Dubai: Deregulation of fuel prices is likely to have a limited impact in terms of operating costs or erode margins for select companies in the UAE, analysts said.

On Wednesday, the UAE government took a landmark decision to liberalise the fuel prices, a move that is expected lower the costs for companies, which uses diesel as part of its operating expenses.

“Transportation cost will increase with higher fuel prices, but companies would re-price that to the clients, so initially that could erode margins for transportation companies,” Jaap Meijer, managing director at Arqaam Capital told Gulf News.

This could also positively impact in decreasing the operating costs of many firms, which uses diesel, the mister of energy said.

“Considering the international prices of oil and petroleum derivatives, we expect diesel prices to go down. This will stimulate the economy as lower diesel price would mean lower operating costs for a wide number of vital sectors like industry, shipping and cargo among many others,” said Suhail Al Mazroui, Minister of Energy, said in a statement.

The decision will contribute positively to the UAE’s investment environment, enhance its economic competitiveness, and support the policy of a free-market economy with no direct interference from the government, Al Mazroui said.

On a general level, even Abu Dhabi hiked electricity and water tariffs in January to cut subsidies.

Slight pickup in inflation

“We expect the impact on inflation to be around 3 per cent, so it’s very manageable in terms of overall inflation,” Meijer said, terming the move as a sensible move towards fiscal prudence.

This could an indirect impact on companies though. Cost of gasoline represents 3-4 per cent of an average income in the UAE, which is a reasonable percentage compared to international costs.

“I’m looking at an indirect impact on consumers having less money to spend. This would have indirect impact on the top line of corporate sectors. Due to higher fuel costs, consumers will have less money to spend,” Sanyalaksna Manibhandu, Manager of Research, National Bank of Abu Dhabi Securities. “Consumers will have to compensate an increase in expenditure elsewhere.”

The move could impact discretionary spending of individuals, impacting luxury item sellers.

“People will avoid unneccasrily spending money on at the first instance. People may go out less for instance as cost of travelling to work has gone up,” Manibhandu said.