Oil majors cash in on war-driven windfall

The Iran war has disrupted global oil supply, pushing prices higher and boosting quarterly earnings for the largest oil companies. ExxonMobil, Shell, and Chevron reported combined profits of just over $36 billion to investors this week.

ExxonMobil earned $15.4 billion, more than doubling its earnings from the same period last year. Shell nearly doubled its earnings to $10.8 billion. Chevron’s profits rose 180% to $9.9 billion. Brent crude now trades around $113 per barrel, up from about $70 before the conflict began. Demand for gasoline, diesel, and heating oil remains steady as consumers continue to use these products for transportation and heating.

Dan Pickering, founder of Pickering Energy Partners, explained that the Middle East supply loss allows companies to sell oil from the U.S., Latin America, and Europe at higher prices. He stated, “So the Middle East’s loss is generally the gain of oil and gas companies in the U.S. and Europe.” Executives said they are returning large portions of these profits to shareholders through dividends and stock buybacks. Shell executed one of its largest buybacks ever, while Exxon announced its highest quarterly dividend to date.

Despite the windfall, Pickering noted that these firms are holding back on new drilling projects. He said, “This is a period where the high prices are driven more by geopolitical events than anything else.” Companies are choosing to bank the cash rather than spend it, preparing for potential price drops. This strategy aligns with the cyclical nature of the oil industry, where firms preserve capital during high-price periods to weather future downturns.

Higher oil costs have reached consumers at the pump. Gasoline prices are about $1.20 per gallon higher than a year ago, according to AAA. Diesel reached a record high in September and remains near that peak. Exxon CEO Darren Woods acknowledged the impact on people’s lives. He said, “We recognize the impact high prices have on people's lives and economic growth.” Chevron CEO Mike Wirth added, “What we can do is what we can control, and that's help consumers get as much as they possibly can out of our systems.”

Executives cited a massive supply shock caused by the Iran war and Ukrainian strikes on Russian refineries. Shell CEO Wael Sawan said he had expected the price spike to be temporary. He continued, “We're now seeing more and more structural stability in that higher oil price simply because we are seeing that inventory levels are being drawn down very quickly.” Global reserves, including the U.S. Strategic Petroleum Reserve, are at low levels.

Democratic lawmakers in both chambers of Congress have proposed windfall taxes to capture excess profits. Senator Sheldon Whitehouse, who sponsored a Senate bill earlier this year, noted that renewable energy sources like wind and solar are not raising prices. Economist Isabella Weber of the University of Massachusetts Amherst described the current situation as a contradiction where record profits coexist with an energy crisis. She said, “The companies that are running this essential sector have been reaping record profits amidst the worst energy supply crisis that we have had in several decades.”

The Trump administration has taken steps to lower fuel prices ahead of the midterms. These actions include temporarily loosening rules for dyed diesel and lifting sanctions against Russia to allow more diesel into the market. However, analysts suggest these measures will have limited impact on U.S. prices. Russian diesel supplies represent a small portion of daily U.S. demand, and most drivers cannot use dyed diesel. Prices are unlikely to drop substantially by Tuesday.