Subsidy alone not responsible for global oil price-hike
Wednesday, 30 July 2008
Fazle Rashid from New York
THERE have been outbursts of anger in the US and in other industrialised nations over oil price subsidies in Asia and developing nations. The consumers and the government in the US strongly feel that they are paying more for oil because subsidised oil price is acting against conservation of energy thus helping the price to rise.
The governments apprehensive of inflation and street agitations are heavily subsidising energy prices in China, India and Mexico, all hungry for energy. Government subsidy in oil in China this year will run upto $40 billion. British Petroleum (BP) estimates that the countries that provide subsidies account for 96 percent of world's increase in use of oil. This has driven the oil price to rise upto $150 a barrel.
The consumption of oil in countries which do not provide subsidies has dropped significantly. Demand for fuel in China and India, for instance, is rising because the price is heavily subsidised. This trend has annoyed President Bush who said, 'I am discouraged by the fact that some nations subsidised the purchase of products like gasoline which therefore means that demand may not be causing the market to adjust as rapidly as we would like'.
Experts believe if the current trend lingers it is unlikely the gasoline price will plunge back to the level of several years ago. China has raised the prices of gasoline and diesel but these still remain far below those in the US market. The administration in Indonesia spends six times more on energy than it does for agriculture. India has also raised nominally the price of oil.
Political pressures and inflation concerns continue to prevent many countries, particularly in Asia, where inflation is raging at double digit, from ending subsidies and letting domestic prices to be guided by the market mechanism. "You are talking about subsidies, you are not only talking about economy you are talking about politics as well", the New York Times quoted Puronomo Yusgiantoro, Indonesia energy minister as saying. Indonesia's oil subsidy is second only to China. Malaysia provoked sharp public reaction by raising the price of petrol by 40 per cent.
Indonesia and India where elections are due shortly are not likely to slash subsidy. The oil production in Asia has hardly risen in past one decade, making the situation to aggravate further. Asian nations compete with the West to import oil from the Middle-East. The output from Indonesia's oil fields has dropped by 40 per cent. Indonesia, a member of oil cartel Organisation of Petroleum Exporting Countries (OPEC), is planning to withdraw from the group.
Subsidy alone cannot be blamed for hike in oil price. Strong economic surge in Asia, political tension between Iran and the US, Venezuela nationalising its oil industry, Nigeria just resuming its normal production after years of slow extraction, and oil production well below its normal production in Iraq have complicated the problem.
Meanwhile, the US banks struggling to fend themselves after sustaining multi-billion dollar losses have decided to make huge cut in their lending process. The banks will think twice before lending money even to corporate giants for expanding business and hiring new people.
The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows, and consumers pull back from spending in the face of high gas price. Acess to capital and credit is essential for growth. If that access is restricted or blocked the economic system takes the hit, the analysts said.
In another development on the political front in the USA, Democratic Party VP nominee Barak Obama may spring a major surprise by choosing Caroline Kennedy as his running mate for November presidential election. Caroline Kennedy daughter of slain US president John F. Kennedy finds images of her father in Obama. Caroline who has thrown her weight behind Obama since the days of primaries is a member of his two-member search committee for VP nominee. Caroline has become a great influence on Obama.
THERE have been outbursts of anger in the US and in other industrialised nations over oil price subsidies in Asia and developing nations. The consumers and the government in the US strongly feel that they are paying more for oil because subsidised oil price is acting against conservation of energy thus helping the price to rise.
The governments apprehensive of inflation and street agitations are heavily subsidising energy prices in China, India and Mexico, all hungry for energy. Government subsidy in oil in China this year will run upto $40 billion. British Petroleum (BP) estimates that the countries that provide subsidies account for 96 percent of world's increase in use of oil. This has driven the oil price to rise upto $150 a barrel.
The consumption of oil in countries which do not provide subsidies has dropped significantly. Demand for fuel in China and India, for instance, is rising because the price is heavily subsidised. This trend has annoyed President Bush who said, 'I am discouraged by the fact that some nations subsidised the purchase of products like gasoline which therefore means that demand may not be causing the market to adjust as rapidly as we would like'.
Experts believe if the current trend lingers it is unlikely the gasoline price will plunge back to the level of several years ago. China has raised the prices of gasoline and diesel but these still remain far below those in the US market. The administration in Indonesia spends six times more on energy than it does for agriculture. India has also raised nominally the price of oil.
Political pressures and inflation concerns continue to prevent many countries, particularly in Asia, where inflation is raging at double digit, from ending subsidies and letting domestic prices to be guided by the market mechanism. "You are talking about subsidies, you are not only talking about economy you are talking about politics as well", the New York Times quoted Puronomo Yusgiantoro, Indonesia energy minister as saying. Indonesia's oil subsidy is second only to China. Malaysia provoked sharp public reaction by raising the price of petrol by 40 per cent.
Indonesia and India where elections are due shortly are not likely to slash subsidy. The oil production in Asia has hardly risen in past one decade, making the situation to aggravate further. Asian nations compete with the West to import oil from the Middle-East. The output from Indonesia's oil fields has dropped by 40 per cent. Indonesia, a member of oil cartel Organisation of Petroleum Exporting Countries (OPEC), is planning to withdraw from the group.
Subsidy alone cannot be blamed for hike in oil price. Strong economic surge in Asia, political tension between Iran and the US, Venezuela nationalising its oil industry, Nigeria just resuming its normal production after years of slow extraction, and oil production well below its normal production in Iraq have complicated the problem.
Meanwhile, the US banks struggling to fend themselves after sustaining multi-billion dollar losses have decided to make huge cut in their lending process. The banks will think twice before lending money even to corporate giants for expanding business and hiring new people.
The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows, and consumers pull back from spending in the face of high gas price. Acess to capital and credit is essential for growth. If that access is restricted or blocked the economic system takes the hit, the analysts said.
In another development on the political front in the USA, Democratic Party VP nominee Barak Obama may spring a major surprise by choosing Caroline Kennedy as his running mate for November presidential election. Caroline Kennedy daughter of slain US president John F. Kennedy finds images of her father in Obama. Caroline who has thrown her weight behind Obama since the days of primaries is a member of his two-member search committee for VP nominee. Caroline has become a great influence on Obama.