States should tax windfall oil profits to fund their way out of crisis

The last fossil fuel crisis caused incredible amounts of pain for the people of Europe. In 2022, after Russia invaded Ukraine, gas prices skyrocketed, resulting in the costs of energy rising to cripplingly high levels. Every European Union citizen overpaying for their fossil gas and power sent 150 euros ($175) to the United States per year, according to a recent report by the Centre for Research on Energy and Clean Air (CREA).

That pain meant unprecedented profits for fossil fuel companies. In 2023, the world’s oil and gas industry earned a whopping $2.7 trillion, and invested just 4 percent of its capital expenditure in clean energy.

These crises are moments of extreme injustice. Not only are people paying a price for fossil fuel use through the immediate climate impacts, but they are now suffering through increasingly frequent price crises where meals are skipped, jobs are lost, and lights are turned off. This public dip in conditions and cost of living runs parallel to an upwards swing for fossil fuel companies’ blood profits.

The least governments can do at this moment is impose a windfall tax on energy companies and use the proceeds to cushion the blow to households and fund an energy transition.

As was the case in 2022, the resurgence of fossil fuel company mega-profits we are seeing now has come about as the direct consequence of bloody conflict. In late February, the US and Israel attacked Iran. The conflict soon spread across the region. By now, more than 3,000 Iranians have been killed, including more than 150 schoolgirls and teachers at a school that was hit. More than 2,000 Lebanese people have also been killed, as well as 23 Israelis and dozens of people across the Gulf region.

The closure of the Strait of Hormuz is triggering a global upwards shift in oil and gas prices. Recently released reports for the first quarter of the year, which includes the first month of the war, already show windfall profits for energy companies.

Last week, BP announced “stronger than expected” earnings of $3.2bn, far higher than the projected $2.63bn. Shares in the company rose 2.5 percent on the morning of the announcement. TotalEnergies also reported a 29 percent jump in first-quarter earnings to $5.4bn. ExxonMobil’s Q1 earnings were lower, but that is because some profits from sales in March will be reflected in the report for the second quarter of the year.

With analysts projecting a spike in oil prices even if the Strait of Hormuz is opened soon, these windfall profits are set to continue. A recent analysis from Oxfam International found that fossil fuel companies are projected to earn $3,000 a second in 2026.

This is the natural consequence of a global energy system dependent on the extraction and transport of a critical fuel through narrow, vulnerable chokepoints. But it is also very much an outcome of greed and the profit motive.