By on December 24, 2013

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As Venezuela faces an economic crisis that is depleting government coffers, President Nicolas Maduro is threatening to end something many citizens of that oil producing country consider to be their patrimony, incredibly cheap gasoline, the equivalent of 5 U.S. cents per gallon. That price hasn’t changed in almost two decades. In 1989 the price of gasoline was raised, prompting deadly rioting that went on for days and killed over 300 people. To keep the retail price that low, the government subsidizes gasoline to the tune of more than $12.5 billion a year. The result is that Venezuelans aren’t interested in small, clean, fuel efficient cars. Big old sedans, 1970s era trucks and newer SUVs dominate Venuzuelan roads, compounding both the amount of subsidies needed and the smog over Caracas.

That nickel-a-gallon price is at the official currency exchange rate but if you sell your dollars on the widely-used black market, a gallon of gas could cost you less than a penny.

“Prices are so cheap in Venezuela that they may make Saudi Arabia and Iran look expensive,” said Lucas Davis, a University of California-Berkeley energy specialist.

It’s unknown how much Maduro will raise the price. While the country has an authoritarian government, Maduro still doesn’t want to rile up Venezuelans already pinched by an inflation rate of 54% and the collapse of the bolivar, the country’s currency.

The idea of Venezuelan’s paying more for gasoline was first floated in early December, when Vice President Jorge Arreaza said it was time start discussing raising gas prices. Oil Minister Rafael Ramirez said that the country having the world’s cheapest gas wasn’t a point of pride. Finally, last week Maduro himself said he favored gradually raising prices over three years.

“As an oil nation, Venezuelans should have a special price advantage for hydrocarbons compared to the international market,” the former bus driver told newly elected mayors on Dec. 18. “But it has to be an advantage, not a disadvantage. What converts it into a disadvantage is when the tip you give is more than what it cost to fill the tank.”

Venezuela’s budget deficit is estimated at 11.5 percent of gross domestic product, one of the highest in the world.

Unlike Cuba’s fleet of 1950s era American cars, Venezuela’s clunkers are mostly undesirable ‘malaise era’ Chargers and Malibus, some held together with rope and bailing wire, used as unregulated taxis.

If prices rise to what the government says is needed to cover the cost of production, a liter would cost around 2.50 bolivars, about 40 cents on the dollar at the official exchange rate. That would work out to about a buck sixty a gallon. By comparison, bottled water costs 12 bolivars a liter.

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40 Comments on “Venezuela’s Gasoline Prices May Rise to $1.60 a Gallon, From 5 Cents...”


  • avatar
    motorrad

    To paraphrase Margaret Thatcher, “The problem with socialism is you eventually run out of other people’s money.”

    • 0 avatar
      bunkie

      In this case, who are these “other people” you speak of?

      I’m no fan of this clown (or his predecessor) but, at least, regular Venezuelans are getting a tangible benefit from their natural resources.

      • 0 avatar
        motorrad

        An unsustainable benefit, obviously.

      • 0 avatar
        Pch101

        The cheap gas hurts the Venezuelans. They should be exporting the oil, and using the revenue to improve their country.

        But instead, they’ve turned the country into a collection of gas junkies who won’t pay more than a tiny fraction of the market price in order to get their fix.

        • 0 avatar
          cartunez

          The people would not benefit only the government would.

          • 0 avatar
            JD321

            The stupid and corrupt view the government and the people as the same. Thinking people view a country (Venezuela) as a Tax Farm, the terrorist organization that calls themselves Government as the Tax Farmers, and the people are the Tax Livestock.

          • 0 avatar
            Pch101

            “The stupid and corrupt view the government and the people as the same.”

            Yeah, Abraham Lincoln was a real jerk.

            You probably thought that the Gettysburg Address was a place to send mail. (“…government of the people, by the people, for the people, shall not perish from the earth.”)

        • 0 avatar

          In the early 1970s, one of Israel’s major exports then were Jaffa oranges. It was hard to find a nice one in Israel, first quality fruit was exported.

        • 0 avatar
          Big Al from Oz

          @Pch101
          I know a country that subsidises/protects its energy, farmers, motor vehicle manufacturers and even taxes it FTA neighbours lumber 18%.

          It owes trillions as well it’s economy is improving, but only with borrowed money.

          So this isn’t a case of what’s good for the goose is good for the gander?

          But I suppose American socialism that you support is a better form of socialism.

          • 0 avatar
            Athos Nobile

            BAFO, seriously, comparing the US government with Venezuela’s is like doing an oranges to rotten to the core apples comparison.

            You don’t really have an idea of how crap the Venezuelan government is.

          • 0 avatar
            mkirk

            I know of a country that failed to protect its auto industry. Now they lack that industry which really isn’t too big of a deal for those outside of the industry unless of course you find yourself all of the sudden needing to assemble tanks and whatnot because the world has gone to crap again.

          • 0 avatar
            jimbob457

            Heaven forfend that anyone with half a brain could possibly defend the economic policies of the current Venezuelan regime. So, I will try to make a halfhearted excuse.

