Hit hard by the property crash, the once high-flying Dubai government is now penny pinching. Even at the risk of destabilizing the region – in the same way that rising food prices have done earlier this year – in a drastic move, Dubai is now cutting in half the energy subsidies and transfers that its property wealth had made possible.
Cutting the subsidies that neighboring populations have come to depend on is a dangerous move that could destabilize a region that is already in turmoil, and is precisely what Abu Dhabi, the federal capital of the UAE had hoped to avoid.
After the riots that have toppled nearby governments, Abu Dhabi decreed that UAE service stations must not raise prices. But wholesale prices have risen to nearly $100 a barrel this summer. Almost half of the GDP in Abu Dhabi is produced by oil.
Now, with Dubai’s ENOC having to close service stations and filling points in nearby Sharjah, and restricting supplies to neighboring sheikdoms, the exact same effect is created anyway: ultimately, because prices have risen, workers can no longer buy cheap gasoline. Not because their own prices are too high, but because Dubai can no longer keep them artificially low.
Earlier this year, when Tunisians and Egyptians could not buy basic grains, because prices had risen, riots ensued and governments were toppled. Stay tuned…