Saturday, August 09, 2008

Don't spend it all in one place

Jordanians have become commodities experts, carefully following the daily fluctuations in oil prices. So, over the past month, as oil prices have fallen precipitously, they have been waiting to see whether the government was honest about letting prices at the pump follow the oil price trends. Of course, the government has rigorously followed the world prices as they rose.

The poor souls actually believed that the government was good for its word. Humorist Ahmad Hassan Zoubi suggested a grand celebration to announce the lowering of prices, following the model of the New 7 wonders of the world. He also suggested that they invite Jennifer Lopez to sing at the ceremony, because “we have good luck with her”. He was of course referring to Petra winning in the New 7 wonders contest.

So now, the moment of truth has arrived. After world oil prices have fallen around 16% since the first week of July, this has translated to a 5% drop in prices at the pump. Yippee.

It is no secret that this whole thing is a scam. The government gets the oil at deep discounts and charges the consumer full price, plus taxes, pocketing the difference. They refuse to let competitors enter the market, because they are making too much money on this. Free economy be dammed.

But not to worry. Mullah Nader promises that if world prices stay the same, prices will be dropped again next month as well. The reason, we are told, is that prices are calculated based on daily averages. We are led to assume that importers buy commodities on a daily basis, without shopping around.

So, we will go through another round of complaining, and as usual the government will profess its total honesty on the issue. There may be some posturing by the opposition, followed by the government accusing them of “having no alternatives”. Of course, if the government was totally honest it would get out of the oil business and let the private sector do the job.



At 1:20 AM, Anonymous Anonymous said...

You say the prices dropped 16% from the 11th of July. And you're right.
But in fact, the average price in June was $130, whilst the average price in July was $122, which translates indeed to a 5% drop in prices.

At 1:52 AM, Blogger Mohanned said...

The "state" has many expenses to cover;)

Also, how will they pay the new 10,000 new recruits for governmental poisitons in 2009?

The whole country is a joke, but it's getting less funnier!

And about the private sector getting into the oil business, I suggest you read my last post.

At 10:48 AM, Blogger Riskulator said...

You say let the private sector do the job. I highly doubt it. This issue is worldwide and not just in jordan. All importers are suffering.

Look up the latest financials of british petroleum for example. They announced record profits recently. Competition can help in some industries, where operational efficiency for example can provide some room for price based compitition.. but this is not the case with energy.
With Energy, when jordan has absolutely no bargaining power, neither the government nor the private sector will be able to do much...
At the end of the day, you're right, more transperency would not hurt.

At 9:40 AM, Anonymous Anonymous said...

I think the private sector may be able to provide more options to the consumers provided that an anti-trust law is developed and strictly implemented. Currently the government is in full control of the oil and gas system while Samir Rifae'i Company (Dubai capital) is controlling electricity generation. Our experience however may prove that a cartel of 3-4 companies may divide the market between them and raise prices as they want, just like the dairy industry.

At 7:25 PM, Anonymous Anonymous said...

The relationship between gasoline prices and crude oil prices is not eaxactly as linear as it may sound. When crude oil prices rise, gasoline prices rise automatically, but when they fall, it's then a matter of competition for gasoline prices to fall. Although, eventually, they will fall.

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