First the good news. US oil consumption is lower by 1.1% over the last six weeks than it was a year ago. The bad news is that oil prices have still hit a record high of $105 per barrel. That is because presently 85% of the increase in consumption has come from countries in Asia and the Middle East.When the US outsourced manufacturing to Asia it perhaps did not realize that it was shifting production to countries which were inefficient consumers of oil,a factor responsible for both higher oil prices and increased environmental pollution.
In addition these countries sell fuel at home at prices which are lower than the market price.In theory such subsidies have a crucial market impact.Although countries like China ,India and other Asian nations are reluctantly taking some action, cash rich oil producing countries of the Middle East continue to provide cheap fuel to their people.Oil subsidies are a drain on all economies of the Middle East region, but are politically difficult to abandon. In fact rising oil revenues are delaying plans to reform the subsidy system in several countries.Windfall profits for these oil exporting countries allow their governments to sell fuel at cost price and any increase would risk popular unrest in an already unsettled region. In fact in the Gulf region the local population sees cheap energy as a right of citizenship. Just imagine, in Venezuela gasoline sells at 13 cents a gallon!
But low prices encourage consumption, and more importantly inefficient consumption. China now seems to be conscious of the need to tackle growth in energy demand so as to curb pollution and also to take care of its energy security worries.However the fear of popular discontent and of inflation which is already at a record high is holding it back.Attempts to hike prices elsewhere in Asia such as in Indonesia and Myanmar have triggered violent protests.Ordinary citizens must realize that cash spent on fuel subsidies eats into other and maybe more important areas of the national budget.Efficient and sensible consumption of oil is the only way to deal with high oil prices.