Seven months after the United States and Israel attacked Iran, American drivers were paying an average of $4.48 for a gallon of regular gasoline on Sept. 24, the highest national average for that time of year that AAA has recorded.
The pump price follows crude. Oil at the main U.S. trading hub, in Cushing, Okla., cost $66 a barrel in late February, before the first strikes, and $101 on April 13, according to federal data cited by Tibor Besedeš, one of two economists who wrote an explainer on the question for The Conversation. Brent, the global benchmark, touched $126 during trading at the end of April. On Sept. 28 it settled at $105.28 and the U.S. benchmark at $92.60, CNBC reported, after renewed fighting around the Strait of Hormuz.
Company filings, government budgets and Federal Reserve research trace most of the extra money to whoever owns the oil in the ground. In West Texas that means shareholders, who have collected billions in dividends and buybacks. In Saudi Arabia and Norway it means the state. In Russia it means the Kremlin’s budget, though sanctions, drone strikes and a strong ruble have cut into the take. The bill falls hardest on lower-income households, which bought less gasoline in March and still spent more on it.
The pattern of the 1970s, when American dollars flowed to foreign producers, no longer holds. The United States has exported more petroleum than it imports since 2020, so a large share of what American drivers pay now goes to American producers and the people who own them. Economists at the Federal Reserve Bank of Dallas calculate that this, along with a smaller national oil bill, makes the U.S. economy far less vulnerable than it was in 1980. Two energy economists at Columbia and the London School of Economics answer that the country has no way to share the gain.
From $66 to $101
The war began on Feb. 28. By March 9 only a few ships were crossing Hormuz, the channel that normally carries more than a fifth of the world’s oil trade. U.S. crude futures rose more than 35 percent in the first week of March, the largest weekly gain since the contract started trading in 1983. A cease-fire around April 8 cut Brent by more than 13 percent in a day. By late June tankers were moving again and U.S. crude closed below $70. Then the fighting came back.
Producers could not answer the price with more oil, at least not quickly. In an August working paper, Lutz Kilian, director of the Dallas Fed’s Center for Energy and the Economy, and Kunal Patel found that the price elasticity of U.S. oil supply over one month and over one quarter was effectively zero. The Energy Information Administration estimated in its September outlook that global inventories had fallen by 400 million barrels this year and would keep falling through December.
That rigidity bears on a question that ran through a Hacker News discussion of the explainer, which drew 148 comments. One reader doubted there was any extra money to follow.
Doesn’t reduced overall supply usually mean that the total amount of money (price * supply) also reduces? ie. in total, there is no additional money.
That would hold if buyers cut back as fast as prices rose. They did not. In March, American households bought 3 percent less gasoline than the month before and spent more than 15 percent more at gas stations, according to a study by New York Fed economists. With demand that stubborn, a smaller supply fetched more money, not less. Chevron took in $70 billion in revenue in the second quarter, against analysts’ forecasts of $62 billion, CNBC reported.
Shareholders in Texas
Exxon Mobil earned $14.5 billion in the second quarter, more than double the $7.1 billion of a year earlier and about $160 million a day, CNN calculated. Chevron earned $12.1 billion, according to its filing, up from about $2.5 billion. Exxon sent $9.4 billion back to shareholders in the quarter, $4.3 billion in dividends and $5.1 billion in buybacks, the company said. After the first quarter it said it was on pace to buy back $20 billion of its stock this year.
Darren Woods, Exxon’s chairman and chief executive, summed up the quarter in the earnings release.
The second quarter was shaped by disruption, but defined by execution
Refining paid too. Chevron’s refining business earned $4.9 billion, its best result since the early 2010s, Al Jazeera reported. The analyst Andy Lipow estimated that the world had lost six million to seven million barrels a day of refining capacity, leaving the plants still running more profitable. In March, Rystad Energy estimated that U.S. shale producers could take in $63.4 billion in extra cash flow if the U.S. benchmark averaged $100 this year, CBS News reported, with most producers expected to put the money toward shareholders, debt and hedging rather than new drilling.
CBS News reported on the profits as the big companies posted them this summer.
Others along the chain gained as well. War-risk insurance premiums for tankers rose from 0.15 to 0.25 percent of a ship’s value to as much as 1.5 percent, and in some cases 10 percent, Al Jazeera reported in June, about $1.5 million a voyage for a $100 million tanker. Freight rates from the Gulf to East Asia rose about fivefold. The six largest U.S. banks earned nearly $48 billion in the first quarter, with their trading desks gaining the most.
