Global gasoline-price subsidies evaporate

Sonny Tumbelaka | AFP | Getty Images

Motorists line up at a gas station in Bali, Indonesia.

The era of super cheap gasoline may be coming to an end.

In most countries, the price of filling up at the pump is falling—thanks to the global crash in crude prices. As cheaper oil works its way through the refining pipeline, drivers are getting a break at the pump.

But in a handful of developing countries that have heavily subsidized fuel prices, including major oil producers, pump prices are on the way up. That's because the crude price crash is prompting some of those governments to take a hard look at the heavy financial burden of depressing the cost of filling up well below the market price.

In Saudi Arabia, for example, drivers enjoy some of the cheapest gasoline in the world—just 57 cents a gallon at the pump, according to the latest data from Global PetrolPrices.com. But the subsidy isn't cheap.

Energy subsidies accounted for nearly a quarter of Saudi government spending in 2011, according to data from the International Monetary Fund—or about 13 percent of gross domestic product.

Thanks to the steep slide in oil prices, the Saudi government is expecting to post a record $38.7 billion budget deficit this year. Though the government has several hundred billion dollars in reserves to draw on, the longer-term outlook for oil prices remains murky.

Read MoreOil prices fall as dollar strengthens and oversupply adds pressure

So, earlier this month, the head of Saudi Arabia's central bank signaled that government energy subsidies may be going away.

"One of the existing challenges is enhancing the efficiency of the local consumption of energy and water, which resulted in distortion and a large waste of those important resources in addition to increasing the financial burdens on the government," Fahad al-Mubarak said in a speech posted on the central bank's website.

"This requires a review of price subsidies, which should be changed in a gradual and elaborated manner."

For decades, Middle East countries have relied heavily on energy price subsidies to share oil wealth and ease prices for their consumers. The appeal for governments is that they're easier to administer than cash transfers or social safety net programs, according to an IMF report last year.

But critics have argued that fuel subsidies mostly help those on the upper ends of the income ladder. In Sudan, for example, the poorest 20 percent gets only about 3 percent of fuel subsidies, while the richest 20 percent gets more than 50 percent, the IMF researchers noted.

Energy subsidies also crowd out spending on other social programs. In 2011, Egypt spent three times as much on energy subsidies than on education and seven times as much as health spending, according to IMF data. Overall, energy subsidies in the region came to about 8.6 percent of regional GDP in 2011; food subsidies were estimated at just 0.7 percent of GDP.

Cheap fuel may be politically popular, but it's a huge drain on government coffers. Among countries in the Middle East and North Africa region—which accounts for about half all global energy subsidies—the bill comes to about $237 billion a year in lost revenues, or 22 percent of government revenue, according to the IMF.

For oil producers—who have seen the price of crude cut in half since last summer—those lost revenues are now much more painful. That's forcing many governments to move to roll back subsidies and allow fuel prices to rise—even as the price of crude has fallen sharply

In Indonesia, President Joko Widodo last month announced plans to scrap gasoline subsidies in the world's fourth most populous country. The move will free up an estimated $20 billion to spend on other areas, according to Reuters. Faced with declining oil production, Indonesia has increased reliance on imported fuel

In December, Malaysia also decided abandon gasoline and diesel subsidies, a move that will free up government revenues of nearly $6 billion a year, Reuters reported.

And in Venezuela, the world's cheapest gasoline also is about to get pricier. Last month, President Nicolas Maduro broke the news to Venezuelans that plunging oil revenues, dwindling reserves and a deep recession spelled an end to 6-cent-a gallon gasoline.

Venezuela's oil-dependent economy has been sent into a tailspin by the collapse of crude prices, which has starved the country for cash to pay for domestic energy subsidies and imported goods. With little foreign currency reserves left, the economy is contracting, inflation has soared and the government has resorted to rationing food and other consumer staples.

And with no rebound in oil prices in sight, the future is looking bleak. To finance its budget, the government needs oil prices above $140 a barrel, putting generous subsidies for education, food and housing at risk of deep cutbacks.

The withdrawal of Venezuelan subsidies is being felt well beyond the country's borders, thanks to a 10-year-old accord with more than a dozen nations.

Venezuela launched the so-called Petrocaribe to become a low-cost energy provider and win political favor among small island economies heavily reliant on oil imports. But as oil prices have fallen, Venezuela's energy blessing has turned to something of a curse.

Under the terms of the Petrocaribe agreement, the drop in oil prices has—perversely—raised members' oil import costs. That's because as crude prices fall, member countries lose access to extremely generous financing terms that amount to subsidies.

Read MoreVenezuelan oil deal leaves Caribbean nations in the lurch

When oil was over $100 a barrel, Petrocaribe member countries paid just 40 percent of the upfront costs, and Venezuela's state oil company, PDVSA, covered the rest with a low interest rate loan payable over 25 years. Some have also paid their oil bills with bartered agricultural products or services.

Now, with Venezuela's economy shrinking by an estimated 3 percent a year and inflation soaring, Maduro faces enormous political blowback to his proposal phase out fuel subsidies to preserve precious hard cash. A similar move in 1989 sparked riots that claimed hundreds of lives.

"If you want, crucify me, kill me," Maduro said last month as he announced a possible fuel price increase. "The price is a distortion. ... I think the time has come ... to do it this year. I assume the responsibility and the criticisms."