Fuel prices

With fuel riots now starting to break out is some European countries, I think we're getting some idea of when fuel price rises will start to bite in New Zealand.

European countries have been having to deal with expensive fuel since the late 1970s, thanks to hefty taxes designed to encourage more efficient fuel use, and subsidise generous welfare spending.

Unlike in Australia, New Zealand and North America, where there's been a ‘we’ll cross that bridge when we come to it’ attitude to peak oil, European governments have long been concerned that rising fuel prices pose a serious threat to economic competitiveness.

Britain’s economy was hammered by rising oil prices in the 1970s, which in combination with intense competition from Germany and Japan, wiped out most of its manufacturing sector.
However, thanks to the timely arrival of cheap oil and gas from the North Sea, it managed to cope by focusing on financial services, oil-based manufacturing industries, and armament sales.

Today though, European countries are dealing with the ‘double whammy’ of high taxes and rising oil prices, and the combination is starting to prove too much for many citizens. Spain’s rioting fisherman are sending out the message that oil prices approaching the two euro mark aren’t going to be tolerated without a fight.

Here in NZ, oil prices have increased from around 90 cents a litre in 2000 to just over $2 a litre today, and despite a few moans, there hasn’t been a serious economic impact.

I guess you need to take into account that technological advantages have provided a bit of a buffer. Since the 1970s, vehicles have become more fuel-efficient, many manufacturing firms have shifted production to low-wage countries (so rising material costs are offset by lower wage costs) and appliances and manufacturing processes now use less electricity.

Hence, oil prices will have to increase to current European levels before there is major economic strife. I'm speculating that most people won’t be changing their driving habits, or protesting outside the beehive, until petrol prices breach $3 per litre.