War is about power, but it is also about money. For Big Oil, Russian President Vladimir Putin’s invasion of Ukraine has been a dream come true, disrupting oil markets and sending prices soaring. And they have reaped the rewards. Exxon’s profits for the third quarter of this year were $18.7 billion — nearly triple what Exxon made last year and the most in the company’s 152-year history. In the past six months, six of the largest oil companies have raked in more than $100 billion.
On Monday, President Biden all but accused Big Oil of profiting off the blood and suffering of the Ukraine people. “Oil companies’ record profits today are not because of doing something new or innovative,” Biden said. “Their profits are a windfall of war, a windfall for the brutal conflict that’s ravaging Ukraine and hurting tens of millions of people around the globe.”
The president called on Big Oil CEOs to ramp up production and lower prices. “If they don’t, they’re going to pay a higher tax on their excess profits and face other restrictions,” Biden warned.
It was a nice bit of old-time economic populism, something the Democrats desperately need in the closing days of the mid-term election. But it also was a perfectly illustrated the election oil trap that has long crippled American politics.
The trap works something like this: For most Americans, the clearest indicator of inflation is the price of gas. So in order to keep the price of gas low, the basic law of supply and demand requires that there be plenty of oil. That means encouraging oil production. In the 1970s, that meant dealing with OPEC and Arab producers effort to control oil supply. But in today’s world, it’s more complicated, since a higher percent of our oil now comes from domestic sources, so increasing production means opening up more areas (onshore and off) to exploration and drilling. It’s also more complicated because it is very clear that burning oil is trashing the climate. And if we take that seriously, we need to radically accelerate the transition to clean energy and stop burning fossil fuels now.
Or, to put it in the bluntest possible way, you can’t have low oil prices and a stable climate. Which one is more important? It’s not just about the economy vs. the environment. It’s about your own welfare vs. the welfare of others. It’s about the value of the present vs. the value of the future.
With the passage of the Inflation Reduction Act, which channels $369 billion into clean energy and climate change programs over the next decade, Biden and the Democrats have arguably done more to address the climate crisis than any other administration in American history. But when it comes to taking on with Big Oil, Biden has been less sure-footed. “When gas prices first started going up, the White House confused the issue by trying to label it ‘Putin’s Price Hike,’ shifting the attention away from Big Oil,” wrote Jamie Henn, the Director of Fossil Free Media and an early advocate of a windfall profits tax. “They then tried to project an image of ‘working with’ the industry, meeting with oil CEOs and sending President Biden to fist-bump with the Saudi Crown Prince. When prices temporarily dipped this summer, the administration rushed to own the issue — not thinking about how when prices went back up, as they are now, they’d own that too.”
In effect, Biden has tried to have it both ways: fighting hard for clean energy and climate action, while at the same fighting hard to keep oil prices low and not piss off voters who see cheap, plentiful gas as a God-given right as Americans. Biden has tried to balance these two contradictory demands, but it’s a hard tightrope to walk.
For Big Oil, this is also a complex moment. Instead of investing more in exploration and production, as they have done in other boom times, they are pocketing billions. Why? The simplest explanation is greed: They are taking the money because that’s what capitalists do. Beyond that, however, many oil execs fear a recession is on the horizon, which could cut oil demand, end the boom, and send the industry into yet another bust (the oil and gas industry has been through a lot of them). But there is also the longer-term worry about future oil demand and whether new investments today become stranded assets in ten years. How fast is the rise of electric cars going to hurt oil demand? How fast will the adaptation of heat pumps kill the need for gas in people’s homes? The World Energy Outlook 2022, a respected 532-page report from the International Energy Agency, found that Putin’s war has “turbo-charged” the shift away from fossil fuels. The report predicts that global consumption of fossil fuels will peak within the next five years.
But restraining production, oil execs have found, has its virtues. Like more control of the market, for example. “Today, the pressure from shareholders to remain frugal is so strong and uniform across the industry that from the outside it almost looks like a cartel,” Bloomberg columnist Javier Blas wrote. And cartels, as every drug dealer knows, can set whatever price they want for their drugs (or oil). There’s no need to even pretend they capitalists who are operating in an open and fair market.
An oil cartel is nothing new. A hundred years ago, President Teddy Roosevelt had to go to the Supreme Court to bust up the Rockefeller oil empire. But back then, it was just about money.
Today, there’s a lot more at stake. And it’s not just the moral obscenity of profiting off the death and suffering in Ukraine. It is also the moral obscenity of profiting off the trashing of the climate and pushing life on Earth toward a sixth extinction while oil executives and shareholders bankroll their dividends and pour dark money into outside groups that shape elections. So far, nearly $1 billion has been spent by these groups in 2022 to boost Senate GOP candidates in the midterm election.
What can be done about it? An oil profits windfall tax, which is being pushed hard by Sen. Sheldon Whitehouse (D-R.I.) and other climate-savvy Democrats, has a lot of populist appeal. It would apply a 50 percent tax to the excess profits that the industry is making right now. The revenue raised — which could be upwards of $40 billion a year — would then be used to send a check to Americans who need help with high gas prices and energy bills. Taxpayers below the $70,000 a year income threshold could expect to receive around $240 based on current prices. This legislation might gain momentum if Democrats manage to hold on to the House and Senate, but Republicans will squash it like a bug against the windshield of an 18-wheeler if they take control of either chamber of congress after the election.
In fact, if Republicans win anything, you can expect a full-on restoration of Big Oil to the throne, as well as legislation that re-directs the flow of public and private money toward anyone and anything that can slow, stall, or divert the transition to clean energy. Like the MAGA crowd, Big Oil thrives on lies, chaos, disorder, and disruption. So expect lots of it. For Trumpers, burning fossil fuels is how you Make America Great Again. They will defend pipelines with guns and sweet-talk Putin and melt every glacier in Greenland if it means more cheap gas.
Ultimately, the only way out of the oil trap is to get off fossil fuels entirely. And the faster the better. Because as I fear we’re about to discover, our addiction to fossil fuels may eventually cost us a habitable planet, but first it may cost us our democracy.