America-Last and Planet-Last: How U.S. Tax Policy Subsidizes Oil and Gas Extraction Abroad

US oil and gas companies pay significantly more tax to foreign petrostates than to the US federal government. In a particularly stark example, ExxonMobil reported paying nearly five times as much tax to the United Arab Emirates as to the US federal government in 2023 and 2024.

Exxon is not alone. American oil and gas companies with foreign operations are undertaxed in the US relative to the scale of their domestic oil and gas production and other key metrics. These companies’ low average tax rates are tied to several industry-specific tax breaks, including policies that specifically subsidize drilling abroad. These tax subsidies reduce much-needed US public revenues, exacerbate the climate crisis, and undermine American energy independence, all without creating new domestic jobs or lowering energy prices for American consumers.

This report analyzes the financial disclosures of 11 American oil and gas companies engaged in fossil fuel exploration and extraction abroad. It analyzes the taxes they report paying, the preferential tax treatment they receive as a result of aggressive lobbying efforts, and the payments they make to foreign governments.

US Treasury budget analysis has identified $35 billion in tax preferences for domestic fossil fuels, including: immediate expensing of intangible drilling costs, use of percentage depletion for oil and gas wells, and others. On top of this, recent tax reform legislation in 2025 has added nearly $20 billion in further tax breaks for domestic fossil fuel companies.

The US tax code is also generous in subsidizing oil and gas companies for their projects abroad. Such subsidies add up to nearly $75 billion, according to the most recent government estimates. To eliminate these international tax breaks, Congress must:

• End the favorable tax treatment of certain foreign fossil fuel income. This will be achieved by eliminating the exception for “foreign oil and gas income” (FOGEI) from the US minimum tax on foreign income (formerly known as GILTI) and treating “foreign oil related income” (FORI) as Subpart F income to ensure that it is taxable at the full corporate rate.
• Reduce the ability of oil and gas companies to exploit murky foreign tax credit rules by improving clarity. Currently, oil and gas companies have too much discretion in claiming tax credits for payments they make to foreign governments that are not necessarily consistent with normal income taxes applied to companies in other business sectors. Congress should close this loophole and draw a clear line to provide that oil and gas companies cannot claim more in foreign tax credits beyond what they owe under a generally applicable income tax.

Taken together, these changes would have the effect of making the tax treatment of foreign fossil fuel income more equal to domestic fossil fuel income, promoting US energy independence and national security. Recent polling shows that Americans overwhelmingly agree that “the US tax code should support US energy security, rather than subsidizing the development of foreign oil and gas projects.” 

In addition, Congress must:

• Reform the taxation of US companies’ foreign profits to discourage the abuse of tax havens and end the global race to the bottom on corporate taxes
• Improve corporate tax transparency by mandating public country-by-country reporting