Iran oil doomsday in Hormuz may be more fear than reality: Bousso
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Trump’s energy dominance agenda could be ravaged by Section 899
Proposal is part of President Trump’s signature tax bill. Section 899 proposes up to 20% tax on foreign investors’ income. BP last year invested more than $6 billion, about 40% of its capital expenditure, in the United States. Shell, the biggest European oil major, is also a huge investor in the U.S. The United States became increasingly important to Big Oil companies in recent decades thanks to its stable fiscal and regulatory environment while other regions presented a variety of challenges. It is likely that the Senate would push to modify the bill to make it less costly for companies to move their headquarters to the United states. Such a scenario could be a boon for countries such as Canada, Mozambique and Namibia, which have large untapped natural resources which could be attractive to oil and gas companies. But companies could opt to deploy capital elsewhere on a similar scale on a more widely-spread scale, though it would be politically complicated and complicated to do so. The U.N. Security Council is expected to vote on the bill on June 14.
Summary
Companies Section 899 proposes up to 20% tax on foreign investors’ income
Proposal is part of President Trump’s signature tax bill
The tax could deal a hefty blow to European oil giants’ profits
LONDON, June 12 – A proposed U.S. tax targeting foreign investors could hurt European energy giants that operate in America’s booming oil and gas sector, undermining what President Donald Trump describes as his energy dominance agenda.
Trump’s sweeping tax and spending bill under review by the Senate includes an additional tax of up to 20% on foreign investors’ income, such as dividends and royalties.
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The tax, known as Section 899 , was devised as a pushback against countries that impose what the bill describes as “unfair foreign taxes” on U.S. companies, such as digital services taxes.
Trump, who often used the slogan “drill, baby, drill” in his election campaign, has portrayed himself as pro-fossil fuel, vowing on his first day in office to maximise oil and gas production. But if approved, Section 899 could have the opposite effect.
BP last year invested more than $6 billion, about 40% of its capital expenditure, in the United States, where its interests include onshore and offshore oil and gas operations, two refineries, thousands of retail fuel stations and a power trading business. The country is also home to more than a third of BP’s global workforce of about 90,000 and accounted for roughly 30% of its 2024 revenue of $189 billion and more than a quarter of its $21 billion net profit.
Shell, the biggest European oil major, is also a huge investor in the United States, which accounted for 23% of its 2024 revenue of $284 billion. It invests about 30% of its capital expenditure in the country, where it has oil and gas production facilities, a petrochemicals plant, a vast retail network, liquefied natural gas (LNG) purchasing agreements and major trading operations.
SHAKEN CONFIDENCE
The United States became increasingly important to Big Oil companies in recent decades thanks to its stable fiscal and regulatory environment while other regions presented a variety of challenges.
Take Russia, for example. Its vast oil and gas resources started attracting investments from many companies in the 1990s after the collapse of the Soviet Union, but the country is now uninvestible owing to western sanctions that followed Russia’s invasion of Ukraine in 2022.
Similarly, western companies have limited opportunities to invest in the Middle East, where national oil companies dominate. Europe, meanwhile, has limited natural resources and strict environmental regulation.
The multinational nature of oil and gas companies means they have plenty of experience dealing with tax uncertainty, but shifting tax policies tend to delay investments. Company boards require long-term confidence to proceed with large, multi-decade capital projects such as oil and gas fields or LNG plants.
The industry’s confidence in the United States was already shaken under Trump’s predecessor, Joe Biden, who in 2020 revoked a construction permit for the Keystone XL pipeline . The Biden administration also paused approvals for new LNG projects in 2024 because of climate concerns.
Trump lifted the pause when he entered the White House.
Shell and BP’s 2024 revenue
A HEAVY BLOW
According to Section 899, multinational companies could face a new tax on dividends sent overseas and inter-company loans, potentially reducing profit.
The Gulf of Mexico accounted for about 10% of Shell’s 2024 free cash flow of $40 billion, it said in a presentation. That means that Section 899 could shave $800 million from its free cash flow per year from Gulf of Mexico operations alone.
