Subsidies costing Middle East billions in lost oil revenues

31 March 2011

Support for region’s domestic oil consumers leading to massive consumption

The Middle East is spending too much on fuel subsidies and needs to curb its energy consumption if it is to fully exploit the higher prices their hydrocarbon resources are now demanding, according to regional analysts.

Speaking at an event held at Dubai International Financial Centre (DIFC), a panel of analysts said the days of cheap energy are over and the Middle East was not doing enough to promote fuel conservation and renewable energy alternatives.

“With regard to the consumption of petroleum products, the GCC is growing at two or three times the rate of the OECD countries,” says Nasser Saidi chief economist of the DIFC Authority. “For oil producers, such acceleration of growth is going to eat into the capacity they have available for export.”

Saidi identifies the generous fuel subsidies offered by Middle Eastern countries are one of the main causes of excessive petroleum consumption. In 2009, Saudi Arabia subsidised its domestic petroleum products and electricity generated from fossil fuels by about $35bn, about 9 per cent of GDP.

“Saudi Arabia actually uses as much oil as Germany, with only a quarter of the population and industrial production,” says Saidi. “This is not sustainable and with the current high fuel prices the burden of [Saudi Arabia’s] subsidy increases.”

While other speakers at the event agreed that subsidies were a problem they also believed that in the current political climate in the region no government was likely to stop subsidies.  

“All of the governments in the region are now offering their citizens gifts and this can only result in increased per capita energy consumption and a lower percentage [of oil] being available for export,” says Jorge Montepeque, global director at oil price benchmarkers Platts.

Saudi Arabia remains the highest exporter of oil and ships 79 per cent overseas. Asia continues to be the Middle East’s largest customer for its hydrocarbons and spent $319bn important the Middle East’s oil and gas in 2009.

China now imports more oil from the region than the whole of North America and, in 2010, became Saudi Arabia’s largest customer for crude oil.

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