Socio-political reasons have often influenced retail price of petroleum products in both oil exporting and oil importing countries. Countries have used differential fiscal measures to tax or subsidise petroleum products. Subsidised products have resulted in higher demand for products, which in turn has contributed to environmental pollution, higher import dependency for importers and loss of export revenue for exporters. 

The main purpose of this chapter is to present an analysis of global oil subsidies. The chapter presents different types of oil subsidies prevalent in different segments of the oil supply chain and highlights the factors and considerations that influence subsidy decisions. A comparison of recent oil subsidy estimates is then presented which reveals significant variation among studies due to differences in the assumptions and estimation methodologies. The effects of oil subsidies and the implications of oil subsidy removal are then considered. The analysis presented here highlights the difficulties in subsidy estimation due to the presence of multiple and divergent factors. It also draws attention to the potential loss of welfare for the poorer section of the population chapter and the consequent potential for a return to traditional fuel wood for meeting energy needs by the poor. Any subsidy removal programmes need to take care of such regressive outcomes.