            It boils down to this. In an oil boom (or any natural resource boom), you can spend the money like a drunken sailor, or you can squirrel a goodly portion away for the inevitable rainy day ahead. Comrade Hugo decided to go the drunken sailor route for the first time in his country’s recent history. His successor is just following up.

            Places with societies where the disparate social classes half way trust each other can squirrel away any surplus cash from the good times to provide for the inevitable bad times. This is true of first world places like Norway and Alaska. It also holds for places like Arabia and others.

            I am reminded of an old saying. Pobrecito Mexico. So far from God. So close to the United States.

          • 0 avatar
            Big Al from Oz

            @jimbob457
            I’m not defending any country that uses subsidies to artificially maintain any form of false value. Whether it be votes or vehicle manufacture.

            Indonesia was in a similar situation a little while ago.

            Like any form of welfare whether it be the auto manufacturers in any country or people reliant on highly subsidised fuel you can see the final outcome.

            Subsidisation is the downfall of modern capitalism. Because it isn’t real capitalism anymore. It creates artificial demand and very real dependence.

            A lose-lose situation.

      • 0 avatar
        Sigivald

        At the cost of not being able to maintain the production or refining infrastructure.

        I suppose the “other people’s money” is “the money invested into that by the companies that ran the system before it was nationalized”, which is different from “other Venezuelans who are being bled dry”.

        But it still runs out.

        (Plus what Pch101 said – if we’re going to talk about “national benefit” or the like, this subsidy is suicidal in the long run, vs. selling the oil on the open market.)

      • 0 avatar
        HerrKaLeun

        It requires the same subsidy for an oil-producing country to offere cheap gasoline. Proper accounting would reveal isntead of seilling it for 5ct, they could earn $1.60 when selling to other countries.

        So yes, someone still has to pay the difference. and yes, even as oil-exporting country, socialism is not a valid economical system.

        IIn the same way drilling for oil in the US won’t make gasoline cheaper since the oil company sells it to the most expesnive country (or imports from the expensive sources are reduced). Obvioilsy depends on actual production cost, which likley are much higher int he US since all easily acceesible sources are exhausted.

        • 0 avatar
          jacob_coulter

          You sure about that?

          For some strange reason, I think the laws of supply and demand work for the oil market as well.

          We have a glut of natural gas right now in the US, and SURPRISE! natural gas is REALLY cheap at the moment.

          Much of the high prices of oil are a result of an international cartel that purposely price fixes and limits the supply they produce. OPEC

      • 0 avatar
        L'avventura

        Currently, Venezuela’s entire economy is at the brink of collapse.

        Just last week both S&P and Moodys downgrade Venezuela’s credit rating. Inflation is up 54.3%. OVER 50 PERECENT! Think about that.

        http://www.foxbusiness.com/economy-policy/2013/12/17/strong-arm-policies-leave-venezuela-teetering-on-brink-collapse/

        The economy is at the brink of utter destruction. Its that bad.

        Also, their healtcare system is in complete collapse:

        http://www.breitbart.com/Big-Peace/2013/11/07/Doctors-In-Venezuela-Say-Their-Universal-Health-Care-System-In-Collapse

        They simply can’t afford their system. That $12.5 can provide a much more tangible benefit to the people than ultra cheap gasoline.

        • 0 avatar
          dantes_inferno

          Using Fox News and breitbart.com as your sources makes about as much sense as using MSNBC and the Huffington post as your news sources – they don’t.

          “A wing on a pickup truck makes about as much sense as a lift kit on a Prius…”

  • avatar
    Halftruth

    Why bother even charging for it? Of course, the populace is accustomed to getting it for free so good luck raising the price of gas.

  • avatar
    ckb

    With all of the Venezuelan government’s attempts to price-fix their way out of this situation it will be quite an achievement if they can last the 3 years it will take to put this plan into effect.

    This is bad news for mid-pack F1 teams when Maldanado can’t buy his $30M seat anymore…

  • avatar
    SCE to AUX

    I give this clown a year before he is removed. He also forced electronics retailers to drop their prices last month, initiating a shopping rush on stores. Those retailers will eventually leave the country or close.

    I’m amazed that liberals can see this man’s folly (but perhaps secretly admire it), yet don’t see how artificially raising the minimum wage causes the same problems.

    • 0 avatar
      Pch101

      You have your right/left spectrum reversed.

      Gas is only as cheap as it is in Venezuela because of substantial subsidies. Increasing the price of fuel would be the byproduct of lower subsidies.

      By giving away gas to its own people, Venezuela is depriving its economy of the money that it could have otherwise earned by exporting it.

      And they could use the money. The cheap gas is a major giveaway program.

      • 0 avatar
        JD321

        Are you claiming that “Venezuela owns people”? What does that even mean? Statists make me chuckle.

      • 0 avatar
        SCE to AUX

        @Pch101: Ironically, you misread my post, although I agree with your reply.

