The last few months were difficult for the world economy. Shares were dropping, inflation was surging rapidly and the fuels were becoming tougher to afford because of their increasing prices. Some countries visualized a terrible situation where the people started hitting the streets, and their household budgets were simply becoming unsustainable. During all this time, during all the struggles to make ends meet, one group that was experiencing a profit was the oil companies.
Today, BP published its second-quarter profits. BP is a British oil and gas company. They are one of the biggest energy giants in the world. They made a profit of about 8 and a half billion dollars approx 8.45 billion USD. The profit is found to be the highest quarterly profits for BP in 14 years. Compared to the profits made in 2021, their profits have doubled and BP is just a canary grass in the coal mine.
This year has been excellent for the big oil companies. Four companies have logged a combined profit of 51 billion Dollars. The profit was accumulated in three months. This includes ExxonMobil, Chevron, and total energies. ExxonMobil topped the list with a profit accumulation to the sum of 18 billion dollars. These are not normal profits. It shows that every oil giant is earning more than ever before during the financial turmoil in the world.
How the oil companies are earning such massive profits?
Ever since the war in Ukraine, oil prices have increased considerably. They topped 120 USD per barrel in march. This implies that the customers are paying more for the energy.
In Britain, the energy bills could be increased by 158 percent in Winter and 411 percent in Spain. In Greece, France, and India, the energy bills could increase by 343, 336, and 20 percent respectively.
In India, the prices of energy have been rising considerably. This has been reflected in Maharashtra, the state is currently bracing for a 20 percent rise in the electricity bills.
But, where is the money going? The money is being directed to the big oil companies. The profits earned by the companies are driving inflation in the world economy. The question now lies in how this could be rectified.
Economists usually prescribe windfall taxes if the profits earned are too high. The governments demand a larger share of taxes if the revenue earned by the companies is higher.
India imposed a windfall tax on oil in July. as a result, the government ended up earning an amount of 12 billion dollars.
In addition, Britain has even imposed a windfall tax. The oil companies must have to pay an extra amount of 25 percent for every profit made by the companies.
Even though the U.S petroleum companies ruled, most of the global markets, there were no windfall taxes imposed on the companies. The main reason could be the fact that U.S politicians want to protect the free market. This statement would work for any other industry except for oil. The oil industry is one of the biggest industries in the world. It is full of cartel lobbying and gigantic operations. It is the opposite of the free market.
So by not imposing windfall taxes on the big oil Corporations in the U.S, it is driving up inflation. It is making the oil corporations richer at the same time and in turn, increasing the energy bills of the citizens.
Moreover, in India, the impact could be drastic. India’s biggest energy supplier has begun rationing natural gas and fertilizer plants are getting 10 percent fewer supplies and industrial clients are receiving 10 to 20 percent less. The reason behind this could be the gas shipments from Russia’s gas companies are not arriving in India. Instead, they are heading to Europe. The company has invoked the clause called force measure. It usually means an unforeseen circumstance: in this case a war. India’s GAIL company has long-term contracts to purchase Russian gas and the long-term contracts are usually very cheap.
On the other hand, Europe has a strong demand for natural gas and they are willing to pay more. So, Russia has headed the oil to Europe instead of shipping it to India.
This implies that GAIL is subjected to buying natural gas from the spot market, and the prices are three times higher. Moreover, the company shares have declined to almost four percent. To compensate for this, they have hiked the gas rate to 18%.
This means that CNG and LNG will get more expensive. Most parts of Asia are facing the same problem. They have purchased long-term contracts for natural gas but the producers are refusing to supply now. Instead, they are supplying their gas to Europe.
Of course, there are penalties for violating the contracts but even after paying the penalties, the oil companies are making huge profits. Do they seem to stand by the fact that why would they sell oil in Asia when they are getting paid a surplus amount in Europe?
The statement could be proved with the help of an example. Indian oil recently announced a tender for LNG cargo. They took the approach of the spot market instead of a long-term contract. Despite that, the corporation received zero bids.
On the other hand, Europe’s energy LNG imports have surged to 56 percent. They are draining the energy supply and this has come as piece of bad news for India. Almost, 48 % of the gases are imported which are utilized in the fertilizer plants and vehicles. If the prices of gas increase further, the pinch would be felt by the common men.
The policies followed by Russia’s brinkmanship are making the lives of the people miserable in the South Asian economies.