by Molly Hickey
Addressing the cost of fuel subsidies is one of the most politically challenging reforms a government can attempt. While subsidies pose a heavy burden on budgets and tend to accrue benefits toward the wealthy, they are quite popular with a large segment of the population, as they serve as a key supplement to those with low incomes. Since announcing its intention to put an end to fuel subsidies in 2004, the Jordanian government has faced a number of political challenges. While many of these obstacles are typical of any country attempting a politically challenging reform, some of the most acute impediments have come in the form of unstable regional dynamics.
Jordan’s reforms from 2004 to 2011 were bolstered by a period of strong economic growth. Throughout this period, the kingdom experienced real GDP growth between 4% and 8%, low inflation, and high USD reserves (World Bank). While the Iraq War (2003–2011) proved difficult for Jordan’s economy, the government was aided by grants from the United States and Saudi Arabia as collateral for Jordan’s assistance in the war efforts. This period of gradual reform, assisted by foreign aid, came to an end with the onset of the Arab Spring. In particular, a series of bombings of an Egyptian pipeline that supplied gas to Israel and Jordan posed major challenges to the government’s reform efforts. As anti-government protests kicked off in Egypt, groups began sabotaging the oil pipeline that supplied Israel and, subsequently, Jordan, with cheap fuel. The Mubarak government’s decision to provide Israel with fuel had been a controversial decision within Egypt, and as anti-government protests picked up momentum, opposition forces seized the opportunity to disrupt the agreement. This move, however, had the unintended consequence of undermining the Jordanian energy sector, placing the Jordanian government in a difficult position and forcing it to address the lack of cheap fuel.
In addition to issues caused by the Egyptian pipeline, the 2011 Arab Spring resulted in other financial difficulties for the Jordanian government. As the protests spread to Syria, it set off one of the largest refugee crises in history, with Jordan becoming one of the primary recipients of Syrian refugees. While the government has received a considerable amount of aid to host Syrians, the circumstances have also put a strain on the already weak economy. This, coupled with increased government expenses to stave off a domestic social movement, and declining revenues as tourism flagged, left the Jordanian government in a tight budgetary situation. In an effort to ward off a domestic social movement, the government reintroduced petroleum subsidies in 2011, with the cost growing to consume 3% of the GDP (Milbert 2014). In 2012, Jordan returned to the International Monetary Fund (IMF) for the first time in eight years.
The sabotaging of the Egyptian pipeline forced the Jordanian government to make several difficult decisions related to energy pricing. Egyptian gas previously was used to generate 80% of Jordan’s electricity. Following the loss of Egyptian fuel, the government was forced to decide between importing heavy fuel to generate electricity, which is much more expensive, or resorting to blackouts. While blackouts are not an unprecedented phenomenon and have been experienced by citizens in neighboring countries, the government made the calculation that the political situation at the time was too delicate to risk subjecting its population to blackouts, and instead they chose to import heavy fuel.
In September 2012, the government announced an increase in fuel prices. Less than a year after the onset of the Arab Spring, tensions were already high in the kingdom, which had managed to skirt the regional uprising with a few small reforms. In line with a recommendation from the IMF, the government announced a 10% increase in the price of 90-octane gas and diesel fuel as its deficit threatened to reach a record $3 billion. However, after protestors took to the streets in Amman, led by the Muslim Brotherhood, the government quickly reversed course, canceling the planned price increase. Two months later, in November 2012, the government again announced an increase in fuel prices, this time a 14% increase for fuel and a 50% increase for cooking gas, again inciting protests across the country. This time, the government held strong and did not cancel the increase.
In mid-2022, Jordan again felt the impacts of regional turmoil, as international fuel prices started to rise as a result of the war in Ukraine. Leading up to the war, fuel prices in Jordan were fully liberalized, and the cost paid by consumers included a tax. For the past few decades in Jordan, fuel prices had been set on a monthly basis by a committee that deploys a formula to determine the price, taking into account a three-month international price lookback. The start of the war in February 2022 roughly coincided with the start of Ramadan that year. As fuel prices started to rise internationally around March to May 2022, the government began to worry that the situation could turn volatile, especially during Ramadan, when families are spending more. In order to avoid passing the 20–30% increase on to consumers, the government reduced the tax that it applies on fuel prices. Over the three-to-four-month period in which the government reduced the tax, it was estimated that the government lost about 350 million Jordanian dinar (U.S. $500 million) in revenues.
Jordan reported that it had paid more than $700 million to maintain the cap on fuel prices during this period, but that to continue down this road further would violate their agreement with the IMF to keep spending on subsidies low (Benny 2022). After reaching the limit of what they were willing to subsidize, the Jordanian government announced an increase in fuel prices in December 2022. Truck and public transportation drivers —who are most sensitive to the price increases — were quick to respond, going on strike and rioting throughout the country. Strikers and protestors expressed anger not only with the rise in fuel prices but also with generally poor economic and living conditions, as growth had stagnated over the past decade. The government responded by indicating that fuel prices would be decreased the next month.
These incidents do not represent the first time the Jordanian government has been forced to reckon with challenging political dynamics, and they likely will not be the last. However, it seems that each time the government faces a challenging political situation, it learns from its mistakes or miscalculations and takes these lessons into account in the future. The first way the government does this is in its messaging, ensuring that it completes comprehensive public messaging campaigns prior to implementing any price increases. In particular, the government has sought to communicate to the public the regressive and wasteful nature of subsidies and emphasize that the money saved will be directed towards cash transfers and other benefits for the poor. Jordan has also seen a slowly shrinking space for public opposition in recent years, which makes it more difficult for citizens to voice their resistance to contentious decisions. And finally, the government has become increasingly adept at making slow, incremental changes, such that they are less detectable. With each of these lessons learned, the government has become more proficient at reform, and the last of subsidies have begun to disappear in Jordan.
References
Benny, John. 2022. “Why Rising Fuel Prices Have Triggered Violent Protests in Jordan.” The National, 18 December 2022.
Milbert, Svetlana. 2014. “Jordan: Improving Economic Growth through Energy Reforms.” Atlantic Council, Atlantic Council, 25 July 2014.
World Bank. “GDP Growth (Annual %) – Jordan.” The World Bank Data. Accessed 20 May 2024.
Molly Hickey is a PhD candidate in the Department of Government at Harvard University. She is interested in the political economy of authoritarianism, the politics of foreign aid, and social policy reform in the Middle East. Prior to her graduate studies, she worked on USAID projects in the Middle East and North Africa (MENA) region. She was a 2019–2020 Fulbright Student Fellow in Jordan, where she researched the politics of Syrian refugee labor permits and the closed professions. She graduated with a BA in international political economy and Middle East/North Africa studies from Pitzer College. She received an ACOR-CAORC Predoctoral Fellowship for 2023–2024.