Fuel Subsidies Are Destroying the World

(Photo by Gideon Wright/Flickr)

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?

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6 Responses to Fuel Subsidies Are Destroying the World

  1. Does anyone see a bigger subsidy than the US? We import most of our oil and need a military to do so, both to protect the sea lanes and force others to accept the PetroDollar. Not to mention that the fracking industry has a de facto subsidy in banker investment.

  2. Ken Barrows says:

    The US subsidizes every form of energy under the sun (sorry). As time passes, any remaining effectiveness will fade away. But for now, it’s pull the demand forward.

  3. Denis Frith says:

    There about ninety natural mineral resources (in addition to crude oil)that are being irreversibly used up by the operations of industrialization civilization in an unsustainable process.So global society will have many more predicaments to deal with as the available services inevitably decline.

  4. Tom says:

    Industrial civilization began with coal (neglecting whale oil and maybe even wood, before that), grew into oil and gas, and matured into the worst of them all – nuclear power. While optimists like to bask in the dreams of clean solar, wind and the other peripheral forms of energy, they fail to realize that they all depend on oil for construction, installation and maintenance.

    The attendant problem that emerges is overpopulation (as noted above by our host), which then traps countries into the constant growth regime. All of it is astonishingly unsustainable, but nobody can put the brakes on without chaos and serious disruption to economics, social order, and other consequences.

    The sad fact is that “the brakes” will be applied by Mother Nature before much longer, as the signs are already surrounding us, but we choose to ignore them (until it’s WAAAAY too late), because attached to fossil fuel use is the pollution that changes the atmosphere we take for granted. Adding billion of tons of CO2 cannot possibly have no effect in a closed system. In fact, now we have wonderful METHANE, a much worse factor for the atmosphere, being added at prodigious increases as the ice and permafrost melts.

    So humanity can’t stop but has metaphorically driven over a cliff – what with going on 8 billion of us dependent on a collapsing biosphere.

    i’ll spare the conclusion, leaving it for the reader to contemplate.

    Thanks for this essay, Mr. Lewis. Taking us where none of the mainstream writers want to tread is a duty for you and we appreciate your efforts.

  5. Alisa says:

    Trinidad and Tobago, a small oil and gas producing nation in the Caribbean, has also subsidised its fuel and electricity costs and imports most of its food. The government is trying to manage the economy and the people by slowwly reducing the fuel subsidy. Nothing yet done to electricity which is crazy cheap even as rising temperatures leads everyone to air condition their poorly ventilated homes.

    The talk is about the need for diversification away from oil and gas as the main driver of the economy, but too little too late. There’s no more money to diversify the economy.

    Government is looking at property taxes and dipping into ‘rainy day’ trust funds to keep business as usual going, while hoping that the prices of oil and gas go up.

  6. Mike H says:

    In Australia the big industry is digging stuff up, mining (iron ore, coal, gold) fracking etc. They all use massive amounts of diesel fuel to do this but they get their fuel subsidised by the Australian Government. Similar rorts in the Transport Industry. So the average Australian pays above parity at the pump but companies get a subsidy. Every time this raised or changes attempted the companies riot and the government backs off. So we subsidise the worst polluting products on the planet, coal, now we want to help them build more and give them tax breaks for decades, why, oh jobs job jobs. How many? don’t ask but is a miniscule fraction of the jobs that will go as the Barrier Reef goes the way of the dinosaurs.