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What one oil historian thinks about oil companies reporting record profits

MARY LOUISE KELLY, HOST:

This moment of worldwide inflation has not been good to many people. It has been good to the petroleum industry. Russia's invasion of Ukraine has sent gas prices skyrocketing this year. They have come down a bit since this summer. But now oil companies, including Chevron, Exxon, BP, Shell - they are reporting record profits. And President Biden has a problem with that.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT JOE BIDEN: Rather than increasing our investments in America or giving American consumers a break, their excess profits are going back to their shareholders. And they're buying back their stocks, so the executive pays are going to skyrocket. Give me a break. Enough is enough.

KELLY: Biden and his advisers are warning oil companies they could face a so-called windfall tax on their profits. Well, I want to bring in historian and oil analyst Gregory Brew of Yale University. Hi there.

GREGORY BREW: Hello. Thanks for having me.

KELLY: So just how big are these profits - like, how far outside the norm?

BREW: They're pretty big. Exxon just declared their best quarter ever. ExxonMobil had their best quarter to date. Chevron and ConocoPhillips, two other major U.S. companies, have also posted very, very high profits compared not only to last year but in previous years. So it's true. Major U.S. oil companies are enjoying very, very high profits at the moment.

KELLY: I will make the obvious point that major oil companies are for-profit companies. Do they have a responsibility, as we just heard the president argue, to give consumers a break - to pass on record profits to consumers?

BREW: Well, I think it's important to acknowledge that these companies are, as you say, in business for profit. They are concerned about delivering profits to their shareholders, but they're also interested in making sure that they have a market to supply. You know, there's great concern in declining demand for oil as more EVs come on the road, as climate change forces policies towards cleaner energy solutions. So I think major oil companies are concerned about making sure that consumers get energy. Whether they have a moral obligation to do so is a little bit more questionable. But I do think the president is hitting on an important theme here, which is that major U.S. oil companies need to be concerned about high prices and about getting prices lower so that consumers can continue to consume oil products.

KELLY: OK. So a windfall tax, the idea that's being floated here - how would that actually work? Would it actually work?

BREW: We're a little bit low on details at the moment. The president and his staff haven't really clarified what they mean when they say a windfall tax, but it would probably work something like this. The president or Congress would order that the companies either invest their excess profits into new production, take that money and put it into new drills, new rigs to increase oil supply and bring prices down in the future. Or they would be taxed above a certain line, a certain excessive profit line, and that money would be collected by the federal government and distributed as the government sees fit. So really, this is something of a ultimatum from the president to major oil companies. Put this money towards something productive. Put this money towards increasing supply, or you will get taxed.

KELLY: Could a windfall tax backfire? The industry says if you reduce the incentive to make more oil, then companies are going to make less oil, which could actually drive prices up, the opposite of the intended effect.

BREW: I think there is an argument to be made that higher taxation does discourage companies from investing in future output. That would, you know, cause them to be concerned about future profits. But I'm a little bit skeptical whether a single tax imposed at a specific moment in time where the companies are making far more money than they have recently would really lead to that kind of outcome.

KELLY: How likely is a windfall tax? It would have to pass Congress.

BREW: Exactly. I would guess that the president getting a windfall tax through Congress is fairly unlikely. There have been discussions around a windfall tax for several years now, but I don't see it passing through this Senate any time soon. I would also stress that in the past, when a windfall tax was placed on oil companies in 1980, it was part of a raft of policies that were in discussion from President Carter and Senate Democrats at the time. So I would say that this is largely a performative gesture by the president. He's trying to put pressure on oil companies, and he's trying to show American consumers that he cares about the price at the pump.

KELLY: Gregory Brew of Yale University, thanks very much.

BREW: Thanks so much for having me. Transcript provided by NPR, Copyright NPR.