{"id":94599,"date":"2026-08-06T07:01:40","date_gmt":"2026-08-06T06:01:40","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=94599"},"modified":"2026-08-06T09:18:03","modified_gmt":"2026-08-06T08:18:03","slug":"will-oil-tip-us-into-recession","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/06\/will-oil-tip-us-into-recession\/","title":{"rendered":"Will oil tip us into recession?"},"content":{"rendered":"<p class=\"p2\">Will rising oil prices push Britain into recession? And if they do, will the Bank of England make the situation even worse?<\/p>\n<p class=\"p2\">In this video, I examine the extraordinary profits recently reported by the world\u2019s largest oil companies following the conflict involving Iran.<\/p>\n<p class=\"p2\">While households and businesses face higher fuel costs, oil companies are making windfall gains.<\/p>\n<p class=\"p2\">I argue that these profits reveal something important about today\u2019s inflation: it is being driven by pricing power and economic extraction, and not by excessive demand in the UK economy.<\/p>\n<p class=\"p2\">If that diagnosis is correct, then raising interest rates is the wrong response. Higher interest rates cannot reduce internationally determined oil prices. They cannot stop companies using market power to increase profits. What they can do is reduce spending elsewhere in the economy, weaken businesses already under pressure, increase unemployment and make recession more likely.<\/p>\n<p class=\"p2\">Using the insights of Modern Monetary Theory (MMT), I explain why Britain needs a different response. Instead of raising interest rates, we should support jobs and demand by cutting rates while taxing excess profits from soaring energy prices.<\/p>\n<p class=\"p2\">If we misunderstand the causes of inflation, we risk making the economic damage far worse than it needs to be.<\/p>\n<p><iframe loading=\"lazy\" title=\"YouTube video player\" src=\"https:\/\/www.youtube.com\/embed\/OfcUitgtCz8?si=G411AQ_S4kHgxfQI\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>This is the audio version:<\/p>\n<p><iframe loading=\"lazy\" style=\"border: none; min-width: min(100%, 430px); height: 150px;\" title=\"Will oil tip us into recession?\" src=\"https:\/\/www.podbean.com\/player-v2\/?i=qpzuq-1b2c039-pb&amp;from=pb6admin&amp;share=1&amp;download=1&amp;rtl=0&amp;fonts=Arial&amp;skin=f6f6f6&amp;font-color=auto&amp;logo_link=episode_page&amp;btn-skin=c73a3a\" width=\"100%\" height=\"150\" scrolling=\"no\" data-name=\"pb-iframe-player\"><\/iframe><\/p>\n<p>The Debate Ammunition for this video <a href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/06\/debate-ammunition-oil-company-profits\/\" target=\"_blank\" rel=\"noopener\">is available here.<\/a><\/p>\n<p>This is the transcript:<\/p>\n<hr \/>\n<p>Oil company profits are skyrocketing at this moment. We now know the results for the largest oil companies in the world for the quarter to the end of June, when Trump\u2019s war against Iran has been ongoing, and they have risen enormously.<\/p>\n<p>War has benefited these companies, even if no one else in the world. And my concern is that the Bank of England is going to mistake the resulting price increases imposed by oil companies on all of us to make these exceptional profits as signs of inflationary pressure inside the UK economy, and is going to react in entirely the wrong way, and push up interest rates, and that could result in an avoidable recession. We need a better response, and Modern Monetary Theory says what it is.<\/p>\n<p>Let me just look at the background to this. Oil prices have risen. They are now still much higher than they were before Trump\u2019s war began, and as a consequence, we have seen exceptional profits being earned by these oil companies in the last quarter. It is thought that eight major oil companies made $93 billion dollars of profit between them, and that is exceptional as the chart on the screen shows. And the inflation that is following on from the price increases that drive those profits is, I fear, being misunderstood.<\/p>\n<p>We already saw in the July meeting of the Bank of England\u2019s Monetary Policy Committee that sets interest rates in the UK, a decision by three of the nine members to try to push rates upwards. And their argument assumes there is too much demand in the UK economy. And that assumption does not fit the evidence, and this is what those oil profits show.<\/p>\n<p>The oil profits actually say the Bank of England has got its assumptions wrong and that we need to think in a different way. These are exceptional profits created by war in the Middle East, and they are windfall gains. The cost of production of oil has hardly changed as a consequence of that war. After all, in the rest of the world, where our oil is now coming from, there is no change in the cost of production as a consequence of difficulties in the Strait of Hormuz.