With price of crude oil hitting record highs of US$72-74 per barrel these past few days, its been revealed today that the RM$4.4billion Malaysia "saved" from the last major price hike of petrol (30sen per liter), has almost completely used up -- RM$3.5billion was needed to cover the petrol subsidies against the new high prices of petrol.
While the Government should be applauded for promising to keep the subsidies in place until the end of the year, the question has to be asked: at what cost? Nuclear tensions in Iran, petrol supply shortages in the US, decreasing output in secondary oil producers (including Malaysia) -- these are hardly short-term factors, and in fact, will only get steadily worse in the coming months. By winter in US and Europe, for example, where energy consumption is traditionally at an annual peak, it wouldn't surprise me to see prices of crude oil hovering at the US$80 per barrel mark.
Without subsidies, the current price of Malaysian petrol to the consumer will be approximately RM2.95 per liter (note, this un-subsidised price is set to increase over time), ~50% up from its current price of RM1.92 per liter. It goes without saying that at an unsubsidised price, a lot of things will change, the least of which will be the prices of many essential goods. A 50% hike in petrol prices will easily mean a 15-20% rise in price for any goods and energy that rely on petrol and energy for its manufactuing and/or transportation (which is virtually everything -- from your favourite teh tarik, to the humble cabbage in the market).
There is going to be a time very soon when the Government will no longer be able to subsidise petrol for its people -- the rate and quantum of crude oil price increases make any other scenario impossible. When it happens (not if), its, going to require some massive rethinking about how we lead our lives. It makes me wonder whether we should cut our losses now and give in to the inevitable -- the Government should take the money it would have otherwise spent on unsustainable subsidies and reinvest it quickly and urgently into measures that would brace the people against the ever-increasing price of oil. Things like a re-working of the public transport system, limiting fuel subsidies to critical industries, investment into alternative energy R&D.
Millions of ringgit are being spent each day to delay the unavoidable. To me, that does seem like a waste; we should let the invisible hand have its reign.