Abu Dhabi: The UAE government will fix fuel prices according to average international petrol and diesel prices and will announce it on 28th of every month for the following month.

According to analysts, they will be looking at average global prices between a certain period of time, say on a monthly basis, and pegging UAE prices to that, which is the same mechanism used for gold.

“In Europe, drivers go to petrol stations and pay according to fuel prices at that very moment, so that will probably also be the case for the UAE,” said Osama Al Ashry, member of UK organisation, Society of Technical Analysts.

He said people are unlikely to feel the heat at the moment but if Brent Crude (the international benchmark for oil) prices go up, consumers will feel the burden.

Sachin Mohindra, a Portfolio Manager and senior vice president of Invest AD, it will have a positive impact on the economy in the long run but in the short term it will have some impact on inflation.

“It is a good step towards further strengthening of the UAE’s already robust fiscal position and diversification of the sources of revenue for the Government. Rationalisation of subsidies is good for the economy. It leads to transparency .”

“It is good for the industry if the diesel prices get reduced but petrol prices going up might increase the inflation even though it could be minor. We have to analyse to what extent the inflation will be increased due to the decision.”

The decision to deregulate fuel prices should not be linked to drop in oil prices, he said. “Gradual rationalisation of subsidies was in discussion from a long time even before oil prices went down in December last year. Even the rating agencies and financial institutions have been advising regional governments to relook at subsidy structure.”

Dr Mamdouh G Salameh, an international oil economist and World Bank consultant said the decision by the UAE Ministry of Energy to deregulate fuel prices is an important economic decision.

“It aims at dampening domestic consumption of fuels thus making more crude oil available for export, indirectly cutting subsidies and strengthening the national economy.”

He said for a country like the UAE, with one of the highest per capita incomes in the world standing at $43,048 in 2013 and a GDP of $401 billion in 2014, subsidising fuel prices is a waste of billions of the national wealth, which could be used to finance more wealth-creation projects in UAE, preserve the national resources for future generations and put UAE on an even keel with the developed countries of the world.

“Cutting of the subsidies should have been taken long time ago when oil prices were very high. Nevertheless, it is never too late.”