The future of the Middle East economy: will energy subsidies' short-term gains outweigh projected inefficiencies?
Although energy subsidies can generate short-term gains for stakeholders, they also create distortions, which leads to inefficiency across the market in the long-term, including inappropriate resource allocation, production inefficiencies and wasteful consumption, the World Economic Forum’s Energy Security Agenda Council said in its report titled “Lessons Drawn from Reforms of Energy Subsidies”.
Highlighting key findings of the recent research report issued in October 2013, Badr Jafar, President of the Crescent Group’s subsidiary Crescent Petroleum, referred to the unintended adverse consequences of energy subsidies.
According to the report, the International Energy Agency (IEA) found that $532 billion was spent on energy subsidies globally in 2011, a significant figure which, it argued, has impeded the work of market mechanics.
In addition, recent research from Standard Chartered found that energy subsidies within the MENA Region are equivalent to $237 billion annually, which is approximately half of the global total.
Jafar said: “The need to highlight the long-term distortions created by energy subsidies is growing, especially as market inefficiencies are becoming entrenched such that the drive for innovation and change in patterns of energy use is being constrained.