When oil prices fall sharply, consumers of oil products often count their chickens before they hatch. Even sophisticated analysts sometimes do so as well.

They would say that when oil prices fall, economic growth will beckon as consumers would benefit from lower product prices and thus have more money to spend on other things. In theory, this is true only if all other things remain the same, or as economists would say “ceteris paribus”. But all other things never remain the same, either by their own dynamics or by government intervention and taxation.

Now that we have more than two years of low oil prices behind us — where prices fell from about $110 (Dh403.70) a barrel in the first half of 2014 to around $50 after passing through the lower $20s for some time — we can look back confidently on how some things have changed.

The promised improvement of economic growth rates did not materialise. IMF statistics tell us that global growth fell from 3.4 per cent in 2014 to 3.2 per cent in 2015 and is expected to be at 3.1 per cent in 2016. The change was not even across regions, because the OECD growth rate actually improved from 1.9 per cent in 2014 to 2.1 per cent in 2015 but expected to fall to 1.6 per cent this year. Emerging economies and developing countries economic growth rates fell from 4.6 per cent in 2014 to 4 last year and expected to rise to 4.2 per cent this year. Energy projects

It is clear then that the fall in oil prices may not have been a factor in these movements. The reasons for falling growth is blamed on other factors such as the reduction of investment in energy projects in general and oil and gas projects in particular. The European economy is weaker and more uncertain after the UK vote to exit the European Union. Even China and India are slowing down against expectation.

We know that the international price of oil is different from the price charged to consumers and local prices are completely dissociated from international prices. Taxation on oil products is so high, especially in the large consuming industrial countries as to lessen the impact of falling international prices to a large extent.

The composite barrel of oil is what can be obtained from refining a barrel of crude oil. Its value in the market is a good measure to be compared with international oil prices.

According to Opec’s Annual Statistical Bulletin, the average CIF price of crude oil in OECD countries in 2013 was $108.53 which fell to $52.17 in 2015, or by 52 per cent. At the same time the average composite barrel sold in the OECD market fell from $272.21 to $198.29, or by 27 per cent. Therefore the fall in oil prices was not fully passed on to the consumers.

Burden on consumers

Taxes remained high and only fell from $122.59 to $99.97 a barrel, or by 19 per cent. The result is that producers lost revenue while the industry saw increased profits and consuming governments continued to benefit from income generated from taxes on oil products.

Some countries are more extreme than others with respect to taxes. The UK is the highest taxing country where the ratio of composite barrel value to oil price was 3 in 2013 and a high 5 in 2015 compared to 2.5 and 3.8 respectively for OECD as a whole. Therefore, the real burden on consumers comes from taxes, not from the original price paid for crude oil.

Taxes on oil products are a gold mine for governments to balance their budgets and to drive energy policies in certain direction. These taxes have become a major component of government spending and they cannot think of reducing them. Unfortunately, the media — and even some analysts — often blame producing countries for high oil prices but neglect to talk about the corresponding taxes levied by consuming governments.

Petroleum products

The revenue obtained by OECD’s consuming governments from this form of taxation far exceeds the revenue of oil producing countries from the sale of crude oil. According to Opec, “From 2010 to 2015, OECD economies earned on average about $1.381 trillion/year more from retail sales of petroleum products than Opec countries made from oil revenues”. And “OECD nations earned on average $1.076 trillion/year from taxes alone compared to Opec’s $944 billion/year in oil revenues [to the entire world].”

Opec adds that “while the billions of dollars earned from oil taxes are pure income for OECD governments, oil export revenues of Opec countries must also cover the high costs of exploration, production and transportation.”

Oil producers need the revenue if they are to invest in future supplies for consuming countries while running stable countries and avoid the volatility caused by the current worries and mayhem. If high oil prices are affecting the consumers, they should ask their governments to reduce taxes.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.