Oil companies have delighted Wall Street this week by reporting multibillion-dollar windfalls in their earnings statements, with ExxonMobil and Chevron on Friday reporting a combined $26.5 billion in profits during the second quarter of the year.
But the immense profit stemming in large part from the war in Iran, and coming at the expense of motorists struggling to pay for a tank of gas, is fast making the companies a ripe political target.
The oil majors are largely sitting on those unanticipated billions, according to an industry analysis by the research firm Wood MacKenzie.
They are reluctant to reinvest the profits in expanded drilling that could eventually increase the world’s fuel supply, the firm found, as an abrupt end to the war could push prices for crude down considerably before the firms are able to recoup the cost of new rigs.
With gas prices averaging more than $4 per gallon nationwide, and midterms in the not-too-distant future, lawmakers eager to assign blame for voter frustrations are taking aim.
Exxon and Chevron early Friday posted their blockbuster earnings for the quarter that ended last month.
Chevron disclosed $12 billion in earnings, reflecting a $9.6-billion jump over the same quarter last year and the firm’s biggest profit since 2020. Chevron CEO Mike Wirth attributed it in a statement to “disciplined investment and strong execution that drove record U.S. upstream production, record crude throughput in our U.S. refineries, and exceptional reliability across key assets.”
ExxonMobil said Friday its earnings were $14.5 billion, more than double what the company reported for the same quarter last year. CEO Darren Woods said the quarter “was shaped by disruption, but defined by execution,” for the company.
The disclosures followed Shell’s earnings report Thursday showing the company doubled its quarterly profits between this year and last.
The staggering earnings are part of a bigger $425 billion annual windfall that Wood MacKenzie estimates is coming to the broader industry if prices for a barrel of crude average $90 for the year, which many analysts project they will.
That was roughly the cost of oil on Friday morning. It has soared as high as $120 since the U.S. and Israel attacked Iran in late February, leading to the closure of the Strait of Hormuz, through which one-fifth of the world’s oil and natural gas is shipped.
“Oil companies know they are going to be in for political criticism,” said Bob McNally, founder of the research firm Rapidan Energy Group. “This is like one of those classic movies from the 1960s that keeps coming back around. We all know there is going to be a lot of theater when oil prices are going up.”
The companies declined to answer questions about their profits at a time of high gas prices.
Asked about the windfalls oil companies are reporting this week, White House spokesperson Taylor Rogers shifted attention from the firms to Iran. She said, “Oil and gas prices will plummet back to preconflict levels” as the U.S. military neutralizes Iran’s ability to disrupt the flow of crude.
President Donald Trump had previously put the companies on notice that the Justice Department would be investigating potential price gouging. The threat has populist appeal but could prove challenging to carry out. Industry officials said privately they have seen no evidence an actual investigation is happening.
Dustin Meyer, senior vice president of policy, economics, and regulatory affairs at the American Petroleum Institute, said government scrutiny would not be a matter of concern.
“These markets are transparent,” Meyer said. “It is not the first time government has looked at them. Every single time they do, they find the same thing. Not only is there no gouging, but gouging is impossible for an oil market this size with this many participants.”
Democrats in Congress, though, have seized on high prices at the pump in the run-up to a hotly contested midterm election that will determine which party controls both the House and Senate.
As the likelihood of windfall profits came into focus last month, Sen. Sheldon Whitehouse (D., R.I.) and Sen. Elizabeth Warren (D., Mass.) wrote a letter to oil executives demanding details of how they may have profited from the war or lobbied the White House to execute it in ways that benefit them.
Woods told CNBC Friday that Exxon tries “to make sure not just the U.S. administration but frankly administrations all around the world … understand our perspective of what we see and how things are playing out, so they have the best information to make policy decisions.”
“We very much stick in our lane with respect to here is what we see, here is how we think it could potentially play out, and make sure policymakers have our best thinking when they are putting together their decisions and the approach they want to take,” Woods said.
Rep. Brad Sherman, a California Democrat, is among those pushing for more government intervention.
He said motorists “need to fill their gas tank today, and they either need to be paying a lower price, or second best, they need to be getting a rebate check from the government.” He has proposed legislation that would impose a windfall tax on U.S. oil companies until the war with Iran is over, the strait is reopened, and U.S. benchmark crude oil prices drop below $75 per barrel.
In the past, the industry has tended to argue that such levies would take away cash it needs to invest in expanded drilling that could effectively help lower prices. But the companies are not making those investments right now, amid concerns the war will have ended and oil prices will have dropped too low to make the rigs profitable by the time they are finally operating months — or even years — from now.
And even if the firms were investing, Sherman said, drivers would still be suffering.
“When we’re paying these outrageous prices at the pump, nobody’s saying, ‘Oh, that’s great! The oil companies are going to invest this in additional oil production,’” he said.
For the moment, at least, his proposal is more a political tool than a viable policy plan in this Congress, which is controlled by Republicans staunchly opposed to a windfall profit tax.
But if prices remain high, analysts say, sentiments could shift, and the government may be more inclined to step in to try to bring relief to consumers, including by limiting exports of U.S. oil.
Regulators and lawmakers have already mostly exhausted their options for bringing down prices without dramatic market interventions. Government petroleum reserves have been depleted and sanctions on countries like Venezuela and Russia have been lifted to bring more fuel into the market.
“There are not many tools left in the tool kit to bring down prices,” said Denton Cinquegrana, chief oil analyst at Dow Jones Energy. “But the general public who has to buy gasoline certainly does not want to hear that, especially amid an affordability crisis that has taken over this country.”
Windfall profit taxes have a fraught track record in the U.S., according to Tyler Priest, an associate professor of history at the University of Iowa.
The last one enacted in 1980 after the oil shocks of the 1970s generated far less revenue than lawmakers projected and was ultimately repealed after economists concluded it discouraged some domestic production while adding significant complexity to the tax code.
Democrats have structured their latest proposals differently, focusing the tax only on profits above a historical benchmark and steering the revenue generated toward consumers. But experts are conflicted on its potential effectiveness. Priest noted that the plans are narrowly targeted at large oil companies, but more than 70% of U.S. oil comes from smaller producers.
Shon Hiatt, an energy scholar at the University of Southern California Marshall School of Business, said a windfall profit tax imposed in Britain in 2022 was followed by a sharp decline in production there.
“The incentives to take risk and invest in production are drastically reduced,” he said, which can ultimately lead to “lower production, and in some cases, scarcity.”
Others argue the decline predated the tax and was caused by a number of factors, including aging oil fields and a shift toward renewables.
Even if such policy proposals stall in the U.S., lawmaker attacks are only likely to intensify in the coming months. Analysts are already projecting the companies will post a fresh round of windfall profits in the next reporting period.
It falls days before the election.
