The problem with insanely low petrol prices - 1.4p per litre! | Money | The Guardian

The problem with insanely low petrol prices

Huge petrol subsidies in Venezuala make it probably the world's cheapest gasoline. But at what cost?

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• • Rory Carroll
  • guardian.co.uk, Tuesday 15 March 2011 20.00 GMT
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Cheap petrol brings more gas guzzlers into Venezuela. Photograph: Thomas Coex/AFP/Getty Images

Before whinging about the price of petrol next time you pull into a service station, bear in mind it could be worse: it could be free. Or almost free – 1.4p per litre to be precise. Which works out at 70p to fill the tank of an average car.

If you're a British motorist who pays almost 100 times that it may sound heavenly, a fantasy for your inner Jeremy Clarkson, but the reality is, alas, not much fun.

Venezuela's petrol subsidy makes it probably the world's cheapest (Turkmenistan vies for the honour). But the policy is insane. The government covers 90% of the cost, an estimated annual bill of $9bn (£5.6bn). Include the opportunity cost of what it could gain by selling the gasoline abroad and the overall fiscal cost, according to some analysts, is closer to $21bn. More than enough to double the education and health budgets.

The subsidy benefits the rich more than the poor, encourages the import of gas-guzzling monsters (Hummers are popular) and weds people to their cars, gridlocking Caracas and other cities.

President Hugo Chávez rails against the decades-old subsidy as immoral but doesn't dare touch it because Venezuelans consider cheap gasoline a birthright. A previous government's effort to raise prices in 1989 triggered riots that left hundreds, possibly thousands dead.

President Evo Morales tried to cut Bolivia's big petrol subsidy in January, but caved in after violent protests.

There now. Don't you feel better paying £1.32p per litre?

via guardian.co.uk