As oil profits skyrocket, calls for windfall taxes rise
Oil companies are making massive profits and stockpiling cash, and holding off on changing their investment plans.
Oil corporations are reaping substantial profits as of late. Chevron recently disclosed its highest quarterly earnings in half a decade on July 31, 2026, a mere reflection of a broader trend. According to Wood Mackenzie, a global analysis firm, the oil and gas sector is set to reap a windfall of US$495 billion in 2026. This profit margin surpasses what industry experts anticipated prior to the inception of the U.S.-Israel conflict with Iran.
Three distinct bills targeting these elevated profits have found their way into the Congressional arena. President Donald Trump has openly expressed his dissatisfaction, labeling oil enterprises as "making too much money."
As an applied economist, I frequently encounter inquiries regarding the impact of taxes on economic operations. Economists tend to hold a more sophisticated perspective on windfall taxes compared to the polarized viewpoints prevalent in today's discourse. While proponents often provide inflated revenue forecasts, detractors frequently exaggerate the potential deterrent effect on investment.
Historically, the implementation of windfall taxes in the United States offers valuable insights into both these aspects. During the 1980s, a windfall tax on North Sea oil and gas, complementing existing levies, was projected to generate an estimated 8 billion pounds in 2026—equivalent to approximately $10.8 billion. This figure represents nearly double the tax revenue collected during 2024-25.
Similarly, in the European Union, a one-time windfall tax imposed in response to Russia's 2022 invasion of Ukraine generated 26.15 billion euros ($30 billion). Currently, five EU nations are advocating for another such tax in light of the Iran war.
The fundamental principle behind a windfall tax is to target earnings that arise as a direct consequence of companies maintaining their original production plans amidst rising prices. The oil would have been extracted regardless; the war merely augmented the monetary value of each barrel. True to form, a textbook windfall tax would not apply to all profits, but solely the portion exceeding a predetermined threshold.
Australia's Petroleum Resource Rent Tax and Norway's specific petroleum tax stand as the most comparable operational examples. Under these regimes, companies are permitted to offset all expenses—including exploration and investment—alongside a normal rate of return before any windfall tax becomes applicable. Historically, the U.S. Crude Oil Windfall Profit Tax, instituted in 1980, was anticipated to generate $393 billion over a decade.
However, it managed to accumulate about $80 billion before being abolished in 1988, representing a mere fifth of the initial estimate.
The anticipated U.S. Congressional bills diverge significantly from this textbook design, as well as from each other. A proposal by Senator Sheldon Whitehouse and Representative Ro Khanna, both Democrats, entails a 50% excise tax per barrel, contingent upon the disparity between the current average Brent crude price and the 2025 average of $69. Given the July 2026 average price of $84, corporations would be liable for $7.50 per barrel—irrespective of production costs or profitability.
A second bill, the Iran War Oil Crisis Windfall Profits Tax Act, proposed by Representative Brad Sherman, adopts a more stringent stance: imposing a 100% tax on the excess amount by which crude prices surpass $75 per barrel. At the July 2026 average of $84, companies would owe $9 per barrel. This tax would remain in effect until hostilities cease and prices retreat below the designated threshold.
The third proposition, the Taxing Buybacks from Big Oil Windfalls Act, spearheaded by Democratic Senators Ron Wyden, Chuck Schumer, and Michael Bennet, adopts an altogether different approach. Rather than focusing on the windfall itself, this bill aims to elevate the excise tax on stock buybacks from 1% to 25% for substantial oil and gas enterprises. The primary objective is to discourage companies from leveraging excess profits through stock buybacks.
Written by urgent.news from The Conversation's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
