Many countries of the world have been providing fuel subsidies to their entire population or segments of their economies such as the agricultural sector, but with the low price of oil, which has lowered the cost of gasoline and diesel fuel, these countries are eliminating subsidies.
Examples of Asian countries pointed out by Live Rice Index news as dropping subsidies are Malaysia, Indonesia and India. Reforms to save the governments money on subsidies have been proposed in the past, but didn’t win approval and even spurred major protests. Now, with the lower fuel prices because of lower oil prices, the removal of subsidies are being pushed through.
Reportedly with lower fuel prices there have not been widespread protests. But without the subsidies when oil prices climb back to more typical prices seen over the last few years, there will be economic shock in higher food prices and higher input costs for raising crops—mostly related to transportation and nitrogen fertilizer production costs (historically linked to the cost of energy to produce the fertilizer).
“While the low crude price means that transportation rates will fall in the short term, in the longer term if the price of crude oil were to recover to previous levels, the price for fuel in countries which had grown accustomed to subsidies will reach record highs as the pump price reflects the market price for the first time,” noted the Live Rice Index.