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| FUEL PROTESTS | |
 September 13, 2000  |
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After a background report, two experts discuss the fuel situation in Western Europe, where protests over high prices have led to shortages at the pump.
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Mr. Vaitheeswaran, throughout the western part of Europe, there are blocked refineries, cabbies gumming up downtown traffic in the capital, as we saw in Britain, closed gas stations. How did this all get started? VIJAY VAITHEESWARAN, The Economist: It is a mess. It is the worst oil crisis in Europe in a couple of decades. But the first point to make is that this is not like the energy crisis of the past. This is fundamentally a political crisis. There is no shortage of oil in Britain or indeed on the world market. There is no war that is disrupting supply from the Middle East. This is not OPEC action, oil cartel disrupting supply for political reasons, for example. What we actually have here is a good study in how to bring an advanced industrialized economy to its knees. A very relatively small band of users of gasoline, truck drivers, farmers, independents mostly, not heavily unionized. They targeted refineries, the choke points in the modern industrial economy and because of a very poor political response from first in France where the government buckled. The government gave in to their demands. And now in Britain and elsewhere in Europe, you find this is catching on like wildfire.
VIJAY VAITHEESWARAN: Indeed. For this reason, and there, the protesters do have a cause that many people are sympathetic too, that is energy prices are quite high. The prices for gasoline in Britain in particular, are among the highest the world. And the reason people understand is because of taxation. The main grouse that people have in Europe and what they are asking for the governments to do is to reduce the government's taxes on retail gasoline. That is, for every gallon of gasoline that people buy in Europe, typically more than half goes to the government. In Britain, it is almost three-quarters. In America, the comparable figures are around a third, let's say in rough figures. So people in Europe are paying much, much more for their gallon of gasoline than people in America are. RAY SUAREZ: Well, Daniel Yergin, you just heard Vijay Vaitheeswaran say there is plenty of gas around. Why is this crisis spreading from France to other countries? |
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| $4.50 a gallon | ||||||||||||||||||||
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RAY SUAREZ: But wasn't this the case last year, earlier this year? Why is this reaching this crisis proportion now? DANIEL YERGIN: The price of oil, of course, has gone up, and therefore, the tax has gone up. And I think that the world is sensitized to oil now, and it is feeling the pressure. And it is more acute not in Britain but on the continent because the price of a barrel is pegged in dollars. If you use euros, which is the currency of Europe, that's depreciated and gone down in value, so the increase in the amount that you are paying is even more. So all of that has come together right now. And when energy prices are going up, when tax is high, it is a very sensitive issue and it brings, I mean, it is astonishing, as Vijay said, to see a country almost brought to a halt right now. It's deeply alarming.
VIJAY VAITHEESWARAN: Very much so. The protesters in Britain cited the French as their inspiration. And certainly, if… French government has put other European governments in a very, very awkward position. Blair for one has said he will stand firm. But he has yet to follow through on that action by making sure that police escorts or military escorts, if need be, make sure the tanker trucks get to the gasoline stations and replenish stocks. In other words, is he going to really follow through, can he do it? The danger is, and we began to see with some information about the people rationing food in Britain that the panic can spread. And that's a sign of political mishandling. That's not a question of an energy shortage. RAY SUAREZ: But press accounts coming out of Britain and some of the other countries show that the frustrated people waiting in the gas lines, their sympathies are for the cab drivers and the truck drivers and their resentment is for the government. Why? |
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| A political problem | ||||||||||||||||||||
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And secondly, the levels of taxation, when you pay 75 percent of the total price on anything as taxes, people are going to be upset, if you don't explain why they are doing so. So I think this is partly a political problem. But I would add, in fact though, that while I'm sympathetic to the protesters, they are really targeting the wrong culprit. You asked why not a year ago, why is this happening now or why not two years ago? Europe had very high taxes two years ago too compared to America. The difference now is the world oil price. And for that, I think OPEC deserves the blame, and frankly, that's who these protesters should be looking at. They have tripled world oil prices largely through the actions of the oil cartel to scale back production. The reason why this has reached a flash point is because of things that are happening on the international oil market, not really about domestic taxation. RAY SUAREZ: Is OPEC at the root?