<\/p>\n<p>Those prices do then reflect pricing power, and not stronger economies. The issue that we are looking at here is one of economic extraction from us all by these oil companies and not an increase in productive activity in the economy as a whole. In fact, that increase in productive output within the economy as a whole is not going to be happening because most households simply haven\u2019t got more money to spend at this moment.<\/p>\n<p>They are at the limit of their ability to spend, and higher fuel bills are absorbed into existing household budgets by giving up their demand for other goods and services. If the price of petrol, diesel and home fuel has gone up, they have to cut their spending on something else: holidays, days out, restaurants, whatever it might be, clothes, children\u2019s toys, all of those things are going to see demand fall, and that\u2019s because the oil companies are extracting more profit from people.<\/p>\n<p>Overall demand is not increasing; we are just spending more on oil. And over the coming months, these two figures will balance out because consumers are going to be forced to change their spending patterns and businesses outside energy are also going to see the impact of this. And this is the critical point.<\/p>\n<p>Those firms are going to face higher energy costs, and at the same time, they\u2019re going to face falling demand because their customers cannot afford to buy whatever they\u2019re creating because they\u2019ve got to pay more for their diesel, petrol, fuel and so on. The risk of recession is therefore increasing, and alongside it, the risk of unemployment is rising as well.<\/p>\n<p>In that case, higher interest rates cannot help in this economy. Those higher interest rates will not reduce internationally set war-driven oil prices. They cannot prevent corporate price gouging. They cannot create more energy supplies. They simply reduce spending elsewhere even more than the oil price rises already do. The likely result of any increase in the interest rate is then higher unemployment, and that in turn will lead to recession.<\/p>\n<p>The Bank of England is targeting the wrong problem in that case. Inflation caused by extraction is never demand-driven inflation. Raising interest rates at this moment then treats the symptom, not the cause, of the problem that we\u2019re going to be seeing in our economy as a result of rising oil prices. The policy risks making economic weakness even worse, and people are going to pay twice, through higher prices and lost jobs. Monetary policy used in this way is going to become part of the problem our economy faces, and it is not going to provide any solution.<\/p>\n<p>So, what should be done? That\u2019s the important question. It\u2019s all well and good moaning, but are there alternatives? And Modern Monetary Theory has the answers in this situation.<\/p>\n<p>First of all, it would say we need lower, and not higher, interest rates. We face the risk of recession. Because people cannot afford to buy other goods and services, they need support. And the only way they\u2019re going to get that support is by reducing interest rates so that people have more to spend and the businesses themselves have a lower cost base. We need to ensure that jobs survive in this difficult situation where oil prices are making everything very much harder for businesses and people, and we have no control over those prices.<\/p>\n<p>So, we also need something else. Apart from lower interest rates, we need an excess-profit tax on oil companies. This would be a tax that would require strict enforcement. And it would need the strict enforcement of transfer pricing rules. And it would need our tax authority to have the courage to fully use the information made available by country-by-country reporting. And that is the system of accounting that I created for multinational companies, which applies to all these oil companies and which demonstrates where they really make their profits.<\/p>\n<p>It\u2019s those profits that arise in the UK that we need to apply an excess tax to. We can\u2019t tax their worldwide profits, but we do need to ensure that if these companies are gouging profits out of the UK economy, they should be making an excess tax return as a consequence. That is what is needed. Interest-rate rises are not. As ever, the only thing that interest-rate rises will achieve will be to make the well-off richer still.