One Hacker News reader put insurance at the top of the list.
Insurance for transiting oil is primary culprit, along with supply shocks when pipelines or refineries get hit.
The premiums are real costs, and they go to insurers and shipowners, not to producers. They do not explain why Chevron’s production earnings rose about 200 percent from a year earlier to $8.2 billion, or why the companies that did best were the ones whose barrels never went near the strait. Muyu Xu, a senior crude oil analyst at Kpler, told Al Jazeera that producers “whose exports were not affected by the Hormuz traffic bottleneck, were able to benefit from higher oil prices.”
States that own the oil
Saudi Aramco reported adjusted net income of $33.4 billion for April through June, up 33 percent, CNBC reported. Its 1,200-kilometer East-West Pipeline to the Red Sea port of Yanbu let it keep exports at a ceiling of seven million barrels a day while Hormuz was all but shut. The company declared a $21.9 billion base dividend for the quarter, according to its results. The Saudi government owns almost 98 percent of Aramco, so nearly all of that goes to a state that has long used oil money to pay for public spending.
Rystad Energy judged Aramco the biggest gainer from higher prices. Thomas Liles, an analyst at the firm, told Al Jazeera in June that most producers would come out ahead.
Each one of those players is going to end up in a net positive place if we see higher prices persist throughout the year.
Norway routes its oil income into the Government Pension Fund Global, worth more than $2.2 trillion. On May 12 the government raised its forecast for this year’s state oil and gas revenue to 721.1 billion crowns, or $78.71 billion, from 557.4 billion, and said the extra would go into the fund, Investing.com reported. The finance minister, Jens Stoltenberg, said in March that “the outbreak of war in Iran has pushed oil prices up while the value of the Fund has declined,” and that Norway’s financial wealth is now about five times the value of its oil still in the ground, according to the ministry.
Britain takes a larger slice of private profits. North Sea producers pay a 38 percent Energy Profits Levy on top of corporation tax and a supplementary charge, for a headline rate of 78 percent, according to the House of Commons Library. Rachel Reeves, then the chancellor, told industry leaders on March 4 that she had meant to announce the levy’s end that week before the war changed the picture, World Oil reported. Uplift, a campaign group, estimated that North Sea taxes have brought in £2,167 million more than forecast since the war began, and cautioned that the figures were calculated accruals, not cash receipts.
Russia is the case Mr. Besedeš and his co-author found murkiest. They wrote that the leaders of government-controlled oil companies close to President Vladimir Putin, and Mr. Putin’s military-industrial complex, were likely the main beneficiaries, not the Russian people. The monthly average price of Russia’s Urals blend peaked near $95 a barrel in the spring. By August the gain had faded: net oil revenue for the budget was 326.2 billion rubles, about $3.76 billion, down about 22 percent from a year earlier and the lowest since February, Bloomberg reported. The state has also paid refiners nearly 916 billion rubles in fuel subsidies since January after Ukrainian drones damaged their plants.
The economists described a $60 cap on Western shipping, insurance and financing for Russian crude. The European Union and Britain have used a lower cap, $44.10, since Feb. 1, according to the Centre for Research on Energy and Clean Air, which found that sanctioned shadow-fleet tankers carried 61 percent of Russia’s seaborne crude in August and put the month’s Urals average at $69.90. Russia’s tax authority priced August Urals at just over $59. The center estimated that higher prices added €31 billion, or $35.9 billion, to Russia’s seaborne export revenue over six months.
Who pays at the pump
The New York Fed study, by Rajashri Chakrabarti, Thu Pham, Beckett Pierce and Maxim Pinkovskiy and published May 6, used spending records from a panel of about 200,000 people kept by the data firm Numerator. Households earning less than $40,000 cut the gasoline they bought in March by 7 percent and still spent 12 percent more. Households earning more than $125,000 cut their purchases by 1 percent and spent 19 percent more. The authors found the same split in 2022, after Russia invaded Ukraine, but said the gap this time was larger.
Anonymized deposit data from Bank of America customers showed lower-income households spending 4.2 percent of their income on gasoline in March, up from 3.9 percent a year earlier, against 3.1 percent for the average household, Fox Business reported. About 10 percent of lower-income customers spent more than a tenth of their income on gas, compared with 6 percent of higher-income households, and the bank’s institute found more of them leaning on credit cards and buy-now-pay-later loans.
