5 Price transmission to the domestic market has differed markedly from country to country. In the case of petroleum products, aside from price differences due to transportation costs and differences in fuel quality, international crude oil and petroleum product prices are broadly uniform across all regions, so that differences in government pricing policies account for much of the differences in end-user prices. The price differences are significant: a recent price survey showed that the retail prices of four petroleum products in 65 developing countries in January 2012 varied by two orders of magnitude, with the lowest prices found predictably mostly in major net oil exporting countries (Kojima 2012). As in the years immediately following rising oil prices in 2004, which saw suspension of pricing policies linked to world price movements (Baig et al. 2007), some governments responded to high oil prices in 2011 and 2012 by freezing prices.

Many interlinked developments have affected costs, availability, and prices paid for petroleum products in recent years:

- Recent high oil prices have exacerbated the poor financial states of the national oil companies in some countries with price subsidies, leading to the inability to procure petroleum products on time, acute fuel shortages, and high black market prices.

- Fuel price subsidies in the face of high world prices have increased incentives for diversion to black markets and smuggling to neighboring countries. Both smuggling and black marketing can push up domestic prices markedly above the official prices.

- Power shortages in a number of countries have increased demand for diesel for emergency power generation, causing diesel fuel shortages in some markets and higher diesel prices. A growing cause of power shortage is declining rainfall, leading to falling hydropower generation in East Africa and elsewhere.

- Piracy in the Gulf of Aden and the Indian Ocean has increased insurance costs, led to shipping delays, and at times caused fuel shortages in East Africa.

- The challenges to the authorities mounted by citizens across the Middle East and North Africa since 2010 have stalled and sometimes reversed petroleum price reforms in several countries against the backdrop of declining perceived state legitimacy.

This paper looks at various ways by which governments in developing countries have tried to deal with oil price volatility on the world market in recent years. The paper examines, from the point of view of consumers, issues related to oil prices in the downstream petroleum sector and other sectors where oil is an important input. It does not consider macro-level policies (such as monetary or exchange rate policy) or the impact of oil price changes on the macroeconomic performance of countries, nor does it discuss management of the windfall income by large oil exporters and the long-term economic consequences of revenue management. The paper is part of a larger on-going study assessing the implications of high oil prices and oil price volatility on fuel use, the downstream petroleum sector, and household fuel consumption in developing countries, and follows four previous publications (Bacon and Kojima 2006, 2008; Kojima 2009, 2012). In addition to fuel pricing policy, other coping mechanisms covered include fuel conservation programs; energy diversification; pressure on oil companies to accept lower profits or even losses; negotiation on prices or payment terms with governments of oil-exporting countries; increasing strategic and commercial reserves; hedging; assistance to households; and assistance to large petroleum product users such as transport companies, farmers, and fishermen.

The German development agency, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), periodically provides a list of papers on policy responses (GIZ 2011).