The Human Cost of Price Controls

abarrelfullabarrelfull wrote on 21 Aug 2014 10:41
Tags: accident brazil petrobras refinery

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In much of the world, consumers are insulated from the price of oil and oil products because their governments see fit to subsidize or otherwise control the prices at the pump. The fact that a valuable commodity gets sold too cheap, is wasteful and distorts the market. It means that globally we use "too much" oil. In many low income countries, stretched government budgets get wasted on providing cheap fuel to the better off, whilst schools and hospitals fall into ruin.

It is a disaster for everyone.

There is however another hidden cost, one that is extremely high for the ones that pay it. Price controls kill. Wherever a refiner is not able to sell his fuel at a market price, the result is cutting corners and skimping on maintenance:

From Reuters: Petrobras worker dies from burns in refinery explosion

The Brazilian union for petroleum workers, FUP, said the tragedy highlighted the worsening working conditions at Petrobras plants, saying the accident was the sixth in a week at different refineries run by Brazil's state-run oil company.

That is a terrible track record.

Petrobras is not the worst example of this, PDVSA is. Venezuela has the cheapest gasoline in the world, but it comes with the highest body count of any refiner anywhere. Gas is cheap, and so is life.

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