Posted by: Barrak Al-Babtain | May 11, 2009

Fuel Subsidies

Kuwait subsidizes the fuel it sells in our gas stations. The true market value of the petrol we pump into our cars is far higher than what we pay. The government does this to encourage economic growth by lowering energy costs on its citizens and reducing the overall financial burden on families and businesses.

Fuel Subsidies

Countries high on the fuel price list have punitive fuel taxes. This leads to lower consumption and a higher tax revenue. Governments tax fuel for many reasons:

  • Ease traffic congestion
  • Lower overall automobile emissions because of reduced driving demand
  • Reduce dependence on imported oil
  • Tax revenue (which is usually used to maintain roads or finance public transportation projects)

The range between the lowest and highest fuel costs worldwide is astounding; 12 cents to $9.58. It costs 80 times more to buy fuel in Eritrea than in Venezuela.

Kuwait: 250 fils/gal.

United Kingdom: 2.5 KD/gal

A full tank of gas that costs 4KD in Kuwait would cost 40KD in the United Kingdom. This would be an inconceivable amount of money for us to pay for a full tank of petrol, but this is the reality millions of people face all throughout the world.

Countries low on the list subsidize their citizens’ fuel costs. This means that the government sells the fuel to the pumping stations at a loss. What many of us don’t realize is that this supposed benefit brings with it many crippling problems. At the root of them is the artificially heightened demand created by the  subsidization. This means that people are effectively encouraged to be wasteful and consume more than they would otherwise.

Countries that have tried to reduce or abolish existing fuel subsidies have been met with citizen anger and at times violent riots. People feel that it is their governments duty to provide for their citizens, and they do have a right to feel aggrieved when that birthright is stripped away from them; especially when no other transportation alternatives exist.

I would not be surprised to see such riots in Kuwait. A proposal that suggests abolishing the fuel subsidy without having other mechanisms in place to replace it would be met with furious parliamentary retaliation. A more delicate, comprehensive and egalitarian solution must exist that can address all the pertinent issues involved. The ideal solution should do the following:

  • Reward efficient and sustainable behavior
  • Punish wasteful consumption and end harmful habits
  • Reduce traffic congestion
  • Finance effective public transportation
  • Lower automobile emissions
  • Keep relative transportation costs low
  • Encourage a nationwide restructuring of our energy consuming habits

Does such a comprehensive solution exist? If it is theoretically possible, is it economically and politically viable? Who would benefit from any changes to the current system and who would rather keep things just the way they are?


Responses

  1. Compared to other OPEC members, like Venezuela, Iran and KSA the price of fuel in Kuwait is higher. Assuming they all have more or less the same costs in pumping and refining oil, Kuwait charges a higher price.
    So there must be a tax in there somewhere..
    Is that a fair analysis?

  2. Well, I’m not sure if we can make that assumption. Kuwaiti crude is heavier than KSA, so i’d expect us to produce slightly more expensive petrol. Even though the prices differ between GCC countries, they are all subsidizing fuel. Some more than others; with the UAE doing it far less than Saudi Arabia. Not one GCC country taxes the fuel at the pump.

    Venezuela is a special case; since Chavez needs to keep his people satisfied for his social experiment to succeed. Its not a valid comparison. Although you could argue that our subsidies are ostensibly for the same purpose, but not reaching the Venezuelan extreme.

  3. Since you have touched on a lot of subjects for the good of Kuwait, I really think and suggest you should also look into e-governance.
    There is a portal that has been around for like a gadzillion years, but with nothing useful on it.
    I think you would be able to strum up a lot of support to make your views visible and provide ideas to lawmakers and eventually make a change…

  4. […] The way to do this is by having an energy rebate. This was mentioned before in greater detail here and here. The government will have made 4 times as much money selling domestic petrol than it would […]


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