One of the most potent forces acting to destabilize the world is seldom mentioned, let alone acknowledged, by corporate journalists or industrial politicians. It is so unfamiliar to Americans as to be virtually invisible, and requires a somewhat lengthy introduction.
Let’s start with the worst exemplar — Saudi Arabia. For many decades, Saudis have enjoyed the cheapest gasoline and diesel-fuel prices on the planet — in 2011, gas sold there for 57 cents a gallon. Now it costs 91 cents. (Think about that for a minute: while world oil prices have dropped to less than half what they were in 2011, the price of Saudi gas has nearly doubled?)
The reason that Saudi gas has been so cheap — and that its price is going up while in most other countries it is going down — is that the Saudis decided long ago to use their fabulous incoming oil wealth to subsidize the fuel prices paid by its citizens. This was not benevolence, it was done to maintain calm and quiet among a harshly subjugated people. The collapse in oil prices has done what the playing out of their oil fields was about to do — slashed their income dramatically. Meanwhile their population has increased, and cheap gas has encouraged profligate consumption. By 2011, nearly one quarter of the entire Saudi budget was being siphoned off by gas subsidies. The Saudis simply cannot afford to maintain the subsidies any longer.
But they can’t afford to stop them, either. History shows that there is no more certain igniter of civil unrest, anywhere in the world, than a sudden increase in fuel prices. And few countries are more afraid than Saudi Arabia of internal unrest. So they are enduring jaw-dropping deficits to keep the subsidies more or less in place. They tinker with them, and complain constantly that they cannot afford them, but so far, they stay, albeit in reduced form. Resistance flares, and flickers, but so far has not exploded into revolution.
In countless other countries around the world, the ebbing of fuel subsidies is second only to climate change as an unacknowledged efficient cause of riot, revolution and ruin. Other examples (not an encyclopedic list):
- Indonesia announced the end of gas subsidies in 2015, hoping to free up about $20 billion a year to pay for, among other things, the oil it can no longer produce and must import.
- Malaysia announced the end of gas and diesel fuel subsidies in 2014, looking to save $6 billion a year.
- Venezuela, its economy decimated by the collapse in oil prices, suspended subsidies two years ago. Now the country that contested with Saudi Arabia for the lowest gas-pump prices in the world is virtually a failed state.
- Mexico, in January of this year (while Americans were transfixed by the spectacle of their new clown prince), facing rampant inflation, a weakening currency, and a faltering oil industry, eliminated gas subsidies and let the pump price shoot up 20 per cent. Mass demonstrations and deadly riots ensued, all across the country, and have not yet subsided,
- Egypt, which once produced all its own petroleum and all its own food, now has to import both. Yet supporting the subsidies established when it was oil-rich is taking a terrible toll. The International Monetary Fund reports that Egypt has been spending on gas subsidies three times its education budget and seven times what it spends on health care.
- Iraq eliminated energy subsidies in 2007, but replaced with price controls, so the population continues to receive a sizeable implicit subsidy as domestic fuel prices are set well below international levels. The size of this implicit subsidy was estimated at over 11 percent of Iraq’s GDP in 2011.
- Iran pays far more in fuel subsidies — $45 billion a year — than Saudi Arabia, or any other country, and has been struggling to get rid of them for a decade. A series of complicated master plans had been enacted, delayed, and partially implemented with the goal of keeping public outrage just below the boiling point. As the tightrope walker said halfway across Niagara Falls — so far, so good.
If we also take into account the massive subsidies given by the wealthy consuming nations of the world to the producers of gas and oil, it becomes obvious that government subsidies are a massive contributor to the other onslaught that is destabilizing the world — climate change. If the governments of the world find it impossible to stop financing this destructive behavior, how can we expect them to find a way to stop it?