Oil shock: first wave of effects


Richard Moore


High Oil Prices Met With Anger Worldwide 
Both Rich and Poor Countries Make Moves To Appease Citizens 

By Paul Blustein and Craig Timberg 
Washington Post Staff Writers 
Monday, October 3, 2005; A01 

Rising fuel prices are stoking popular anger around the world,
throwing politicians on the defensive and forcing governments
to resort to price freezes, tax cuts and other measures to
soothe voter resentment.

The latest example came this weekend in Nigeria, where
President Olusegun Obasanjo promised in a nationally televised
Independence Day speech that the cost of gasoline would not
increase further until the end of 2006, no matter what
happened in global oil markets. He acted after furious
demonstrations shut down whole sections of major cities around
the country over the past several weeks.

Antagonism over the strains inflicted by escalating energy
costs is a phenomenon that stretches from rich nations in
Western Europe, where filling up a minivan costs upward of
$100, to poor countries in Asia and Africa, where rising oil
prices have driven up the cost of bus rides and kerosene used
for cooking.

Although prices vary widely around the globe, with many
governments keeping fuel costs below market levels and others
maintaining stiff taxes on petroleum products, the mood in
many parts of the world can be summed up in the lamentations
of Julia Seitsang, a mother of 10 who lives in Windhoek, the
capital of the southern African country of Namibia.

"Gas prices are biting us so hard it stings," said Seitsang, a
46-year-old businesswoman, opening her wallet to show just a
few Namibian coins as she stood on a busy street looking for
someone to share a taxi. "I have to spend more and more for my
husband to drive my children to school every day."

Adding that her children, who go to three different schools
according to their grades and talents, might have to be moved
to one school because of the family's gasoline bill, she said,
"I swear we are living in the hands of Jesus with these gas

The impact is particularly hard on people in nations like
Namibia, where the average annual income is $5,000 and gas
costs about $5 a gallon. They have watched helplessly as the
prices of crude oil and petroleum products, which are set in
global markets, have soared over the past two years, first
because of the powerful demand generated in large part by
China's rapidly growing economy and more recently because of
the gasoline shortages generated by Hurricane Katrina. But in
many wealthy countries as well, discontent among ordinary
citizens is compelling politicians to respond.

In the European Union, there was a brief attempt by the 25
member governments to maintain a united front against consumer
demands for tax cuts, rebates and other subsidies to offset
rising fuel prices. Many of those governments depend on taxes
that add as much as $5 to a gallon of gas.

But the unity cracked last month as Poland and Hungary
approved fuel tax cuts and Belgium promised a rebate on home
heating fuel taxes. In France, where a gallon of regular
unleaded gasoline fetches up to $6.81 in Paris, thousands of
farmers and truck drivers staged brief street demonstrations
two weeks ago, and the government offered them a $36 million
package of gas tax breaks and rebates.

In Canada, too, the government, facing an election next year,
is scrambling to put together a package to present to the
cabinet this week, including a new agency to monitor gas
prices, help for low-income Canadians with their home heating
bills, and new powers to investigate price-fixing complaints.

Canadians paid about $4.07 per gallon for gasoline shortly
after Hurricane Katrina hit, reflecting the surge in petroleum
prices for an industry closely tied to the giant U.S. market
and taxes that are generally double those in the United
States. Although the pump price subsided to an average of
$3.50 a gallon last week, "there is a great deal of consumer
frustration and outrage," said Cathy Hay, a senior associate
at M.J. Ervin & Associates, an independent gas consulting firm
in Calgary, Alberta. "It is hard for the average consumer to
translate a refinery closed in Texas or Louisiana with how
much they pay at a pump in Alberta."

In such countries, where stiff gas taxes help induce motorists
to drive small, fuel-efficient cars, the griping by Americans
about high gasoline prices evokes little sympathy. Ruth
Bridger, a spokeswoman for the AA Motoring Trust, a British
consumer advocacy group, said Britons look at the
sport-utility vehicles that dominate U.S. highways and think,
"Serves you right."

But prices in the United States have risen much faster than
those in many parts of the developing world. Governments in
developing countries often keep artificial lids on fuel costs
-- sometimes by making state-owned refineries sell at a loss
and using taxpayer funds to keep the refineries running, in
other cases by using taxpayer funds to buy imported gasoline.

Therein lies one of the great ironies of the popular revolts
against higher energy costs in nations such as Nigeria.

"The fact is, higher oil prices are not being fully passed
through to the retail level in many countries," said Mohsin S.
Khan, the director of the Middle East and Central Asia
Department at the International Monetary Fund. "In the States,
higher oil passes through to retail prices very quickly." But
in the developing world, Khan said, "virtually everywhere,
consumers are being protected in many ways, with governments
absorbing the cost in their budgets. There is some
pass-through, but it's not complete."

Such subsidies are by no means confined to big oil-exporting
countries, like Venezuela and Iran, where gasoline prices are
famously cheap, in the tens of cents per gallon.

