Shell has joined the growing list of major energy companies posting sharp profit increases, fueled by the dramatic rise in oil prices triggered by the ongoing Iran war.
The company reported profits of $6.92 billion (£5.1 billion) for the first quarter of the year. This beat analyst expectations and marked a significant rise from $5.58 billion in the same period last year.
Global oil prices have spiked since the conflict escalated, largely because the Strait of Hormuz a critical chokepoint carrying around 20% of the world’s oil and liquefied natural gas (LNG) has been effectively shut down.
Last week, rival BP announced that its first-quarter profits had more than doubled. Norway’s Equinor also posted strong results, with $9.77 billion in quarterly profit its highest in three years.
Strong Trading and Refining Boost Shell’s Bottom Line
Shell CEO Wael Sawan attributed the robust performance to excellent operational execution during a period of major global energy market disruption.
"The safety of our people remains our priority as we work closely with governments and customers to address their energy needs," he said.
Like BP, Shell benefited significantly from a stronger performance in its oil trading division. Volatile prices create wider spreads between buying and selling, allowing traders to capture bigger margins. Brent crude, the global oil benchmark, has swung sharply since the conflict began moving from around $73 per barrel beforehand to peaks above $120, with continued fluctuations.
Higher refining margins, which turn crude into products like petrol and jet fuel, also contributed to the profit surge.
However, the conflict has not been entirely positive for Shell. The company’s oil and gas production fell by 4% compared to the previous quarter. Its LNG operations in Qatar have been offline since early March, and the Pearl GTL facility has suffered damage from attacks.
On a positive strategic note, Shell recently announced a $16.4 billion deal to acquire Canadian shale producer ARC Resources, which Sawan described as a move that will “deliver value for decades to come.”
Calls for Higher Windfall Taxes
The wave of bumper profits has drawn fresh criticism from environmental campaigners.
Danny Gross, climate campaigner at Friends of the Earth, said: “Once again, fossil fuel giants are pocketing monstrous profits while drivers are being squeezed at the petrol pump and households are set to pay higher energy bills. The answer is clear: strengthen the windfall tax on these indefensible profits and break our dependence on fossil fuels by powering our economy with homegrown renewables.”
What is the Windfall Tax?
The UK’s windfall tax, officially known as the Energy Profits Levy, was introduced in 2022 in response to soaring energy company profits after Russia’s invasion of Ukraine. The Labour government later extended it until March 2030.
Importantly, the tax only applies to profits from oil and gas extracted in the UK. Since the UK represents less than 5% of Shell’s global production, the majority of its earnings fall outside this levy.
Most British households are currently protected by the energy price cap. The typical annual dual-fuel bill (direct debit) stands at £1,641 until 30 June. However, analysts expect the cap to rise by around £200 when revised in July due to higher wholesale prices.
Shipping Companies Feeling the Pressure
Danish shipping giant Maersk is also facing higher costs from the conflict and is passing them on to customers.
CEO Vincent Clerc told the BBC that rising energy prices are adding roughly half a billion dollars in extra monthly costs. The company is focused on protecting its margins by transferring these increases downstream.
Maersk’s recent earnings slightly beat expectations, though they largely reflected the period before the worst of the Iran-related disruptions.
Clerc noted uncertainty about potential knock-on effects, such as higher inflation and reduced demand. He also highlighted that Tehran’s long-term ambitions regarding control and possible tolls on the Strait of Hormuz could reshape the industry, comparing it to the Suez and Panama canals though any such charges remain highly speculative until the strait reopens.
Bottom line: The Iran conflict is delivering windfall gains to oil majors through higher prices and trading opportunities, while creating operational headaches and broader economic ripple effects for consumers and businesses worldwide.