        My point is that this dictator has foolishly conditioned his people to expect low gas prices due to state subsidies, yet his poor grasp of the basic economic principle of supply-and-demand is evident when he thinks artificially lowering prices at other retailers will have no repercussions (and they are not state subsidized).

      • 0 avatar
        dantes_inferno

        > The cheap gas is a major giveaway program.

        That being said, everyone in the U.S. would secretly give their left testicle or ovary for $1.60/gal gas when human nature is factored into the equation.

      • 0 avatar
        stirner

        Not defending their policies but be careful with the “depriving its economy of the money that it could have otherwise earned by exporting it” bullshit. It’s preventing the centralization of money in the hands of the few. That is the other extreme of the policy spectrum.

        Just look at your own country; how many mom & pop shops are in the oil business?

    • 0 avatar
      Sigivald

      “Eventually”?

      Don’t need to leave or close if you can’t afford to restock the shelves (or don’t wish to spend what residual capital you have losing money on volume…).

      Notionally open stores with empty shelves and a caretaker staff are the equivalent of closed or absent stores – and that kind of price control always results in that, as you say.

      (Quibble: A minimum wage has negative effects if/when it’s higher than the actual value of labor; that’s why sometimes it has no effect beyond political point-scoring – if it’s low enough to be irrelevant.

      The effect it has – when it has any – however, is effectively forced *unemployment*, not lack of goods. Keeping people with low-value skills unemployed.

      A problem, but a *different* one from price controls.)

      • 0 avatar
        SCE to AUX

        Agreed; I was mixing principles. What I meant is that you get economic disruption when prices are artificially reduced, as well as when wages are artificially raised. The former results in a shortage of goods, the latter results in a shortage of jobs.

  • avatar
    PrincipalDan

    I predict this will cause rioting in the streets or at least protests.

    I’m not saying they don’t need clean air or better fuel economy but this will not be the way to achieve it.

  • avatar
    AJ

    I would have to think that someone is buying it for 5 cents a gallon and exporting it. I wonder if I could rent a cargo ship? (lol)

  • avatar
    Stumpaster

    6-7 bucks for a liter of water? Hello , Bolivar Spring!

  • avatar
    SCE to AUX

    And suddenly, the EV market in Venezuela explodes. Heh.

  • avatar
    Athos Nobile

    The study for raising petrol prices has been ready for quite a long time. I know this since at least ’09 and from a very good source, it was always waiting for Chavez to give it the go. The idea at that time was to get more currency from exporting gasoline/liquid refined products while using CNG as alternative car fuel. CNG cost around Bs 0.002 last time I filled.

    The price shown up there converts to around Bs 2.6 per litre from Bs 0.1. If they do it on one swoop, it will end in tears. Or not, they may blame the need to increase it and the corresponding price raises on the “economic war” being held against the government/country/pueblo and start “nationalizing” (euphemism for confiscating/downright stealing) whoever tries to raise the price to cope.

    To complicate matters, most of the petrol sold over there is not even produced locally anymore. Refineries are poorly maintained and they are importing some gasoline.

    I think Maduro and his mob are retarded enough to make a drastic price increase like this with straight face and then blame the opposition for it an its consequences. And the pueblo has come to the point in which it will believe whatever they say and carry on. People is keen on an increase, but I doubt a drastic one like that. We’ll see.

    That this is being circulated internationally may be a sign that this time they will do it, or at least seriously looking at it. Money must be in very short supply.

  • avatar
    Truckducken

    Any change in fuel prices should be prefaced with a statement that “if you like your current gas price, you can keep it”.

    Merry Xmas, fellow readers!

    • 0 avatar
      AJ

      I saw unleaded in my area for $2.97 last week. I wanted to ask that myself! (Funny how that now seems cheap!)

    • 0 avatar
      dantes_inferno

      > Any change in fuel prices should be prefaced with a statement that “if you like your current gas price, you can keep it”.

      Try suggesting that to the board members of Big Oil. They’ll laugh you out of the boardroom as their security stormtroopers escort you out of the building.

  • avatar
    jimble

    A taxi fleet of Malaise era Chargers and Malibus sounds just like DC!

  • avatar
    Jacob

    It will be interesting to see what will be the outcome of this. The decision to raise gasoline prices is certainly the right one, as this is one of the only few sources of revenue for the government. The economies of South America often have a large informal sector which is hard to tax. So even though there is plenty of economic activity, very little of it contributes to the government’s coffers. Venezuela’s problems are compounded by the large and inefficient public sector which creates a big cash drain for the government. Venezuela’s economy is basically on the brink of collapse, with run-away inflation, probably caused by printing too much currency, artificially overvalued domestic currency, which can collapse every day now, and shortages of many basic goods, such as toilet paper. The country is a perfect case of resource curse. It’s amazing that despite being one of the biggest oil exporters in the world, they managed to mismanage the economy so badly. Even Arabs know that their oil will run out eventually, and started to invest aggressively in non-oil portions of their economies.


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