Crude oil prices are falling, but attention on fuel prices is rising. A barrage of presidential tweets blame oil producers for “too high” prices. And the French “yellow vests” have set Paris ablaze over fuel price increases.
This illustrates an old challenge for Opec. But it is also encouraging for the organisation’s future policy.
Regular petrol in the UAE sells for the equivalent of $93 per barrel, which includes $60 per barrel for crude oil plus the cost of refining and distribution. The US’s modest fuel taxes, which have not increased since 1993, lead to an average price around $105 per barrel.
In comparison, French anger is understandable when motorists pay $258 per barrel, the difference being tax. President Emmanuel Macron’s government had planned to add another $0.12 per litre to petrol and $0.24 per litre to diesel, equivalent to $19 and $38 per barrel, respectively.
Europe lagged behind the US in motorisation, making high fuel taxes politically possible immediately after the Second World War. The expansion of mass car ownership thereafter made further sharp rises difficult, and so the pattern has been set ever since of high taxes in Europe, low ones in the US.
The smaller scale of European countries, better public transport, and the discouragement of high fuel prices, cause the average German, Italian or Swede to drive only about half the distance per year of an American. European cars are generally smaller and more fuel-efficient.
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Read more:
Oil producers have to contend with oversupply in 2019, IEA says
No matter the price of oil, fuel taxes continue to impact consumers most
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So paradoxically, Americans spend almost twice as much of their income on fuel than Europeans. Because of low taxation, rises in crude oil prices have a much greater proportionate impact on prices at the pump in the US than in Europe, making them politically more sensitive.
Fuel taxes have been justified in many ways: to fund road-building and maintenance (the main rationale in the US), to limit congestion, to compensate for pollution, and to cut national vulnerability to oil supply shocks. The security threat argument was reinforced by the 1956 Suez Crisis, which blocked the most direct route from the Middle East to Europe, leading to fuel rationing in Britain.
More recently, fuel taxes have environmental support: to reduce carbon dioxide emissions, responsible for global warming, and encourage a switch to electric vehicles.
But of course, one of the most attractive features of fuel taxes is to raise revenue. Driving is unavoidable for most people, nearly all vehicles are petrol- or diesel-powered, and the price at the pump deflects anger from the government to the oil companies – usually, but not always.
As an example, the UK, whose oil consumption is about 1.6 million barrels per day, raises £28.2 billion (Dh130.4bn) annually, 3.6 per cent of government revenue, in fuel duties, and Vat on fuel adds about another 0.7 per cent. Opec member Angola produces about the same quantity of oil, but earns less in sales, about $34bn.
Despite the revenue and environmental imperatives, and contrary to the Parisian rioters, European fuel taxes have actually fallen over the past two years as a share of the final price, and in real terms they are no higher than twenty years ago. Then, in 2000, the UK almost closed down when angry lorry drivers blockaded fuel depots, protesting against prices that had risen during the 1990s from among the cheapest in Europe to the costliest.
So people respond more to "changes" in fuel prices than to the absolute level. Opec has long been concerned about the dilemma this poses. If it increases production to lower crude oil prices and boost demand, it fears governments will simply raise fuel taxes, keep the end-user price about the same, and the oil exporting countries will lose revenue for no gain in sales volumes.
Of course, the argument that oil-consuming countries’ governments are taking an “unfair” share of the value of fuel is misleading. If countries did not tax fuel, they would have to tax something else to provide services to their citizens. For oil-producing countries, though, the sales price of oil, after production costs, represents a pure gain.
And the recent protests suggest a ceiling on motorists’ willingness to accept tax rises. That should be good news for Opec: it limits heavy fuel duties as a form of carbon tax, a way of cutting greenhouse gas emissions and spurring a transition from internal combustion engines to electric cars. If battery vehicles take over, governments will have to make up lost petrol duties from taxing electric cars, or something else.
Future climate policies on transport will be designed differently. Either carbon taxes have to be clearly offset – by cutting personal income tax, Vat or other levies, or by returning revenues to consumers as a “carbon dividend”. Mr Macron’s plan signally failed to seem fair to many French people, struggling with high living costs. Or, clumsy administrative measures, such as setting fuel efficiency levels so tight that most conventional vehicles cannot meet them, even banning internal combustion engines outright, will be used.
But European fuel taxes are becoming a sideshow. The continent’s consumption is dropping, and future demand growth is in countries such as China and India, which have today moderate taxation – higher than the US’s, but well below Bulgaria’s, the lowest EU rate. Demand is shifting to international aeroplanes, ships and petrochemical plants, which usually pay no fuel tax.
When pump prices are less of a political hot potato, Opec will have to focus simply on maintaining its crude as a competitive source of energy.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
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Day 5, Abu Dhabi Test: At a glance
Moment of the day When Dilruwan Perera dismissed Yasir Shah to end Pakistan’s limp resistance, the Sri Lankans charged around the field with the fevered delirium of a side not used to winning. Trouble was, they had not. The delivery was deemed a no ball. Sri Lanka had a nervy wait, but it was merely a stay of execution for the beleaguered hosts.
