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Why Cheap Gas Causes Riots

Author: Isobel Coleman, Senior Fellow and Director of the Civil Society, Markets, and Democracy Initiative; Director of the Women and Foreign Policy Program
August 11, 2014
Fortune.com

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As tensions rise in Egypt and Yemen after governments put the kibosh on fuel subsidies, it's worth taking a look at how other countries from Ghana to Iran largely avoided riots when governments phased out their own programs.

Last week, riots broke out in Yemen after the government ended a fuel subsidy program that led prices to nearly double as officials struggled to close a yawning budget gap. And while, for now, things are calm in Egypt, security forces remain on alert as the government cut subsidies and warily raises gas prices in hopes of reviving an economy battered by more than three years of political turmoil.

It's easy to see why consumers would react negatively. In Yemen and Egypt, fuel subsidies account for more than one-fifth of government spending. Poor consumers are understandably angry when they see cheap gas – a tangible benefit – go away without a clear understanding of what the true costs of that benefit really are, and perhaps more critically, if and how they will be compensated for their loss. As we've seen in Egypt where the government has for decades talked about the need for subsidy reform, the risk of riots and consumer anger often spook governments into inaction until fiscal pressures force fuel prices to suddenly spike.

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