Caracas Chronicles

“We shouldn’t have to pay market prices for gasoline, we’re an oil-producing country.”

We’ve all heard the above argument. We all know it makes no sense. Still, it’s not an easy one to bring down.

Understanding why this is nonsense requires having some notion of opportunity costs. It requires understanding that when you give away something you could be selling for a high price, it’s the same thing as giving money away.

However, we no longer need to rely on the concept of opportunity cost to make the case for ending the gasoline subsidy.

Bloomberg’s Nathan Crooks and Paul Burkhardt are reporting that Venezuela has increased its imports of refined products … from the US. Because of decreased investment in refining capacity, increased corruption (an example of which Gustavo Coronel and Setty nicely deconstruct) and a surge in domestic consumption, we now import 40,000 barrels per day of refined products from the good’ol US of A.

The money quote:

“Venezuela has the cheapest and most subsidized gasoline prices in the world, with a gallon costing the equivalent of 9 U.S. cents. It pays about $200 a barrel for gasoline it imports at current market prices and sells it domestically for about $5, said a former PDVSA official who asked not to be identified because he isn’t authorized to speak publicly about the issue.”

Simple math folks: (200 – 5) dollars * 40,000 barrels * 365 days = $2.847 billion per year.

This isn’t money we’re leaving on the table. It’s not earnings we failed to make. This is coming out of our pockets. It’s hard, cold cash we are paying the gringos. And it’s just a drop in the bucket, a mere fraction of the amount of fuel Venezuelans consume each day.

$2.8 billion to pay for the fuel needs of, say, Puerto La Cruz. How many schools does that build? How many hospitals?

UPDATE: Setty helpfully points us to a place where we can track of these things. It even has a historical graph. Fun!