How did the U.S. become the world’s largest oil producer? We look at the changes in the energy market and the impact of the shale oil revolution on the global economy.
Which country is the world’s biggest oil producer?
The economy cannot function without energy. Everything requires energy, such as running factories to make products, loading them onto cars and ships to be exported abroad, people going to work in companies, and stores selling products to customers. Therefore, a country’s economy cannot function without energy such as oil, coal, and gas. That is why all countries fight for a stable supply of energy.
So which country produces the most oil in the world? Most ordinary people, who have no particular reason to think about oil except when they fill up their cars at gas stations, think first of the Middle Eastern countries. The typical image of an oil-producing country is of mining equipment bobbing up and down like a seesaw in a desert with endless stretches of sand to extract oil. So is Saudi Arabia the world’s biggest oil producer among the Middle Eastern countries?
No, it is not. Saudi Arabia is certainly a big player in the global oil market, but it is only the third largest oil producer in the world (as of February 2025). Russia is an oil-producing country that ranks one level higher than Saudi Arabia. Russia, which became an oil-producing country in 1879 when the Tsar (a title given to the Russian emperor) developed the Baku oil field near the Caspian Sea, has never since relinquished its status as a major oil-producing country.
Shale oil, a new weapon for the United States
If Saudi Arabia is third and Russia is second, which country is the world’s largest oil producer? Is it Venezuela, which is said to have the largest oil reserves in the world? Or is it Iran, a major oil producer in the Middle East? Neither. The number one oil producing country in the world is the United States. According to the US Energy Information Administration (EIA), the US produced 11.346 million barrels of oil per day in August 2018. This is higher than Russia’s 11.21 million barrels. After overtaking Saudi Arabia in February 2018, the U.S. has now surpassed Russia in a matter of months.
After being overtaken by the former Soviet Union in 1974 and Saudi Arabia in 1976, the U.S. regained its status as the largest oil producer in about 50 years. This was due to a more than doubling of oil production in the last decade. It is not unreasonable for Citigroup, a U.S. financial company, to expect that the U.S. will become a net importer of crude oil in the future, given the rapidly increasing amount of crude oil production.
Of course, oil production can be increased or decreased depending on the judgment of oil-producing countries and the energy industry. As the examples of the first and second oil shocks in the 1970s show, oil-producing countries have adjusted their oil production in consideration of their political and economic interests. However, the recent rise of the United States to the top of oil production is not due to such adjustments. It is not that we have decided to finally extract the oil that we have been saving for extraction, but that we have been able to extract oil from oil fields that we have been neglecting because we did not have the technology to extract them even if we wanted to, and even if we had the technology, the production costs were too high and we had no choice but to leave them alone. This has changed thanks to technological advances, known as the “shale revolution,” that have made it possible to extract oil from shale rock formations.
Shale oil, which began flowing in 2013, is expected to be the driving force behind the United States’ hegemony in international politics and economics for a long time to come. Shale oil was also behind the recent push for “America First” by the United States, which overturned the existing order of free trade and prioritized the interests of the United States. It was also thanks to shale oil that the United States was able to unleash the economic sanctions it was prepared to use against oil-producing countries such as Iran, Venezuela and Russia. With the energy supply and demand issues that had held it back for so long now resolved, there was no longer any need to look over its shoulder at the international community.
When you have a healthy bank account, you can speak confidently wherever you go without looking over your shoulder. The same goes for countries. With shale oil, the United States has been able to replenish its oil reserves without the help of others and further solidify the establishment of a new international order (Pax Americana). So what exactly is shale oil, which has become the new weapon of the United States, and how will it affect the global economy in the future?
The US economy suffered greatly from the two oil shocks of the 1970s. In October 1973, oil-producing countries in the Middle East drastically reduced oil production, citing the Fourth Arab-Israeli War. The amount of oil exported to the U.S. also dropped significantly, but as production dropped, the price of oil skyrocketed. The official price of crude oil, which had been hovering around $3 per barrel just before the decision to cut production, quadrupled to $11.65 by the end of the year. With the price of oil quadrupling in just two months, and people unable to buy oil even if they had the money, a severe recession and inflation hit the global economy. Even the United States, the most powerful country in the world, could not escape the effects. In 1979, the second oil shock hit the world, triggered by the Iranian revolution. The severity of the first and second oil shocks can be seen at a glance by looking at the rate of decline in the stock market indexes of major countries. During the first oil shock, the stock index of the United States, the most powerful country in the world, fell by nearly 30%.
In the early days of the first oil shock, Richard Nixon, who was the president of the United States at the time, declared “energy independence” to the people in an attempt to prevent a recurrence of such energy shortages, but the situation did not change. This was because there was no way to solve the problem when a large portion of oil consumption was dependent on imports. Dependence on foreign oil only increased after the first and second oil shocks. In 1973, when the first oil shock occurred, the United States imported 35% of its oil consumption, but by 2005 this had risen to 60%. The United States has been able to dominate the world with its powerful military and the dollar as its key currency, but the issue of energy supply and demand has always been its Achilles heel.
