How did the U.S. become the world’s largest oil producer? We examine the changes in the energy market brought about by the shale oil revolution and its impact on the global economy.
Which country is the world’s largest oil producer?
The economy cannot function without energy. Energy is required for everything: running factories to produce goods, loading those goods onto trucks and ships to export them abroad, people commuting to work at companies, and opening stores to sell products to customers. Therefore, without energy sources such as oil, coal, and natural gas, a nation’s economy cannot function. This is why every country stakes its very survival on securing a stable energy supply.
So, which country produces the most oil in the world? Most ordinary people, who rarely think about oil except when filling up their cars at gas stations, immediately think of Middle Eastern countries. The image of drilling equipment moving up and down like a seesaw to extract oil from endless sandy deserts is the classic image of an “oil-producing country.” So, is the world’s largest oil-producing country Saudi Arabia, which has the highest oil production among Middle Eastern nations?
No. While Saudi Arabia is undoubtedly a major player in the global oil market, it ranks third among oil-producing countries (as of February 2025). The country ranked one spot higher than Saudi Arabia is Russia. Russia became an oil-producing nation in 1879 when the Tsar (the title for the Russian emperor) developed the Baku oil fields near the Caspian Sea, and it has never relinquished its status as a major oil producer since then.
Shale Oil: America’s New Weapon
If Saudi Arabia is third and Russia is second, then which country is the world’s largest oil producer? Is it Venezuela, often cited as having the world’s largest oil reserves? Or is it Iran, a major oil-producing nation in the Middle East? Neither. The world’s top oil-producing country is none other than the United States. According to data released by the U.S. Energy Information Administration (EIA), U.S. daily oil production in August 2018 stood at 11.346 million barrels. This figure is higher than that of Russia (11.21 million barrels). After catching up to Saudi Arabia in February 2018, the U.S. surpassed Russia just a few months later.
The U.S. has regained its status as the world’s top oil producer approximately 50 years after being overtaken by the former Soviet Union in 1974 and by Saudi Arabia in 1976. This is thanks to a more than twofold surge in oil production over the past decade. Given the rapidly increasing crude oil production, it is not unreasonable for the U.S. financial firm Citigroup to predict that U.S. net crude oil imports will eventually reach zero.
Of course, oil production can be increased or decreased based on the decisions of oil-producing governments and the energy industry. As seen in the cases of the first and second oil shocks of the 1970s, oil-producing nations have historically adjusted production levels to serve their political and economic interests. However, the recent rapid rise of the United States to the position of the world’s top oil producer is not due to such adjustments. It is not that they have decided to finally extract oil that was previously available but deliberately held back; rather, they have become able to extract oil from fields that were left untapped due to a lack of technology—even when extraction was desired—or from fields where production costs were too high to justify extraction, even with the necessary technology. They have become able to extract oil from shale rock layers, thanks to technological advancements known as the “shale revolution.”
Shale oil, which began flooding the market in 2013, is widely regarded as the driving force that will enable the United States to maintain its hegemony in international politics and economics for a long time to come. Shale oil was also the underlying factor that allowed the United States to recently overturn the existing order of free trade and strongly push for “America First,” prioritizing its own interests. It was also thanks to shale oil that the U.S. was able to freely wield the heavy hammer of economic sanctions against oil-producing nations such as Iran, Venezuela, and Russia. With the energy supply issues that had previously held it back resolved, there was no longer any reason to be concerned about the international community’s reaction.
When your bank account is well-stocked, you can speak with confidence wherever you go without worrying about others’ opinions. The same applies to nations. By filling its oil reserves without relying on others through shale oil, the United States has been able to further solidify the establishment of a new international order (Pax Americana). So, let’s explore what exactly shale oil—this new weapon for the U.S.—is, and how it will influence the global economy in the future.
The U.S. economy has experienced significant hardship due to two oil shocks in the 1970s. In October 1973, Arab oil-producing nations drastically cut oil production, citing the Fourth Middle East War as a pretext. The volume of oil exported to the U.S. also dropped sharply, and as production declined, oil prices skyrocketed. The official price of crude oil, which had hovered around $3 per barrel just before the decision to cut production, jumped to $11.65 by the end of that year—a nearly fourfold increase. As oil prices quadrupled in just two months, reaching a point where oil was unavailable even with money, severe recession and inflation swept across the global economy. Even the United States, then the world’s leading superpower, could not escape the fallout. In 1979, the Iranian Revolution triggered a second oil crisis that engulfed the entire world. The severity of the situation is evident at a glance when examining the decline in stock indices of major countries during the first and second oil crises. During the first oil crisis, the stock index of the United States—then the world’s leading superpower—plummeted by nearly 30%.
In the early stages of the first oil crisis, then-U.S. President Richard Nixon declared “energy independence” to the public, vowing to prevent such energy shortages from recurring, but the situation remained unchanged. This was because, in a situation where a significant portion of oil consumption relied on imports, there was no clear solution. In fact, dependence on foreign oil continued to rise even after the first and second oil shocks. In 1973, when the first oil shock struck, the U.S. imported 35% of its oil consumption, but by 2005, this proportion had actually increased to 60%. Although the United States has dominated the world with its formidable military power and the dollar as the reserve currency, energy supply and demand issues have consistently remained its Achilles’ heel.
