The changing winds of global oil production

With all the squabbling around surging crude prices, now is as good a time as any to talk about where our oil comes out of the ground. For a long time, the Middle East has had a reputation for being the world’s petrol pump, but how true is this today?

The Seven Sisters

From the 1960s onwards, the Gulf has indeed been a dominant region for oil production, with Saudi Arabia contributing the bulk of exports and Iran, Iraq, the UAE and Kuwait bringing up the rear. Except for a brief period in the mid-1980s, the Middle East produced more oil than any other region on the planet, by a sizeable margin. The United States and Russia (at the time the Soviet Union) were typically the second and third largest producers respectively, while the rest of the world combined to fill in the gaps.

From the Arab perspective however, the early days presented a major problem. At the time, oil extraction in the Gulf states was in the hands of Western oil companies, often called the “Seven Sisters”, including the likes of British Petroleum, Shell, Chevron, ExxonMobil, etc. Local governments in the Middle East received royalties but had little to no say over the decisions made by these companies. Despite sitting on vast reserves, the countries in question were almost powerless on the world stage. Something had to change.

OPEC and the 1973 oil crisis

OPEC, or the Organisation of the Petroleum Exporting Countries, was formed in 1960 and included Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The group was founded to wrestle control of its hydrocarbon resources out of the hands of foreign powers and back into the hands of its member states. The group would gradually add new members to its roster, slowly gaining prominence and quietly clawing back control over the years that followed. Oil prices remained stable throughout the 1960s at around $2.50 per barrel (roughly $25 in today’s money), but by the next decade OPEC had doubled its membership count and had gained enough autonomy to allow the organisation to control the supply, and therefore price, of oil on the world stage. Things were about to change dramatically.

In 1973, Egypt and Syria attacked Israel. As a result of Western support for Israel following the attack, OPEC imposed an oil embargo on the US and Western Europe, quadrupling prices within months and causing petroleum shortages. OPEC used its new-found might to launch an all-out price war, which it decisively won. The organisation proved, convincingly, that it had a stranglehold over global oil markets, which gave the United States a proverbial kick up the backside to secure its own position.

OPEC’s strength would remain unchallenged over the following decades, and indeed until the modern era. But then something changed. Something changed because of a specific technological breakthrough. Something that would completely upend the international balance of crude oil production. Enter: shale.

US shale oil

Extracting oil from shale rock is difficult, hence why it was not done at scale until recently. Fracking was first tested all the way back in the 1940s but did not become economically viable until much more recently. In the early 2000s, hydraulic fracturing, combined with horizontal drilling, suddenly made extracting oil from shale an industrial possibility.

This turned out to be a game changer. The US sits upon massive shale fields, the most prominent of which being the Permian Basin. If these shale fields were the vault, then fracking was the key. Not only could the US finally exploit its oil fields, but it could do so relatively efficiently. Extracting oil from shale has several major advantages. Firstly, setting up drilling operations take weeks or months, compared to multiple years for large, conventional oil fields. Secondly, initial costs are minor and incremental, unlike traditional operations, which require billions in investment upfront. Thirdly, shale exploitations are extremely flexible. Environmental and bureaucratic concerns are obviously nothing trivial when it comes to fracking, but shale is much easier to set up and start pumping compared to the colossal headache of regular oil drilling. Offshore deep-water drilling is another beast entirely, sometimes requiring a decade of groundwork before the first drop of oil is produced.

The floodgates opened. In 2010, the US was pumping out 5 million barrels of oil per day. At the tail end of 2025, that figure rose to almost 14 million barrels per day. Hard to argue with such results. The increase in domestic production caused a fundamental shift in global oil markets. The surge in oil extraction meant that the US turned from a net importer to a net exporter of crude oil. Quite suddenly, the US was producing more crude oil than it needed, something that had not happened since the early twentieth century.

Second price war

The additional supply of crude oil from America diluted OPEC’s influence on the world stage, and the group of oil producing nations was not happy about it. In 2014, the organisation once again started throwing its weight around, but this time, instead of tightening the supply of oil, Saudi Arabia and other countries began to flood the market with massive amounts of crude, in an attempt to lower prices as much as possible. They were successful. The price of oil went from over $100 per barrel in 2014, down to $30 per barrel by January 2016.

The goal was to drive US producers out of business. Given the novelty of the shale business at the time, extraction operations in the United Stated were still relatively costly compared to Gulf drilling, so the idea was to drive the price per barrel below what it would cost US companies to extract from the ground. It was similar to the strategy that Subway used back in 2008 when it launched the $5 footlong to increase the company’s foot traffic and undercut its competitors in a bid to gain market dominance.

The first price war in 1973 was an undeniable success and showed the world who really wore the trousers in the global oil relationship. In contrast, the second price war failed with flying colours. The collapse in oil prices did indeed cause a degree of short-term pain in the United States, resulting in many bankruptcies and many more job losses, but ultimately the event forced the US to become more efficient, more technologically advanced, and more economically resilient. The results speak for themselves; US shale operations continued to ramp up over the following decade, finally reaching the current paradigm whereby the United States dwarfs all other nations in terms of crude oil production.

OPEC+ and the new order

OPEC no longer had the gravitas to dictate oil markets, that much was clear. The answer? Add more members. OPEC+ formed at the end of 2016 as a direct result of growing American influence in international oil markets. The 13 members of the original group welcomed 10 more countries, including Russia, Mexico, Sudan, as well as a wave of countries from across Central and South East Asia.

OPEC boasts over a quarter of the globe’s oil production, but OPEC+ extends that to more than half. On the other hand, just by themselves, the US and Canada also produce a quarter of all crude oil worldwide, the vast majority of which comes from the United States. While the inner core of OPEC remains well coordinated and responsive to market fluctuations, the same cannot be said of OPEC+, which is a much more flexible group. The interests of Saudi Arabia do not necessarily line up with those of Russia for example. The lack of internal cohesion, as well as the lack of enforcement in production targets, often translates to lesser effectiveness overall.

In contrast, the US is a single nation, one that now produces as much crude oil and other liquid fuels as Saudi Arabia and Russia combined. Oil markets are in a new era. Just as the formation of OPEC disrupted the status quo in the 1960s, shifting the balance of power away from Western petroleum companies and towards Middle Eastern nations, the US shale revolution has likewise tipped the scales, this time in favour of the United States. International crude markets are in unchartered waters; the old rulebook has been discarded. The Middle East remains vital for European and Asian oil markets, but not for the United States. The consequences of this simple fact are far reaching, particularly in light of current events.