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street protests are heavily subsidizing energy prices, particularly
for diesel fuel. But the subsidies =97 estimated at $40 billion this
year in China alone =97 are also removing much of the incentive to
conserve fuel.

The oil company BP, known for thorough statistical analysis of energy
markets, estimates that countries with subsidies accounted for 96
percent of the world's increase in oil use last year =97 growth that has
helped drive prices to record levels.

In most countries that do not subsidize fuel, high prices have caused
oil demand to stagnate or fall, as economic theory says they should.
But in countries with subsidies, demand is still rising steeply,
threatening to outstrip the growth in global supplies.

President Bush warned about the effects of subsidies on July 15. "I am
discouraged by the fact that some nations subsidize the purchases of
product, like gasoline, which, therefore, means that demand may not be
causing the market to adjust as rapidly as we'd like," he said.

Indeed, the biggest question hanging over global oil markets these
days may be how much longer countries can keep paying the high cost of
subsidizing their consumers. If enough countries start passing the
true cost of oil through to their citizens, many economists believe,
demand growth will slow, bringing the oil market into better balance
and lowering prices =97 although the long-term economic rise of China
and other populous countries makes it unlikely that gasoline prices
will plunge back to the levels of several years ago.

China raised gasoline and diesel prices on June 21, though still
keeping them below world levels. World oil prices plunged more than $4
a barrel within minutes on the expectation that Chinese demand would
slow.

In Indonesia, the government spends six times as much on energy
subsidies as it does on agricultural investments, even as rice prices
have skyrocketed this year.

Many countries, like India, have raised oil prices considerably in
recent months, only to watch world prices climb even further, pushing
up the cost of subsidies once again. China's estimated $40 billion in
subsidies this year is up from $22 billion last year, mainly for this
reason, although consumption has also risen, with Chinese buying 18
percent more cars in the first half of this year than in the period a
year earlier.

Political pressures and inflation concerns continue to prevent many
countries =97 particularly in Asia, where inflation has become an acute
problem =97 from ending subsidies and letting domestic prices bounce up
and down.

"You talk about subsidies, you're not only talking about the economy,
you're talking about politics," said Purnomo Yusgiantoro, Indonesia's
minister of energy and mineral resources. He ruled out further price
increases this year beyond one in May that raised the price of diesel
and regular gasoline to $2.30 a gallon.

Nobuo Tanaka, executive director of the International Energy Agency,
said that subsidies were clearly a big factor contributing to the
mismatch in supply and demand that has helped push up world oil
prices. "We think the price mechanism is not working enough to make
consumers more efficient," he said.

Indonesia spends more on fuel subsidies, $20 billion this year, than
any country except China. Some economists estimate that fuel use in
Indonesia would fall by as much as a fifth if the government were to
eliminate subsidies entirely.

Malaysia's government incited public anger on June 4 when it raised
gasoline prices by 40 percent. The prime minister, Abdullah Ahmad
Badawi, announced the following week that he would retire, although he
has since said that he will not do so until 2010.

Before adjusting the prices, Malaysia was spending 7.5 percent of its
entire economic output on fuel subsidies, a greater share than any
other nation. Indonesia follows with 4 percent.

Coming elections in Indonesia and India make further subsidy
reductions less likely in both countries. And big oil exporters like
Saudi Arabia have so much revenue right now that they can easily
afford to subsidize fast-growing domestic demand.

Chinese fuel policy is the hardest to predict: the country's leaders
are struggling to reduce inflation and are not expected to take any
action on fuel until after the Olympics, at the earliest. But they are
also campaigning for greater energy efficiency and less reliance on
fuel imports.

Many in Asia bridle at being told to reduce oil use, particularly by
the United States, a country of sport-utility vehicles and big houses.

"What about the energy consumption in the United States? Isn't it one
of the highest in the world?" said Irvan Saefurrohman, a student
activist in Jakarta who organized a fuel-price demonstration in May
that turned violent as protesters threw rocks at police and set cars
on fire.

Making matters worse, Asia's own oil production has barely risen over
the last decade.

Indonesia, with extensive oil fields that made it a top target for
Japanese conquest during World War II, became a net oil importer in
2004. Output from its aging fields has fallen almost 40 percent since
1995, and the country plans to withdraw from OPEC at the end of this
year.

So Asian nations increasingly compete with the West to import oil from
the Mideast and Africa.

In Asia, subsidies have been particularly prevalent for diesel,
although many countries subsidize gasoline as well. The subsidies have
been an important reason diesel prices have climbed almost twice as
quickly as gasoline prices have over the last year in the United
States.

Many governments see diesel as more important because truckers and
ship captains need it to distribute goods; if diesel prices rise,
consumer prices often follow. Diesel is essentially the same fuel as
heating oil, so high diesel prices mean high prices for heating oil.
Spiraling prices already have some in the Northeast United States
worried about how families will afford to heat their homes this
winter.

To be sure, subsidies are not the only cause of high crude oil prices.
Strong global economic growth, particularly in Asia, is requiring a
lot of energy. Political tensions between the United States and Iran
and market psychology have played a role.

Additional factors have contributed to strong demand for diesel in
particular. European automakers have been shifting toward the
production of more cars with diesel engines, which typically get more
miles to the gallon than gasoline-powered cars =97 although the cost
advantage of burning diesel is disappearing with higher prices.

When Vietnam reduced fuel subsidies on July 21, it raised domestic
gasoline prices by 31 percent, to $4.22 a gallon for 92-octane fuel.
But Vietnam increased diesel prices by only 14.3 percent, to $3.54 a
gallon.

The fast-growing demand in China is skewed toward diesel as well.
Automakers are on track to sell half as many gas-powered cars in China
this year as in the United States. But in China they already sell at
least 50 percent more medium- and heavy-duty trucks, the workhorses of
a manufacturing economy. Virtually all of those run on diesel.

The cheapest fuel per gallon in many Asian countries is not diesel but
kerosene, commonly used for cooking by the very poor. In India, for
example, the government subsidizes kerosene so heavily that it sells
for just 97 cents a gallon, compared with $5 a gallon in the United
States.

While the subsidies encourage greater consumption, eliminating them is
not easy. "If you reduce the subsidy for kerosene, people are likely
to forage in the forests for fuel, and environmentally that is very
bad," said Ifzal Ali, the chief economist of the Asian Development
Bank.

Kerosene is similar to jet fuel, so strong Asian demand has helped
push up costs for airlines.

Some spending on subsidies is simply wasted: Mr. Yusgiantoro, the
Indonesian official, said that fishing boats take drums of subsidized
diesel out to sea for resale to foreign fishing vessels. But a lot of
subsidies are delaying what could otherwise be a slowing of economic
activity.

Mr. Sinar, the freighter captain, said that his vessel hauls cement to
outlying islands with limited cement production of their own. Higher
diesel costs would make it much costlier to move the cement, which
would force builders to accept the prices of their local cement
producers and probably cause a construction slowdown.

The nearly 30 percent increase in prices for low-octane gasoline,
which Indonesia put in place in May, has already prompted some less
affluent families to drive less. Subrata, a 34-year-old who sells
gasoline in glass bottles to local motorcyclists in Karawang,
Indonesia, said that the increase had halved his sales =97 and that
plenty of motorists were upset.

If the price rises further, he said, "people will not buy it and it
will be a heavy blow for the lower classes."