Energy vs. Oil: Argentina’s Impossible Emergency
Argentina faces twin energy crises. The government ended electricity subsidies, resulting in 500 percent price increases. At the same time, the government is subsidizing exported crude oil to stop protests.
Argentina faces twin energy crises that literally and figuratively are screaming from the front of every newspaper in the country. The new government is ending electricity subsidies to consumers, which is resulting in 500 percent increases for families and consumers that meet fairly basic criteria. At the same time, world oil prices have dropped catastrophically over the past 18 months from close to US$100 per barrel all the way down to US$30. Yikes.
This leaves President Mauricio Macri’s government in an almost laughable conundrum. While he is bearing the political brunt for the removal of consumer energy subsidies, he is simultaneously under fire from oil and gas companies demanding — that’s right — energy subsidies for exported oil. In short, these energy companies wanted the Argentine government to pay them an extra US$23 per barrel exported to make up the difference between the world price and the fixed price of US$55 they used to receive within Argentina.
More simply, the oil and gas sector of Chubut Province wanted Macri’s government to fork over US$500 million to save 5,000 jobs in jeopardy due to low oil prices. That would have been US$100,000 per job saved, and completely ridiculous. Today the government agreed to pay a subsidy of US$10 per barrel exported, amounting to a total of US$125 million, or US$25,000 per job saved, to save 5,000 jobs for a period of only six months. If oil prices haven’t recovered in six months, we’ll be in the same situation except US$125 million poorer.
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