Stat of the day – 5 Pakistan have lost all 10 wickets on the fifth day of a Test five times since the start of 2016. It is an alarming departure for a side who had apparently erased regular collapses from their resume. “The only thing I can say, it’s not a mitigating excuse at all, but that’s a young batting line up, obviously trying to find their way,” said Mickey Arthur, Pakistan’s coach.
The verdict Test matches in the UAE are known for speeding up on the last two days, but this was extreme. The first two innings of this Test took 11 sessions to complete. The remaining two were done in less than four. The nature of Pakistan’s capitulation at the end showed just how difficult the transition is going to be in the post Misbah-ul-Haq era.
The specs
Engine: Long-range single or dual motor with 200kW or 400kW battery
Transmission: Single-speed automatic
Max touring range: 620km / 590km
Price: From Dh250,000 (estimated)
Killing of Qassem Suleimani
Killing of Qassem Suleimani
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Artist: Linkin Park
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Number of tracks: 11
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Squid Game season two
Director: Hwang Dong-hyuk
Stars: Lee Jung-jae, Wi Ha-joon and Lee Byung-hun
Rating: 4.5/5
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Coming soon
Torno Subito by Massimo Bottura
When the W Dubai – The Palm hotel opens at the end of this year, one of the highlights will be Massimo Bottura’s new restaurant, Torno Subito, which promises “to take guests on a journey back to 1960s Italy”. It is the three Michelinstarred chef’s first venture in Dubai and should be every bit as ambitious as you would expect from the man whose restaurant in Italy, Osteria Francescana, was crowned number one in this year’s list of the World’s 50 Best Restaurants.
Akira Back Dubai
Another exciting opening at the W Dubai – The Palm hotel is South Korean chef Akira Back’s new restaurant, which will continue to showcase some of the finest Asian food in the world. Back, whose Seoul restaurant, Dosa, won a Michelin star last year, describes his menu as, “an innovative Japanese cuisine prepared with a Korean accent”.
Dinner by Heston Blumenthal
The highly experimental chef, whose dishes are as much about spectacle as taste, opens his first restaurant in Dubai next year. Housed at The Royal Atlantis Resort & Residences, Dinner by Heston Blumenthal will feature contemporary twists on recipes that date back to the 1300s, including goats’ milk cheesecake. Always remember with a Blumenthal dish: nothing is quite as it seems.
Tips for taking the metro
- set out well ahead of time
- make sure you have at least Dh15 on you Nol card, as there could be big queues for top-up machines
- enter the right cabin. The train may be too busy to move between carriages once you're on
- don't carry too much luggage and tuck it under a seat to make room for fellow passengers
What is the FNC?
The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning.
The FNC’s main functions include passing, amending or rejecting federal draft laws, discussing international treaties and agreements, and offering recommendations on general subjects raised during sessions.
Federal draft laws must first pass through the FNC for recommendations when members can amend the laws to suit the needs of citizens. The draft laws are then forwarded to the Cabinet for consideration and approval.
Since 2006, half of the members have been elected by UAE citizens to serve four-year terms and the other half are appointed by the Ruler’s Courts of the seven emirates.
In the 2015 elections, 78 of the 252 candidates were women. Women also represented 48 per cent of all voters and 67 per cent of the voters were under the age of 40.
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Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
360Vuz PROFILE
Date started: January 2017
Founder: Khaled Zaatarah
Based: Dubai and Los Angeles
Sector: Technology
Size: 21 employees
Funding: $7 million
Investors: Shorooq Partners, KBW Ventures, Vision Ventures, Hala Ventures, 500Startups, Plug and Play, Magnus Olsson, Samih Toukan, Jonathan Labin
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A Prayer Before Dawn
Director: Jean-Stephane Sauvaire
Starring: Joe Cole, Somluck Kamsing, Panya Yimmumphai
Three stars
Farasan Boat: 128km Away from Anchorage
Director: Mowaffaq Alobaid
Stars: Abdulaziz Almadhi, Mohammed Al Akkasi, Ali Al Suhaibani
Rating: 4/5
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
Learn more about Qasr Al Hosn
In 2013, The National's History Project went beyond the walls to see what life was like living in Abu Dhabi's fabled fort:
JERSEY INFO
Red Jersey
General Classification: worn daily, starting from Stage 2, by the leader of the General Classification by time.
Green Jersey
Points Classification: worn daily, starting from Stage 2, by the fastest sprinter, who has obtained the best positions in each stage and intermediate sprints.
White Jersey
Young Rider Classification: worn daily, starting from Stage 2, by the best young rider born after January 1, 1995 in the overall classification by time (U25).
Black Jersey
Intermediate Sprint Classification: worn daily, starting from Stage 2, by the rider who has gained the most Intermediate Sprint Points.
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Key Points
- Protests against President Omar Al Bashir enter their sixth day
- Reports of President Bashir's resignation and arrests of senior government officials
