August 19, 2013

Venezuela: When Gas Prices are Just Too Cheap

When you live in a overwhelming political reality like Venezuela’s, it is very easy to lose sight of the bigger picture. We are so immersed in our reality, our motives, and our arguments (for one side or the other), that we concentrate most of our energy on fighting the other side instead of solving the real problems. Once in a while it is good to look at the situation through another’s eyes in order to gain some perspective.

When people come to Venezuela as tourists there are many things that marvel them, but there is always one thing in particular that grabs their attention the most, the incredibly low gasoline prices. Of course the Caribbean Sea and the Amazonas are a big part of a trip to Venezuela, but when people hear the price of oil they are always astonished.

The reason why I bring up tourists is because most of the time as Venezuelans we forget not only how cheap gas prices are, but also how inexcusable its price is when we have so many contrasting realities. Talking to somebody who visited Venezuela for the first time and sharing opinions brought me back to this topic I have decided to now share.

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Vista de los Cerros de Caracas. Lugar: Municipio Libertador, Distrito Capital, Caracas, Venezuela. Image credit: franklinvenezuela

One litre of gasoline in Venezuela is equal in cost to $0.04 at the fixed currency rate. This makes the cost of filling up a 39-gallon tank of a Chevrolet in Venezuela $1.56, compared with $137.28 in the US. Now, these numbers may not be as shocking if they are not compared with other commodities. So, when comparing gas prices with the most basic of all commodities which is water, which by the way is fixed in 8,96 Bs per liter, you will find that you are paying 94,66 times more for water than for gasoline on the official market.

The only explanation for gas prices being what they are is because they are immensely subsidised by the state. During the past 14 years the state’s policy has been of immense public expenditure, subsidising many basic consumer products. According to Ecoanalitica[1], the total amount of subsidiaries makes up 20-30% of Venezuela’s GDP, and only in terms of gas prices it would rise to 5 points of Venezuela’s GDP, making Venezuela the country with the cheapest gas on earth.

Now for those who are not economists, those numbers may seem boring or even slightly out of reach. As the tourist I spoke with said to me “if I drank gasoline or ate it, it would be amazing to have such prices, the problem is that’s not what you do”.  The truth is Venezuela’s economy is hugely tangled between the products which receive subsidises and those that don’t. For example, a bus fare is worth 5 Bs, which is $0,79, which may seem cheap for those who pay up to 2 dollars for a bus fare (extremely cheap actually), but when you look at it within the Venezuelan context, you actually end up paying 79 times more for one bus ride than what you would pay for one liter of gasoline.

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Venezuelan oil production. Image credit: Elmejorwiki

The truth is for $0.04 cents in this country the only thing you buy is gasoline. It is actually cheaper to park your car, at a fixed rate of 4,5 Bs the hour, than take one bus ride. Moreover, people don’t normally take one bus ride in order to get to their work places, it normally takes them 2-3 bus rides, meaning that at the end of the day they are paying 4-6 fares, meaning 20-30 Bs a day in transportation when you don’t have a car.

The sad part is that to this day people in Venezuela do not associate cheap gasoline prices with an impoverished quality of life. How is it possible that for Venezuelans it is unbearable to accept an increase in gasoline prices but they have absolutely no problem paying so much more for basic commodities. Finally, how is it possible that a government claiming to be for the “people” is willing to spend more in gasoline subsides than in education or health?

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20 years after the events of February 27, 1989, the Venezuelan people refuse to forget the insensitivity predominant in the government of the time to the main problems facing Venezuelans. At that time, the crackdown was a response to a social explosion whose origin was in the high rates of poverty and exclusion. Image credit: Francisco Solorzano

Cheap gas prices are always a big advantage of oil producing countries, but in Venezuela’s case it’s safe to say it’s too cheap. Gas prices have remained the same ever since 1996, and it is somehow a taboo to speak of raising its value since the 1989 “Caracazo[3] when the political cost of one economic decision became the biggest threat to Venezuela’s democratic stability at the time. And, of course in this 21st century socialist state, where everything is created, planned, and thought of “for the people”, an increase in gas prices is in no way expected. So for the time being, those who can afford cars will continue to remarkably profit from this subsidy, which ultimately benefits the wealthiest the most.

[1] Venezuelan consultant firm

[2] According to Venezuela’s Central Bank

[3] A civil unrest which cost the lives of almost 300 Venezuelans

About the Author

Claudia Gonzalez
Claudia is a student of Economics at the Catholic University Andres Bello. She has a great interest in politics, and democratic development. Claudia has spent most of her life doing volunteer work within Venezuela.


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