Thursday, April 28, 2011

Price Controls on Gasoline in Russia Causing Shortages

Supply and demand economics works even in Russia. If you put price controls on a product below the market price, you end up with shortages and lines, even if you are the biggest producer of the product.

In Russia, the world's biggest oil producer, facing gasoline shortages are developing in some parts of the country, as prices are kept artificially low, reports WSJ.

Russian car-owners are seeing gas stations halt operations across the country, following an order by Prime Minister Vladimir Putin in February to investigate steep increases in gasoline prices, which led producers to ship more fuel for exports.

WSJ continues:

After gasoline prices rose at the end of last year and another 4% in January, Prime Minister Vladimir Putin in February warned the country's top oil executives against price fixing. Putin accused them of trying to "crudely exact maximum gains" and vowed more oversight of the fuel business, effectively capping prices. As a result, prices declined both in February and March, despite the continued surge in global crude prices.

"The domestic prices are being held artificially low due to pressure from regulatory authorities," TNK-BP's Chief Financial Officer Jonathan Muir said Wednesday...Fuel shortages are particularly acute in Russia's southern Altai region, where about half of the regions 700 fuel stations have closed, but are also emerging in other areas, including St. Petersburg, Russia's second biggest city, Russian Fuel Union said.

Putin has ordered the government to look into the causes of the fuel shortages, while his finance minister, Alexei Kudrin, blamed the producers for failing to react to changes "in demand in a skilled and timely manner."
This all means, of course, that Putin and Kurdin are unfamiliar with basic supply and demand economics, which says that if you price a product below the market price the quantity demanded will exceed the quantity supplied, causing a shortage.


  1. There were some problems in Germany as well - they were charging $55 per gallon in some gas stations due to shortage of gas.

  2. Do they really not know what caused this? Are they that ignorant of basic facts of reality? Or is this just political posturing and image-crafting?

  3. WSJ is late... as pretty much always ;)
    It's been there for a while