Gas Prices in U.S. Still Dwarfed by European Costs

By Daniel Tovrov: Subscribe to Daniel's RSS feed

February 21, 2012 1:49 PM EST

Gas prices have risen to above $4 per gallon in many parts of the United States, sending economists into a tizzy about its impact on consumer spending, consumer confidence and the effects it will have on the housing market.

Moreover with the continued speculation about Iran cutting off exports to Europe, the gas price situation has geopolitical consequences, as well as implications for this year's presidential elections.

The price has already risen by 29 cents per gallon since December, and the national average is currently $3.57 as of Monday -- 40 cents higher than a year ago. The all-time high is $4.05 (on a national average basis), but some people are now talking about gas reaching $5 a gallon, a price that economist Mike Lynch described as the "worst-case scenario."

While a $5-per-gallon price tag would be significant, compared to other countries, it's actually a rather low figure.

The price of oil per barrel is relatively consistent around the world, but the price of gas per gallon can differ dramatically, even in neighboring countries. For example, in Russia, Thailand and Pakistan, the price per gallon is close to what it is in the United States, while in Argentina, Canada, Cuba, India and South Africa, it's about $0.50 to $1 higher. But in Singapore, people were paying more than $6 per gallon in January, and in Turkey, the prices have reached over $9.50.

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At the pump, one is not just paying for a gallon of gasoline. According to the U.S. Energy Information Administration, about 80 percent of the actual cost that each American consumer pays accounts for the crude oil and refining, while 10 percent of the cost covers distribution and marketing and the remaining 10 percent is taxes.

Even as the price of gas rises, this reality is nothing to get up-in-arms about.

For a product like beer, only a fraction of the total cost per bottle -- about 3.0 percent -- covers the ingredients and production, while the rest of the price is for packaging, distribution and marketing.

Prices Around the World

Compared to Europeans, Americans pay a small sum on gasoline. The price per gallon in some European nations is often double or triple the amount it is across the Atlantic.

Most of the drastic price difference is due to taxes. European governments impose a significantly higher at-the-pump tax, including a VAT -- or value add tax -- in many places. Where as in the United States, about 10 percent of the cost of oil comes from taxes, it's closer to 50 percent in most European states.

Gas prices have fallen in Europe in the past six months (and risen between January and February), but the strength of the euro and pound sterling compared to the dollar have kept the prices high.

The below chart shows the 10 highest per gallon prices in Europe, as of Tuesday.