Rising oil prices take their toll on Gulf state UAE

Rising oil prices take their toll on Gulf state UAE
Feb,29 -- The rise in oil prices is not only a blessing for the oil-rich United Arab Emirates (UAE), as Emirates Airline, the largest Middle Eastern carrier, increases ticket fares and inflation in the Gulf country gears up.

Around 7 percent of the world's global oil reserves are located in the UAE. In the last four weeks, U.S. crude prices have increased 9 percent to hit 106 U.S. dollars per barrel, mostly due to fears that the conflict between the West and Iran over Tehran's nuclear energy program could escalate.

"Due to the current volatility of oil prices, Emirates is introducing a fuel surcharge, for all tickets issued on or after the March 1, to reflect the substantial recent increases in our fuel costs," an Emirates Airline spokesperson said in a statement.

"Emirates has already incurred substantial costs by absorbing the recent price rises, but the surcharge gives us the ability to respond faster to market conditions, rather than a lengthier process of incorporating them into fares," the Emirates spokesperson added.

According to the spokesperson, the airline will take future oil price changes into account to update the ticket pricing accordingly. "The changes will also give us the ability to decrease prices quickly, where appropriate. We will review the level of the surcharge on an on-going basis, while remaining committed to providing our customers with excellent service and a strong value-for-money proposition."

Rising oil prices and the rising demand from businesses, which avoid crises-ridden countries like Syria or Egypt and instead prefer to do their Middle East trade in the politically stable UAE, also function as a driver for higher oil prices and rising inflation in the Gulf state.

Dr. Nasser Saidi, Chief Economist of the Dubai International Financial Center (DIFC) Authority said in his weekly economic commentary that the UAE consumer price inflation hit a six-months high, "reaching 116.9 in January 2012, up 0.7 percent year-on-year and 0.3 percent month-on-month."

"Higher inflation resulted from increases in housing (0.75 percent) and clothing (1.6 percent) prices," he explained.

Gary Dugan, Chief Investment Officer (CIO) Private Banking at the UAE's largest lender Emirates NBD, said in his weekly commentary Wednesday that "in the last few days oil prices have risen to a nine-month high. In our view higher oil prices are here to stay."

Dugan added: "Much has been made of the potential greater geopolitical risks but 'high' oil prices are also due to an ongoing fundamental imbalance between supply and demand. Even though global economic activity is expected to be sluggish this year, the changing mix of growth away from the West and to the East is leading to a greater intensity of use of oil." 

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