Ed Miliband is wrong about BP’s profits

Are BP’s profits of $5 billion in the first quarter of this year really the ‘unearned, unexpected windfalls of war’, as Ed Miliband asserted this morning? The idea that any oil company’s profits are unearned must come as news to the geologists and engineers who are employed in the tricky business of exploring and drilling for oil. You might claim that oil traders sometimes make unearned profits, but surely not the oil companies which extract the stuff from the ground – a business which involves large amounts of capital and vast numbers of hours of human effort.

As for the idea that BP’s profits are the ‘windfalls of war’, the shadow climate change and net zero secretary is presumably implying that oil and gas prices would be lower had it not been for the invasion of Ukraine. His assertion would have certainly stood up for much of last year, though it is a lot harder to argue the point now. A barrel of Brent crude was trading at $90 in the week before the Ukraine invasion; at no point in the first three months of this year did it rise above $82. As for wholesale gas prices in Britain, they were running at 200 pence per therm in mid-February last year. They have not traded at that level this year and are down to 80 pence per therm. BP may be benefitting from some contracts fixed before the collapse of oil and gas prices since the peak last summer, but futures contracts cut both ways: the company will also be supplying oil under contracts negotiated before last year’s surge. True, oil and gas prices remain above the prevailing levels of the past decade, but the reasons for that pre-date the war in Ukraine: prices were already elevated in 2021 as the global economy began to recover from Covid and demand ran ahead of supply. But BP certainly can’t be accused of profiting from Covid. In 2020 it made a thumping $22 billion loss. Recent profits can’t even begin to compensate for that.

If BP’s recent profits can be attributed to any one thing it would be fairer to say that they are a consequence of an ill-thought-out European energy policy which has suppressed oil production for environmental reasons and which has only belatedly come to realise that energy security does matter. It is that, and the resultant rush to fill gas storage facilities before last winter, which turned a war into an energy crisis.

Not that Miliband will concede any of this. For him and the Labour party as a whole, windfall taxes are a political weapon which they are determined to deploy to the last. Miliband will always call for a windfall tax on oil companies, even when there is already a government levy in place and long after anyone can claim the oil companies are making any kind of windfall. The price, should Labour get into office, will be even less investment in the North Sea – and the probability of further supply crises in the future.