Energy Independence Is Within Reach
However, the situation has changed. In 2017, U.S. oil imports fell to 19% of total consumption. This sharp drop in dependence on foreign oil was made possible by the shale revolution. Unlike conventional crude oil, shale oil is not concentrated in a single oil field. It is oil trapped deep underground within the cracks of rock, found in shale rock layers—formed from hardened mud—hence the name “shale oil.” Extracting shale oil requires a different method than conventional crude oil. While conventional crude involves simply drilling vertically down to the oil reservoir and pumping it up, shale oil is different. While the process of drilling vertically down to the shale layer containing the oil is the same, once the shale layer is reached, the well must be drilled horizontally.
Most importantly, shale oil does not sit in a liquid pool like conventional crude oil. Simply put, the oil is mixed in with the rock. To extract the oil, the rock must first be fractured to release the shale oil and shale gas that seep out. Because the extraction process is complex, the costs were high: while traditional crude oil costs less than $20 per barrel to extract, shale oil required $30 to $50 per barrel. Consequently, although the technology to extract shale oil was developed over 20 years ago, it wasn’t commercially viable at the time, so extraction didn’t take place. However, as time passed, extraction technology advanced and international oil prices rose steadily, making it possible to turn a profit from shale oil production.
Shale oil began flooding the U.S. market in earnest starting in 2013. Since then, as energy supply and demand issues were resolved, the U.S. gained confidence. U.S. President Donald Trump repeatedly stated his intention to achieve complete U.S. energy independence, even during his campaign.
“Imagine a world where America’s enemies can no longer use energy as a weapon. Isn’t that great? (…) By the time I finish my term as president, the United States will have achieved complete energy independence.”
These were the words President Trump shouted at an energy conference held in North Carolina in May 2016, while his election campaign was in full swing. And this bold promise became a reality after he was elected president. According to the U.S. Energy Information Administration, daily U.S. crude oil production rose from 8.46 million barrels in September 2016 to 11.5 million barrels in November 2018. This marked the return of the United States as the world’s largest oil producer for the first time in decades.
Since President Trump took office, the U.S. has begun imposing simultaneous economic sanctions on major oil-producing nations such as Russia, Iran, and Venezuela. Even for the world’s most powerful nation, the U.S., this would have been a difficult decision to make had it remained as dependent on external energy supplies as in the past. Regarding Russia, the U.S. imposed a series of stringent sanctions citing reasons such as the illegal annexation of Crimea, support for the Syrian government, allegations of interference in the 2016 U.S. presidential election, and involvement in the attempted assassination of a former Russian spy in the UK.
In August 2018, the U.S. announced economic sanctions targeting Iran. These were high-level sanctions that applied not only to the U.S. but also to companies and individuals in third countries. The core of the economic sanctions is to completely block Iran’s exports of crude oil and petroleum products. The sanctions also include provisions preventing foreign companies and individuals from using vessels operated by Iranian shipping companies or conducting financial transactions with the Central Bank of Iran. Trade with Iran involving gold, precious metals, coal, and automobiles was also prohibited, and measures were included to prevent Iran from obtaining U.S. dollars. These were such stringent measures that not only U.S. companies and individuals but also those from third countries would face sanctions if they violated these policies. The sanctions are assessed as aimed at cutting off Iran’s financial lifeline and, furthermore, blocking crude oil exports—the lifeblood of the Iranian economy. The rationale for the sanctions is that Iran has not ceased its attempts to develop nuclear missiles even after joining the 2015 nuclear agreement.
Venezuela also faced U.S. economic sanctions against 70 high-ranking officials, including President Nicolás Maduro, on the grounds that he was committing acts of dictatorship and electoral fraud.
The shale revolution provided the backdrop that allowed the U.S. to simultaneously contain major oil-producing nations in this manner. In the past, there is a very high probability that international oil prices would have skyrocketed as soon as sanctions aimed at completely blocking Iranian oil exports were announced. This would have inevitably had a negative impact on the U.S. economy as well. After all, the U.S. president is also a politician who must secure the support of the American people. In the past, the administration would have had no choice but to agonize over imposing economic sanctions on oil-producing nations. However, now that the U.S. can meet approximately 80% of its domestic consumption with oil produced within its own borders, there is significantly less reason to hesitate when imposing economic sanctions on oil-producing nations.
The power of U.S. shale oil was clearly demonstrated during the trade war with China throughout 2018. In August 2018, when the U.S.-China trade war reached its peak, the Chinese government had originally planned to impose 25% retaliatory tariffs starting at the end of that month. However, it decided to exclude crude oil from the list of U.S. imports subject to these tariffs. According to the U.S. Energy Information Administration, China imported 16 million barrels of U.S. crude oil in June 2018 alone. This was the highest volume since 1996. China, which imports 70% of its energy needs from abroad, is one of the largest importers of U.S. crude oil. While China could impose retaliatory tariffs on other U.S. energy products such as liquefied natural gas (LNG), diesel, and gasoline, it was in a position where it could not do so for crude oil.
The surge in U.S. crude oil production has provided a foundation for the U.S. economy to significantly reduce its dependence on foreign energy, while also serving as a new tool to help maintain its hegemony. This means that shale oil has been added as a new weapon to the military power and the U.S. dollar that previously underpinned American strength. With the ability to produce its own oil, the United States has become a nation that lacks nothing. To put it somewhat hyperbolically, one could even say that there are no longer any goods it absolutely must import from other countries.
It is also because of shale oil that the United States has abandoned its free-trade policy and turned toward protectionism. Now, the main concern for President Trump is to impose high tariffs on manufactured goods imported from other countries, in accordance with the demands of his core constituency: white manufacturing workers. His decision to withdraw from the TPP and his efforts to renegotiate major agreements such as NAFTA and the Korea-U.S. FTA can also be understood in this context.
