There’s nothing like a good war to fill the coffers of the oil industry.
There have been 14 global oil price shocks over the last half-century, most due to wars and other geopolitical conflagrations: the 1973 Arab-Israeli war, the 1979 Iranian revolution, the 9/11 terrorist attacks, the 2022 invasion of Ukraine.
And now it’s happening again. Whenever the dogs of war are unleashed, the oil industry rakes it in — at least until peace is restored.
This is because oil is a uniquely concentrated commodity, in two complementary ways. Oil deposits are concentrated in certain regions of the world, many of which are vulnerable to conflict. And oil production is concentrated in the hands of some of the biggest corporations on the planet.
These twin characteristics empower the petroleum industry to profit from chaos more lucratively than any other. This is being demonstrated yet again, as U.S. President Donald Trump’s misguided war against Iran approaches its six-month anniversary.
Global oil prices have jumped 50 per cent since the war started. Trump’s desperate efforts to reopen the Strait of Hormuz (closed only because of his own actions) are going nowhere. Iran routinely calls his bluffs.
Here in Canada, we’ve tied our own oil prices to the same global roller-coaster. It doesn’t cost any more to produce, refine and distribute petroleum products here than before the war started. Canada produces three times more oil than it uses. Yet our own gasoline prices are nearly 50 per cent higher since the Iran conflict began.
The combination of soaring prices and steady production costs is a recipe to make money, and Canada’s oil majors are doing so with gusto. The four biggest publicly traded oil producers (Cenovus, Suncor, Imperial and Canadian Natural) just reported blockbuster second-quarter earnings. Combined after-tax profits at the four surged to $13.3 billion, up 144 per cent from year-earlier levels.
Extrapolated to the industry’s overall footprint, total Canadian petroleum profits could double this year, perhaps reaching $100 billion. That’s great for shareholders. But the money has to come from somewhere. It comes from consumers.
Oil companies are now paying scads of so-called “excess cash” to their owners, boosting dividends and buying back their own shares (something companies do when they have more money than they know what to do with). Total payouts across just these four firms reached $6 billion in the second quarter, up almost $2 billion year-over-year.
This outflow of cash gives the lie to claims oil profits will spark a new boom in Canadian petroleum investment and employment. Total capital spending across the four firms (excluding acquisitions) actually declined slightly, even as the profits poured in. There will be little trickle-down from these war profits: not even for Albertans, who pay inflated prices for gasoline just like the rest of us.
The spillover of high oil prices into broader inflation is perhaps the biggest danger to consumers. In 2022, soaring oil prices were the biggest single cause of that year’s spike in inflation — including price hikes in other industries (from airlines to grocery stores) passing on their own inflated fuel costs.
Now inflation is accelerating again, and the worst is yet to come. When the Bank of Canada eventually lifts interest rates in response, as is likely, the victims of this latest oil price shock will be doubly punished.
It is neither inevitable nor reasonable that one industry should profit so obscenely from a war that is killing thousands, dislocating millions, and undermining the livings standards of billions. This situation reflects a deliberate policy choice: to give a few corporations power to charge whatever the market will bear for an essential commodity, regardless of cost of production or harm to society.
Canadians should rethink this approach. We manage electricity prices very differently, and they have remained largely stable through the havoc of recent years.
In the meantime, we should claw back some of these spoils of war through an excess profit tax on the petroleum industry — just like the one applied to Canadian banks who profited so mightily during the pandemic. The proceeds could finance expanded GST credits for low- and middle-income Canadians, who are hurt hardest by oil-fuelled inflation.
That way, at least the petroleum industry would give something back to the consumers who paid for its war-fuelled windfall.
