Energy Subsidies in the Arab World

This paper, authored by Bassam Fattouh and Laura El-Katiri and published by the United Nations Development Programme, explores the issue of energy subsidies in the Arab World. The authors argue that while energy subsidies may be seen as achieving social objectives (such as expanding energy access and protecting poor households’ incomes); economic objectives (such as fostering industrial growth and smoothing domestic consumption); and political objectives (such as distributing the oil and natural gas rents to the population), they are a costly and inefficient way of doing so. 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. Therefore, a critical factor for successful reforms will be the ability of governments to compensate their populations for the reduction or removal of subsidies through carefully designed mitigation measures. It is argued that  reform of energy pricing mechanisms in the Arab world may be seen as beneficial from more than one perspective. Nevertheless, this paper recognises that the current political climate in the region will render the reform of domestic energy prices difficult in practice, such that reform may indeed be a medium- to long-term endeavour.

Please follow the link to access the paper.

By: Bassam Fattouh , Laura El-Katiri

Latest Tweets from @OxfordEnergy

  • Jonathan Stern on the latest Groningen earthquake: I think it is likely to accelerate even further the phase-out of… https://t.co/d1tGcAIAjp

    May 23rd

  • About 43% of the industrial gas demand in Europe could, in theory, decline in the 2020s as a result of decarbonizat… https://t.co/0iMqP4dCsd

    May 23rd

  • New OIES comment on Saudi Arabia’s challenging balancing act: If premature return of withheld supplies back into th… https://t.co/J0LoxVkSAJ

    May 23rd

Sign up for our Newsletter

Register your email address here and we will send you notification of new publications, comment, articles etc. automatically.