As crude prices surge, oil companies are raking in money -- enormous profits gained from practically no extra investment.
ExxonMobil made a $23 billion profit in 2021, its largest in seven years. And as oil prices rise, it's expected to make nearly $33 billion this year. BP, meanwhile, earned $12.8 billion in 2021 and is forecast to earn $15.6 billion in 2022.
This level of enormous earnings growth has driven talk on both sides of the Atlantic about the need for a windfall profit tax on Big Oil. Those taxes could provide direct financial assistance to consumers struggling with high energy costs.
Both the United States and United Kingdom have imposed windfall profit taxes in the past in with broad political support. But this time around, support has been mostly limited to liberal parties in both nations.
Prime Minister Boris Johnson has opposed the idea. His finance minister, Rishi Sunak, is expected to lay out the British government's plans to help citizens deal with rising energy costs Wednesday.
In Washington, Democratic supporters of a windfall profit tax argue it's the only fair way to help people who can't afford to drive or heat their homes.
"We need to curb profiteering by Big Oil and provide relief to Americans at the gas pump — that starts with ensuring these corporations pay a price when they price gouge," said Sen. Elizabeth Warren, one of the 12 co-sponsors of the measure in the Senate.
The UK opposition Labour Party is calling for taxes on profits made by North Sea oil and gas companies to be raised for a year to help pay for a variety of financial relief measures. The US bill would tax the profits Big Oil companies make on crude prices above recent historical levels. It would pay hundreds of dollars annually to low- and middle-income taxpayers.
But that assumes average oil prices of $120 a barrel — and prices surged past that level two weeks ago. Though prices have since fallen back, it highlights the challenge of writing legislation around a volatile commodities market. Brent oil closed Friday just below $108 a barrel. Retail gasoline prices have ticked down slightly, though at a much slower pace than oil prices have fallen.
The US bill taxes the profits big oil companies get on crude prices above recent historical levels. But that assumes average oil prices of $120 a barrel. Prices surged past that level two weeks ago but have since fallen back.
But the Biden administration has yet to voice any support for the windfall profit tax proposal, and the Senate lacks sufficient votes to pass it, argued Greg Valliere, chief US policy strategist for AGF Investments.
Trade groups for both the American and British oil industries argue the windfall profit tax proposals would work against calls to increase domestic production in those countries as a way of making up for the loss of Russian crude oil.
"Lawmakers should focus on policies that increase US supply to help mitigate the situation rather than political grandstanding that does nothing but discourage investment at a time when it's needed the most," said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs for the American Petroleum Institute.
Deirdre Michie, CEO of Offshore Energies UK, argues that a windfall profit would result in oil companies further cutting their investment in oil production, "just when we most need our own oil and gas supplies," Michie said.
But oil companies haven't been particularly eager to invest in more US or UK production.
"Oil and gas companies do not want to drill more," Pavel Molchanov, an analyst at Raymond James, said recently. "They are under pressure from the financial community to pay more dividends, to do more share buybacks instead of the proverbial 'drill baby drill,' which is the way they would have done things 10 years ago. Corporate strategy has fundamentally changed."
Still, Molchanov said proposals for a windfall profit tax are "political posturing, plain and simple, at a time when consumers are unhappy about high fuel prices," adding that "micromanaging tax rates based on short-term price swings, whether up or down, is counterproductive." he argued.