RAY SUAREZ: But if Europe's economies are in generally good health, and the United States continues to roll along with high demand and Asia is bouncing back, even if OPEC pumps more oil, will the price go down, Daniel Yergin? DANIEL YERGIN: I think that we could well see the crude oil price, if there is no disruption, a good deal lower, $5 to $6 a barrel lower by the end of the year than it is now. Clearly strong demand; Asia has recovered and that's driving demand. One out of every two new cars, vehicles sold in the United States is a sports utility vehicle. People are driving more, so demand has been very strong because we've had a strong economy. RAY SUAREZ: Tony Blair today at a press conference said, we can't back down because we don't make policy just for today. So we're not cutting the taxes. Will he and Chancellor Schroeder and other politicians have to sit down with their peoples and say look, if you don't want us to collect it on gasoline, we're going to have to collect it somewhere is else? |
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| A different philosophy | ||||||||||||||||||||
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VIJAY VAITHEESWARAN: Sure. But I think you are right that there will
need to be some revisiting of this. It is not going to happen under
duress. It is a very bad idea, whatever you think about taxation, to
change your policy when you are being blackmailed and that's really
what Tony Blair is saying and that's what the French gave in on and
created, in part, this mess. But what we're going to see, European transport
ministers are going to meet next week. It is very likely this is going
to be on the agenda. DANIEL YERGIN: What makes it more complicated is that gasoline is not potatoes. You have to be very careful in terms of moving it around on roads so it makes you vulnerable to violence. RAY SUAREZ: Daniel Yergin, Vijay Vaitheeswaran, thank you both. |
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RAY
SUAREZ: For more on the fuel crisis in Europe, we're joined by Daniel
Yergin, chairman of Cambridge Energy Research Associates, an international
energy consulting firm, and Vijay Vaitheeswaran, global energy correspondent
for The Economist. 
RAY
SUAREZ: Well, in the reports from Britain, we saw that this has taken
on the dimensions of a political crisis rather than a consumer one or
an economic one. Why? 
DANIEL
YERGIN, Cambridge Energy Research Associates: I think what's happened
with oil prices, it has been a trigger because for instance, in Britain,
when the oil price goes up, the proportion of tax actually goes up more,
at least that's what's been happening. So these people as Vijay say,
are paying, you know, like $4.25, $4.50 a gallon, most of it tax, and
that's tough on people. The backdrop to it, of course is the oil market.
But one number to keep in mind at this point, an OPEC country will earn
about $32 on a barrel of oil that they sell. Prime Minister Blair's
government - the British Treasury -- earns about $150 on that barrel
because of the amount of tax. 
RAY
SUAREZ: Now, this started in France a couple of weeks ago with striking
truck drivers tying up roads and refusing to move farm products from
the farms of France to marketplaces. But as you mentioned, the French
government capitulated; it lowered taxes. Did that put all the other
governments surrounding France on the spot?
VIJAY
VAITHEESWARAN: Sure. Again, I would go back to this point. I think the
protesters and anyone who drives, has a very good case to be upset about
taxes. European levels of taxation are very, very high. Part of the
problem here is political. Again, government has not done a very good
job of explaining why they have raised taxes so high in the last 15,
20 years, particularly in the last few years. The arguments could have
been made, for example, environmental reasons to help fight global warming.
That was one explicit reason that the previous conservative government
in Britain introduced the sort of taxation regime on gasoline that Tony
Blair and labor government have kept up. Another argument that is used
is to help ease road congestion. Yet another argument the people put
forward, plenty of, sort of environmentally-based arguments. None of
these have been very well explained, for a start. 
DANIEL
YERGIN: I think at this point what's at the root is we have a very tight
oil market. We have the tightest oil market in terms of extra production
capacity that we've had except for the Gulf crisis since the early 1970s.
So it is a market that's very vulnerable to disruption. We see more
supplies come in in the next two weeks or so, we may see more supplies
coming into the United States and Europe. But it is going to be a fragile
market at least through this winter. 
DANIEL
YERGIN: I think what's happening, in fact, in Germany, part of the reason
for increasing gasoline taxes was to reduce other taxes in the workplace.
So there is a tradeoff. There is a different philosophy between the
United States and Europe. Europe really does say, or has said up until
now, you know, the sky is the limit on taxation. It is about $3.50 a
gallon tax in the U.K., it is 40 cents in the United States. I remember
a Congressman was saying if we try to raise the federal gas tax by 10
cents, we'll have a revolution in this country. But they regard it as
a major way to raise revenues and it is a much more important source
of revenue than this part of our tax philosophy. 
Longer
term, I think Europe is going to revisit their gasoline taxes. More
broadly there is probably a case for a more sensible approach to taxation
that looks at, for example, things like road pricing. If you are trying
to solve the problem of congestion on the roads, which is one of the
things that Europe is trying to do with these very high gasoline taxes,
it is a very blunt instrument. It penalizes, for example, people who
live in the country and who drive around where there is no congestion.
So there are other ways to approach this. Probably a more holistic approach
would make sense, and I think there are a lot of people in Europe that
argue for that. Right now, under duress, the point of a gun is probably
a very bad way to do it.