Oil Subsidies

Something most people don’t focus on when it comes to our high gas prices, is the role of fuel subsidies. I’m not talking about in the US but in China and India. These countries, along with many oil producing countries, subsidies the price of oil. This creates an artificially higher demand than actual supply would naturally allow if they were to float these commodities naturally as is done in most modern countries.

The simple solution is to have these countries stop and allow the price to settle in at a natural supply and demand point. Oil I am sure would fall as most Chinese and Indian’s, and Russians or Venezuelans, cannot afford to pay $4 a gallon and would fall out of the oil market all together. This would mean the artificially high demand would go away.

The problem is, these countries will not do this without some substantial pressure from the outside and I do not think the will by Europe and the US is there to create such pressures. Beyond that, the other options do very little to curb this artificial demand. You can impose surcharges on imported goods or some other measure but they would do very little in the long run.

The only way to move away from this is to create more choice in fuel options. When you have competition, quality improves. If I were in charge of the government, I would be giving tax breaks and funding every alternative fuel source I can find. This will create more options and choices and as more people move away from oil to these other options, the demand on oil will go down and the need for it will as well. Those still dependent on it will find that prices will go down. Seems like a good solution, too bad no one in Washington can think up something so simple.

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Filed under Alternative Fuel, Business, Consumerism, Energy, Gas, Globalization, Renewable

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