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A viscous circle of subsidy

Subsidies in poorer countries have helped to push oil prices to record levels. But there's not much the west can do about them

By Derek Brower   July 2008

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The record-busting price of oil, which recently broke through $140 a barrel (/b), isn’t just a crisis for many of the world’s economies—it’s also causing some market fundamentalists to question their faith.

The oil market usually adheres to the rules of supply and demand. When production slows or is interrupted, prices rise. When demand falls, so do prices. With the exceptions of the two oil shocks of 1973 and 1980, the market has been in balance—and in the long term, even those two events helped keep it that way. The recessions that followed them checked…

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