With crude prices reaching highs of over US$ 110 a barrel in March, many countries in the habit of subsidizing fuel continue to feel the pressure to abandon those policies. This is particularly so in some Middle East countries that have traditionally provided heavily subsidized fuel for their populations.
In those countries that were not blessed with large petroleum endowments, the current rise in crude prices has meant prohibitive subsidy bills, resulting in unmanageable budget deficits and growing national debts.
Jordan, for example, has insignificant accessible oil reserves. It does have oil trapped in tar sands, but it is costly to extract and remains economically unviable even at today's high crude prices.
For years Jordan relied on oil imported from Iraq, which Sadam Hussein´s regime provided at lower-than-market prices. But today Jordan has had to accept market prices in the same way the Ukraine has had to after years of receiving preferentially priced Russian oil.
This has meant a 2008 fuel-subsidy bill that is estimated to reach nearly US$ 1 billion , or 13.5 percent of the government's total budget for the year.
The pressure of such a massive expenditure forced parliament in January to announce an end to fuel subsidies. In February, the government raised domestic fuel prices by 75 percent overall, and gasoline prices increased by as much as 33 percent.
The move was met with protests, as hundreds of Jordanians, in this country of 6 million with a per-capita income of US$ 4,500, staged a sit-in at the Professional Associations Complex in Amman.
In response, the Jordanian government announced a plan to help poorer Jordanians deal with higher fuel costs. The government said it would raise salaries for public-sector employees, the military, those on pensions, and private citizens earning US$ 1,000 a year or less.
According to the Finance Ministry, the pay raises, which are to be backdated to 1 January of this year, will amount to US$ 63 - 70 a month for the public sector and US$ 150 - 200 for those making US$ 1,000 or less a year. The salary raises are expected to reach 60 percent of the population.
Even so, the government expects to save US$ 565 million net, based on an estimated cost of US$ 423 million for the planned salary raises, compared to a savings of US$ 987 million for ending the fuel subsidies.
In neighboring Syria, similar problems are being faced. For years Syria has also provided heavily subsidized fuel to its population; yet the country has dwindling oil reserves and in 2007 it became a net importer of petrol.
Having to import most of its oil at skyrocketing international prices, Syria's subsidy policy also became unmanageable. Fuel subsidies were costing the country an estimated 15 percent of GDP, and part of this was being enjoyed by citizens of other countries such as Turkey, Lebanon and Iraq, where cheap subsidized Syrian fuel is smuggled. The result was a budget deficit of 6 percent of GDP in 2007, which was expected to grow to 10 percent in 2008.
This unsustainable strain on government finances spurred Syria to announce last year that it would begin to phase out fuel subsidies over a five-year period. According to Deputy Prime Minister for Economic Affairs, Abdallah al-Dardari, the plan would save the country US$1.2 billion in 2008.
But as in Jordan, the Syrian government's announcement that it would begin to remove fuel subsidies proved to be highly unpopular, and the government had to postpone the action for fear that subsidy cuts would spark protests.
However, on 27 March, the Syrian daily Champress reported that the government had indeed raised fuel prices by 11 percent. Based on government statistics that show annual consumption at 2 billion litres, the move is expected to save the government an estimated 8 billion Syrian dinars (approximately US$ 160 million) a year.
Iran is also considering a draft law to cut fuel subsidies. However, other countries in similar situations, such as Yemen, have refused to act, again fearing public reaction. In an interview with Reuters, Oil Minister Khaled Bahah said his government spends a staggering one-third of its budget subsidizing refined petroleum products. Yet according to Baha, "The government has no intention at this point in time to lift the subsidies," adding that "they are a must for the people."
