Gasoline Prices & Foreign Affairs

First Published: 2005-04-01

Once a month or so Mr. Leslie Miller, Minister of Trade and Industry, climbs on his soapbox to persuade the Bahamian public that government should be involved in supplying the local market with gasoline. To save money he intends to purchase gasoline from Venezuela to sell to Bahamians.

There are at least two reasons why this is a bad idea.

1. President Hugo Chavez of Venezuela has recently accused President Bush of plotting to assassinate him, made suggestive comments about Secretary of State Condoleezza Rice, visited Fidel Castro in Cuba, bashed the United States on the al-Jazeera television network and travelled to Libya to receive an award from Moammar Gaddafi.1 There are not many Bahamians who would approve of a foreign policy that would alienate our major market for tourism, the United States by cozying up with countries like this.

2. Historically, government has yet to prove it can supply a market for products or services at prices lower than suppliers in the competitive market.

Prices and Inflation

Not long after Mr. Miller's recent outburst about gasoline prices, an e-mail was circulated locally as a reminder of price inflation. It was titled "Comments made in the year 1957."

1. "I'll tell you one thing, if things keep going the way they are, it's going to be impossible to buy a week's groceries for $20."

2. "If cigarettes keep going up in price, I'm going to quit. A quarter for a pack is ridiculous."

3. "If they think I'll pay 50 cents for a hair cut, forget it."

While this historical perspective is good for a laugh, focusing on price alone without considering the effects of inflation is misleading.

John Stossel, author of "Give Me a Break" comments on the media frenzy over gas prices in the US. He says, "If you don't account for inflation, lots of prices keep going up…"

According to Mr. Stossel, "…the federal Department of Energy accounts for inflation in its annual report of gas prices. It says gas is actually cheaper now than it was throughout most of the 20th century. Yes it's 65 cents more than it was six years ago, but it's nearly a dollar cheaper than it was for much of the 1920's and '30's – and more than a dollar cheaper than in 1980."

Customers in a gas station were asked which cost more gasoline or bottled water. Believe it or not, almost everyone responded to him that gasoline was more expensive. They were wrong.

A local comparison.

Comparing water with gasoline prices in The Bahamas we found the following:

As at March 21, 2005 gasoline at a local gas station was $3.36 per gallon. A 20-ounce container of imported bottled water (Aquafina) cost $1.25 or .0625 cents per ounce or $8 per gallon. Assuming some savings if the water was imported in gallon bottles, it would still be double the price of a gallon of gasoline.

The clincher in Mr. Stossel's piece that Mr. Miller seems to missing is this:

"We should marvel at how cheap gasoline is — what a bargain we're getting from oil companies. After all, it's easy to bottle water, but think about what it takes to produce gasoline and deliver it. Oil has to be sucked out of the ground, sometimes from deep beneath an ocean, a desert, or ice. To get to the oil, the drills often have to bend and dig sideways through as much as five miles of earth. What they find then has to be delivered through long pipelines or shipped in monstrously expensive ships, then converted into three or more different formulas of gasoline and transported in trucks that cost more than $100,000 each. Then your local gas station must spend a fortune on safety devices to satisfy government regulators and make sure you don't blow yourself up. At nearly $2 a gallon (an average of 44 cents of which goes to taxes), gas isn't expensive — it's miraculously cheap!"2

Interestingly enough, the Bahamian Government receives $1.06 per gallon in duties plus 7% Stamp Tax. That works out to approximately one third (1/3) of the price at the gas pump. In other words, that's more than the total gross margins received by the oil companies and the service station owners combined.

Is Mr. Miller reading too much into the price of fuel? It sure seems he is making a mountain out of a barrel of oil. Not only that, he is leading us into a closer and possibly dependent relationship with a country we should keep at arms length.

1. Washington Post

2. Creators Syndicate

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