OPEC Claims Taxation Is a Severely Underrated Driver of Gasoline Prices

Taxation in various major oil-consuming countries is a significantly more important factor in determining prices at the pump than generally thought, OPEC Secretary General Haitham Al Ghais wrote in an article published on Tuesday.

“Most of what you pay at the pump is taxes” is the headline of the piece published on OPEC’s website, in which the head of the cartel reiterates his position that crude oil and petroleum products are vital for the normal functioning of the world as we know it.

“The narrative we often hear is that every increase in price raises fuel costs, bringing increasing revenue for oil producers, to the detriment of consumers,” Al Ghais said.

“This narrative can lead to finger-pointing and pit consumers against producers, rather than acknowledge that all are stakeholders in the energy industry, with legitimate needs and concerns.”

OPEC’s secretary general shared an estimate that between 2019 and 2023, developed economies earned on average about $1.915 trillion per year more (based on weighted average prices) from retail sales of petroleum products than OPEC Member Countries made from oil revenues.

According to him, this enormous gap means that “for many consumers, taxation can be a more significant factor than the original price for crude, in feeling any pinch in their pocket at the pump.”

Per the U.S. Energy Information Administration (EIA), last year, when the average retail price of a gallon of gasoline was $3.52, the price of crude oil accounted for 52.6% of the price at the pump, with federal and state taxes representing 14.4% of the price. In the decade to 2023, the price of crude oil accounted for a similar share – 52.3%, while federal and state taxes made up 17.3% of the price of a gallon of gasoline. In that period, the average price in the U.S. was $2.83 per gallon.

On a final note, OPEC’s Al Ghais suggested that the governments seeking to utilize the revenue-generating potential of petroleum and seeking at the same time to phase out oil, should consider how they would replace the taxes on petroleum products they would lose.

“Might similar taxation levels need to be placed on other energies?” he concluded.