<\/p>\n<p>Late-stage capitalism is then destroying value in our economy as usual. Oil companies are continuing to extract exceptional profits from us. That is what late-stage capitalism does, and the wider economy is absorbing the damage they create. The large businesses prosper; smaller ones and people are losing. That is the whole structure of late-stage capitalism in a nutshell.<\/p>\n<p>The problem is our unthinking government largely accepts this economic model and the damage it causes. And so we are hearing nothing about price controls or other measures to help people in this country, whilst the Bank of England is reinforcing all of the damage caused by late-stage capitalism by suggesting that we will need higher interest rates, and at this moment, I have no doubt that those are on their agenda.<\/p>\n<p>The evidence shows how destructive economic extraction has become. We need to move on. We need a politics of care. We need an economics of hope. We need to leave this system of thinking behind because it serves the interest of no one but the very wealthy.<\/p>\n<p>That\u2019s what I think. What do you think? There\u2019s a poll down below. Please let us have your comments. Please do share this video. Please do like it if that\u2019s what you do, and please do subscribe to the channel, hit that bell button as well, and you\u2019ll get notifications of when we publish a new video. And if you\u2019d like to buy Tom and me a coffee, that would be great. There\u2019s a link down below.<\/p>\n<hr \/>\n<p><strong>Poll<\/strong><\/p>\n<div id=\"polls-480\" class=\"wp-polls\">\n\t<form id=\"polls_form_480\" class=\"wp-polls-form\" action=\"\/Blog\/index.php\" method=\"post\">\n\t\t<p style=\"display: none;\"><input type=\"hidden\" id=\"poll_480_nonce\" name=\"wp-polls-nonce\" value=\"2b42af8818\" \/><\/p>\n\t\t<p style=\"display: none;\"><input type=\"hidden\" name=\"poll_id\" value=\"480\" \/><\/p>\n\t\t<p style=\"text-align: center;\"><strong>How should governments respond to oil company windfall profits during a war-driven energy crisis?<\/strong><\/p><div id=\"polls-480-ans\" class=\"wp-polls-ans\"><ul class=\"wp-polls-ul\">\n\t\t<li><input type=\"radio\" id=\"poll-answer-2098\" name=\"poll_480\" value=\"2098\" \/> <label for=\"poll-answer-2098\">Tax excess profits<\/label><\/li>\n\t\t<li><input type=\"radio\" id=\"poll-answer-2099\" name=\"poll_480\" value=\"2099\" \/> <label for=\"poll-answer-2099\">Leave the market alone<\/label><\/li>\n\t\t<li><input type=\"radio\" id=\"poll-answer-2100\" name=\"poll_480\" value=\"2100\" \/> <label for=\"poll-answer-2100\">Cut interest rates to protect jobs<\/label><\/li>\n\t\t<li><input type=\"radio\" id=\"poll-answer-2101\" name=\"poll_480\" value=\"2101\" \/> <label for=\"poll-answer-2101\">Not sure<\/label><\/li>\n\t\t<\/ul><p style=\"text-align: center;\"><input type=\"button\" name=\"vote\" value=\"   Vote   \" class=\"Buttons\" onclick=\"poll_vote(480);\" \/><\/p><p style=\"text-align: center;\"><a href=\"#ViewPollResults\" onclick=\"poll_result(480); return false;\" title=\"View Results Of This Poll\">View Results<\/a><\/p><\/div>\n\t<\/form>\n<\/div>\n<div id=\"polls-480-loading\" class=\"wp-polls-loading\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/plugins\/wp-polls\/images\/loading.gif\" width=\"16\" height=\"16\" alt=\"Loading ...\" title=\"Loading ...\" class=\"wp-polls-image\" \/>&nbsp;Loading ...<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>Will rising oil prices push Britain into recession? And if they do, will the Bank of England make the situation even worse? In this video,<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/06\/will-oil-tip-us-into-recession\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[70,136,79,204,35,16,147,174,224,106,223,75],"tags":[],"class_list":["post-94599","post","type-post","status-publish","format-standard","hentry","category-banking","category-city-of-london","category-country-by-country","category-economic-justice","category-economics","category-ethics","category-inequality","category-modern-monetary-theory","category-neoliberalism","category-politics","category-politics-of-care","category-usa"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/94599","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=94599"}],"version-history":[{"count":7,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/94599\/revisions"}],"predecessor-version":[{"id":94648,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/94599\/revisions\/94648"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=94599"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=94599"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=94599"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}