How did the U.S. become the world’s largest oil producer? We examine the transformed energy market through the shale oil revolution and its impact on the global economy.
Where is the world’s largest oil producer?
The economy cannot function without energy. Energy is required for everything: running factories to produce goods, transporting these goods by car and ship for export, people commuting to work, and opening stores to sell products to customers. Therefore, without energy sources like oil, coal, and gas, a national economy cannot operate. This is why every country stakes its 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, first think of Middle Eastern countries. The image of drilling equipment bobbing up and down like a seesaw to extract oil from endless sandy deserts is the classic picture of an ‘oil-producing nation’. So, is Saudi Arabia, the largest oil producer among Middle Eastern countries, the world’s top oil-producing nation?
No. While Saudi Arabia is undoubtedly a major player in the global oil market, it ranks only third among oil-producing countries (as of February 2025). The oil-producing nation ranked one spot higher than Saudi Arabia is Russia. Russia, which became an oil-producing nation in 1879 when the Tsar (the title for the Russian emperor) developed the Baku oil field near the Caspian Sea, 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 where is the world’s largest oil-producing nation? Is it Venezuela, often cited as having the world’s largest proven oil reserves? Or is it Iran, a major Middle Eastern oil producer? Neither. The world’s top oil producer is the United States. According to data released by the U.S. Energy Information Administration (EIA), U.S. daily oil production reached 11.346 million barrels in August 2018. This figure surpasses Russia’s output (11.21 million barrels). After overtaking Saudi Arabia in February 2018, the U.S. surpassed Russia just a few months later.
The U.S. has reclaimed its position as the world’s largest oil producer nearly 50 years after being surpassed by the former Soviet Union in 1974 and Saudi Arabia in 1976. This is largely due to a more than twofold surge in oil production over the past decade. Given this rapid increase in crude oil output, it is not unreasonable for the U.S. financial firm Citigroup to predict that America’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 examples 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 as the world’s top oil producer is not due to such manipulation. It is not that they have finally decided to extract oil that was previously recoverable but deliberately held back. Rather, it is that they can now extract oil from fields that were previously abandoned due to insufficient technology, or fields that were too costly to produce even with the technology. This is the extraction of oil from shale rock layers, made possible by the technological advancement known as the ‘shale revolution’.
Shale oil, which began flowing in large quantities starting in 2013, is assessed to remain a driving force enabling the United States to wield hegemony in international politics and economics for a long time to come. Shale oil also underpinned the recent U.S. ability to strongly push its “America First” policy, prioritizing its own interests and overturning the existing order of free trade. It was also thanks to shale oil that the U.S. could freely wield the hammer of economic sanctions against oil-producing nations like Iran, Venezuela, and Russia. With the energy supply issue that had previously held it back resolved, there was no longer any reason to be overly mindful of the international community’s reactions.
When your bank account is plump, you can speak confidently anywhere 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 could more firmly establish a new international order (Pax Americana). So, what exactly is this shale oil that has emerged as America’s new weapon, and how will it impact the global economy going forward?
The U.S. economy has experienced significant hardship from two oil shocks in the 1970s. In October 1973, Arab oil-producing nations drastically reduced oil production, citing the Fourth Middle East War as justification. They also sharply cut oil exports to the U.S. As production fell, oil prices skyrocketed. The official crude oil price, which had hovered around $3 per barrel just before the production cut decision, surged to $11.65 by the end of that year—a nearly fourfold increase. With oil prices quadrupling in just two months, reaching a point where money couldn’t buy oil, a severe recession and inflation swept across the global economy. Even the United States, the world’s superpower, could not escape the fallout. In 1979, the Iranian Revolution triggered the second oil shock, engulfing the entire globe. The severity of the first and second oil shocks is immediately apparent when examining the stock market index declines in major countries. During the first oil shock, the stock market index of the United States, then the world’s superpower, plummeted by nearly 30%.
In the early stages of the first oil shock, then-U.S. President Richard Nixon declared ‘energy independence’ to the American people, vowing to prevent such energy shortages from recurring. Yet the situation remained unchanged. This was because, in a position heavily dependent on imports for a significant portion of its oil consumption, there was no clear solution. Dependence on foreign oil actually continued to rise even after the first and second oil shocks. In 1973, when the first oil shock hit, the U.S. imported 35% of its oil consumption, but by 2005, this proportion had increased to 60%. Despite wielding immense military power and the dollar as the world’s reserve currency to dominate the global stage, the United States’ energy supply issue remained a persistent Achilles’ heel.