The cost spreads beyond the pump. Mr. Kilian and three Dallas Fed colleagues estimated in April that in their baseline case the war would add 0.6 percentage point to headline inflation in 2026, measured fourth quarter to fourth quarter, according to the bank. That case assumed U.S. crude would peak at a monthly average of $94 in April and May. It ran higher: the daily Cushing series published by the St. Louis Fed averaged about $100 in April and $102 in May.
Taxes are the one part of the price that did not rise. The federal gasoline tax is 18.4 cents a gallon, and state taxes and fees averaged 33.55 cents in January, according to the Congressional Research Service. Both are fixed amounts per gallon, so their share shrinks when prices climb. In May 2022, with gasoline at $4.44, crude accounted for 59 percent of the pump price, refining 26 percent and taxes 11 percent, the service found. In January of this year, before the war, taxes were 18 percent.
On Hacker News, a reader who wrote from Germany, where posted prices must include tax, answered another commenter who wanted taxes broken out at the pump.
But here, after the strait of Hormuz debacle, we’ve actually had the government lower the gas tax for a while so that people who need their cars for work arent stuck with the higher bill so much. And what do you know, somehow the gas got a little cheaper, but not nearly by the amount of lowered tax. Guess who pocketed the difference.
Germany’s competition regulator measured it. Of the cut of 16.7 cents a liter including value-added tax, which ran from May 1 to June 30, 13.8 cents reached diesel drivers and 13 cents reached buyers of E5 gasoline, or 82.6 percent and 77.8 percent, the Bundeskartellamt said in July, and most of the gap arose at filling stations rather than wholesale. Andreas Mundt, the agency’s president, said the relief had reached consumers predominantly, though not completely. The reader was right about the direction. The shortfall was smaller than “not nearly” suggests. A second cut, 14 cents a liter before VAT, takes effect Oct. 1 and runs through Dec. 31, with no requirement that stations pass it on.
The 1970s and after
On Oct. 19, 1973, Arab oil exporters embargoed the United States after President Richard M. Nixon asked Congress for $2.2 billion in emergency aid to Israel. Oil went from $2.90 a barrel to $11.65 by January 1974, according to the Federal Reserve’s history of the episode. The Iranian revolution tripled the price again in 1979. In both shocks the United States was a large importer, and the money left the country.
Much of it came back. From 1974 through 1981, OPEC members ran a combined current-account surplus of $450 billion, 90 percent of it in the Gulf Arab states and Libya, and large sums went into U.S. Treasury securities and deposits at American and British banks, according to the standard account of what became known as petrodollar recycling. The banks lent much of the money to developing countries, especially in Latin America. The foreign debts of 100 oil-importing developing countries rose 150 percent from 1973 to 1977, and the debt crisis of the 1980s followed.
A Hacker News reader offered that history as the reason the United States weathered its turn to imported oil.
The story back in the 1970s was that the global banking system was not so developed so the Saudis invested their profits from oil in the US so the money never really left the US which made the transition from domestic to imported oil much less painful for the US than it was for some other countries.
The record backs the first half. The surpluses did flow into Treasuries and Western banks. It does not back the idea that the shocks were painless. James D. Hamilton, an economist at the University of California, San Diego, found in a 2011 survey that all but one of the 11 U.S. recessions after World War II were associated with a rise in the price of oil. The exception was 1960.
Washington tried once to capture a windfall. The Crude Oil Windfall Profit Tax of 1980, a compromise between the Carter administration and Congress over lifting price controls, was projected to raise $393 billion in gross revenue through 1990. It raised $80 billion from 1980 to 1988, and just over $38 billion net, according to a 2006 Congressional Research Service analysis by Salvatore Lazzari, which also found that it cut domestic production by 1 to 5 percent and raised dependence on imported oil by 3 to 13 percent.
In 2022, after Russia invaded Ukraine, the world’s oil and gas producers took in about $4 trillion in net income, roughly double their usual level, the International Energy Agency estimated. Exxon earned a record $55.7 billion that year, CBS News reported. Exxon, Chevron, ConocoPhillips, Shell and BP spent about $111 billion on buybacks and dividends, by the sum of figures compiled by the office of Senator Sheldon Whitehouse. The agency’s longer view cuts against the idea that shareholders take everything. From 2018 the industry’s revenue averaged close to $3.5 trillion a year, and about half went to governments, 40 percent back into investment and 10 percent to shareholders or debt repayment, it found in 2023.
