel. These states have also taken advantage of bullish product markets in Asia and across the region by increasing exports.
Of the other GCC states, only Kuwait's total demand for oil products has declined. But this fall (13 per cent below year ago levels) was brought about by a 16 per cent decline in fuel oil use, probably resulting from increased gas and crude oil use for power generation.
Consumption of LPG, diesel, gasoline and jet fuel all increased, and, adding in the direct crude use, total oil demand also increased.
Qatar and the UAE consumed 88,000 bpd and 269,000 bpd respectively, 17 per cent and 13 per cent increases over year ago levels; both led by gasoline, jet fuel and diesel.
Meanwhile, the cost of fuel increased up to 76 per cent after the Jordanian government announced an end to subsidies in February.
MPs and political parties, particularly the influential opposition Islamic Action Front, have been warning against rising prices which they say could "constitute a real catastrophe".
They have also warned that price freedom would "lead to social tensions that will be difficult to control".
Syria will phase out massive fuel subsidies over five years to combat smuggling and prevent the budget deficit from sinking further into the red.
The lifting of fuel subsidies will help keep the budget deficit, which has risen in the last few years, stable at five per cent of gross domestic product in 2008 and in 2009.
Syria produces 380,000-400,000 barrels per day of crude oil but lack of refining capacity means it imports billions of dollars a year worth of fuel, especially gas oil used in transport and heating, which is sold at subsidised prices at the pump.
Moody's Investors Service notes that Gulf Arab governments risk becoming more dependent on relatively high oil prices as they spend more on subsidies and wages in a bid to offset surging inflation.
"The danger is that governments will find themselves dependent on ever higher oil prices to balance their budgets, making it more difficult for them to adjust in the event of a downturn in revenues," Moody's says in a report.
