As prices at the pump spiked over recent months I received an e-mail urging me to sign up to a UK “war on Big Oil”. The green activist in question clearly had a genuine concern for his fellow man but he was no economics or business major. In truth, he was just a victim of Big Green leftist rhetoric.

This point ought to have been brought home when Chancellor George Osborne imposed yet another fuel duty rise in his March 2012 Budget. Osborne badly underestimated the backlash from a nation already paying the world’s third highest prices at the petrol pump. With road hauliers threatening to bring the country to its knees the focus of anger in the UK, currently at least, is squarely on the real villain in the oil profits ‘war’ – and it’s not Big Oil; a situation further underscored by a recent U.S. report into “excessive” oil profits.  

In the States, President Obama is already in election campaigning mode. Playing to an audience of U.S. drivers shocked at paying $4 per gallon for the first time ever, Obama told Congress it would be justified in ending $4 billion in annual oil and natural gas tax credits shifting the “savings” made to clean-energy research.

In true leftist, anti-capitalist double-whammy tradition, house Democrats chipped in to propose a ‘Reasonable Profits Board’ – a windfall tax by another name – to regulate oil and gas profits. Good thinking, Team Barack. Here then is the proposed energy policy: let’s make life harder for the companies extracting fuels long proven to efficiently do the job of running a modern society and give that ‘help’ to speculative research that, as the failing renewables revolution is showing, could barely generate enough to keep the lights on at the White House.  

But while banging the well-beaten anti-Big Oil drum chimes with the populist green theories of the Left, it only further obfuscates the stark economic reality that it is government, not Big Oil, pulling the energy policy strings that spike prices at the pump. A short article cannot possibly hope to adequately sum up the economic case, but let’s have a stab at it.  

The global price of crude oil – the critical factor that many things collude to affect – translates directly into higher gasoline prices at the pump. We all know this. But, contrary to popular belief, the major oil companies have little control over the price, high or low. Nobody complains about low prices and low profits. But high oil profits, which mean new exploration, cheaper domestic shale production, not to mention the economic ripple effect (often forgotten) of high profits on pensions, stocks etc, almost always means the proverbial hits the media fan every time there’s even a whiff of large oil profits in the air.

But honing in with venom on Big Oil or Big Gas, a much-beloved pastime of politicians, simply helps skew Joe Public’s opinion as to how the economics and the markets work.

A telling table correlating crude oil prices and the combined first quarter profits of the five oil majors 2009-2011 ought to be instructive.