Should Oil Companies Pay More Taxes on Record Profits?

Rising oil prices due to the Ukrainian War are securing record profits for oil companies around the world, and taking a toll on consumers. The publication of the good results of the first quarter reignites the debate on the creation of an exceptional tax on these profits so that companies contribute more to the public services of the countries.

At a time when prices at the pump are rising for consumers, the enrichment of the oil industry is shocking. According to an estimate by Bloomberg, the profit of the world’s five largest oil companies will be $34 billion in the first three months of the year. A historic quarterly result.

With the war on Ukraine, Russian President Vladimir Putin boosted the price of a barrel of oil to US$ 114 on average in the first quarter. As a result, it provides windfall profits for oil companies.

In just three months, TotalEnergies, which released its results on April 28, achieved the same numbers for a full half of 2021. US giant Chevron quadrupled its profit, while ExxonMobil doubled its profit.

Return to consumer?

These profits should be used in favor of consumers, say Democratic lawmakers in the United States. It is there and in the United Kingdom that the debate on the taxation of this exceptional income gains strength. In the United States, two deputies proposed this special tax reform a month ago. The aim would be to redistribute that fortune directly to American families.

The US government, on the other hand, wants the values ​​to be reinvested in local production, rather than simply being redistributed to shareholders. However, this has been the option chosen so far. Dividends are on the rise, as is share buybacks, which help to further increase the value of these shares in the stock market.

In London, the British finance minister, Rishi Shunak, hinted last week that he could introduce such a surcharge on companies that do not invest enough in the exploration of oil wells that are about to run out in the North Sea. An initiative aimed at reassuring public opinion, as both BP and Shell have already increased their investment expenses in this region.

The proposal, supported by the Labor Party, therefore has little chance of success. The commercial results of the two companies are expected this week, which could revive the debate.

Italy took the lead

In the European Union, only Italy dared to impose a temporary tax on energy companies. Rome is expected to generate $4 billion in revenue from this new tax, which has the blessing of the European Union.

Brussels encourages member countries to tax these companies to finance the aid provided to the final consumer. However, most of them prefer to discuss with these companies, which have become powerful interlocutors in solving the energy crisis.

In France, TotalEnergies grants a discount of 10 cents per liter of fuel. The company’s director, Patrick Pouyanné, remains reserved about new investments to increase production. They are made at very high costs to support a demand that is expected to decrease.

With climate change, companies are preparing not for peak production, but for peak demand. The French company now favors investments in liquefied natural gas and renewable sources.