Oil has reached a record high at $71 a barrel. This is a huge contrast to the lows of $14 a barrel a few years ago! Oil producing countries are making incredible amounts of money, with record budget surplusses announced left and right in the region!

I am currently traveling outside the country, and during my transit in Dubai, I saw the headline in the newspaper which was extremely interesting and I just knew I had to post about it!

This comes from the Forbes.com website, the same peice of information -

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UAE hikes fuel prices 30 pct

08.30.2005, 01:53 PM ABU DHABI (AFX) - The United Arab Emirates, a member of the OPEC oil cartel, announced a 30 pct rise in the price of petrol and diesel at the pumps because of soaring costs.

The price of a gallon of petrol rose by 1.5 dirhams, around 0.40 usd, to between 6.25 and 6.75 dirhams, 1.71-1.83 usd, while diesel went up 1.4 dirhams to 7.70, the official WAM news agency reported.

The price rises, due to come into effect Thursday, were introduced despite the UAE being a major oil producer, pumping around 2.5 million barrels per day.

Crude oil futures Tuesday surged to an all-time record high of 70.85 dollars per barrel in New York amid concerns about the damage to production facilities caused by Hurricane Katrina.

WAM said the domestic rise was necessary to offset ‘the financial losses of distributors over past years, to the point where they could no longer sustain the losses given the unprecedented rise in oil prices’ on the world market.

‘At today’s prices the loss per gallon is over 4.10 dirhams for petrol at the pumps,’ said the state-owned oil company ENOC.

The UAE became the first Gulf producer to hike the price of petrol since crude prices started soaring on world markets. A minor increase was introduced in April.

Like fellow producers, the UAE, which relies on oil for some 80 percent of its revenue, has enjoyed a windfall from rising crude prices.

Abu Dhabi, the largest and wealthiest of the seven emirates making up the UAE, accounts for some 90 pct of output.

In October, two major petrol retailers threatened to shut their outlets unless prices were raised by 30 pct.

Eppco and ENOC, both based in the emirate of Dubai, cited heavy losses caused by record high oil prices at the time, though their threat to shut down did not materialize.

Even with the increase, prices in the Emirates still compare favourably with other countries. The price of a gallon of petrol in the US has climbed to more than 2.50 usd.

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I started thinking, will this happen to us? We are currently obviously in the middle of an inflation, so prices are generaly increasing! But oil prices for the country are subsidised which means they are kept to a minimum regardless of cost outside. What if the private gas station companies are operating? Would they have to pay for the gas to sell it or do they only run the facilities like a supermarket and so on? I would think that they would have to pay for the gas and then resell it to the public to start making serious money, just like ENOC and Eppco in the UAE, otherwise they will just be companies that are baqqalaat (minimarkets)!

I dont know if what I am assuming is correct, I dont know if the companies will pay for gas from the country or if their prices will be subsidized. I am just assuming that they will use the same business models as the UAE companies.

If that is the case, then how would our great parliament react if the prices will increase? Even if its 5%! They already gave people extra money in the 200KD a few months ago, plus the 50KD increase in salaries, as well as cancelling all their electric bills which might be in the thousands for each person, so what will happen if, for a change, people are actually required to pay something!??!?

What if the UAE had our parliament? Would they not let the 30% increase pass? This would mean that the private companies mentioned would continue heavy losses and might go out of business, which will probably lead to government run stations like the ones we have with low service quality, the opposite of privatization!

In other words, privatization needs a free market, not a market controlled by government pricing policies. So with the current situation in Kuwait, privatization would be impossible! We would be pushing private companies to a government-dependant market!

I know I went off subject, but this issue really made me think about many things. Back to my question….do you think gas prices will increase in Kuwiat?