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Europe: Oil Prices To Remain High As Protests Spread

  • Jeremy Bransten

Protests by truckers and farmers demanding government action against high fuel prices are spreading across Western Europe. Last week's concessions by the French government appear to have encouraged revolts in other countries. Meanwhile, European governments and the international oil cartel OPEC continue to blame each other for oil's high price. A solution does not appear within easy reach. RFE/RL correspondent Jeremy Bransten reports.

Prague, 13 September 2000 (RFE/RL) -- Hundreds of slow-moving trucks converged on the center of London today while other protestors led so-called "rolling blockades" on key roads leading out of the British capital.

In Belgium, the story was much the same, with truckers blocking various parts of Brussels, including the main link between the center and European Union headquarters. In neighboring Germany, transport and taxi firms were joined by the 46,000-strong national farmer's union in demonstrations against high taxes on fuel.

Despite Sunday's agreement by members of the Organization of Petroleum Exporting Countries, known as OPEC, to raise oil production by an additional 800,000 barrels a day, prices remain unaffected, hovering around $32 a barrel.

Julian Lee, a senior energy analyst at the London-based Global Energy Center, says that what is driving costs is not a fundamental shortage of global oil but rather chronically low stocks at depots and refineries in Europe and North America. Replenishing those stocks will take time. Lee, speaking by phone from London, told RFE/RL he believes prices will probably not drop for another few months:

"I don't think we're likely to see any dramatic shift until after the winter. I think we are looking at a winter of relatively high crude oil prices and I think that is going to keep the price of heating oil and gasoline fairly high over the winter months."

British Prime Minister Tony Blair said yesterday that, unlike the French government, his cabinet will not be held hostage to protestors and has no plans to lower fuel taxes to offer immediate relief to truckers and farmers.

"I believe that whatever the rights or wrongs of the arguments over fuel duty, we cannot accept as a government or as a nation that policy should be dictated by illegal blockades, pickets, or direct action."

Britain and Western Europe in general impose the highest fuel taxes in the world, which means that more than half the price of gasoline at the pump is made up of duties. Cutting fuel taxes would therefore have an immediate effect on gas prices, which is what France decided to do to placate its protestors. OPEC ministers have repeatedly made this argument when pressed for production rises. But Julian Lee points out that if governments cut taxes on fuel, they will have to raise them somewhere else.

"The taxation of oil products in Europe is high. Tax rates are between 60 to 75 percent. So, on one level, yes, there is an argument to be made that the tax rates in Europe are so high. However, there's a general acceptance that if the tax revenue wasn't raised from oil, it would be raised somewhere else. It would either result in a lower level of services or higher income tax."

Most countries have flat taxes on gasoline, which means that the rise in prices over the past few months has not come from an increase in taxes but is directly attributable to the near tripling of oil prices over the past year. Nevertheless, Lee says, the fact that the French caved in to protests may make it difficult for other governments to resist, in spite of Blair's tough talk.

High fuel prices could prove particularly painful to consumers and governments in the non-oil-producing transition economies of Central and Eastern Europe. Economists are concerned that fuel prices will spur inflation, which in turn could stifle economic growth. Already, some politicians in the region are suggesting that governments cut fuel taxes preventively, to ward off protests and the threat of economic slowdown.

Former Czech Finance Minister Ivan Pilip, now an opposition deputy in parliament, said yesterday that his party -- the right-of-center Freedom Union (US) -- plans to propose just such a measure. In an interview with RFE/RL today, Pilip argued that current high prices are affecting fuel consumption to such an extent that fewer taxes are actually being collected. He said current economic growth must be maintained and, if that means temporarily lowering taxes, that is what the Czech government should do.

"Every 10 percent rise or fall in the price of gasoline or diesel can affect [annual] inflation by a third of a percent. This could stifle our fragile, newly started economic growth. That is the main reason why we think the government should take action and the only instrument it has at its disposal -- but it's a significant instrument, because taxes make up more than 50 percent of gas prices -- is to lower duties on fuel."

Word today that Polish fishermen and truckers are considering their own blockades would seem to add urgency to Pilip's call. But it remains to be seen if governments in Central and Eastern Europe will take action to lessen the impact of high oil prices on their consumers.

Many countries in the region still subsidize fuel prices for consumers. High world prices mean the state treasury has to bear the brunt of the impact, by absorbing oil price hikes. British analyst Lee says this situation is untenable in the long run.

"Particularly for the oil-importing developing countries, the cost burden of importing large amounts of oil is getting heavier and harder to bear. That is particularly difficult for developing country governments where the final product prices -- the prices that are paid by consumers at the petrol pump or wherever -- are controlled. At some point, these prices will have to rise because the government simply won't be able to continue with the subsidies."

To an important extent, the long-time economic boom in the United States and the more recent economic growth in western Europe has been helped by low fuel prices. Now, the easy times may be over.