In India, which imports about 75 percent of its crude oil,
domestic fuel prices have risen less than one-third as fast as
international prices, according to Hans Timmer, an economist
at the World Bank; the government's failure to implement a
system of market-determined prices caused state-owned
refineries to lose $4.6 billion in 2004.

Next door in Pakistan, despite increases of 4.9 to 8.9 percent
in September, fuel prices are still more than 15 percent under
world market levels, Timmer said. Many sub-Saharan African
governments have been unable to continue the budgetary cost of
providing gasoline cheaply, so some have allowed prices to
rise at least partially. But not all have; the Central African
Republic has frozen prices at the pump since 1999.

Indonesians have been paying about 90 cents a gallon for
gasoline -- until this weekend, that is, when the government
of President Susilo Bambang Yudhoyono announced that gasoline
prices would nearly double and kerosene prices would triple.
Officials said they had no choice, since fuel subsidies have
swelled to about one-third of government spending. Word of the
impending price hike sparked protests in many cities; on
Friday, police were using tear gas to disperse thousands of
demonstrators. The reaction was muted compared with the deadly
rioting triggered by previous price hikes, but the government
is bracing for possible violence as the impact sinks in.

Although the relatively restrained level of fuel prices in
those countries has helped keep consumers spending and
economies growing, the subsidies are imposing a severe burden
on taxpayers and cannot continue without bankrupting some of
the governments involved, economists contend. "These economies
may be delaying a necessary adjustment to high oil prices,"
said Haruhiko Kuroda, the president of the Asian Development
Bank, a Manila-based institution owned by 64 governments. He
said the artificially low cost of energy translates into
excessive consumption.

But it is not easy for governments to shed subsidies, because
citizens get upset when the price goes up, whether it is
subsidized or not.

Zhang Qihe, 43, a Beijing taxi driver, has seen gas rise from
about 91 cents a gallon in 1999 to about $2.30 a gallon now.
As a result, he estimates he has to work an extra hour a day
to make ends meet. "After a 14-hour workday, I go home
exhausted," he complained.

Likewise, in Russia, although major retailers froze prices at
the pump this month until the beginning of 2006, that has done
little to placate motorists who are paying the equivalent of
about $2.60 a gallon, a jump of approximately 20 percent from
the beginning of the year.

"The country rakes in oil. We have more oil than anyone," said
Nikolai Podkopayev, 45, who drives a van in Moscow delivering
car parts. "The government is just not thinking about the

Nigeria, a major oil producer, offers perhaps the most
disturbing illustration of the depth of antipathy that can
arise when fuel costs increase. In Nigeria, rising petroleum
prices have dramatically fattened the budgets of the
government and the bottom lines of oil businesses but caused a
powerful backlash against President Obasanjo and, say some
motorists, against democracy itself.

Since Obasanjo's election in 1999 heralded the end of military
rule, he has overseen years of steady decreases in government
fuel subsidies at the urging of the World Bank. Prices have
increased 44 percent, up to $1.74 per gallon, in just the past
two months -- a bargain to Americans, perhaps, but not to
impoverished Nigerians.

Many motorists have taken to filling up tanks only partway, a
few dollars at a time, as money becomes available. Mohammed
Ali, 26, a government contractor, said it costs $25 to fill
the tank of his black Honda coupe. On this afternoon, he put
about $3.50 worth in the tank.

"It's a really big problem," Ali said. "Since we are one of
the oil-producing nations, the pump risings should be

In the spate of protests that has recently erupted, the most
vehement participants have been motorcycle taxi drivers,
generally recent migrants from poor, rural areas who have few
job prospects. They say that ridership has fallen as they have
been forced to raise their prices.

Mohammed Sani, 28, said he can recall that gas prices were
one-sixth the price they are now under military dictator Sani
Abacha in the 1990s. He said he would welcome a return to
military rule if gas prices returned to those levels.

"We are not happy with democracy," Sani said. "All our eyes
are on petroleum" prices.

A gas station manager, Zamani Maisamari, 30, said the public
anger comes from the combination of higher prices, a weak job
market and stagnating services. Heavy fuel subsidies, he said,
were one of the few forms of government spending that ordinary
Nigerians could feel.

"You go to the hospital, there are no drugs," he said. "You go
on the roads, they are not good."

He added, "Ever since we experienced democracy, each year it's
increasing price, price, price. Year after year."

Blustein reported from Washington, Timberg from Abuja,
Nigeria. Also contributing to this story were Washington Post
correspondents Kevin Sullivan in London, John Ward Anderson in
Paris, Monte Reel in Buenos Aires, Daniel Williams in Rome,
Emily Wax in Windhoek, Scott Wilson in Jerusalem, Peter Finn
in Moscow, Doug Struck in Toronto, Edward Cody in Beijing, and
John Lancaster in New Delhi, with special correspondent
Muneeza Naqvi.

© 2005 The Washington Post Company 


"Apocalypse Now and the Brave New World"