They’re making record profits, but oil companies still won’t ‘drill, baby, drill’
The war in the Middle East has sent Big Oil’s profits soaring. Companies are pocketing the money rather than expanding drilling.
Over the past two weeks, oil companies have reported staggering profits for the spring quarter. Exxon Mobil earned $14.5 billion, while Chevron achieved a record-high $12 billion in quarterly earnings. Shell reported $9.8 billion in profits, more than double its figures from the same period last year. These impressive profits are primarily due to supply constraints caused by the ongoing war in the Middle East, particularly the blockade of the Strait of Hormuz, which has forced oil shipments to reroute over land and through pipelines.
The resulting supply shortages, coupled with restricted refining capacity and increased transportation costs, have led to soaring oil and gasoline prices, resulting in generous profits for producers. However, these companies are not investing their profits in drilling new wells or exploring untapped oil fields. Instead, they are keeping the profits and distributing them to shareholders.
Currently, the industry is defined by a new principle called "capital discipline," which entails tighter budgets and larger dividends to investors. Oil executives had anticipated a weak financial year in 2026 due to a surplus of oil, but the closure of the Strait of Hormuz has constrained production and enabled companies to charge premium prices for refining services outside the Middle East.
Exxon CEO Darren Woods expressed his preparedness for this temporary loss of 10% of upstream production, stating that the company still delivered exceptional financial results. Similarly, Chevron CFO Eimear Bonner confirmed that the company did not adjust its production plans as prices rose. The Trump administration's push for "unleashing" U.S. energy has clashed with the oil companies' growing emphasis on financial discipline.
Despite efforts to open up U.S. lands for drilling, companies have shown little enthusiasm for new opportunities, especially in Venezuela. Similarly, while the administration has opened up federal lands for drilling, companies have remained cautious. President Donald Trump has accused oil companies of making excessive profits from the war, expressing his inability to influence them to ramp up production.
Analysts argue that oil and gas companies respond more to financial incentives than political pressure. The U.S.-Israel war with Iran did not produce similar results as in 2012 when fracking was on the rise, and oil companies' compensation was linked to production growth. Investors shifted towards a more disciplined approach to capital expenditure, favoring steadier returns over aggressive production growth.
Capital discipline has proven more resilient than expected, according to Tom Ellacott, senior vice president of corporate research at Wood Mackenzie. Even though drilling in the U.S. has increased slightly during the summer, it has not returned to pre-war levels, according to Baker Hughes data. As oil companies have experienced more price spikes due to wars, they have utilized the revenue to maintain high payments to Wall Street investors rather than investing in renewable energy.
This new approach may prolong higher oil and gasoline prices, potentially bolstering the case for electric vehicles and renewable energy sources.
Written by urgent.news from Grist's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
