Archive for May 27th, 2011

The Perverse Gasoline Subsidy in Petrostates

May 27, 2011

A reader was kind enough to send me this table he found on the size of the largest  gasoline  subsidies in the world by monetary value and its respective correspondence as a percentage of GDP.  As you can see oil is indeed the Devil Excrement in oil producing countries, as this subsidy always ends up being one to the rich, who are the ones that own cars and benefit the most from it. And who pays? The poor of course!

(Source IEA World Energy Outlook)

The subsidy in Venezuela is actually larger than the IEA estimates shown above. To begin with, these number come from official statistics on gasoline consumption by PDVSA and the Government which are really low compared to what gasoline consumption truly is, but that is a small correction on the scale of things. (Economist Angel Garcia Banchs estimates it to be US$ 19.9 billion or 8.5% of Venezuela’s GDP)

Of course, in Venezuela, much like what has happened in Iran, this subsidy has a compounding effect, as people use gasoline more and more, because it is so cheap and oil production is going down simultaneusly, so that you get hit twice, as more of the lower production has to be used internally.

What is amazing is that while nothing is done to remedy this problem by eliminating or reducing this perverse subsidy, other subsidies which are likely to be fairer (and even guaranteed by the Constitution) are eliminated or reduced, as the price of the subway is increased and tuition is no longer free “retroactively” at the Bolivarian University.

It is indeed the Devil Excrement at work in all of these Petrostates…