Since 2020, fossil fuel subsidies in the Middle East have almost doubled

The International Monetary Fund (IMF) has revealed a substantial increase in subsidies for fossil fuel companies in the Middle East and North Africa (MENA) region since 2020. This alarming trend has significant implications given the presence of major oil and gas corporations like Saudi Arabia's Aramco and the Abu Dhabi National Oil Company in the energy-rich region.

In a recent report issued by the IMF, it was disclosed that global fossil fuel companies enjoyed an astonishing $13 million in subsidies every minute in the previous year, despite their primary role in driving the climate crisis. This amounted to a staggering $7 trillion for the entire year 2022. The IMF highlighted that reforming fuel prices and addressing fossil fuel subsidies could have a substantial impact on reducing deaths resulting from air pollution and climate change. The report uncovered a significant increase in "explicit subsidies," referring to the undercharging for supply costs. These subsidies more than doubled since the IMF's last assessment in 2020, soaring from $500 billion to $1.3 billion in 2022.

The MENA region's total subsidies doubled between 2020 and 2022, mainly due to subsidized oil products. In 2020, these subsidies were at $449 billion, but they swelled to $776 billion two years later. Similarly, subsidies in Europe doubled during the same timeframe, primarily attributable to subsidized natural gas and electricity.

When adjusted for the regional gross domestic product, the MENA region ranked second globally in terms of overall fossil fuel subsidies, which include explicit subsidies and those related to local air pollution, climate change, and broader externalities from road use. In 2022, the region accounted for 18% of the world's fossil fuel subsidies. The Commonwealth of Independent States (CIS), comprising Russia and eight former Soviet republics, claimed the top spot at 23% adjusted to regional GDP, followed by the East Asia and Pacific (EAP) region at 10%. Explicit subsidies were predominantly concentrated in the EAP and MENA regions last year, with EAP contributing 38% of these subsidies compared to MENA's 26%. As energy prices surged globally due to high inflation and the conflict in Ukraine, governments responded by increasing subsidies to fuel companies. Prior to the price hikes, most explicit subsidies were observed in the MENA and CIS regions. However, Europe saw a 300% expansion in explicit subsidies, while subsidies in the EAP region grew by 190%.

IMF economist Simon Black, one of the authors of the report, explained the reasons behind this concerning uptick. “Explicit subsidies declined a bit in 2020 vs. 2019 but not much. The surge in 2022 is mostly because of the surge in international energy prices, which forced many countries to impose price support measures (or increased the fiscal cost of existing price support measures as they’re often based on keeping prices flat in absolute terms)," Black told Al-Monitor. “Note that we prefer that governments compensate households directly instead with cash transfers of suppressing prices, as this allows them to be more targeted and maintains the price incentive to reduce energy consumption,” he added.