War, oil, and windfall profits: who's really winning?
The U.S. is embroiled in a widening conflict with Iran, and while headlines focus on geopolitical tensions, a quieter, more unsettling trend is unfolding: a massive transfer of wealth from American consumers to defense contractors and oil companies.
The missile boom & lockheed's surge
Just two weeks into the escalating tensions, the White House was already bracing for a barrage of criticism regarding rising gas prices. Former President Trump, naturally, seized the moment on Truth Social, declaring, “The United States is the largest Oil Producer in the World, by far, so when oil prices go up, we make a lot of money.” A sentiment that, while simplistic, highlights a stark reality now playing out.
Now, five weeks in, the situation is far more complex. The Department of Defense announced a partnership between Boeing and Lockheed Martin to triple missile seeker production—a move that sent Lockheed’s stock soaring. The aerospace giant has seen a 25% jump since the year began, a clear indicator of where the money is flowing.
Iran's blockade & the crude oil spike
The real shock, however, is the price of crude oil. Iran’s blockade of the Strait of Hormuz, a vital waterway through which roughly a fifth of the world’s oil typically passes, combined with broader instability in the Middle East, has sent prices skyrocketing. US crude oil has nearly doubled in a month, leaping from $65 a barrel to over $110. At the pump, Americans are feeling the pinch, with gas prices surpassing $4 a gallon for the first time since 2022.
Energy companies cash in: a 'windfall' moment
While consumers groan, energy companies are celebrating. ExxonMobil, Shell, and Chevron have all witnessed share price increases exceeding 20% this year, even as the broader stock market has faltered. Rystad Energy estimates U.S. oil producers could see an additional $63 billion in profit as prices hold above $100 a barrel. “Oil prices in March have been materially higher than anyone expected,” notes Leo Mariani of Roth Capital Partners. “It’s been a windfall for the vast majority of U.S. energy companies.”
The parallels with 2022, when Russia’s invasion of Ukraine sent energy markets into turmoil, are unsettling. Back then, average gas prices hit a historic $5 a gallon, and inflation surged to a generational high of 9%. While Americans suffered at the pump, publicly listed oil and gas companies collectively pocketed a staggering $916 billion—more than three times their previous annual profit. Chevron responded with a $75 billion stock buyback program, a seven-fold increase from the year before.
The top 1% benefit most
The academic scrutiny of that 2022 windfall revealed a disturbing pattern. Research from the University of Massachusetts at Amherst found that approximately 50% of the profits enjoyed by U.S. oil companies flowed directly to the top 1% of Americans, with a mere trickle reaching the bottom 50%.
Economists suggest the current situation could be even more skewed. Unlike 2022, the conflict with Iran has directly damaged oil infrastructure in the Middle East. While American companies have investments in the region, the overall benefit tilts heavily towards higher prices, not lost production. As Clay Seagle of CSIS points out, “Now we’re dealing with a much more severe supply event because the oil has been actually removed from the market.”
A long-term shift?
While sustained high prices could eventually incentivize consumers to reduce oil consumption, as seen after the 1970s oil shocks, the immediate impact is clear. Diesel prices, vital for trucking and aviation, have jumped 40%, sending airline stocks tumbling. The disruption extends to liquefied natural gas (LNG), a crucial component of fertilizer production, threatening the food supply.
The situation is rapidly mirroring the chaos of 2022, with the potential for even greater profits for a select few. As Semieniuk warns, “If this takes longer, it’s going to surpass that.”