Wednesday, December 12, 2007

Subsidized Oil Consumption

"Long the biggest spigot for crude oil, Saudi Arabia [SA] now has broader ambitions. It wants to become a big exporter of chemicals, aluminum and plastic, and in the process to create jobs. ... Within [SA], there's heated debate over the wisdom of staking development on industries that use so much energy. ... Saudis are now the world's biggest oil consumers per capita, at more than 32 barrels a year per person. ... Thirty years ago, [SA] had eight million people. Now it has over 24 million. ... Saudis consume vast quantities of electricity because the government holds the price unusually low to keep the populace happy. ... Saudis routinely keep their air-conditioners on full blast even when on vacation. ... The government's aim is to convert oil into jobs. 'We want to use our oil to move beyond oil,' says Fahd al-Rasheed, a former Aramco finance officer", WSJ, 12 December.

SA, Iran and Venezeula, among other oil producing countries, subsidize oil consumption. The USSR did this with bread, so it was cheaper to feed cows and pigs bread than grain. The Saudis seem to be following "Atari" economics, i.e., believing the Saudi government can find profitable investments. It should: stop subsidizing oil consumption and let the market make whatever investments it will. As things stand, Saudi policies increase world oil demand.

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