As The Guardian reports this morning:

Eight of the biggest oil companies amassed profits of more than $90bn (£67bn) in just three months as the Iran conflict sent energy prices soaring and the emissions-fuelled climate crisis caused deadly heatwaves.

The windfall war profits have reignited calls for oil and gas supermajors such as Saudi Aramco and BP to pay for the environmental damage caused by “cashing in on human misery” and fund a rapid transition to renewable energy.

Guardian analysis found that the eight listed oil producers made almost $93bn (£69bn) in the three months to the end of June – the first full financial quarter after the US-Israeli war on Iran triggered a surge in global oil prices to highs above $126 a barrel.

The Guardian notes, using a graphic, that these profits are exceptional:

The case is appropriately made that war profiteering must be taking place. As a result, The Guardian focuses on the social and environmental consequences of this, and I would recommend reading the article for that reason.

I highlight the data for another reason. The reason is that this data has profound consequences for any decision the Bank of England makes regarding changes to interest rates.

As we already know, three of the nine members of the Bank of England's Monetary Policy Committee voted in July to increase the Bank of England's base interest rate from 3.75% to 4%, giving as their reason the concern they have that inflation will become embedded in the UK economy and that this must be stamped out through the use of higher interest rates to suppress demand. The assumption implicit in this suggestion is that there is excess demand in the UK economy, giving rise to price increases, and that it is only by reducing that demand that the inflation target can be met.

This data show that this assumption is wrong. There is no evidence of excess demand in the UK economy at present. Instead, there is excess profit-taking as a consequence of price manipulation due to war, and this is changing the profile of demand in the UK economy by increasing the prices of some base commodities, including oil, gas, and products derived from them.

The reaction within the economy is not to increase the overall level of demand. That is very unlikely because for most people the capacity to spend more does not exist: they are already living at their financial limits. Instead, this price gouging, which is possible because of the price inelasticity of demand for oil-based products, will cause demand for other products to fall, because people will still have to buy oil and gas and pay more for them.

There is, in other words, no overall increasing demand in the UK economy as a consequence of these oil price rises. What will happen, as their consequences work through the economy, is a fall in demand elsewhere, with a significant impact on the overall level of economic activity in the country, as spending is reoriented towards oil-based products and away from other forms of consumption.

The economy can, in other words, adjust for this situation, albeit very painfully and over time and with a high risk of recession arising as a result of people's own changed spending preferences, imposed upon them by the need to buy excessively priced oil, petrol, diesel, gas and domestic fuel, the prices of which will have risen through no fault of their own, and entirely because oil companies have exploited an international crisis for their own gain.

The consequence of those changed spending preferences will be a fall in demand for other products, in turn providing a double whammy for the companies supplying them, who will face their own increased production costs and a simultaneous fall in demand for those products they create, resulting in stress throughout the economy as a whole whilst the oil companies continue to count their profits.

Does the Bank of England need to raise interest rates as a result of this? The answer is very clearly that it does not, but the evidence is that it is very likely to do so, nonetheless. All it can do as a result is create a recession and increase unemployment, and all because of the economics of economic extraction, which is at the core of our economy being pursued by these oil and gas companies, to which the government will look the other way because that is what the economics in question tells them to do, as much as it tells the Bank of England to raise interest rates.

The capacity to destroy value inherent in late-stage capitalism knows few limits. The evidence is all around us.

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