Governments around the world are helping sustain rapid oil demand growth by subsidising fuel or keeping duties low, limiting bills for consumers to avoid a public backlash over record prices.
Many analysts say governments should instead cut costly fuel subsidies and invest billions in public transportation, electricity generation and increased oil refining capacity, to avoid economic damage from longer-term high prices.
"It gives the wrong signal to consumers and lengthens the time to slow demand," said Adam Sieminski of Deutsche Bank. "Either consumers are going to pay the bill or government deficits will hurt economic growth - fire or the frying pan."
Oil markets have been caught out this year by the fastest demand increase in a generation, driven by global growth and a booming China, which boosted oil prices to recent record highs of over $55 a barrel and led to fears of an economic slowdown.
Governments in Asia, Africa and South America cushion consumers from surging world prices with heavy subsidies, while the United States keeps gasoline duty low and European countries face revolts over high fuel tax policies.
The French government granted farmers a reduction in domestic duties earlier this month after truckers and fisherman blocked ports to protest against high prices. The UK also deferred a September fuel duty rise, fearing protests.
France is looking to persuade the European Union it needs to take joint action to soften the impact of high oil, but has taken flak for acting unilaterally.
Eurozone ministers agreed oil consumption needs to be moderated at a meeting last week, but failed to agree how. Jet fuel is still not taxed in Europe and air passenger traffic is soaring as cheap flights entice holidaymakers.
Low fuel taxes in the US have helped make it the world's largest oil consumer. Its pump prices have risen sharply this year but are still far lower than Europe, leading drivers to snap up gas-guzzling sports utility vehicles.
While US presidential candidate John Kerry has said he favours improved energy conservation, such as tougher vehicle economy standards, he has shown no sign that he would raise gasoline taxes, seen as a US political taboo.
"If they add tax to fuel, like in Europe, all hell will break loose," said Cynthia Poynter of consultancy IHS Energy.
The unfettered demand for transport fuels is stretching global oil refining capacity, yet oil companies are reluctant to invest in the sector. No new US plants have been built in the past two decades.
In China, which overtook Japan this year as the world's second largest oil consumer, Beijing's cap on domestic prices may be inflating demand and adding to the supply shortage.
"One reason why China has not yet exhibited any noticeable price elasticity of demand for oil is the fact that domestic prices have so far been held down artificially," said Credit Suisse First Boston in a report this week.
Analysts say Beijing faces a dilemma between higher inflation or disruptions to living standards, as shortages may spread. But even if China raises prices, demand is likely to keep booming on consumption from industry and power plants.
China must kick-start a $2 trillion revamp of its power sector, the International Energy Agency says, calling for global electricity investment of $10 trillion by 2030. Increased Chinese oil demand for power has driven world prices up.
India's oil sector has been deregulated but oil companies have been losing money since they are unable to pass on cost increases to consumers, with controls remaining on many fuels.
Malaysia has raised its government-controlled prices as it fails to balance its budget. Iran, the Middle East's largest consumer, faces an extra $1.3 billion bill this year to fund gasoline imports, as it still heavily subsidises the fuel to a mere 10 cents a litre at the pump.
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