What Price Oil?

The news over the weekend about a drone attack on Saudi Arabia’s oil infrastructure may cause a disruption in supplies to the world. Saudi Arabia produces roughly 10% of the world’s daily need, and up to half of that may have been disrupted by this attack; some theorise that redundancy in their infrastructure may mean that normal supplies will be resumed within days, perhaps as soon as Monday.

But what would the oil price need to be to change consumer behaviour? How much would a litre of petrol need to cost before there was a wholesale switch to mass transit, or to EVs?

With roughly 61% (the highest in the EU) of the price of unleaded petrol going to the government in tax (a mix of fuel duty and VAT), increasing prices at the pump directly increase revenues to government, provided consumer behaviour doesn’t change (shorter journeys, lower use of cars etc).

The government will take in £28.4bn this year in fuel duty, not including VAT. As I’ve written before, even a move to 10% EVs makes a significant dent in tax revenue. A bigger move makes a huge hole in spending plans.

Unless, of course, government moves to plug that gap by taxing EV mileage. The sooner such a plan is made clear, the easier it will be to calculate the benefits of an EV versus a petrol car, especially if petrol prices begin to increase in response to both actual and potential threats.

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