The second quarter saw a massive surge in profits for major oil companies, totaling $48 billion. A key question now is whether the industry will use this cash windfall to reward shareholders, strengthen balance sheets, or invest for the future, all while trying to avoid escalating political backlash.
Driven by higher fossil fuel prices amid US-Iran hostilities, the five largest oil companies—Exxon Mobil Corp (XOM.US), Chevron Corp (CVX.US), BP PLC (BP.US), Shell PLC (SHEL.US), and TotalEnergies SE (TTE.US)—generated a combined $48 billion in profits from April to June. During the same period, their cash generation hit a record high of nearly $90 billion, surpassing levels seen after the 2022 Russia-Ukraine conflict. This lucrative earnings wave has drawn the ire of environmental activists, who are again demanding windfall taxes on excess profits, and has also sparked criticism from President Donald Trump. The US President recently blasted Exxon Mobil and Chevron, accusing them of "making too much money" from rising oil prices during the Iran conflict, and renewed calls for lower gasoline prices at the pump.
Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), a non-profit, stated, "The Big Five enjoyed an unprecedented cash windfall last quarter." However, he noted that the cash was not funneled into "drill baby drill"—the policy of maximizing energy production championed by Trump. For example, he observed that capital expenditures, dividends, and stock buybacks at major oil companies remained stable. "So, this raises the question: if they aren't giving more money back to shareholders, what are these oil giants doing with the cash windfall?"
Where is the money going? Williams-Derry from IEEFA suggests that to a large extent, oil companies are hoarding cash reserves and paying down debt to improve their balance sheets. In fact, the cash reserves of the global top five giants grew by over $17 billion quarter-over-quarter. Williams-Derry said, "A cynical way to describe the oil industry's financial playbook is 'praying for war.' These oil giants need regular price spikes—like the crises in Ukraine and Iran—just to shore up their finances." "For these companies, severe consumer pain and global fuel shortages act as a financial antidote to the long-term downturns and stable oil prices that erode their financial health. From their perspective, price spikes are a normal function, not a system glitch," he added.
Management at oil and gas giants told the media that, amid the Middle East conflict, they are doubling down on areas within their control, such as operational performance, trading, and optimization. BP CEO Murray Auchincloss stated in an interview on August 4, "What BP is doing is ensuring we focus on what we can do to help address the current situation. We are heavily investing in reliability, both in our upstream assets that produce crude oil and our refining assets." Auchincloss said the company has adjusted its refining operations to maximize output of products in highest demand, citing jet fuel and diesel as examples. Meanwhile, Shell CEO Wael Sawan described volatility as the "new normal" and noted that the macro environment has provided a strong tailwind for higher commodity prices, boosting performance.
The surge in profit and cash flow "may not be sustainable." Ross Mold, Investment Director at AJ Bell, said oil and gas giants have shown how they plan to use these bumper profits and cash flows. "The full suite of options includes M&A, maintenance capital expenditure, investment in new projects (renewables or hydrocarbons), debt reduction, and finally, dividends and share buybacks," Mold said. He noted that the specific mix varies by company, with BP in "debt reduction mode" and Shell being more expansionary with an acquisition in Canada. "However, it is clear that hydrocarbon giants are taking a cautious approach to investing in new oil and gas fields, given that overall capital expenditure budgets remain tightly controlled," Mold added. "This may be because there is a feeling that the current boom in profits and cash flow may not be sustainable, particularly if a lasting peace deal is reached between the US and Iran, or due to concerns about new taxes, or the ongoing public, political, and advocacy pressure on environmental issues," he continued.
The American Petroleum Institute (API) argues that a windfall tax "does not lower prices for consumers." Beyond Trump's criticism, political pressure on the oil and gas industry's wartime profits has increased in recent weeks. Advocates are calling on policymakers to impose higher taxes on energy giants to help fund climate-resilient infrastructure, such as fire and flood prevention facilities. The Portuguese government last week said it had approved a windfall tax on extraordinary profits earned by oil and refining companies in 2026. The API, an industry lobbying group representing about 600 drilling companies, refineries, and other stakeholders, described the oil and gas industry as cyclical, best measured over decades rather than quarters, and warned against imposing a windfall tax on excess profits. An API spokesperson said, "During one of the most severe global energy disruptions in decades, America's oil and natural gas industry is delivering record production and world-leading refining capacity, while continuing to invest in the supply, infrastructure, and resilience that strengthens our long-term energy security." Regarding a windfall tax, the API stated that it is impossible to achieve greater energy security through taxation. "Windfall taxes do not lower prices for consumers—they discourage the long-term investment needed to strengthen supply, infrastructure, and a more resilient energy system," the organization added.
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