Wednesday, June 15, 2011

Fuel shortage? Financial Times and Emirates Economist on same page

Did you hear the one about the oil-rich country that had a fuel crisis?

Financial Times
... the latest shortages in some emirates of the United Arab Emirates may stem from a different type of crisis: a longstanding economic imbalance rooted in intra-federal politics.

The petrol stations that have “run out” of gasoline are Emirates National Oil Company and EPPCO, both owned by the Dubai government.

Most affected outlets are in Sharjah, and other so-called “northern Emirates”, with more limited disturbance in Dubai. Abu Dhabi hasn’t suffered.

Initial excuses of maintenance work don’t really wash with analysts. More likely, they say, Dubai is trying to persuade oil-rich Abu Dhabi, the leader of this federation of seven emirates, to subsidise severe losses ENOC faces at the pump.

Oil companies in Dubai, which only has modest oil reserves, buy petroleum products at market rates, but they then have to sell petrol at subsidised rates set by the federal government.

The timing of these shortages is not so great for Dubai, which is grappling with a $113bn debt pile and is looking to tap the market for $5bn more....

I explained this the other day, and also back in 2008 when the same thing occurred.

I had not picked up on the part of the story where the Dubai-owned companies are taking care of Dubai, and leaving the Northern Emirates with the shortages. Traffic jams between the two cities of Dubai and Sharjah are already legendary. This adds to the chaos.

My suggestion to the government is to raise prices, and increase direct income transfers to citizens to compensate them. After all, they are only 10 percent of the population. Subsidizing through prices is never efficient, but it's especially not so if your intent is to target your citizens.

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2 Comments:

Anonymous Dubai Real Estate said...

UAE Government is obviously taking effective measures to stabilize the oil prices in Dubai but there are various factors which need to be checked before thinking about bringing any improvement in this sector. Different companies in Dubai are trying to control this bad condition, but without any government support it is not possible to prevent this situation.

4:06 PM  
Anonymous contactos en barcelona said...

For my part every person should read it.

7:39 PM  

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