IN OTHER WORDS: Who gains?
It is not too surprising that oil prices in the United States have retreated from the lofty highs of more than $140 a barrel reached in July. Energy consumption is falling across the industrial world. Americans, the world’s most avid gas guzzlers, finally responded to higher prices. They drove about 10 billion miles less in May than they did in the same month last year.
Unfortunately, a large share of the world’s population is not responding to high energy prices. Across the developing world, governments are subsidising energy. Demand in the industrialised nations in the Organisation for Economic Cooperation and Development fell by one million barrels a day over the same period. In the rest of the world, it grew by 1.1 million barrels.
Governments in developing countries say they must shield the poor from high energy prices. But these subsidies are misguided. They are expensive, sucking in public money that might be better used on, say, health care or education. And they get costlier as the price of oil rises, which explains why some countries, including China and India, have allowed domestic energy prices to rise somewhat.
Subsidies are a big factor keeping world oil prices high. Outside of the Middle East and some parts of Texas, this is in nobody’s interest.