Fill'er up: President Hugo Chavez holds down gasoline prices, creating a black market and costing his government billions.

Until recently, Lervis Rolando drove a car bomb--but he's no terrorist. Rolando had modified his aging Ford Maverick to carry 215 liters of gasoline and drove it back and forth across the border, selling cheap Venezuelan gasoline in Colombia. Then the Venezuelan National Guard seized his car.

A government crackdown has put a damper on a thriving smuggling industry, estimated at between 18,000 and 50,000 liters daily, that had people like Rolando carrying gasoline inside the trunks, back seats and even in the doors of their cars. More than one vehicle caught fire and exploded during the trip, earning them their name--carro bomba. "The Guard doesn't let us work," says Rolando, sitting on a sidewalk watching a five-block-long line of cars wait to fill up at a gas station. "Nowadays, they don't let you carry anything."

But Venezuelan politics still guarantees gasoline smugglers a healthy future. Dirt-cheap gasoline is a Venezuelan tradition as dearly loved as the beauty pageant. The last few years' economic nosedive, plus the bolivar's steep devaluation, has made cheap gasoline virtually free, thrilling motorists but congesting streets, poisoning the air and bleeding billions of dollars from the nation's treasury--as well as increasing the incentive to smuggle gas.

The currency's plunge against the U.S. dollar has sunk the price of leaded gas to just over US$0.02 per liter at black-market exchange rates, compared to $0.46 in Colombia--if gas stations nearest Venezuela were bothering to open. In Venezuelan border towns like San Antonio, cars line up, many of them decades-old dinosaurs with huge gas tanks, to wait hours to gas up. National Guard officers with clipboards watch for drivers filling up more than twice per week.

Besides creating a smuggling industry to supply Colombia and Brazil, the government's gasoline subsidy also drains the tank of state-owned petroleum company Petroleos de Venezuela (PDVSA). The corporation, the heart of the national economy and public finance, is still recovering from a devastating late 2002 petroleum strike aimed at driving leftist President Hugo Chavez from office.

Although PDVSA swears production is back to normal, both domestic and international observers say Venezuela, the world's fifth-largest off exporter, is exporting substantially below its quota of 2.7 million barrels per day, set by the Organization of the Petroleum Exporting Countries. Economists estimate the public subsidy on the price of gasoline costs an already limping state oil company as much as $2.4 billion a year, money which could otherwise be invested in health, education or police.

But the gas subsidy is a creature of politics rather than economics. Memories are still fresh of violent riots in 1989, triggered in part by a mild gasoline price increase. The riots contributed to the early fall of President Carlos Andres Perez and built support for Chavez's 1992 failed coup. "Ever since then, the governments have been leery as hell of raising the gasoline price," says Robert Bottome, editor of the newsletter Veneconomy. Bottome estimates PDVSA's break-even selling price at more than $0.11 cents per liter--more than five times the current price. The oil company's accounts are not public, nor did the company respond to faxed questions for this article.

PDVSA has tried to slow losses, says Jose Toro Hardy, a member of the oil company's board from 1995 until Chavez took office in 1999. Toro says that shortly before Chavez's election, the board decided to slowly raise retail prices fivefold to equal the export price to attract investment in retail gas stations. Once in office, Chavez froze the price in bolivars, obliging the oil producer to steadily increase its subsidy. Calamity. That subsidy is contributing to an economic calamity, predicts Toro. He calculates that state oil production is not only below normal but still dropping due to a lack of well maintenance. Only extraordinarily high international petroleum prices have kept Venezuela's economy afloat, he says. "The moment petroleum prices fall, what the government is doing will no longer be viable," Toro predicts. "The Venezuelan state will face a monumental fiscal deficit."

The National Federation of Hydrocarbons Businesses (Fenegas), which represents Venezuela's 1,800 gas stations, publishes graphs showing labor and other costs rising steeply, while stations' margins have barely edged upward. "The costs of electricity, water, maintenance, have gone up," says Fenegas President Norbis Pena. "The truth is that we don't know what to do. What we've done until now is endure." Shell recently threw in the towel, announcing in February that it would unload its 175 Venezuelan gas stations.

Extraordinarily cheap fuel produces daily damage by subsidizing gas guzzling sport utility vehicles and smog-belching, decades-old rolling wrecks which jam the nation's streets and suffocate its cities. Venezuela has no automobile emission controls; mechanics often simply remove catalytic converters on newer cars; and nearly free gasoline eliminates any incentive for keeping vehicles tuned. "It's terrible," said Carmen Acosta, who sells nuts and granola along a busy Caracas avenue. "It makes your nose and eyes all red."

More than a brake on PDVSA, the subsidy makes the nation's entire economy inefficient, according to a 2002 study funded by the Venezuelan National Assembly. To produce a unit of gross domestic product, the study found, Venezuela consumes more than twice the energy as neighboring nations.

Letting the free market set gasoline and other subsidized energy prices would permit the government to triple the health and education ministries' budgets as well as reduce the economic costs from dirty air's health damage and huge traffic jams, the study concluded. The study's purpose was to ask if Venezuela was on track toward sustainable development, says economist Carlos Risopatron, one of the study's authors. "The answer is no," he says. A rich Venezuelan, Risopatron found, receives almost six times as much of the subsidy as does a poor one.

Naturally, many Venezuelan drivers, accustomed to paying pocket change to fill up their gas guzzlers, have no complaints that the price of an egg buys three liters of gasoline. "This being a petroleum producing nation, the price should be even lower," says a smiling Luis Padilla, gassing up his Ford Econoline van at a Caracas Mobil station. Filling his 60-liter tank costs a little more than $1.

Vacant. Some are not so thrilled. Reinaldo Mendez, manager of a Caracas Texaco station, has to live off of his mini-mart and carwash because the gasoline business is a loser. "The price has always been too low," he says. "It has never been on par with the rest of the world."

Jose Avendano, manager of a Caracas Shell station, observed that a small coffee costs $0.16, and that less than a liter of distilled water for a car battery costs $0.52. "But when the gasoline price goes up, the people till the streets [to protest]," he says.

Gasoline's sanctity may be partially due to the fact that much of Venezuela's petroleum is still produced and sold by the government, while food is sold by private enterprises. In a nation with a history of government corruption, too, there is also little faith that higher gasoline prices would translate into more services. "The [government] wouldn't use it for that," says Miguel Vergara, filling up his 1976 Land Rover.

Not to mention subsidizing Colombians and Brazilians, where gas prices are much higher. Gas stations sit vacant, their hoses wrapped forlornly around rusting pumps. Outside of town, the highways are lined with vendors, called pimpineros, waving funnels to signal to motorists that they have jugs full of gasoline for sale. "It costs me half of what it costs in Colombia," says Eduardo Flores, as a pimpinero funnels gasoline into the tank of his pink Yamaha motorcycle.

In a region hard hit by Venezuelans' loss of purchasing power, the gasoline business is a godsend, pimpineros say. "Here in Colombia the poverty is terrible," says Augusto Burgo Ballora, standing amidst his jugs of gasoline. "All of us here are very grateful to Venezuela. We eat thanks to Venezuela."