BP made about $1.5 billion in free cash flow in the United States last year, Reuters calculations show. A 20% dividend tax could translate into a $300 million loss in free cash flow.
Faced with the worsening fiscal terms, companies could opt to direct funds away from the United States.
Though options for deploying capital elsewhere on a similar scale are limited, companies could choose to spread their investments more widely. Such a scenario could be a boon for countries such as Canada, Brazil, Mozambique and Namibia, which have large untapped natural resources.
Another option would be for companies to transfer their headquarters and listings to the United States – a costly and politically complicated option. Shell previously contemplated such a move to boost its share value, though it appears to have abandoned the idea.
Ultimately, it is very likely that the Senate would push to modify Section 899 or limit its scope, given the potential far-reaching impact on many sectors. But barring a radical change, Section 899 poses a huge risk for European oil and gas giants that are heavily dependent on the United States.
Achieving the Trump administration’s energy dominance agenda will almost certainly require more foreign investment, not less, so if the CEOs of European energy companies complain loudly enough, the president may well listen to them.
The opinions expressed here are those of the author, a columnist for Reuters.
Ron Bousso Editing by David Goodman
Our Standards: The Thomson Reuters Trust Principles. , opens new tab
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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Iran oil doomsday in Hormuz may be more fear than reality
U.S. strikes on Iran could lead Tehran to disrupt vital exports of oil and gas from the region. But history tells us that any disruption would likely be short-lived. Iran could attempt to lay mines across the Strait of Hormuz, which is 55 km (34 miles) wide at its narrowest point. The country’s army or the paramilitary Islamic Revolutionary Guard Corps (IRGC) could also try to strike or seize vessels in the Gulf, a method they have used on several occasions in recent years. Iran-Iraq war, the two sides engaged in the so-called “Tanker Wars” in the Persian Gulf, flared up again at the end of 2007 in a series of skirmishes between the Iranian and U.S.-led navies. Iran and Iraq have been at odds since the 1980s over control of the S.A.E.R. and the Falklands War of 1982-83. Iran has tried to block the Strait several times in the past but has never been successful.
Summary US strikes on Iran spur fear of disruption to Middle East oil exports
Iran able to block the Strait of Hormuz, has tried in the past
Disruptions likely to be met by swift response from US Navy
LONDON, June 22 – U.S. strikes on several Iranian nuclear sites represent a meaningful escalation of the Middle East conflict that could lead Tehran to disrupt vital exports of oil and gas from the region, sparking a surge in energy prices. But history tells us that any disruption would likely be short-lived.
Investors and energy markets have been on high alert since Israel launched a wave of surprise airstrikes across Iran on June 13, fearing disruption to oil and gas flows out of the Middle East, particularly through the Strait of Hormuz , opens new tab , a chokepoint between Iran and Oman through which around 20% of global oil and gas demand flows.
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Benchmark Brent crude prices have risen by 10% to over $77 a barrel since June 13.
While Israel and Iran have targeted elements of each other’s energy infrastructure , there has been no significant disruption to maritime activity in the region so far.
But President Donald Trump’s decision to join Israel by bombing three of Iran’s main nuclear sites in the early hours of Sunday could alter Tehran’s calculus. Iran, left with few cards to play, could retaliate by hitting U.S. targets across the region and disrupting oil flows.
While such a move would almost certainly lead to a sharp spike in global energy prices, history and current market dynamics suggest any move would likely be less damaging than investors may fear.
Geopolitics and oil prices
CAN THEY DO IT?
The first question to ask is whether Iran is actually capable of seriously disrupting or blocking the Strait of Hormuz.
The answer is probably yes. Iran could attempt to lay mines across the Strait, which is 55 km (34 miles) wide at its narrowest point. The country’s army or the paramilitary Islamic Revolutionary Guard Corps (IRGC) could also try to strike or seize vessels in the Gulf, a method they have used on several occasions in recent years.
Moreover, while Hormuz has never been fully blocked, it has been disrupted several times.
During the 1980s Iran-Iraq war, the two sides engaged in the so-called “Tanker Wars” in the Gulf. Iraq targeted Iranian ships, and Iran attacked commercial ships, including Saudi and Kuwaiti oil tankers and even U.S. navy ships.
