This paper assesses the economic implications of cutting down of petroleum subsidies in Egypt in 2012. A number of policy scenarios is simulated with a static CGE model and an updated SAM for the fiscal year 2012/13 that reflects disaggregated households sector, disaggregated enterprises disaggregated factors of production, disaggregated energy sectors and disaggregated food subsidies sectors. Results reveal that the Egyptian households witness welfare losses, should the petroleum subsidies be abolished, while the economy’s GDP increases.