Nations across the region, from Iran to Egypt, have for years been burdened with fuel subsidies that sap national budgets, cut into economic investment in other sectors and interrupt serious reforms.

Oil price increases have been a double-edged sword in the region, bolstering national budgets to permit continued subsidies, but also allowing the oil-rich countries to put off economic reforms, which could lead to serious problems if oil prices drop.

These problems were pointed out last year in a World Bank report about the effects of oil on Middle Eastern and North African economic development.

"Although oil-importing economies are particularly affected, the reliance on energy subsidies pervades the region, with large implications for fiscal positions. Several resource-poor countries in the region have implemented short-term adjustments to oil prices, although the concerns of potential poverty impacts have held back more ambitious reforms. Among oil producers, windfall revenues have delayed the perceived urgency for reform," according to the report.

Jordan's finance minister stepped down Tuesday, reportedly to protest the government's refusal to reduce energy subsidies. Amman had agreed to a plan recommended by the International Monetary Fund to further reduce subsidies this year, but parliamentary leaders halted the reduction, citing the stress it would put on poor Jordanians.

Some analysts see this reasoning as nothing more than political expediency that does little to help the poor in Middle East countries.

"I really believe subsidies are inefficient. Basically, in all these countries, what they do subsidies for, is either to distribute income, or if one looks at it from a political standpoint, it is really there to buy political support, in all of them. Everybody likes cheap bread, everybody likes cheap gas. But the people who really benefit are not the intended people. The poor do not get the same benefits as the rich. The rich have bigger houses that use more energy. The rich have more cars, they use more gas," according to Hossein Askari, a professor of international relations and international business at George Washington University who has written extensively about economic development in the Middle East.

Jordan's debt now exceeds 70 percent of GDP, and the IMF plan called for it to be reduced below 60 percent. But maintaining fuel prices at a time of high oil prices is raising the budget deficit, casting a shadow over hopes to reduce public debt.

Egypt, along with Jordan, produces very little oil and natural gas compared with the energy giants of the Persian Gulf and North Africa, and higher oil prices are making it harder for Cairo to maintain its subsidies. Egypt provides subsidies across the board, from bread to gasoline. A gas price hike in 2006 of 30 percent, to 87 cents a gallon, was met with frustration by Egyptians and resulted in higher prices for many basic goods.

In an effort to further reduce its budget deficit, Egypt announced last week it would put an end to natural gas and electricity subsidies to industry over the next three years, an announcement that was met with approval by many outside observers.

"In Egypt and Jordan they are going to have to get rid of the subsidies. The sooner that they do it, the better," Askari said.

Askari also contrasted those countries with oil-rich Saudi Arabia and Iran.

"I think when oil-rich countries are getting rid of it, oil-poor countries should have gotten rid of it a long time ago."

As oil prices have risen over the past several years, the increased revenues of oil-rich countries have allowed them to put off hard economic decisions regarding subsidies.

"In the case of Iran, and in the case of Saudi Arabia, increasing oil revenues basically rescued them. Both countries were in pretty bad shape in terms of their government finances, and in some ways Saudi Arabia was in worse shape, before the Iraq war. The more than tripling of oil prices has done wonders for them," Askari said.

But he added that Saudi Arabia has made a point of saving part of its revenues, while Iran has not.

"Basically its oil revenues have been spent. That's why I think Iran is extremely vulnerable to low oil prices, because they have not done what they were supposed to do," Askari said.

With more than 137 billion barrels of proven oil reserves, Iran is the world's second-largest holder of crude oil after Saudi Arabia, more than all of Africa combined, according to the BP 2007 Statistical Review of World Energy. And its energy exports account for between 40 percent and 50 percent of its government budget, according to the Energy Information Administration, the data arm of the U.S. Department of Energy.

But a lack of refineries in the country means Tehran must import gasoline, which it then sells to consumers at a considerable loss. Rising global oil prices not only mean Iran's revenues increase, but that it also must pay more for gasoline. The bill to support these subsidies in 2005 came in at about $4 million, which is almost 10 percent of its oil export revenues, and the following year Iran was faced with shortages when Tehran slashed the gasoline subsidy budget to $2.5 billion, according to the EIA.

The government in Tehran is still trying to sort out how to deal with chronic shortages, going as far as to begin rationing in June, which resulted in violent protests and widespread vandalism.

Many have blamed Iran's economic woes on U.S. and Western European sanctions imposed on the country for its nuclear ambitions, but Askari has a different interpretation.

"Iran's economic problems have not come from pressures; Iran's economic problems have come from bad policy decisions, 90 percent of them," Askari said.

Blaming Iran's problems on outside economic pressure is not seeing the whole picture, he said.

If the United States and the West could stop gasoline imports into Iran, they would be doing Iran "the biggest favor," Askari said, because it would allow Iran to raise prices while at the same time retaining popular political support.

(e-mail: [email protected])

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