In 1973 and 1979, war in Israel and unrest in Iran twice ruptured the oil market, triggering an inflationary surge that undermined Western economies and toppled a U.S. president.
In the decades since, the possibility that new conflicts in the Middle East could cause oil and gasoline prices to rise again, ending the administration, has hung like a specter over the White House.
Last week, the fears suddenly seemed exaggerated.
On Monday, less than a week after Iran’s first-ever direct military strikes against Israel raised fears of a broader regional war, oil prices stabilized at $87 a barrel – steady from their fair share before a strike on the Iranian consulate in Damascus was carried out. the rash.
This is a notable lack of reaction from oil markets, especially given the threat Iran poses to the Strait of Hormuz, the sea route through which one in five barrels of oil consumed passes. every day in the world. Demonstrating its threat to the waterway, Iran seized a ship there on April 13, the same day it launched its attack on Israel.
The calm in crude prices in the face of this turmoil owes much to events 7,000 miles away in the shale fields of North Dakota and West Texas, where drillers left global markets awash with U.S. oil .
“Shales have redrawn the map of global oil in ways that most people don’t seem to understand,” said Daniel Yergin, vice chairman of S&P Global and a Pulitzer Prize-winning energy historian. “This has changed not only the balance between supply and demand, but also the geopolitical balance and the psychological balance.”
The numbers are striking. Twenty years ago, the United States produced about 7 million barrels of oil per day and consumed 21 million. Gulf countries like Saudi Arabia and Kuwait – which ship their oil through the Strait of Hormuz – were among the top foreign suppliers to the United States.
Today, the United States produces nearly 20 million b/d of oil, roughly as much as its consumption. Imports from the Gulf fell and the United States became a net oil exporter for the first time in 2019. The prolific Permian Basin shales of Texas and New Mexico pump more oil than Kuwait, the Iraq or the United Arab Emirates, three of the OPEC powers.
The strategic benefits are considerable, analysts say, even for a White House eager to transition from fossil fuels to clean energy.
The rise in shale has softened the impact of OPEC’s supply cuts over the past two years, they say, and allowed President Joe Biden’s administration to impose sanctions on suppliers such as Venezuela and Russia, while increasing restrictions on Iran – all without fear of driving. rising oil prices.
“It’s a huge turnaround from where we were in the 1970s,” said Harold Hamm, president of Continental Resources and a shale pioneer. “If you hadn’t had the shale revolution today, you would have $150 oil. . . You would be in a very volatile situation. It would be horrible.
Rising shale reserves have also helped keep the lights on in Europe after Moscow’s full-scale invasion of Ukraine in 2022, with shipments of US liquefied natural gas – previously dubbed “molecules of American freedom”. » by the Trump administration – helping to wean the continent off Russia. piped supplies.
The scale of shale’s importance to oil markets was already visible in 2019, Yergin said, after a devastating drone attack on Saudi Arabia’s Abqaiq crude processing facility, the nerve center of its sector oil tanker. Crude prices rose sharply, then fell back almost as quickly.
“I think that’s when I realized there had been a big rebalancing,” Yergin said.
Experts nevertheless warn that the United States remains vulnerable to oil shocks. An all-out war between Israel and Iran, or another significant drop in exports – for example if the Strait of Hormuz were to be closed – would inevitably remove supplies from a fungible global market, driving up gasoline prices from Beijing to Boston.
“We are still extremely exposed to geopolitics and market manipulation. And shale doesn’t really help with that,” said Jim Krane of Rice University’s Baker Institute. “Yes, we are a big producer. But more importantly, we’re a big consumer, and that’s where our exposure lies. »
The United States accounts for about 20 percent of global demand, driven by the country’s reliance on large, gas-guzzling vehicles.
Shales also remain particularly vulnerable to price fluctuations, making them an unreliable part of the global oil market, some analysts say.
Only four years ago, the drop in oil prices caused by the Covid-19 pandemic pushed many shale producers to the brink of bankruptcy. President Donald Trump was then forced to plead with Saudi Arabia and Russia to cut their own production to support prices and spare shale deposits – a demonstration of states’ energy vulnerability -United.
After Russia’s invasion of Ukraine triggered a 2022 oil price hike, it was Biden’s turn to pressure the Saudis for aid, this time urging them to pump more to curb the surge in American oil prices.
Shale executives themselves are skeptical that drillers will be able to increase their supply quickly enough to save the global economy from a sudden oil shock. Wall Street remains reluctant to finance new drilling campaigns by producers who have acquired a reputation for profligacy in recent years.
The Biden administration is aware of this dynamic — as well as the political consequences of rising gasoline prices as the election approaches. Last year, a senior Biden adviser said Wall Street was being “un-American” in holding back drillers.
The White House’s diplomatic priority has been to prevent further unrest in the Middle East.
“We have an election and the Biden administration cannot, cannot, cannot afford to act recklessly or hastily in the region. They are extremely cautious with every step they take,” said Matt Gertken, geopolitical strategist at BCA Research.
The administration also said it remained willing to use stored strategic oil reserves to keep prices at bay. At around $3.68 per gallon, U.S. gasoline prices may be lower than in other economies, but they are up 15 percent this year.
“At the end of the day, it’s always better as a nation to have our own oil,” said Amy Myers Jaffe, a professor at NYU.
“But unfortunately, [crude] prices will rise if there is a supply shock in the market and that will likely pass through to American drivers in the form of higher fuel prices – in the global market and all that.