Long queues were reported at Venezuela’s gas stations this week as a new fuel distribution system and pricing regime came into effect.

Government officials hope the policy will stabilize the market and end shortages, while reducing the burden of public subsidies on sanctioned state-run oil firm PdVSA.

Under the new system, Venezuelans are able to purchase up to 120 liters of gasoline or diesel a month for vehicles, or 60 liters for motorbikes, at a subsidized price of 5,000 Bolivars (BsS) per liter (US $0.025).

To qualify, customers must have registered their vehicle in the government’s Patria website, entitling them to visit fuel stations one day a week according to their registration plate, for the first thirty days.

About 1,368 of the country’s 1,568 fuel stations have been designated to supply fuel at this price, which is 75% subsidized by the state.

In addition to the subsidized quota, customers have the option of purchasing an unlimited amount of fuel at a “premium” price of US $0.50 (98,000 BsS), payable in US cash dollars for the first time ever, or at the floating equivalent in Bolivars or Petros.

The country’s 200 remaining stations have been “authorized” to charge the dollarized rate as well as independently import fuel, effectively breaking the 50-year-long state monopoly on gasoline supply.

To limit the inflationary impact of the price hike, public transport and freight vehicles will continue to benefit from a near-complete state subsidy until September, with one liter costing less than US $0.0001.

President Maduro said that the move was the “first step” in a generalized implementation of “international fuel prices” in the country, considered to be between US $0.50 and $1.

Successive Venezuelan governments have maintained a long-standing policy of heavily subsidizing fuel since a price hike and sweeping austerity package sparked a popular uprising in 1989, known as the Caracazo. Prices were, however, marginally raised in 1996 and 2016 as inflation rendered them inoperable.

It is estimated that the subsidies cost Venezuela US $12 billion a year, as well as a further US $18 billion in extractive fuel smuggling incentivized by the huge price disparities with neighboring countries. In Colombia, for example, a liter of gasoline can be sold for around US $0.60.

The implementation of the new system follows the arrival of five Iranian tankers carrying 1.5 million barrels of gasoline, estimated to supply Venezuela for 50 days at current consumption levels, as well as 300,000 barrels of diluents required for local fuel production.

The Caribbean country has faced severe fuel shortages since the US government imposed a crushing oil embargo as well as a blanket ban on dealings with Venezuelan state entities in 2019.

The embargo has also largely blocked the import of vital diluents and spare parts needed to reactivate the country’s refining capacity, which, in addition to existing problems in the industry, effectively crippled domestic gasoline production.

However, Venezuela’s fuel output is beginning to rebound with Iranian and Chinese technical assistance.

Venezuela Analysis / ABC Flash Point Embargo News 2020.

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02-06-20 16:28

So, the Colombians were stealing $18 billion worth of subsidized cheap gasoline per year to help destroy Venezuela’s economy?