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06
Aug
2009
Oil Taxation and Debt issues in G7

A week before, Mr. Yaseen Meenai who is an excellent statistics expert and my teacher three years before in University of Karachi sent me a report. The report was connected to the revenues that OPEC countries earn from Crude Oil exports and the taxation imposed by G7 countries on it. This report is being prepared by Research Division of OPEC, Vienna in the year 2008. Development of this study from OPEC shows their concern on the issue as well.

Before going to my analysis I want to present some core facts from this report briefly:

Total Revenue Earn by OPEC countries by (CRUDE OIL / 2003 - 2007) : US$ 2539 billion

Total Tax Earning by G7 Countries on OIL 2003 – 2007 : US$ 2585 billion

G7 Countries earn more money than OPEC counties to the extent of : US$ 46 billion

G7 Counties consist of U.S.A. U.K. France, Germany, Italy, Japan Canada

The most important point is the tax income of G7 is net income as there is no costs involve but OPEC revenues are associated with the exploration cost.

On annual basis OPEC Counties earn by exploration of Crude Oil : US$ 508 billion

On annual basis the G7 countries taxed Oil : US$ 517 billion

In U.K. the tax on oil is 1.6 times that the OPEC earns by producing it.

OPEC Countries are Algeria, Angola, Ecuador, Iran, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U.A.E. Venezuela

Now here the price of Oil that the consumer pays when he fills his tank includes:

The cost of Crude Oil’s Import + Industry Margin (including processing cost) + Taxes

Can you believe that the tax is about 50% and more of the total price in G7 countries? Can you believe that U.S.A., Canada, France, Italy, Germany, Japan & U.K. are earning 1.4 times more than the OPEC as they have no cost involve for exploration. They just have to tax their people. They are seeing the propensity to consume (oil) is high. So there is no point that they can not spoil their people, so they are doing.

If you want to know why G7 countries that also have oil reserves, like to import oil from Middle East, South America and Africa by exploring just 30-45% of their reservoirs? So answer is simple. They are not fool. They have people who can pay more. If they will facilitate oil exploration in their own countries so that can reduce the transportation cost, insurance in transit cost, import duties (cover via importer’s margin) but once they will have local production so their states and counties will not allow them for massive taxation or may be they will have to give royalties. But if now they want to rework their oil fields so they have no room for Capital Expenditure. They have become the tools of their tools.

There is no surprise for me in all this as CAPITALISM is all about returns. When government is not a regulator so it is necessary for her to become BUSINESS and they proved so in G7. But now amazingly they want to be a regulator.

Just to connect the scenario with some thing else, I will let you know the PUBLIC DEBT / GDP ratio of G7 Countries:

U.S.A : 65% Rank 22 Bankruptcy Risk High US$ 9985 bln

U.K. : 47% Rank 41 Bankruptcy Risk Moderate US$ 1290 bln

Germany : 68% Rank 20 Bankruptcy Risk High US$ 1930 bln

France : 70% Rank 17 Bankruptcy Risk High US$ 1210 bln

Japan : 175% Rank 2 Bankruptcy Risk Very High US$ 1547 bln

Italy : 110% Rank 6 Bankruptcy Risk Very High US$ 1812 bln

Canada : 67% Rank 21 Bankruptcy Risk High US$ 748 bln

Source: Average of CIA, IMF & OECD statistics (as on Dec 31 2008)


Just to make you aware that the PUBLIC Debt / GDP rate of U.S.A. cross 50% in 1990s. This is the same time when exceptional increase had been observed in other countries of Europe and Americas. It simply means these countries have been so leveraged to show off their progress on Debt Financing and then charging their people by massive taxation. Oil has been taxed so horribly by G7 since they started their WAR ON TERROR Campaign. May be it need a detailed analysis but anyone with in G7 has to analyze where all this money disappears. G7 countries are the countries of entrepreneurships and companies. The governments are not massively responsible for employment arrangements. The maximum they have to work on is the Infrastructure management, healthcare, public welfare & last not least some 2 – 5 other (developing) countries (for their political influences). Now every one who is living in G7 as a citizen have to ask their relevant government that why they were gifting dollars to third world countries in term of aid when they themselves had been in the burden of debts or they were anticipating good return from that AID that any how had been proving disappears in the end.

It needs a lot of data to analyze the exact picture of this issue. I need the whole historical fiscal measures of G7 countries to draw regression and time series analysis of their original (fair) national revenues and expenses but in one shot opinion the rise from 2003 - 2007 in Taxation of Oil by spoiling HIGH PROPENSITY TO CONSUME in G7 markets is simply the TAX of G7’s international assignments that covers their open wars and financing allies in anticipation of some thing that logically have to be financial. Some time I really find no answer of “how comes these terrorist organizations are highly liquid to do whatever they want???” Saying it DRUG money is the most ambiguous of answers.

If you see the level of cuts in health care & welfare in G7, you can better determine where it is going. In coming two years when the GDP growth of developed countries will be lesser than 2.5%, what you can expect??? They are in severe problem and as capitalist instinct countries they have no option other than recovering it from their people or from the world.

There is one point that is uncovered by most of the researchers in the world. It is the prices of crude oil when they were about US$ 150 a barrel mark. Who get the best out of it? Those who bought it (on forward) before on US$ 90 a barrel and sell it on US$ 150 or those who were enjoying taxation on the increasing oil prices or both were the same party. Actually we have to see also that where OPEC countries were parking their profits of OIL @ US$ 150 in term of reinvestments???? Today the oil prices are moving around US$ 65 – 71. In my view it can reach US$ 80 – 85 in Jan - Feb 2010 with the demand patterns but how it reached US$ 150, simply people gives their opinion on it but no formal research can find its answer as the relevant data is inaccessible.

I don’t know what is going on in the minds of financial and economic leadership of developed countries. In my view it is critical. They have to redesign their models and prepare their nations for next 50 years to re bounce after spending some phase as DEVELOPING COUNTRY again. I know people would not welcome my statement in EU and Americas but you can not deny realities. Till 70s they had been doing perfectly fine but the day they tried to be over smart by expanding their influence they lost their way. They started collecting handsome taxes on high earnings of their own people and when their nations need the tax returns so they have shown sound debt profile. Even then, I some time get surprise when I listen U.S. or U.K. or France is allocating AID for developing countries. At least now they have to realize that they have reached a point where they have to focus on their own re-construction.

The Oil Taxation is a concern for me as in our country the taxation is not even more than 25% of total price but here we criticize our government. Our Supreme Court interferes in between. So, for all people in Pakistan, please review the attached report (OPEC Document) and understand what is going on in the developed world. May their Supreme Court could ask their responsible people (KARTA DHARTA in our Vocabulary) to answer on their policies also.

I have just initiated thinking on this topic. Many of my talks are strong questions. Even I have answers of them but that need a bit more time to refine and a bit more supporting numbers to collect. Once I will have those facts, you will not find me far from you.


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Mr. Omer

Mr. Omer [1982 born] started  his professional career as a commercial / investment banker after achieving Gold Medal in Finance at master level from University of Karachi in 2006.

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