Oil and chemical tankers in the port of Haifa, Israel, March 11, 2023. Photo by DmitTrix/Wikimedia Commons.

As we enter a shaky ceasefire phase in the Trump administration’s illegal war on Iran, Canadians are nervously monitoring the devastation abroad while gritting their teeth at gas prices at home. In countries across Asia, a considerable drop in tankers transporting oil through the Strait of Hormuz has already created major oil supply shortages and significant economic shocks.

Here in Canada, things are better, albeit complicated. As the world’s fourth-largest oil producer, our economy is likely to see considerable economic growth from war-related spikes in global oil prices. But, as evidenced by soaring prices at the pump, most Canadians will not share in the spoils of this economic boom.

We’ve seen this movie before

As we all know far too well, the benefits of economic growth are rarely distributed anywhere near evenly, especially during global crises. Right now, higher oil prices are further enriching oil producers, while Canadians already struggling with a cost-of-living crisis are saddled with even higher oil and gas expenses.

The last time we faced a big global oil price shock was in 2022, in the wake of Russia’s invasion of Ukraine. It triggered an enormous transfer of wealth from working- and middle-class families to the ultra-rich.

In the US, half of all profits flowing from the 2022 oil price shock—over $190 billion USD in total—went to the wealthiest one percent of Americans. Here at home, economist Jim Stanford estimates that this shock led to about $100 billion CAD in windfall profits for the oil and gas industry, while costing the typical Canadian household about $12,000.

How does this happen?

As explained by German economist Isabella Weber, “Windfall profits are the hidden redistribution that happens with every oil shock. They do not show up in wage statistics. They do not trigger automatic stabilisers. They are perfectly legal, thoroughly opaque and a recurring part of the system.”

Put more simply: Whether it’s during public health crises or war-related resource shocks, corporate profiteering from crises is not a bug in our economy—it’s a key feature. Knowing that, it is all but certain that the same thing will happen again in this crisis. The fossil fuel industry will supersize their profits, the wealthiest among us will become even more obscenely wealthy, and the rest of us will foot the bill.

Recently, the Financial Times projected that Canadian oil producers are in line for a $90 billion windfall because of the Iran War. The distribution of these windfall profits is even more alarming when we consider that Canada’s largest oil and gas companies aren’t just owned by the wealthiest Canadians, they are actually 60 percent American-owned. This means that a sizable share of these gains won’t even stay in Canada. Instead, much of the profit extracted from everyday Canadians will be used for dividends or stock buybacks that end up in the pockets and portfolios of ultra-wealthy Americans.

What can we do about it?

Canada is not powerless here. The federal government can take action to make Canadians less vulnerable in the long term to global oil price spikes, while ensuring in the shorter term that Canadians are made whole for higher prices at the pump.

During the 2022 oil price shock, many European countries introduced windfall profits taxes on their oil and gas industries. Had Canada followed suit, the gains from that price shock—and this one—would be more evenly distributed. That’s why Canadians for Tax Fairness and various organizations, including the Alberta Federation of Labour, 350.org, and Greenpeace are all calling for a windfall tax now.

The Canadian Centre for Policy Alternatives estimates that a 33 percent tax on windfall oil and gas profits could raise $18 billion this year, if oil prices remain at current levels. This kind of policy is not new to Canadians. During the Second World War, Canada had windfall profits taxes as high as 75 percent to help Canadians weather that crisis together. If we were to take a page from that chapter of our history, we could raise $46 billion this year and still leave oil and gas companies with more revenue than they were expecting before this crisis began.

In the near term, revenue from a new windfall profits tax could be used to help offset the higher prices Canadians are now paying, ensuring that we all benefit from our country’s natural resources.

With a critical eye to the next crisis, investing this revenue wisely could also be used to lessen our dependence on fossil fuels. It is worth noting that countries like China and Spain, which have begun to diversify their energy mix to rely less on fossil fuels, are less vulnerable to oil price pressure from the Iran War. Investing some of the current windfall into the green energy sector and a just transition for oil and gas workers wouldn’t just alleviate cost pressures in the short-run, it would also build a more stable, sustainable, and resilient Canada.

Prime Minister Carney noted this week that his government is “looking at” ways to help Canadians who are facing down rising gas prices. If he’s serious, a windfall profits tax is a good place to start.

Jared A. Walker is the Executive Director of Canadians for Tax Fairness, a non-profit, non-partisan research and advocacy group fighting for fair, progressive taxation.

Silas Xuereb is an Economist and Policy Analyst with Canadians for Tax Fairness.

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