As Winston Churchill reportedly said in the 1940s as he was working to co-form what would become the United Nations: “Never let a good crisis go to waste.” It is advice the giant oil and energy corporations and Opec, enabled by politicians, have taken to heart. This is reflected in the price of petrol and our ballooning heating bills.
A new study calculated that the oil and gas industry has made more than $2.8bn (£2.4bn) a day in profits over the past half-century. In the second quarter of 2022, Exxon posted a profit of $17.9bn, the highest any publicly listed oil company has ever reported. Chevron hauled in $11.6bn, while Shell reported $11.47bn and BP $9.3 bn, its biggest windfall in more than 14 years.
National oil companies such as Saudi Aramco saw year-on-year profits rise 90% during the second quarter. The Saudi kingdom raked in a cool $88bn during the first half of 2022. Norwegian’s Equinor paid $3bn in dividends last month, while France’s Total tripled its income. Glencore, the world’s largest coal shipper, made record profits and will pay shareholders an additional $4.5bn.
While shareholders and executives reap the benefits of this crisis, families struggle with exorbitant fuel and energy bills on top of climbing food prices. The UN reports that 50 million people in 45 countries are facing famine.
The UN secretary general, António Guterres, condemned the fossil fuel super-profits as “grotesque greed” and urged governments to tax firms’ huge windfalls, while reiterating that it was immoral for corporations to be making record profits at a massive cost to the poorest communities and the climate.
“The combined profits of the largest energy companies in the first quarter of this year runs close to $100bn,” he said. “I urge all governments to tax this excessive profit and use the funds to support the most vulnerable people through these difficult times.”
This “energy crisis” has less to do with economic forces and more with greed. Petrol prices are lowest in Venezuela ($0.022 a litre), while a few miles away, Trinidad and Tobago pays $0.994. In Saudi Arabia, it’s $0.62, Russia $0.837, the US $1.083, China $1.285, the UK $2.003 and Norway $2.218. The price at the pump is made up of the costs of crude oil, refining, shipping and distribution, marketing, wholesale and retail margins, and, of course, taxes. The main driver is the crude price, which fluctuates at 50% to 60% of the total. Hence, an increase in crude raises petrol prices.
Another driver is inflation. Quantitative easing, or “printing money”, through the pandemic equated to £895bn pumped into the UK economy alone. This has contributed to Britain’s inflation rate, which is 10.1% and heading towards 15% – not vice versa, as some may have us believe. Stagflation is now a real possibility worldwide. All of this against the backdrop of many countries’ astonishing debts.
This brings us to Ukraine. For decades, even the rumour of war has been enough to send oil prices rocketing. Most thought the west’s sanctions on Russia, in response to Vladimir Putin’s invasion, would create a massive economic hit.
Enter Opec+, the cartel of the 13-member Organization of the Petroleum Exporting Countries and an informal group of non-Opec members led by Russia. Opec now includes its five founders – Iran, Iraq, Kuwait, Saudi Arabia and Venezuela – as well as Libya, the UAE, Algeria, Nigeria, Gabon, Angola, Equatorial Guinea and the Congo. Opec+ members include Russia, Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Sudan and South Sudan. Opec+ accounts for about 50% of all crude oil but more than 90% of proven reserves.
As the world locked down in early 2020, demand for crude plummeted. Production was reduced, hoping for a resurgence in price, and then, as 2021 ended, demand increased. Russia invaded Ukraine and crude prices rocketed. The Opec+ gang met on 30 June and agreed to add 648,000 barrels a day to oil markets in July and August, while President Joe Biden hastened to court Saudi’s crown prince, Mohammed bin Salman, a man he had harshly criticised for his human rights abuses. Both Biden and Boris Johnson – failed, however, to get an increase in the oil supply that would bring down the oil price from either Saudi or UAE. Opec+ kindly agreed to increase output by a mere 100,000 barrels a day for the month of September but in the last few days have agreed to slash that back again by the same amount for October.
This cartel wields incredible power over an oil-addicted world. Some might argue that investment was stymied during the pandemic and now some countries cannot catch up. In reality, it is both Russia’s influence and unabated corporate craving to recover 2020’s lost profits, while creating the perception that they are endeavouring to increase production. In reality, they are choking supplies. Gazprom’s closing of the Nord Stream 1 gas pipeline for “repairs” equates to Russia’s warfare against the west. Gazprom has posted $41bn in profits in the past six months while operating at just over 40% capacity.
So the world is again at the mercy of big corporations. Having been pillaged by big pharma during Covid, we now have to grit our teeth and bear the onslaught of big oil, the “new seven sisters” – Saudi Aramco, Gazprom, China’s CNPC, the National Iranian Oil Company, Venezuela’s PDVSA, Brazil’s Petrobras and Malaysia’s Petronas – as well as Exxon, Chevron, Shell, BP, Total and others.
However, any human-made crisis is solvable. There are tools available to our politicians to end this pseudo-crisis, including capping energy costs and imposing retrospective windfall taxes. Reforming the energy market must be on the horizon.
Kenneth Mohammed is a writer, Caribbean analyst and adviser at Intelligent Sanctuary
