Rising gas prices hurt drivers, but will help ease the budget crunch, officials hope

Story by Laura Finaldi

AMMAN, Jordan – The Jordanian government announced that it will no longer subsidize the price of 95-octane gas, forcing a nearly 20 percent increase on drivers who use it. At 1 Jordanian dinar, or about $1.41 per liter, that price now far outpaces the cost of gas in the United States, where the equivalent is $5.34 per gallon.

This hike, which took effect May 28, marks the first major increase in gasoline prices since the beginning of the Arab Spring in January 2011. That’s when riots broke out in different parts of the region and Jordan froze gas prices as one of the many precautions it took to stem fear of similar outbreaks.

The price of 95-octane gasoline shot up almost 20 percent to more than $5 a gallon at the end of May, making it unaffordable for many Jordanians.

But Kholoud Mahasneh, director of the Oil and Petroleum Products Department at the Ministry of Energy and Mineral Resources, said Jordan’s deficit has grown so big – reaching nearly $4 billion – that continuing to subsidize gas would sink the nation even further into economic despair. Last year, 570 million Jordanian dinar, or about $804.5 million, were spent on subsidies alone.

“Our financial situation is pretty bad,” Mahasneh said. “We can’t pay subsidies anymore. It’s eating our budget.”

The government has not, however, raised the price of 90-octane gas, a fuel used by 82 percent of drivers here. Ninety-five octane gas is generally considered to be easier on vehicles, so it’s always been more expensive, but 90-octane is cheaper. Mahasneh said 95-octane gas is generally very compatible with European-made cars.

Prices on diesel fuel and kerosene will also remain subsidized, as they have been since 2008 after an order from King Abdullah II. Talib Awad, an economist at the University of Jordan’s Center for Strategic Studies, said he doesn’t expect those prices to change any time soon because the subsidies on them are very small. But Waheed Foudeh, owner of a gas station on Airport Street, said he expects prices to go up within the next five or six months.

Those who benefit from the subsidies are, for the most part, non-Jordanians, Awad said. Seventy percent of those who use 90-octane gas are immigrants from Egypt, Syria and Iraq. So, he said, the government money put into these subsidies isn’t going back into the pockets of needy Jordanians.

“Once gasoline commodities increase, the prices of most or all consumer goods will go up. This is actually not rational behavior,” he said. “We have a serious problem in terms of deficit. They need extra revenues to fix the problem of deteriorating money supply.”

Here in Amman, gas station owners and petroleum companies are feeling the change. Ghandi Jaber, a gas station owner who has stations in Amman, Israel and Chicago, said in the first week of the price hike, he saw a 70 percent to 80 percent drop in sales of gasoline 95. Foudeh said he saw the same drop in his station’s supply of 95-octane gas.

“I used to sell 95 because it’s better for the car. After the price has changed, [people use] 90 more,” Jaber said a week after the increase took place. “Even the petroleum companies that bring us the gas, they feel it. They used to sell almost 200 trucks of 95 and 300 of 90. Now it’s about 100 [of] 95 and 500 of 90.”

Jordan suffers because it is a dry country with few natural resources. It has to import fuel from Saudi Arabia and other large oil producers around the region. As a result, citizens are forced to pay more than surrounding countries for gasoline and other oil-based commodities. By comparison, a liter of gasoline in Saudi Arabia costs only about 13 cents.

“We are living among countries who are very rich with natural resources,” Awad said. “In Jordan, this is a problem of rising taxes and rising costs of energy. [It] affects consumers.”

Jaber isn’t so sure the price changes will ease the country’s money troubles. As he speaks, he smokes his cigarette and takes sips from his gas station-brewed coffee in the back of his station, which is near the seventh circle of Amman. “No [this will not help] because everyone will switch to 90,” he said. “Everyone will do what is best for him or herself. They’re not thinking about the bigger picture. They just need to survive.”

Some business owners such as Foudeh do not blame the government for doing what it has to do to raise gas prices; although the cost of living is largely unaffordable, the problem of the large deficit remains.

“I think they have to [stop the subsidies] because there is no money in the Central Bank in Jordan,” he said. “There was no work, no money. Nobody pays taxes. The government doesn’t have money so they are afraid.”

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