Leanan wrote:And it's not just Indonesia that's doing things like that. India and China, the two fastest-growing oil importers, also subsidize oil. The Indians and Chinese are still paying 2003 prices.
That's why I'm not counting on too much demand destruction, at least not for awhile. The Westernized countries can afford the higher prices, and much of the developing world doesn't pay them.
Many countries believe in directly subsidizing the cost of energy. In the US, we also heavily but indirectly support the energy industry. On top of many favorable tax benefits accruing to the energy industry, the US spends money on patrolling the Persian Gulf for example (since 1987).
The oil depletion deduction, by which oil well owners get a tax deduction that may exceed their actual drilling costs, is just one example of how well the oil industry is treated - as least for smaller oil companies.
All these subsidies act to increase energy demand, but this comes at the expense of other taxes to pay for them - and when there isn't enough taxes to pay for them inflation results as side effect of budget and trade deficits .