{"id":391655,"date":"2026-04-22T06:18:13","date_gmt":"2026-04-22T06:18:13","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/391655\/"},"modified":"2026-04-22T06:18:13","modified_gmt":"2026-04-22T06:18:13","slug":"when-oil-prices-spike-where-does-the-money-go","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/391655\/","title":{"rendered":"When oil prices spike, where does the money\u00a0go?"},"content":{"rendered":"

By\u00a0Matthew E. Oliver & Tibor Besede\u0161*<\/p>\n

The market for oil is global, which is why events like the war in Iran affect oil prices \u2013 and prices of the wide range of products made from oil \u2013 literally everywhere. Federal data shows that the price at the primary crude oil hub in the U.S. was US$66 a barrel in late February 2026<\/a> \u2013 before the U.S. and Israel attacked Iran \u2013 and $101 a barrel on April 13. Similar price increases<\/a> have reverberated around the globe.<\/p>\n

As an energy economist<\/a> and an international trade economist<\/a>, we field a lot of questions during such episodes, because when oil prices go up, manufacturers, businesses and ultimately consumers pay more<\/a>.<\/p>\n

Some basic economics<\/p>\n

Crude oil may be the most important commodity in the global economic system.<\/p>\n

It\u2019s a literal fuel for the industrial economy. It powers the engines that drive transportation and paves the roads<\/a> vehicles drive on. It\u2019s a source for plastics<\/a> from which the world\u2019s products get made and packaged, and a key ingredient at some point in almost every supply chain<\/a>. Even fertilizers that boost the food supply<\/a> are made from it. In short, it is difficult to imagine modern life without oil and its derivatives<\/a>.<\/p>\n

And when its supply changes, its price changes. Economists explain this using a fundamental model of our field: the supply-demand<\/a> diagram. When there\u2019s less of something to go around, competition among consumers who want it and companies that need it can drive the price up.<\/p>\n

\"A<\/a><\/p>\n

In general, when supply of a product is reduced, prices rise. As a result, even when demand remains stable, the quantity consumers buy decreases because of higher prices. Matthew E. Oliver and Tibor Besede\u0161, CC BY-NC-ND<\/a>.<\/p>\n

Sometimes this process can play out over time, allowing people to adjust their purchasing or activities to dampen price shocks. But when a significant source of the world\u2019s oil is effectively blocked without much advance notice, such as when the the U.S. and Israeli attacks on Iran closed the Strait of Hormuz<\/a>, prices can rise sharply in a short period of time.<\/p>\n

A natural question many people ask when oil prices spike is: Where does all that additional money go, and who benefits from it?<\/p>\n

Some people have written<\/a> entire<\/a> books<\/a> dissecting all the places that money goes when it leaves consumers\u2019 pockets. But ultimately, the bulk of the money heads in the direction of the source of the oil itself \u2013 the oil companies.<\/p>\n

What they do with the money varies widely, depending on where in the world an oil company is operating and who owns it. What also matters is the business environment \u2013 the set of laws and regulations \u2013 in which the company operates.<\/p>\n

\"An<\/a><\/p>\n

A satellite photo shows damage from the war at Saudi Arabia\u2019s Ras Tanura oil refinery, which must be repaired before full operations can resume. Satellite image (c) 2026 Vantor via Getty Images<\/a>.Middle East faces danger<\/p>\n

Oil producers in the Middle East face significant new risk because of the war in Iran, including threats to production, processing locations and shipping routes. These risks raise their costs for insurance, security and transportation<\/a>.<\/p>\n

But production costs in the region<\/a> are relatively low, so higher global oil prices typically still translate into strong profits.<\/p>\n

For a major exporter such as Saudi Arabia, the government owns and controls nearly all oil production<\/a>, so high prices generally benefit the government\u2019s finances and investments, even during a war. In Saudi Arabia, oil revenue has historically been used to fund public spending<\/a>.<\/p>\n

West Texas gets a windfall<\/p>\n

The Permian Basin<\/a>, the largest oil field in the U.S., is a long way from the Persian Gulf. When global oil prices rise because of the war in Iran, oil companies operating in West Texas effectively get a windfall gain: Prices rise more quickly than costs, at least in the short run.<\/p>\n

The immediate effect is more income from higher prices. The money largely goes to company owners<\/a> \u2013 meaning shareholders \u2013 through dividends, debt reduction, company-backed purchases of its own stock, and reinvestment in drilling and production. Over time, companies may decide to spend some of that windfall on building more production capacity or pipelines to get more oil and gas to market<\/a>.<\/p>\n

\"A<\/a><\/p>\n

Drilling rigs in the North Sea are still operating and shipping oil. AP Photo\/James Brooks<\/a>.North Sea boosts government revenue<\/p>\n

In the North Sea, between the island of Great Britain and Scandinavia, a mix of multinational and government-owned companies produce most of the oil.<\/p>\n

In the U.K., private shareholders are the primary beneficiaries of higher profits from increased oil prices, though an additional tax on oil and gas companies\u2019 profits<\/a> means the government also collects a significant share of the money, which it uses to help pay public expenses.<\/p>\n

In Norway, oil revenues flow into the Government Pension Fund Global<\/a>, the world\u2019s largest sovereign wealth fund, valued at over $2 trillion. Laws govern how much, and for what purposes, money can be withdrawn from the fund, supporting public spending and preserving wealth<\/a> for future generations. This is a similar model to Alaska\u2019s state-owned program<\/a>, funded by oil revenue, that pays for government services and sends an annual dividend to every permanent resident.<\/p>\n

Russian oligarchs get rich<\/p>\n

Russian oil is subject to stringent economic sanctions<\/a> imposed by major industrial countries as a response to the Russian invasion and occupation of parts of Ukraine. While the U.S. cannot control how much Russia charges for its oil, it can control services needed to move Russian oil around the world. Under current price sanctions, Western shipping, insurance and financing can be used to ship and sell Russian crude oil only if the price is below $60 per barrel<\/a>.<\/p>\n

Russia\u2019s oil industry is dominated by government-controlled companies whose leaders maintain close ties<\/a> to President Vladimir Putin. The dealings of those shadowy figures are often shrouded in secrecy, but it is likely that they and Putin\u2019s military-industrial complex<\/a> \u2013 not the Russian people \u2013 are the main beneficiaries of high oil prices.<\/p>\n

What this means for you<\/p>\n

Everyday U.S. consumers may not like the idea of their hard-earned cash going into the already deep pockets<\/a> of any of these groups. But in the short run, there\u2019s not much to do but pay the price. For the long run, however, people around the world are already thinking and talking about, and opting for, sources of energy that don\u2019t depend on fossil fuels<\/a>.\"The<\/p>\n

*Matthew E. Oliver<\/a>, Associate Professor of Economics, Georgia Institute of Technology<\/a> and Tibor Besede\u0161<\/a>, Professor of Economics, Georgia Institute of Technology<\/a>.<\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"By\u00a0Matthew E. Oliver & Tibor Besede\u0161* The market for oil is global, which is why events like the…\n","protected":false},"author":2,"featured_media":391656,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[138,111,139,69],"class_list":{"0":"post-391655","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-business","9":"tag-new-zealand","10":"tag-newzealand","11":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/391655","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=391655"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/391655\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/391656"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=391655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=391655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=391655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}