The Political Economy of Fossil Fuel Subsidies in the Middle East and North Africa

Abstract

This rapid review synthesises the academic and policy literature on the political economy of fossil fuel subsidies and their reform in ten selected countries in the Middle East and North African (MENA) region, namely Jordan, Lebanon, Tunisia, the Occupied Palestinian Territories (OPT), Iraq, Egypt, Yemen, Algeria, Syria and Morocco. From a political economy perspective, fossil fuel subsidies are redistributive rents with the underlying objective of maintaining social stability. Fossil fuel subsidies in MENA are mainly to consumption, and are high, both as a share of GDP, and compared to other world regions. The literature points to a number of ways to maximise the chance of reforms being successful: clear communication about the need for reforms is important, credible commitments to compensate losing groups and external factors such as low oil prices. The crisis provoked by the Covid-19 pandemic and concurrent low oil prices offers uncertain prospects for fossil fuel subsidies and their reform. This report was prepared for the UK Government’s Foreign, Commonwealth and Development Office (FCDO) and its partners in support of pro-poor programmes