Petrol is the same liquid everywhere and costs whatever a government wants

Most items in this game behave the way you would expect. Rich country, higher price; poor country, lower price; a spread of maybe five to one between the extremes. Groceries do it, café drinks do it, a Big Mac does it.

Fuel does something else entirely. The spread between the cheapest and most expensive countries in the world runs past forty to one. The ranking scrambles rich and poor countries together. Several major oil exporters sit at both ends of it.

There is a reason fuel is the item people get most wrong, and it is that they are trying to reason about it as a commodity. Reasoning about it as a tax rate gets you much closer.

Start with what is actually in the tank

Crude oil is the most thoroughly globalised product on earth. It trades continuously against two main benchmarks, Brent and WTI. The price difference between them is a matter of a couple of dollars a barrel, reflecting quality and location. There is no such thing as cheap national crude for domestic use, because any barrel sold domestically below the world price is a barrel someone could have exported instead.

Refining adds a margin that varies with capacity and season but not by anything like an order of magnitude. Distribution adds a few cents. By the time a litre of petrol is sitting in a tanker at the forecourt, its cost is remarkably similar across the world.

Everything that happens after that point is policy.

The gap, roughly

Price for the crude going in

1 world

Spread between cheapest and dearest pumps

~40×

Share of a European pump price that is tax

50%+

One direction: excise duty

Most of Europe layers two taxes onto fuel. First an excise duty, a fixed amount per litre that does not move when the oil price does. Then VAT, charged as a percentage on top of the duty-inclusive price, so the state charges tax on its own tax.

The result is that in a typical Western European country, more than half of what you hand over at the pump is government revenue, and in several it is closer to two-thirds. This is not an accident or an oversight. From a treasury's point of view, fuel duty is close to a perfect tax. Demand barely moves in the short run. Collection is trivial, since there are only a handful of refineries and importers to invoice. And it can be presented as an environmental measure rather than a revenue measure.

Because the duty is a fixed amount per litre rather than a percentage, it also acts as a shock absorber. When crude doubles, a European pump price rises by much less in percentage terms than an American one, because the tax component did not move. This is one of the reasons European drivers experience oil shocks as milder than American drivers do, despite paying far more per litre in absolute terms.

The other direction: subsidy

Run the same logic backwards and you get the other end of the table.

A number of oil-producing states sell fuel domestically at below the world price, funding the difference out of the export revenue of the same oil. In the most extreme cases fuel has been sold for a few cents a litre, cheaper than the bottled water sold next to it in the same forecourt.

This is enormously expensive and famously difficult to reverse. The International Monetary Fund has spent years documenting the arithmetic: consumer fuel subsidies absorb budget that would otherwise fund health or schools, benefit better-off households most because they consume the most fuel, and encourage exactly the consumption a government elsewhere is trying to tax.

Everybody involved knows this. Subsidies survive anyway, because cheap fuel is one of the few economic policies whose effect a citizen sees weekly, and attempts to withdraw one have brought down governments. When a country announces a phased reduction in fuel subsidy, the phasing looks like timidity and is closer to arithmetic: several governments that did it abruptly are no longer governments.

Why oil producers appear at both ends

This is the part that breaks people's intuition, so take it flat: producing oil tells you nothing about a country's pump price.

Norway is one of Europe's largest petroleum exporters and has some of the most expensive fuel on the continent, because it taxes it heavily and invests the proceeds. Several Gulf producers sell it at a fraction of the world price. The United States produces more crude than any other country and sits far below European prices. Its production has little to do with it. Its federal fuel tax has not risen in nominal terms since 1993, and its state taxes are modest.

Producing oil determines whether a country can afford a subsidy. It does not determine whether it chooses one.

How to guess a fuel price in four steps

In rough order of how much each step moves the answer.

1. 1.Start from the world cost of a litre of refined product, delivered. This is your floor, and it is nearly the same everywhere.
2. 2.Ask whether the country is a net exporter of crude that subsidises domestic consumption. If yes, guess close to the floor or below it, and stop.
3. 3.If not, ask whether it is in Europe. If yes, roughly double or triple the floor: duty plus VAT is doing the work.
4. 4.Everywhere else, adjust modestly for the local tax rate and whether fuel is imported through a long, thin supply chain.

What this changes about the rest of the table

Fuel is also an input to every other item in the game.

The truck that brought the milk runs on it. So does the boat that brought the coffee, the tractor that harvested the apples and the plant that pressed the cans. A country with a heavy fuel duty pays that duty again, indirectly, in the price of everything that moved.

That is the strange, quiet consequence of a policy most people file under transport: fuel tax is one of the few levers a government can pull that raises every price in the economy at once, and it is chosen anyway, because there is no other lever that raises so much revenue with so little argument at the point of collection.