Policy Wise

Philip Bowring argues that high oil subsidies in Asian countries have helped increased the demand for oil by shielding consumers from real prices,

All this is widely known. What is not talked about is the impact that these subsidies are having on demand for oil. As it is, developing Asia accounts for only about 20 percent of global oil consumption. But the more important statistic is that Asian countries account for about two thirds of the annual increase in global oil demand and an even higher percentage of the increase in imports. Most of the rest of the increase comes from oil exporters like Russia and the Middle East, where prices are low and economies booming. Oil consumption in the developed world is declining slowly.

With developing Asia now consuming about 17 million barrels a day – and that figure rising by about 1 million ever year – the key question is: How much additional demand has been created by these oil subsidies?

There is no accurate way to measure how sensitive demand is to rising oil prices across this diverse group of countries. But the difference between oil at $65 a barrel and oil at $130 a barrel could well limit demand by at least 1.5 million barrels a day.

As far as India is concerned, two points would be in order: a) It is only in the least couple of years or so that government is subsidizing petrol. Otherwise, high petrol prices had helped subsidize kerosene and Diesel in the name of helping the poor. Second, in direct comparison–forget purchasing parity–petrol is still expensive in India compared to United States. (On average $1.50 a liter compared to roughly $1 in United States.) Indian government may subsidize oil but it imposes a host of taxes too. 

On a side note, how to beat the high oil prices…