08/05/2008 05:12 am ET Updated Dec 06, 2017

Fuel Economy: Overseas Oil Subsidies Take A Toll On US Market

To understand why fuel prices in the United States have soared over the last year, it helps to talk to the captain of a battered wooden freighter here.

Photo courtesy Kemal Jufri/Imaji, for The New York Times
Freighters in Jakarta run on diesel, kept cheap by subsidies. Subsidizing nations make up nearly all the growth in oil demand.

Without a kerosene subsidy, one economist says, many Indians would turn to wood for cooking.

He pays just $2.30 a gallon for diesel, the same price Indonesian motorists pay for regular gasoline. His vessel burns diesel by the barrel, so when the government prepared for a limited price increase this spring, he took to the streets to protest.

"If the government increases the price of fuel any more, my business will collapse totally," said the boat captain, Sinar, who like many Indonesians uses only one name.

From Mexico to India to China, governments fearful of inflation and street protests are heavily subsidizing energy prices, particularly for diesel fuel. But the subsidies -- estimated at $40 billion this year in China alone -- are also removing much of the incentive to conserve fuel.

The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the world's increase in oil use last year -- growth that has helped drive prices to record levels.

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