Elevated oil prices are driving up tax collections in states such as Alaska, New Mexico and Texas, delivering a windfall that will help lawmakers fund state services. 

In Alaska this year, a spike in oil-related tax collections eliminated a major budget hole and may generate a surplus for Fiscal Year 2026, which ended on June 30. Under the budget enacted in May, surplus dollars will be spent on cash payments for households, grants for schools, heating fuel loans for communities and state savings. 

State analysts estimated in March that Alaskan oil would sell for an average $75.26 a barrel in FY 2026. It’s now looking like prices will average just under $80 a barrel, said Dan Stickel, chief economist for the Alaska Department of Revenue. 

“Prices went up higher than we thought they would, and then they’ve come down faster than we thought they would,” he said. “At this point, it looks like we’re tracking a little over forecast.”

States directly raise money from fossil fuel extraction in two ways. They earn royalties from mineral leases on federal or state-owned land and tax the value of minerals “severed” from the earth. States also raise money indirectly, such as by taxing oil and gas company profits. 

Severance tax revenues comprised more than half the tax dollars Alaska and North Dakota collected in FY 2024, and more than a quarter of the money New Mexico and Wyoming collected that year, according to the Pew Charitable Trusts, a nonprofit based in Washington, D.C. 

The taxes comprised 5%-10% of revenues in Louisiana, Montana, Oklahoma, Texas and West Virginia, Pew found. Most state fiscal years begin on July 1. Texas’ fiscal year begins on Sept. 1.

Global oil prices have been on a rollercoaster since the United States and Israel launched air strikes on Iran in late February. The price of Brent crude oil, an international benchmark, has fluctuated along with military action. 

Future contract prices for Brent crude began the year at $61 a barrel. The price reached a high of $118 a barrel in late April, as fighting intensified; it hit a low of $72 a barrel in late June, after President Donald Trump and Iranian President Masoud Pezeshkian signed an agreement to end the war; and it then rebounded to over $80 a barrel in July, after hostilities resumed.

Oil-related revenues are generally coming in higher than lawmakers expected when they approved FY 2026 budgets.

Texas’s oil production tax raised $5.35 billion through the first 11 months of FY 2026, 9.7% more than expected, according to August state data. The tax raised $736 million in June, the largest monthly total for the tax on record. 

North Dakota has collected $2.5 billion in oil and gas revenues so far this biennium, 12% more than expected, according to July state data.  

New Mexico analysts expect the state to collect $500 million more than expected across FY 2026 and 2027 due to high oil prices, Brendon Gray, an economist for the Legislative Finance Committee, told lawmakers in late June, the Santa Fe New Mexican reported. The extra money will flow into various state endowment funds.

“The entire revenue context changed basically overnight at the onset of the Iran conflict,” Gray said then.