Over A Barrel

Who knew New Labour--not to mention Britain--would be brought to its knees by the shared frustration of workingmen? Grassroots revolt may have a long history there, but it wasn't supposed to happen in Tony Blair's Cool Britannia.

Yet the Prime Minister abruptly found himself the prime target of an infuriated nation last week when stoic Brits reached the end of their patience over extravagant fuel prices and the country ran out of gas. A mere handful of truckers and farmers--not more than 2,500--shut down the world's fourth largest economy, blockading refineries and supply depots, emptying nearly every filling station, propelling panicked buyers to strip milk and bread from market shelves, closing schools and businesses, provoking the Queen to grant Blair broad emergency powers. In the end, he didn't need them. The savvy protesters claimed "moral victory" and broke up their gas embargo before the nationwide disruption caused what Blair had predicted: "real damage to real people."

But neither Britain's nor the rest of Europe's fuel troubles are over. Tanker trucks may be rolling again to London, but identical protests, which actually began in France a week before, spread into Germany and Spain, the Low Countries, Greece and Ireland. Europeans were bent on telling their governments they had had enough of paying the world's highest prices at the pump. Now their stunned leaders must find an acceptable reply.

All economic crises have a tangled skein of causes, but the thread of this one starts in the early '90s. After the Persian Gulf War, as Middle East producers pumped their way to recovery, the price of crude oil dropped steadily, then stayed low for nearly a de- cade, fueling the global economic boom. By early '99, a barrel of oil clocked in at just $10.

While that brought prosperity to the industrial, consuming nations, it bled the producers. OPEC members watched their petrodollar budgets slide into the red, and other exporters, such as Russia and Mexico, went virtually bankrupt from lost oil revenues. Finally, in the past year, OPEC's members woke up. Why should the West profit from unparalleled prosperity while they drew up austerity plans? They boosted the cost of crude by slowing production, until a barrel fetched nearly $35. Americans, like Europeans, started to grumble at the steady rise in the price they paid to gas up. By summer, U.S. drivers were paying around $1.70 per gal., Europeans anywhere from $3.50 to $4.89.

But here, at current prices, only 22% of the total-per-gallon goes to the federal and state governments in taxes, while across Europe as much as 58% to 76% does. That, Europeans decided, is the real highway robbery. Instead of blaming Big Oil, consumers are holding Big Government responsible. For years, Europe's leaders have been subsidizing their social programs with revenues from the gas pump. To placate powerful green parties, they've tacked on additional eco-charges intended to discourage consumption. Germany's current surcharge adds 20[cents] to the price of every gallon, and Chancellor Gerhard Schroder insists, even in the face of the protests, that he will go ahead with three more prescribed eco-tax hikes.

Because fuel taxes in Europe are a percentage of pump prices--while American taxes are fixed dollar amounts--Continental treasuries wallowed in a windfall as crude costs rose. Britain this year collected an extra $1.4 billion. At the end of August, European consumers snapped. "Gas today is seen as as vital a substance as bread under the ancien regime," says Dominique Moisi, deputy director of the French Institute of Foreign Relations. "When people saw governments making money off price increases, it's understandable why this boiled over."

France, where protest is encoded in national character, was a natural starting point for the revolt. Fishermen, truckers and taxi drivers united at the threat costly gasoline posed to their livelihoods. They mounted border blockades and shut down highways, as they frequently do to get their government's attention. The rattled administration of Prime Minister Lionel Jospin quickly caved in, cannily offering not expensive across-the-board tax relief but a cheaper fuel subsidy targeted specifically to the protesters.

Emboldened by the success of the French, malcontents elsewhere took up the strategy. By Monday, protesting truckers and farmers sat in lawn chairs outside the gates of Britain's tank farms and supply depots, gently strangling fuel deliveries. Cautious oil companies balked at sending their tanker drivers out across the picket lines. Panicked motorists rushed to fill up, swiftly draining the nation's 13,000 petrol stations. Determined not to surrender to what he called street bullying, Blair thundered against "intimidation." But the force of the embargo lay in its huge public support. Despite the total disruption of their nation, 78% of Britons voiced heartfelt sympathy with the protests.

Blair was cornered. His government had already dropped a "fuel escalator" that automatically lifted fuel levies higher than inflation, but he needs gas-tax revenues to bail out Britain's deteriorating social services. And then there was the Margaret Thatcher example. Ever since the former Prime Minister smashed an early-'80s coal strike intended to cripple the nation's economy, British leaders have been loath to give in to pressure. Said Blair: "We cannot and we will not alter government policy on petrol through blockades and pickets."