WITH UNREST in the Middle East getting worse and tension growing between the Hugo Chavez administration in Venezuela and the Bush administration in the United States, it is unlikely that the cost of oil on the world market is going to improve much from its present level of about US$60 per barrel. Indeed, it may go higher, even hitting US$100 per barrel.
The current pricing regime for petroleum products in the Jamaican market goes back to when crude oil was selling for between US$30 and US$35 per barrel, the range at which the present national budget was cast.
The price of gasolene to Jamaican drivers, for commerce or pleasure, is in effect being subsidised and since there is no longer any elasticity in the national cash flow something is going to have to give.
Even the recent PetroCaribe gesture from Venezuela does not solve the problem because, although we are given generous credit terms on oil purchased from Venezuela, what we have to pay for the oil is the world market price prevailing at the time of purchase.
It appears, therefore, that cold economic realities dictate that there must be increases in gas prices to the consumer sooner rather than later. But such an increase will not be politically popular and will, in fact, have an adverse trickle down effect on the cost of goods and services generally, thus pushing up the inflation rate.
In the past there have been riots and protests when gas prices have been increased, and the Government is well aware of what a sensitive issue is involved.
Already, Prime Minister Patterson has flown a kite to gauge popular reaction to an increase in gas prices and to prepare the public for its inevitability.
This is being referred to as 'consultations', another way of trying to finesse the Opposition into agreeing to price increases and taking some of the heat.
If the Opposition proves to be uncooperative, this issue may prove to be a first test of Mrs. Portia Simpson Miller's fortitude and leadership.
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