Energy Independence Comes Within Reach
But the situation changed. By 2017, U.S. oil imports had dropped to just 19% of total consumption. This sharp decline in dependence on foreign oil was entirely due to the shale revolution. Shale oil isn’t like conventional crude, concentrated in a single oil field. It is oil trapped deep underground within rock formations, specifically within shale rock layers formed from hardened mud, hence the name shale oil. Extracting shale oil requires a different method than conventional crude. While conventional oil involves drilling vertically down to the reservoir and pumping the oil up, shale oil is different. While drilling vertically down to the shale layer containing the oil is the same, once reaching the shale layer, the drill must move horizontally to extract the oil.
Most importantly, shale oil isn’t stored in liquid form like conventional crude oil. Simply put, it’s oil mixed within the rock. To obtain the oil, the rock must first be fractured to release the shale oil and shale gas seeping out. The complex extraction method made it expensive. While traditional crude oil extraction costs less than $20 per barrel, shale oil extraction required $30 to $50 per barrel. Therefore, although the technology to extract shale oil was developed over 20 years ago, it remained unprofitable and was not exploited. However, as time passed, extraction technology advanced further, and international oil prices steadily rose, making shale oil production profitable.
Shale oil began flooding the U.S. market in earnest starting in 2013. As energy supply issues were resolved, the U.S. gained confidence. U.S. President Donald Trump repeatedly stated his intention to achieve full U.S. energy independence since his candidacy.
“Imagine a world where America’s adversaries can no longer use energy as a weapon. Isn’t that great? (…) By the end of my presidency, America will achieve complete energy independence.”
These were the words President Trump proclaimed at an energy conference in North Carolina in May 2016, during the height of his election campaign. And this bold promise became reality after he was elected president. According to the U.S. Energy Information Administration, U.S. daily crude oil production rose from 8.46 million barrels in September 2016 to 11.5 million barrels in November 2018. America had become the world’s largest oil producer again after decades.
After President Trump took office, the U.S. began imposing simultaneous economic sanctions on major oil-producing nations like Russia, Iran, and Venezuela. Even for the world’s most powerful nation, this would have been a difficult decision to make had it continued to rely on external energy supplies as it did in the past. Against Russia, the U.S. imposed a series of high-intensity sanctions citing reasons including 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 applicable not only to U.S. entities but also to companies and individuals from 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 owned by Iranian shipping companies or conducting financial transactions with the Central Bank of Iran. Trade in gold, precious metals, coal, automobiles, and other goods with Iran was also prohibited, and measures were included to prevent Iran from obtaining U.S. dollars. These were powerful measures, such that not only U.S. companies and individuals, but also third-country companies and individuals, would face sanctions for violating these policies. They are seen as cutting off Iran’s money supply and, furthermore, blocking its oil exports, the lifeblood of the Iranian economy. The reason for the sanctions is that Iran has not stopped attempting to develop nuclear missiles even after joining the 2015 nuclear agreement. Venezuela also saw 70 high-ranking officials, including President Nicolas Maduro himself, subjected to U.S. economic sanctions for his dictatorship and fraudulent elections.
The shale revolution provided the backdrop enabling the U.S. to simultaneously check major oil-producing nations. In the past, sanctions aimed at completely blocking Iranian oil exports would likely have caused international crude prices to skyrocket immediately upon announcement. This would have quickly backfired on the U.S. economy. After all, the U.S. president is also a politician who needs public support. In the past, the U.S. would have agonized over imposing economic sanctions on oil-producing nations. But now, with domestic oil production meeting about 80% of U.S. consumption, the reasons to hesitate over sanctions against oil-producing countries have significantly diminished.
The power of U.S. shale oil was also evident 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 largest volume since 1996. China, which imports 70% of its energy demand 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 like liquefied natural gas (LNG), diesel, and gasoline, it was unable to do so for crude oil.
The surge in U.S. crude oil production has become a new tool that not only provides a foundation for the U.S. economy to significantly reduce its dependence on foreign energy but also helps maintain its hegemony. Following military power and the dollar, which previously underpinned American strength, shale oil has now been added as a new weapon. By becoming self-sufficient in oil production, the United States has become a nation with nothing left to envy. To put it somewhat exaggeratedly, it could be said that there are no longer any goods it absolutely must import from other countries.
The shift in the United States from free trade to protectionism was also empowered by shale oil. Now, the key focus for President Trump is imposing high tariffs on manufactured goods imported from foreign countries, as demanded by his core base of white manufacturing workers. His withdrawal from the TPP and his push to renegotiate major agreements like NAFTA and the US-Korea FTA can be understood within this context.
