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HYDROCARBON HALLUCINOGENS

  • 2005-04-27
It was a matter of time before the nerves of one of the Baltic governments snapped and ministers began howling about the injustices being committed at filling stations. Gas prices are as much an object of vexation as fixation in the Baltics, a place where for decades prices at the pump were rigidly controlled by a planning ministry in Moscow. The whims of the commodity markets are a relatively new reality for consumers here, and at times it is still amusing to see the numerous litanies in the media on retail gas prices. Local wire services go out of their way to give daily updates. For Westerners, it is par for the course that gas prices will fluctuate, and often to the upside. Complain they do, but with an air of acquiescence.

But Latvia's government 's or several members at least 's are fed up with the incessant rise of retail gas prices. A 10 percent drop in prices over the weekend, followed by a 10 percent surge overnight that left prices at original levels, proved to be too much to swallow. Transport Minister Ainars Slesers has been the most indignant, remarking that the country's retail gas market, he observed, resembled a "free-for-all." Time for the state to step in and do something.

It won't have many options. European law forbids the establishment of price ceilings, and yanking licenses will result in a self-defeating legal hassle. Doubtful, too, that Latvian ministers (unlike their American colleagues) can pick up the phone and start jawboning Saudi princes to start pumping away. It would be easier to make the trek to Mazeikiai and strong-arm the Lithuanians (and foreigners who run the refinery) to lowering the wholesale price for 95-octane. Mazeikiu Nafta, after all, raised the price by 0.01 litas to 2.43 litas per liter on April 21.

What exactly the Latvian Cabinet, dominated by right-wing free market parties, will do remains to be seen, but without an election around the corner it is unlikely that politicians will play the populist card and lunge at gas retailers with heavy-hitting regulation, even if they could do so legally. With oil prices hovering around $55 per barrel and analysts warning that $70 is not far off the horizon, a crackdown on fuel sellers is akin to spitting into the wind.

The only viable, short-term option is to lower taxes, while the long-term ones are to open up the market to competition and diversify the country's gasoline supplies. (Stifling demand is unlikely to work.) If ministers are indeed serious, they will utilize all three approaches. It is easy to moan and groan about greedy fuel retailers, but the high oil-price environment is here to stay and requires a more strategic approach.

But it is good that ministers are paying heed. If there is, as some suspect, a price-fixing agreement between retail operators Statoil and Neste, chances are they can break it up. There is precedent for this is EU practice, and one that Baltic ministers should study closely.