The UAE economy has been boosted by recent price rises in oil and gas, leading to a revival across the entire sector. However, it's not such great news for UAE residents who have enjoyed lower oil prices in the past few years and are now facing budgeting pressures due to the hike in oil prices and rising levels of inflation.
In August 2015 the Ministry of Energy made the decision to deregulate oil prices, based on detailed studies indicating its overall economic, environmental and social impact over the long term. This has linked UAE oil prices to global prices.
Naveen Sharma is the Chairman of the Institute of Chartered Accountants of India (ICAI) in the UAE and commented that Dubai residents had an almost zero level of inflation through 2016 and 2016 because oil prices were so low. But, the increased price of oil will cause pressures on inflation. He said: "The oil prices are now market driven, and we have all enjoyed the benefit of low prices earlier. Now, the prices have increased and the oil sector has become more profitable, which means the economy will generate more jobs, attract more investment, and it will benefit all of us."
Mr Sharma is also of the opinion that when oil prices are driven by the market, it's in everyone's best interest. As, when prices are at low levels it's the consumers that benefit, but when prices rise the entire oil sector benefits and can generate more jobs and help improve the economy. When talking about the impact of oil price increases on a variety of sectors he commented: "The beauty of competition is that it balances different sectors. An increase in oil prices does not increase inflation substantially. You can see the housing sector is more lucrative now".
The Chief Market Analyst at Century Financial Brokers, Vijay Valecha, felt the transportation and housing sectors were unconcerned by the hikes in fuel price. He said: "The presence of a strong public transportation modes like Metro trains has certainly helped to alleviate some of the concerns related to transportation sector. Also, to put it in context, water is more expensive than gasoline in Dubai. The biggest benefit of fuel price deregulation was felt on the UAE fiscal balance, with some estimates suggesting that the government saved Dh20-25 billion per year. Apart from improving the fiscal health, the measure has freed additional resources for infrastructure development and social sector schemes. Precious national resources were thus conserved helping in the long term sustainability of the UAE".
Vishant Mehta is the manager of internal audit at the Al Shirawi Group and commented that the rate of inflation in the UAE has now risen to 3.5 per cent due to impacts of higher value added tax (VAT) and oil prices. He feels that the additional government funding received due to deregulation could be utilised to provide greater levels of housing, enhance plans for healthcare, invest in the higher education sector, introduce new welfare programmes and build links and partnerships with the private sector to open up even more employment opportunities for locals.
Mr Mehta added that on average UAE household spending is around 11% on transportation, so these higher prices for oil will impact upon each individual's transport budget.
Asif S. Master is the group finance director for the Al Shirawi Group and agreed that increased oil prices have led to higher prices for transportation which will continue upward pressures on inflation. He did feel there were positive aspects to the price rises, however: "We have noticed Brent oil prices getting stabilised at the current level of $75-$80 and at this level, the revival has begun in the oil and gas sectors. Big oil and gas companies have started with the capital and maintenance expenditure which they had postponed during the lower oil prices, which in turn has generated business for companies in the mid and small segments. This is a very positive sign which will have effect in the long run for the economy".
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