Middle East bloodshed shouldn’t line the pockets of oil executives

A windfall tax on oil industry war profiteering could be used to insulate Canadians from future energy price shocks

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The oil industry in Canada made $6 billion in the first month of the war in Iran, three times more than it made in the month before the war started.

It is a textbook case of war profiteering. The cost of producing oil in Canada did not go up, nor did the industry get any more efficient or productive. It is simply raking in the proceeds of a global oil supply shock triggered by U.S. and Israeli aggression in the Middle East.

The situation is unlikely to return to normal any time soon, which means oil prices may stay high for months. At this rate, the industry will pocket $90 billion in profits over the next year, with much of it flowing to American shareholders.

Where is that money coming from? Over the next year, Canadians are on track to spend an extra $12 billion on gasoline alone, not to mention increased costs for home heating, groceries and other goods that depend on oil.

In other words, skyrocketing oil prices do not create profits out of thin air. They redistribute money away from consumers and businesses and into the pockets of oil companies.

The public will receive some benefits from the oil price shock due to increased royalty and tax payments. The Alberta government, in particular, has completely reversed its fiscal outlook for 2026. But the oil industry is still capturing the majority of these war-driven proceeds while consumers pay more.

The best option is a swift end to the war and the humanitarian crisis it has caused. The next best option is a windfall tax on oil industry war profiteering.

There is a recent precedent for this idea. In 2022, the federal government implemented a 15 per cent tax on the pandemic-era windfall profits of the financial sector. If the same tax were applied to the oil industry retroactively to March 1, it would raise $600 million immediately and as much as $9 billion over the next year.

But history offers a bolder model. In 1940, the federal government introduced a 75 per cent excess profits tax. It was explicitly intended to limit war profiteering and strengthen public spending.

If a similar approach were taken today, it could generate an extra $46 billion in public revenues over the next year, on top of regular royalties and taxes. In this scenario, the oil industry would still make $44 billion in profits. That’s hardly punitive.

There are many things the federal government could do with an extra $46 billion that would be more productive than lining the pockets of oil industry shareholders. For example, it could cover the majority of Canada’s $63 billion in new defence spending.

But the best approach would be to invest these proceeds in reducing our dependence on oil and, thus, our vulnerability to future oil shocks.

For example, $46 billion could build enough electric vehicle charging stations to meet decades of demand. Or it could make public transit free across the country for five to 10 years. Or it could pay for enough free electric heat pumps to replace every home heating oil and low-efficiency gas furnace in the country. Measures like these reduce structural demand for fuels, reducing long-term costs for consumers in a way that knee-jerk cuts to gas taxes do not.

Alternatively, $46 billion could drive significant economic diversification through investments in future-oriented industries, such as clean-tech manufacturing. Ironically, very high oil prices weaken the long-term outlook of the oil industry, as countries around the world accelerate their efforts to get off fossil fuels entirely. Doubling down on oil production now is the worst thing Canada could do.

For Canada’s oil regions, the current windfall could very well be the industry’s final boom.

Better not waste it.

Hadrian Mertins-Kirkwood is a senior researcher with the Canadian Centre for Policy Alternatives.