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Venezuelans are bracing themselves for perhaps the most shocking everyday economic impact yet to derive from President Hugo Chávez’s latest interpretation of “21st-century socialism”: an end to virtually free petrol.

At 97 bolívars per litre, equivalent to about 9.5 US cents per US gallon or around 5.5 pence per UK gallon, the cost of petrol in Venezuela is negligible – a dream for motorists anywhere else in the world in times of high oil prices. But this week Mr Chavez made it clear that some drivers at least will have to pay more.

Cheap petrol in Venezuela, the world’s fifth largest oil exporter and home to the largest energy reserves in the Americas, is seen by many Venezuelans as a birthright, and removing it may be tantamount playing with fire.

“I don’t like the idea at all,” says Ricardo González, a taxi driver, as he fills the tank of his Daewoo Cielo for about a dollar at a filling station in Bello Monte, a district of Caracas. “It would wipe out my earnings.”

Some observers suspect that the move to raise petrol prices is a sign that the government is already feeling the pinch from declining oil prices. Crude oil has fallen from a high of almost $77 per barrel last August to around $55 on Thursday.

Oil makes up about half of government revenue and three-quarters of export earnings, meaning that fiscal policy, on both the spending and revenue sides, regularly has to be adjusted in response to fluctuating global energy prices.

“Every time the price of oil declines the impact is felt very quickly in the Venezuelan economy, above all within government finances,” says Oscar García, president of Banco Venezolano de Crédito. “An eventual rise in the price of petrol was perfectly predictable.”

What is aggravating the fiscal situation, says Mr García, is the fact that the government has imposed on itself a raft of new spending commitments.

Mr Chávez this month announced that his government would nationalise the country’s largest telecoms company and the capital’s power generator, as well as extend state control over oil joint ventures in the Orinoco River Belt. If accompanied by compensation at market value to shareholders, it would cost the government as much as $7bn – representing a major non-budget item this year.

Analysts predict that Mr Chávez will soon also be forced to devalue the bolívar, whose fixed exchange rate to the dollar is under strain. Tightening exchange controls and deepening investor concerns in recent days have prompted the dollar on the black market to rise to double its official price.

However, analysts say that it is a sudden increase in fuel prices that could have the most explosive economic impact. Venezuela’s inflation rate is already running at close to 25 per cent per annum, the highest in Latin America.

Tinkering with petrol prices is politically risky in Venezuela. In 1989, a decision by former president Carlos Andrés Pérez to remove fuel subsidies sparked deadly riots in Caracas that paved the way for his downfall.

Successive governments have preferred to allow Petróleos de Venezuela, the state-owned oil company, to continue selling petrol at a huge loss.

Mr Chávez’s seemingly improvised choice of policies, as ever, divides Venezuela.

Luis Miquilena, a politician who was once Mr Chávez’s closest political ally, this week described “21st-century socialism” as no more than “ideological minestrone soup”.

But Mr Chávez may have in fact learned a history lesson, says Alejandro Grisanti, executive director of Ecoanalítica, a consultancy in Caracas, who adds that the decision to raise petrol prices appears to be carefully calculated.

Politically, an increase can be presented, as Mr Chávez did this week, as a move intended to correct a government subsidy that benefits wealthy car owners more than it does the poor.

Furthermore, Mr Chávez is basking in renewed political capital following his re-election victory last December, giving him ample breathing space to introduce what for many would be an unpalatable measure.

“Economically and politically it’s logical for the president to adjust the price now,” Mr Grisanti says. “He knows that the price of gasoline is absurdly low, and it makes sense to increase it in a period of abundance and at the start of his new term rather than at a time of possible shortage in the future.”

Copyright The Financial Times Limited 2017. All rights reserved.
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