Why Europeans pay high price for fuel? An Iranian approach

Published November 21st, 2000 - 02:00 GMT

The rise in the prices of petroleum products, especially motor gasoline and gas oil, has caused quite a bit of agitation in Western Europe.  


Governments of the affected European countries (who are surely aware of the hard facts not told to the public), in an effort to prevent the issue from getting out of hand, are baselessly attributing the problem to OPEC conduct in general and some of its members in particular. 


It is the duty of not only all OPEC members but any other international body that believes in real principles of democracy to enlighten the public of the true facts of the matter.  


The governments of European countries must realize that such shortsighted false publicity not only will not help solve the problem but on the contrary the policy will backfire. 


Following points in this regard are worth noting: 

1) Only about 16 percent of final prices of fuel paid by consumers, especially in Europe, is directly related to the crude oil price.  


The breakdown of the balance (84 percent) are costs and margins of refining and marketing (about 16 percent) and state taxes (about 68 percent). This level of tax, the highest in the world, is levied by the European Union.  


Considering that similar taxes in Japan and Canada are lower and in the U.S are much lower, then an aggregate of the said overhead for the G7 will be 49 percent taxes, 26 percent refining and marketing costs which leaves a mere 25 percent for the crude oil value.  


But if the subject is dealt with at the level of OECD member countries, then the figures will be 48 percent taxes, 30 percent for refining and marketing which means only 22 percent of the total costs is for the crude value.  


Therefore the share of crude costs is only between 16 to 25 percent of the price of fuels European consumers pay.  


As it can clearly be seen, some European industrial countries gain tax revenues up to three times the amount the crude exporting countries receive for their oil. 


2) Surely European citizens are aware of the fact that such heavy taxes on petroleum products started with the intention of stabilization of fuel prices and their separation from global oil prices.  


Meaning that European states resorted to this mechanism only to prevent the impact of an effective economic parameter, which fluctuates heavily, on their national economies.  


That is exactly why when the global oil prices are low the percentage of the relevant taxes should be high and conversely when prices are high the percentage of the taxes should be low.  


However it seems that such windfalls have been so attractive that the said tax mechanism has not been used on both sides and only when the prices are low the percentage of taxes increase! 


3) When the price of fuel is compared with other liquids, the result is very interesting. Mr. John S.Harold, an American oil market analyst, has compared the price of fuel with milk and mineral water and has proved that price of motor gasoline is very much cheaper than the two.  


Consumers complain about the rise in the prices of petroleum products but at the same time they are paying much higher prices for other commodities. 


4) Now as for the high crude oil prices and the blame on the exporting countries, one must realize that the present situation is a direct result of the past 25 years of OECD's policies. In fact OECD members practically sat aside and let the U.S decide about the best policy. And what Americans did was nothing more than the use of energy for their own political end. 


In this regard there are many of noteworthy questions. Few are listed below. 

a) Did the IEA, under the influence of the U.S., worry about the oil exporting countries and their national economies when the prices had nose-dived as a result of their policies? If there was no price free fall, would the production capacities of the exporters not be different now? 


b) If right from the beginning, the market shares of both OPEC and non-OPEC had been set proportionate to the volumes of their reserves, and not based some political goals, would the problems we are now facing exist? 


c) If the American oil embargoes against some major producers were not imposed and they could develop their excess production capacities in time would we still be encountering the present near zero excess capacity? 


d) If the American administration and some western countries had not unjustly interfered in and intensified the regional tensions in the Middle East (such as prolonging the Iran-Iraq war), resulting in weakening of economies of the region, would the situation have been the same? 


e) Following the downfall of the Soviet Union the west took full advantage of the situation and by encouraging Mafias to loot the resources of the newly founded countries deprived them of the help they could have received to upgrade their production capacities.  


If they were helped in the opposite direction would the situation be the same? If the Americans did not waste efforts on the totally impractical Baku-Ceyhan project would the world be faced with the present dilemma now? 


f) And finally, if in the past 25 years the Americans and some western governments had concentrated on constructive dialogues between producers and consumers, instead of imposing their one-sided will on the producers, would the situation have been the same? 


5) Europeans must realize that when "Euro" is weakened against "Dollar" the impact of the increase in the oil price is further intensified for them. This is mainly because oil is sold in dollars.  


It must also be understood that any increase in the price of oil further increases the strength of "Dollar" against "Euro". Because when oil prices increase the demand for dollars increases (to buy oil with). 


The natural conclusion is that part of the problem is due to the weaker economy of Europe vis-à-vis the U.S. economy. Solving this problem is for the European governments and especially their economists. 


6) Another point to be noted by Europeans is that yet another part of the problem, particularly the motor gasoline price, is due to new environmentally friendly mogas formula and the new refining standards set by America.  


If the energy affairs had been properly planned and managed so that timely investments to upgrade the refineries had taken place, today Europe would not have been suffering. 


NOTE:originally was published on Sep.21, 2000. 



© 2000 Mena Report (www.menareport.com)

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