What differs now is where the barrels come from. The United States became a net exporter of petroleum around 2020, the St. Louis Fed noted, mainly because of exports of gasoline, jet fuel and other refined products. Mr. Kilian and two Dallas Fed colleagues found in June that spending on oil fell from nearly 8 percent of U.S. output in 1980 to 3 percent in 2024. In their model, a disruption removing 15 percent of global supply cuts annualized U.S. growth by 0.3 percentage point under today’s conditions and by 5.6 points under 1980’s, a response “only one-twentieth of what it would have been in 1980.” The rest of the world, in the same model, loses 1.7 points.
Does it reach savers
That shift moved part of the argument home. On Hacker News, a reader in Australia who wrote that he had paid 9 to 15 percent of his income into a union-backed retirement fund over 35 years said the windfall reached people like him.
To the extent my superannuation fund (401k, ROTH, IRA, hard to know what people call this in other economies) is invested in oil, it goes to .. me. ... Me here, is 75% or more of Australia. It’s not some amorphous unknown nasty corporate investor in a sharp suit, its ordinary people.
The record supports him in some countries more than others. Norway puts the state’s oil income into a fund for its citizens, and Aramco’s dividend goes almost entirely to the Saudi state. In the United States, share ownership is concentrated. The wealthiest 1 percent of households held 50.2 percent of household-owned corporate equities and mutual fund shares in the first quarter, according to the Federal Reserve’s distributional accounts, and the next 9 percent held about 37 percent in late 2025. Another reader, aleksandrm, replied that unless someone already had hundreds of thousands of dollars invested in oil, the gain would barely register in a portfolio.
Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy, and Spencer Dale, BP’s chief economist from 2014 to 2025, made the same point about the United States in Foreign Policy less than three weeks into the war.
Most Americans lose, while a relatively small number of firms and investors gain.
They expected much of the extra dividends and buybacks to be saved at first rather than spent. Their proposal is a tax rate on U.S. producers that rises with the oil price, calibrated to be fiscally neutral over the long run, paired with lump-sum payments to households during a shock. They rejected fuel subsidies and wrote that windfall taxes “have proved to be difficult to design and implement effectively.”
The fight over the windfall
Senator Elizabeth Warren, Democrat of Massachusetts, called in March for a tax on windfall oil profits from the war, with the money going to families.
The President shouldn’t be a cheerleader for Big Oil companies making fatter profits while Americans pay higher gas prices.
We should tax windfall oil profits from Trump’s war against Iran and give relief to American families instead.
President Trump took another route. On June 24 he wrote on Truth Social, “The big Oil Companies are not dropping their price at the pump commensurate with the sharply lower prices they are paying for Oil,” and said he had told the Justice Department to look into it, Axios reported. On July 3, Associate Attorney General Stanley Woodward Jr. and Andrew Ferguson, chairman of the Federal Trade Commission, urged state attorneys general to investigate, writing that “recent volatility in crude oil prices does not suspend either the antitrust laws or state consumer protection laws,” The Hill reported. After the second-quarter results Mr. Trump said the companies were “making too much money based on a shortage.” His administration has also weighed keeping American diesel at home.
Britain has its next step in draft legislation. A permanent Oil and Gas Revenue Levy of 35 percent on revenue above set price thresholds, $90 a barrel for oil in 2026-27, is to replace the profits levy when it expires in March 2030, according to the government’s published plan. In Alaska, where oil wealth pays a yearly dividend to residents, this year’s check is $1,200, including a $200 energy relief payment triggered by oil prices, the Alaska Beacon reported.
What comes next
The E.I.A. expects Brent to average about $90 a barrel for the rest of the year and $74 in 2027, and assumes Middle East crude output stays below prewar levels until the second quarter of 2027. Goldman Sachs has warned that Brent could top $120 next year if Gulf output stays four million barrels a day below prewar levels, OilPrice.com reported.
Germany’s second fuel-tax cut and Alaska’s dividend payments begin Oct. 1. Britain’s budget is due Oct. 28, and the midterm elections, in which Republicans are defending narrow majorities in Congress, fall on Nov. 3. Before either, on Oct. 6, the E.I.A. publishes its next forecast.