The total amount of subsidies of fossil fuels represents about 1% of world GDP (World Bank, 2009). According to IEA analysis, “if these subsidies were phased out by 2020 it would result in a reduction in primary energy demand at the global level of 5.8% and a fall in energy-related carbon-dioxide emissions of 6.9%, compared with a baseline in which subsidy rates remain unchanged”, IEA, OPEC, OECD, WORLD BANK joint report, 2010.

Worldwide oil subsidies were about $ 110 billion in 2012, with about $ 55 billion for gasoline and $ 55 billion for diesel. The top ten countries are Saudi Arabia ($ 15 billion for gasoline and $ 9 billion for diesel), Iran ($ 8 billion for gasoline and $ 13 billion for diesel), Indonesia ($ 11 billion for gasoline and $ 7 billion for diesel), Venezuela ($ 10.5 billion for gasoline and $ 2.5 billion for diesel), Egypt ($ 3 billion for gasoline and $ 5.3 billion for diesel), Algeria ($ 1.5 billion for gasoline and $ 5 billion for diesel), Libya ($ 1 billion for gasoline and $ 2 billion for diesel), Malaysia ($ 1.5 billion for gasoline and $ 1 billion for diesel), Kuwait ($ 1.7 billion for gasoline and $ 0.8 billion for diesel), UAE ($ 1.5 billion for gasoline and $ 0.5 billion for diesel). They represent about 90% of total global subsidies. The majority of these countries are oil producers. Fuel subsidies have long been viewed in many oil-producing countries as a way to share the resource wealth with a nation's citizens (Davis, 2013).

According to Davis (2013), the total global deadweight loss from fuel subsidies in 2012 was $ 44 billion (with $ 20 billion from gasoline and $ 24 billion from diesel). Saudi Arabia takes the big part with $ 12 billion in deadweight loss. Venezuela takes the second place with $ 10 billion in deadweight loss. Iran takes the third place with $ 8 billion in deadweight loss.

Many previous studies have shown that fossil fuel subsidization is mainly in favor of rich households. For example in developing countries, only 15 to 20% of the fuel subsidies went to the bottom 40% of the population in terms of income distribution (IEA, OPEC, OECD, World Bank joint report, 2010).

Eliminating inefficient fossil fuels subsidies could have positive effects on the economy in the long run for oil countries. Oil countries should consider alternative policy measures to protect the poor such as cash and non-cash transfers because they could perform better than universal subsidies. Cash transfers have many advantages over universal subsidies and other types of transfers. Setting up the systems to implement a new program is indeed challenging but possible, as proved by the Indonesian case, but may require significant resources and a clear time frame. Funds collected by the government can be transferred directly to their recipients. The funds can play a big role in boosting economic growth, alleviating poverty and reducing greenhouse gas emissions.

Thank you for your well-supported response, Mounir. This has certainly shed a lot of light on the issue for me.

Hi Marcia,

Revenues generated by extraction of petroleum reserves are not profits. The fixed quantity of oil reserves implies a perfectly inelastic supply function, which with a given demand determines rent resulting from extraction of the resource. Accordingly, the rent from extraction of petroleum is a value added that contributes to  the GDP. 

Note that from an environmental point of view the population of an oil-rich country has no rights to consume the exhaustible natural resource at a price below the cost of production because of massive social cost (environmental degradation)  it would generate. The data provided by Mounir are illuminating.