Fueling The Conversation, Week of July 7th, 2025
Rumblings of another Middle East situation have grabbed headlines over the past few weeks as Israel, the U.S., and Iran have traded blows. While these events led to fears of a drawn-out conflict, notably missing from the coverage was any indication of an oil price shock.
As a fragile ceasefire remains in place, the ongoing conflict between the two nations has opened the door to what should have been an unprecedented price shock to crude oil. All the pieces were in place; Israeli threats of destroying Iran’s oil production were prevalent, as were Iran’s threats to close the Strait of Hormuz, which would have placed 20% of the world’s daily supply of oil at risk. Furthermore, trade routes and revenues from both the Strait of Hormuz and the Red Sea were threatened as tankers began altering their courses due to the risk of destruction and increased insurance rates. If it were 1973, these actions would have caused prices to skyrocket.
Ever since the Arab Oil Embargoes of the 1970s, the Middle East has played an outsized role in U.S. foreign policy because of the threat of supply disruptions and oil price spikes. For example, a former Obama administration official called a U.S. attack on Iran “the mother of all geopolitical oil risk.” Yet, Israel launched the biggest attack outside their borders in decades, and the United States also bombed Iran, and the price of crude oil hardly budged. Why? The U.S. is the world’s dominant oil producer, and, along with Canada, has brought a level of security to the oil market that we haven’t seen in my lifetime.
The reason for this security is simple: North America is blessed with massive amounts of energy resources, and we now have the technology to access more and more of these resources at affordable prices. In 2011, the Institute for Energy Research released the first edition of our groundbreaking North American Energy Inventory. Using reliable sources, we explained how North America was home to massive energy resources — if only we could access them.
The challenges to accessing these massive energy resources were technological, but also political. President Obama stated repeatedly, we can’t “simply drill our way out of our energy problems.” President Biden followed Obama’s lead and issued the fewest oil and gas leases on federal lands since records have been kept. But in spite of these regulatory impediments, the oil and gas industry rose to the occasion and produced massive amounts of oil.
According to the Statistical Review of World Energy, from 2013 to 2023, the combined oil production of the U.S. and Canada increased by 10.9 million barrels of oil per day. Over the same time period, total global oil production increased by only 9.8 million barrels per day. In 2013, the U.S. and Canada combined produced 16% of the world’s oil; by 2023, they had increased their share to 28% of the world’s oil. In contrast, in 2013, OPEC produced 40% of the world’s oil, but by 2023, this figure had decreased to 35%. These changes demonstrate an important geopolitical shift, namely that OPEC no longer possesses the bargaining power it once had.
As a result of the shale revolution in the United States and the combined increase in production with Canada, the importance of North American crude in the global market has been renewed, and has served as a direct price stabilizer for oil. For the consumer, this is great news because it demonstrates that more global supply from nations with relative stability, such as the U.S. and Canada, will cause the OPEC cartel to slowly lose its stranglehold on global crude pricing. Furthermore, although Iran is unlikely to close the Strait of Hormuz — given the logistical challenge and likely direct retaliation from the U.S. — more than 80% of oil shipments through the Strait end up in East Asian nations such as China, Japan, and South Korea. Therefore, closing the Strait would inflict minor damage to the U.S. or Europe, while further incentivizing countries such as Japan and South Korea to look to the U.S., especially with the Trump administration’s interest in Alaska as a future energy champion in the Pacific.
Historically, conflict in the Middle East would have meant more pain than usual at the pump for the consumer, and would have inevitably led to higher prices for all other goods due to increased transportation costs. As war plagues the Middle East, American and Canadian crude has proven itself, yet again, as a stabilizing force on global oil prices. Not only is this good for the consumer, but it also demonstrates the loss of OPEC’s influence after decades of successful price manipulation. If anything good has come out of the ongoing conflicts, it’s that the world has realized it can rely on North America to fuel it, and does not have to be at the mercy of a continually volatile region.
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Fueling the Conversation, a weekly column by IER President Tom Pyle, offers a principled take on energy events. Energy underpins all aspects of modern life, so policies that artificially limit production hurt everyday people paying to heat their homes and drive to work. “Green” groups push these policies for ideological reasons, but this column uses economic logic and hard facts to advocate for energy freedom.
