Mainly for cerebralpaladin.

[randomness]

From "Enjoy the Energy Subsidies While You Can," by Stephen Jen and Luca Bindelli, via http://www.nakedcapitalism.com/2008/06/morgan-stanley-on-role-of-subsidies-in.html:

Right now, half of the world’s population enjoys gasoline subsidies, and a quarter of the world’s gasoline consumption is subsidised. Exhibit 1 shows the current prices of gasoline in various countries. While many countries have taxes on gasoline, some major oil consumers do not. In China, for example, gasoline costs 64¢ a litre, compared to US$1 in the US, and the equivalent of US$2.16 in the UK. In many of the oilproducing countries, the subsidies are even larger: gasoline costs the equivalent of 12¢ a litre in Saudi Arabia and 5¢ in Venezuela. (However, Norway – another large oil exporter – has the second-highest gasoline prices in our sample.)



While three-quarters of the world’s gasoline consumption is taxed, the level of ‘net taxes’ has actually declined as oil prices have increased, for various reasons. To show this, we compare how Exhibit 1, which is for early 2008, looked at end- 2006, when crude oil was trading at around US$60 a barrel. Back then, only 10.4% of the world’s gasoline consumption was subsidised (compared to 22.2% right now). Essentially, what this means is that the extent to which the world has been subsidising its consumption of gasoline has actually increased, with the rise in crude oil prices.

Bottom Line
Half of the world now enjoys fuel subsidies, but this will not last. Fuel subsidies prevent oil demand from being destroyed by high oil prices, and have exaggerated inflation in the developed world, while understating inflation in the developing world. As these subsidies are rolled back in these EM economies, these distortions will also abate. The key implication for currencies is that most AXJ currencies, and some other EM currencies, will likely experience negative pressures relative to both the USD and the EUR.

Comments

[r-ness.livejournal.com]

are you familiar with the Export Land Model

I'm not, actually, but I'll have a look at the Oil Drum again, as I only gave it a quick glance when I first saw it.

My suspicion with regard to Norway is that it's good at dealing with the windfall of oil money because it was a rich country before it struck oil. It's not a guarantee, of course; Dutch disease happened to the Netherlands in the '60s. The tendency is for rich countries to have established institutions for dealing with large sums of money, which work more or less well.

[cerebralpaladin.livejournal.com]

Wikipedia has a nice article on the Export Land Model, btw.

I agree that wealth before windfall is part of the answer, but I suspect it's only part. It doesn't explain why people don't then subsidize gas, for example.