The Corner

Re: The Wages Of Fuel Subsidies

In response to an earlier post about the riotous response to India and Malaysia axing their motor-fuels subsidies because of high prices, Corner reader Duane Truitt makes a couple of interesting points:

As you may be aware, other countries besides India and Malaysia are also cutting fuel subsidies in order to reduce governmental expenditures. Egypt recently did so, and sooner or later, the world’s fastest-growing consumer of oil (China) is going to be forced to do likewise. Undoubtedly, the Chinese government is deferring their introduction to reality until after the Olympic Games – it would not do to incite a billion Chinese to riot in front of the entire world media while camped in Beijing. Come October, however, that could be a different story.

Naturally, once most of the former big fuel subsidizers have removed much or all of their subsidies, world demand for oil is likely to level off, or possibly even plunge. And if the latter scenario prevails, then the petroleum futures speculators will be running for the hills, in the midst of a bursting oil bubble, much like real estate speculators fled upon the bursting of our recent housing bubble in the States. All bubbles are self-correcting, one way or another.

Maybe that scenario is exactly what weighed on the minds of the Saudi Royals when President Bush attempted (unsuccessfully) to persuade them to boost oil production last month.

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