Sunday June 08, 2008

Angry citizens protest as Malaysia eliminates subsidies, raising petrol prices 40% overnight

This article belongs to the Malaysia inflation watch story arc.

channelnewsasia.com :

Angry Malaysians took to the streets of Kuala Lumpur and the northern town of Ipoh on Thursday [5 Jun 2008] after the Malaysian government increased pump prices by 40% overnight. Led by opposition parties, protesters said they would not let up until the government reviews its decision and reinstates fuel subsidies. Malaysians who have relied heavily on government subsidies for many years are waking up to a new reality. Many could not comprehend why Malaysia - an oil-producing country - cannot continue the fuel subsidies amid soaring prices and a slowing economy. PM Abdullah said cutting fuel subsidies will save the country US$4.3 billion and the money can go towards improving food security, including subsidising imported rice, flour, bread and cooking oil. But many were not convinced. Analysts said Mr Abdullah is taking a huge political risk with this move, especially when inflation is set to exceed 5% this month.

- Many Malaysian citizens cannot understand the reason why, but peakoilers both in the country and in neighbouring Singapore have been monitoring the situation for years. We have expected fuel subsidies to be reduced as oil prices continue to set new records and Malaysian oil and gas production continues to decline, putting an increasing strain on the government budget on both the top and bottom line.

We peakoilers have known all along that continued subsidies would be impossible. But even us peakoilers would have been taken aback by the suddenness with which the subsidies have been eliminated. Instead of gradually easing off the subsidies in graduated steps, the Malaysian government has instead chosen shock therapy. We may now have to be concerned with the possibility that their crude oil and gas production could be falling off the cliff leading to this unusual move. Earlier, channelnewsasia.com had also reported on the political ramifications and it was mentioned that electrcity rates would also be increased as part of the move :

Malaysia's Prime Minister Abdullah is taking a major political risk in removing price controls even as he attempts to recover from disastrous March elections that dealt the ruling coalition its worst results in half a century. Rising prices of food and fuel were a major factor in the ballot, which has triggered repeated calls for the premier to stand down. As part of the subsidy reform, industry and power producers will be charged higher prices for gas from July. Electricity tariffs will rise 18% for householders, and 26% for commercial and industrial users.

- As an investor and fund manager, I am always on the lookout for correlations. When both Indonesia and Malaysia, Southeast Asia's major oil producers, decide to cut subsidies drastically within 2 weeks of each other, the jig is up. Especially with Indonesia deciding to pull out of OPEC with immediate effect. Malaysia does not have an OPEC membership to pull out of but the implications couldn't be more clear. We all know that they are running out of oil and gas, and I am starting to suspect that they are running out rapidly. Citizens of Southeast Asia, welcome to Peak Oil. Check out the chart below :

See also :

1. Fuel prices seen stoking Malaysia inflation in 2008
2. Southeast Asian oil output likely to peak by 2013 (and gas output by 2020)
3. Indonesia hikes fuel prices by 28.7% despite protests
4. Indonesia to pull out of OPEC with immediate effect as oil production declines

(2008-06-08 23:47:40 SGT) [Energy] Permalink

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