UAE Oil Minister Says Oil Prices Are Not a Threat to Global Economy

Published May 27, 2013 – Fox Business

Crude oil prices are at a fair level and aren’t posing a risk to the global economy, United Arab Emirates’ new energy minister said in remarks published Monday, signaling a consensus among OPEC members over prices.

“From the producers” point of view, the current price level continues to be an incentive for the ongoing investments that are necessary to increase oil production capacity,” Suhail Al Mazrouei told the state-run news agency Wam. “As for consumers, this level does not adversely affect economic recovery and the prospects of growth in the future.”

However, OPEC kingpin Saudi Arabia may have to persuade other members of the group to cut output to keep oil prices above $100 a barrel for the rest of the year, the kingdom largest unlisted lender National Commercial Bank said in a note.

Read more: http://www.foxbusiness.com/news/2013/05/27/uae-oil-minister-says-oil-prices-are-not-threat-to-global-economy/#ixzz2UbL2x4wa

So if the UAE oil minister claims prices have no ill-effect on economies, and gas and oil prices are in line, then why do so many Arab countries subsidize their domestic energy? Why don’t they follow their talk and allow market prices on their domestic energy? Let’s see if that has any negative effects on their economy?

Research paper:
“Arab Human Development Report”- by Bassam Fattouh and Laura El-Katiri

The policy of maintaining tight control of domestic energy prices has characterized the political and economic environment in most Arab countries, together with many other parts of the world, for decades. The objectives behind such a policy range from overall welfare objectives such as expanding energy access and protecting poor households’ incomes; to economic development objectives such as fostering industrial growth and smoothing domestic consumption; and to political considerations, including the distribution of oil and natural gas rents in resource-rich countries.

Energy subsidies distort price signals, with serious implications on efficiency and the optimal allocation of resources. Energy subsidies also tend to be regressive, with high-income households and industries benefiting proportionately most from low energy prices. However, despite such adverse effects, energy subsidies constitute an important social safety net for the poor in many parts of the Arab world, and any attempts to reduce or eliminate them in the absence of compensatory programmes would lead to a decline in households’ welfare and erode the competitiveness of certain industries.

Anyone want to take bets on what effects it would have on their economies and growth?