Venezuela: Land of 12-Cent Gas

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Students hit the streets in Indonesia recently as that nation dropped some of its subsidy and raised the price of gas by about 30%, from $1.80 per gallon to $2.50. The increases are expected to filter through to higher costs of food and public transportation.

Raising Prices: A Tough Sell

In Venezuela, cheap gas is considered more a right than a privilege. Several governments, including that of Chávez, have attempted to raise prices in the past. Those moves have often been met by riots and demonstrations, forcing successive presidents to back down. Hundreds, if not thousands, died in riots in 1989 when the government of former President Carlos Andrés Pérez was reported to be considering a gasoline price increase that would have also raised public transportation costs. Faced with mounting bloodshed, Perez quickly backed down.

"There is a perception in Venezuela that raising fuel prices leads to political instability," says Alberto Quirós, who formerly headed Royal Dutch Shell's (RDS) operations in the country and is now an independent oil analyst.

The last time a Venezuelan leader successfully raised gas prices was in 1998, when then-President Rafael Caldera also ended Petróleos de Venezuela's monopoly on domestic gasoline sales. Foreign companies, which were promised that the country would eventually end fixed gasoline prices, rushed in, hoping to capitalize on growing demand. But when Chávez took office in 1999, those promises were forgotten. Many of the companies that invested in stations, including Shell and ExxonMobil (XOM), subsequently wrote off their investments and left.

In the years since, prices of most other goods have risen dramatically—consumer prices in general are up fivefold since 1998—and the Venezuelan minimum wage has kept pace. The widening gap with gas prices has forced many gas station operators to shut down.

Chávez has grudgingly admitted that a problem exists. In early 2007, he ordered Energy & Oil Minister Rafael Ramírez to study the impacts of a possible increase in gasoline prices. Public criticism led to the proposal being quietly dropped.

That's a relief to consumers—one of the few available in a land of high inflation. "I know that these prices won't last forever," says Morales. "But while they do, I am going to take advantage of them."

For more on international gas prices, see BusinessWeek.com's slide show.

Wilson is a special correspondent based in Caracas.