30 April 2026 - 1:00pm
This week, news broke that BP is expected to post a bumper profit this quarter. The announcement is likely to grate with British motorists. With petrol prices still stubbornly high, at over £1.50 per litre, it sits uneasily that a major energy company is reporting such strong earnings while consumers continue to face elevated costs at the pump. Some labelled the profits an “outrage” and suggested that BP should not be making such an extreme profit while consumers suffer.
But there is a fundamental confusion in this narrative. Wholesale prices rise in response to a supply shock: petrol and diesel are refined from crude oil, which trades on a global market, and those input costs are passed through to the pumps. The puzzle is this: if retailers are largely just transmitting higher wholesale costs downstream, why do firms in the middle of the chain appear to be making outsized profits at the same time?
In reality, two strands of the corporation are being conflated: BP’s UK retail fuel network on the one hand, and its global upstream oil and gas business on the other. Disruption in the Strait of Hormuz has constrained exports from the Gulf, which accounts for a significant share of global oil supply. That tightening has lifted the price of crude produced elsewhere. BP is a major producer in its own right, with operations spanning the US, Angola, Azerbaijan, and the North Sea. The higher margins generated by its upstream production in these regions more than offset any losses or pricing pressure in parts of its downstream or Gulf-facing operations.
BP has not released any specific figures relating to the financial performance of its British fuel retail operations. Across the industry, petrol retail margins tend to come under pressure when prices are high, as increased wholesale costs are not fully passed through at the pump and demand often becomes more price-sensitive. Fuel retailers’ margins are normally in the range of 8 to 11 pence per litre, but this tends to get squeezed by higher wholesale costs.
BP owns no refineries in the UK, so its fuel stations in Britain either have to buy in from one of the four operational refineries — Hawley, Humber, Stanlow or Pembroke — or buy imported fuel. But the company adheres to arms-length pricing policies mandated by internationally recognised OECD principles. This means that fuel stations must buy at market pricing, even from refineries operated by another part of their own company. These rules stop companies from shifting profits from one country to another in order to avoid taxes.
In other words, BP’s British stations are in the same position as any other fuel retailer. They are stuck buying at the market price and passing it on to motorists with a small margin.
Nevertheless, the company’s headline profit figures are still likely to provoke public anger, along with renewed political pressure to reduce costs for consumers. In recent years, successive governments have reinforced the perception that it is unacceptable for companies to generate large profits during periods of scarcity or crisis. This is often framed in terms of “price gouging”, and it has increasingly come to be seen as part of the state’s role to shield consumers from such outcomes. As a result, we now have a permanent “cap” on domestic energy prices, and in the early weeks of the Iran war the Government pretty much openly accused fuel retailers of profiteering.
By indulging in this kind of populist rhetoric, the Government has created a rod for its own back. Having sensed pressure from its own backbenchers to take some sort of action against BP and other international oil companies with petrol stations in Britain, Prime Minister Keir Starmer and Energy Secretary Ed Miliband have both emphasised the role of the UK Energy Profits Levy (the “windfall tax”), which they insist will ensure fairness. They are clearly hoping that their colleagues on the Left do not notice the fact that the levy will only apply to profits from BP’s North Sea production — a trivial percentage of the total. The rest of the profits relate to worldwide income, and companies pay their taxes where the profits are deemed to have been made. Unfortunately for Starmer, the vast majority of BP’s global revenues are not within the remit of HMRC.
The one practical measure that could ease pressure on motorists, and which sits within the Chancellor’s control, would be a cut in fuel duty. Alongside VAT, it makes up a large share of the price at the pump. But such a move would be politically difficult and unlikely to go down well with Labour Party members or backbench MPs.
There are no simple solutions to high fuel prices, and most interventions tend to shift costs or create new problems elsewhere. Efforts to claw back what are seen as excess profits from companies such as BP risk following the same pattern, proving politically attractive but economically and fiscally complicated in practice.
Chris Bayliss is an independent consultant who works on energy infrastructure in the Middle East.
baylissbaghdad
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
Subscribe