Energy independence is just around the corner
But things have changed. In 2017, U.S. oil imports fell to 19 percent of total consumption. It was the shale revolution that caused the country’s dependence on foreign oil to plummet. Shale oil is not oil that is collected in an oil field like conventional crude. It is oil trapped in rocks deep underground, and it is called shale oil because it is contained in shale rock formations, which are rocks formed by hardened mud. Extracting shale oil requires a different mining method than conventional crude oil. With conventional oil, it is simply a matter of digging vertically down into the oil field where the oil is collected and then pumping the oil up. This is not the case with shale oil. It is the same to drill vertically down to the shale layer containing oil, but after reaching the shale layer, the oil field must be dug out while moving horizontally.
First of all, shale oil is not in liquid form like regular crude oil. Simply put, it is a mixture of oil and rock. To extract the oil, the rocks must first be broken up and the shale oil and shale gas that seeps out must be extracted. Because the extraction method was complicated, the cost of extraction was high. While the cost of extracting conventional crude oil was less than $20 per barrel, the cost of extracting shale oil was $30 to $50 per barrel. So the technology to extract shale oil was developed more than 20 years ago, but it was not mined because it was not profitable. Over time, however, extraction technology improved and international oil prices rose steadily, making it profitable to extract shale oil.
Shale oil began to flood the US market in earnest in 2013. Since then, the US has gained confidence as the energy supply and demand problem has been solved. US President Donald Trump has repeatedly expressed his intention to achieve energy independence for the US since he was a candidate.
“Imagine a world where America’s enemies can no longer use energy as a weapon. Wouldn’t that be great? (…) By the time I finish my presidency, America will be completely energy independent.”
President Trump said at an energy conference in North Carolina in May 2016, when the election campaign was in full swing. And that 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. The U.S. has become the world’s largest oil producer again for the first time in decades.
Since President Trump took office, the U.S. has begun imposing economic sanctions on major oil producers such as Russia, Iran, and Venezuela. Even for the United States, the most powerful country in the world, it would have been a difficult decision to rely on external energy supplies as in the past. As for Russia, the EU has imposed a number of harsh sanctions on the country, including for its illegal annexation of Crimea, its support for the Syrian government, its alleged involvement in the 2016 U.S. presidential election, and its alleged involvement in the attempted assassination of a former Russian spy in the United Kingdom.
In August 2018, the EU announced economic sanctions against Iran. The sanctions were high-level, and applied to companies and individuals in the United States and other countries. The core of the economic sanctions is to block Iran’s exports of crude oil and petroleum products. The sanctions also prevent foreign companies and individuals from using ships owned by Iranian shipping companies or conducting financial transactions with the Central Bank of Iran. It also banned trade with Iran in gold, precious metals, coal, and automobiles, and included measures to prevent Iran from obtaining U.S. dollars. These measures were so strong that U.S. companies and individuals, as well as third-country companies and individuals, would be sanctioned if they violated them. It is believed that the measures would cut off Iran’s money supply and also prevent the export of crude oil, which is the lifeblood of the Iranian economy. The reason for the sanctions is that Iran has not stopped trying to develop nuclear missiles, even after joining the 2015 nuclear deal. Venezuela has also been subject to U.S. economic sanctions, with President Nicolas Maduro and 70 senior officials, including himself, targeted for their alleged dictatorship and fraudulent elections.
The shale revolution has provided the United States with a way to simultaneously control the major oil-producing countries. In the past, international crude oil prices would have skyrocketed as soon as sanctions were announced to block Iranian oil exports. This would have had a negative impact on the U.S. economy. The U.S. president is also a politician who needs the support of the people. In the past, the country would have had to think twice about imposing economic sanctions on oil-producing countries. But now that the country is able to meet about 80% of its consumption with domestically produced oil, there is much less reason to hesitate about imposing economic sanctions on oil-producing countries.
The power of American shale oil was well demonstrated during the 2018 trade war with China. In August 2018, when the US-China trade war was at its peak, the Chinese government had originally planned to impose a 25% retaliatory tariff from the end of that month. However, it decided to exclude crude oil from the list of American imports. According to the US Energy Information Administration, China imported 16 million barrels of US crude oil in June 2018, the highest amount since 1996. China, which imports 70 percent of its energy needs from abroad, is one of the largest importers of U.S. crude oil. The U.S. was able to impose retaliatory tariffs on liquefied natural gas (LNG), diesel, gasoline, and other U.S. energy sources, but not crude oil.
The surge in U.S. crude oil production has become a new means for the U.S. to lay the groundwork for reducing its energy dependence on foreign countries and maintaining its hegemony in the future. The U.S. has added a new weapon, shale oil, to the military power and the dollar that have previously underpinned the country’s strength. With the ability to produce its own oil, the United States is no longer a country to be envied. To exaggerate somewhat, the United States no longer has any products that it needs to import from other countries.
It was also because of shale oil that the United States abandoned its free trade policy and returned to protectionism. What President Trump needs to focus on now is imposing high tariffs on manufactured goods imported from foreign countries, as demanded by his voter base of white manufacturing workers. That is why he withdrew from the TPP and is working to amend major agreements such as NAFTA and the Korea-US FTA.