Following appeals from Kuwait, then-U.S. President Ronald Reagan deployed the navy between 1987 and 1988 to protect convoys of oil tankers in what was known as Operation Earnest Will. It concluded shortly after a U.S. navy ship shot down Air Iran flight 655, killing all of its 290 passengers on board.
Tensions in the strait flared up again at the end of 2007 in a series of skirmishes between the Iranian and U.S. navies. This included one incident where Iranian speedboats approached U.S. warships, though no shots were fired.
In April 2023, Iranian troops seized the Advantage Sweet crude tanker, which was chartered by Chevron, in the Gulf of Oman. The vessel was released more than a year later.
Iranian disruption of maritime traffic through the Gulf is therefore certainly not unprecedented, but any attempt would likely be met by a rapid, forceful response from the U.S. navy, limiting the likelihood of a persistent supply shock.
Mideast Gulf monthly oil exports
HISTORY LESSON
Indeed, history has shown that severe disruptions to global oil supplies have tended to be short-lived.
Iraq’s invasion of neighbouring Kuwait in August 1991 caused the price of Brent crude to double to $40 a barrel by mid-October. Prices returned to the pre-invasion level by January 1992 when a U.S.-led coalition started Operation Desert Storm, which led to the liberation of Kuwait the following month.
The start of the second Gulf war between March and May 2003 was even less impactful. A 46% rally in the lead-up to the war between November 2002 and March 2003 was quickly reversed in the days preceding the start of the U.S.-led military campaign.
Similarly, Russia’s invasion of Ukraine in February 2022 sparked a sharp rally in oil prices to $130 a barrel, but prices returned to their pre-invasion levels of $95 by mid-August.
These relatively quick reversals of oil price spikes were largely thanks to the ample spare production capacity available at the time and the fact that the rapid oil price increase curbed demand, says Tamas Varga, an analyst at oil brokerage PVM.
Global oil markets were also rocked during the 1973 Arab oil embargo and after the 1979 revolution in Iran, when strikes on the country’s oilfields severely disrupted production. But those did not involve the blocking of Hormuz and were not met with a direct U.S. military response.
OPEC spare oil production capacity
SPARE CAPACITY
The current global oil market certainly has spare capacity. OPEC+, an alliance of producing nations, today holds around 5.7 million barrels per day in excess capacity, of which Saudi Arabia and the United Arab Emirates hold 4.2 million bpd.
The concern today is that the vast majority of the oil from Saudi Arabia and the UAE is shipped via the Strait of Hormuz.
The two Gulf powers could bypass the strait by oil pipelines, however. Saudi Arabia, the world’s top oil exporter, producing around 9 million bpd, has a crude pipeline that runs from the Abqaiq oilfield on the Gulf coast in the east to the Red Sea port city of Yanbu in the west. The pipeline has capacity of 5 million bpd and was able to temporarily expand its capacity by another 2 million bpd in 2019.
The UAE, which produced 3.3 million bpd of crude oil in April, has a 1.5 million bpd pipeline linking its onshore oilfields to the Fujairah oil terminal that is east of the Strait of Hormuz.
But this western route could be exposed to attacks from the Iran-backed Houthis in Yemen, who have severely disrupted shipping through the Suez Canal in recent years. Additionally, Iraq, Kuwait and Qatar currently have no clear alternatives to the strait.
It is possible that Iran will choose not to take the dramatic step of blocking the strait in part because doing so would disrupt its own oil exports. Tehran may also consider any further escalation fruitless in light of U.S. involvement and will instead try to downplay the importance of the U.S. strikes and come back to nuclear negotiations.
In the meantime, spooked energy markets, fearing further escalation, are apt to respond to the U.S. strikes with a sharp jump in crude prices. But even in a doomsday scenario where the Strait of Hormuz is blocked, history suggests markets should not expect any supply shock to be persistent.
Ron Bousso; Editing by Helen Popper
Our Standards: The Thomson Reuters Trust Principles. , opens new tab
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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