The United States has an oil security problem. The economic damage of a global oil shock would disproportionately harm the United States compared to its peers including China, Russia, and the European Union. That may seem surprising. The United States became a net exporter in 2020, currently leads the world in oil production, and its 2024 output of 20 million barrels per day (mb/d) was the highest ever recorded by a single country. But production and export levels do not drive economic vulnerability to oil shocks. Oil trades in a global market at one global market price. Sudden price spikes affect everyone consuming oil across the global market, regardless of individual countries’ output levels.
The United States is disproportionately susceptible to price spikes because U.S. gross domestic product (GDP) relies more heavily on oil consumption, dollar per dollar, than peer economies. What determines a country’s vulnerability to price shocks is the oil intensity of its economy, i.e., how much oil consumption is required to generate each unit of GDP. The more heavily a country’s economic output depends on oil, the greater the damage it is likely to suffer from sudden oil price increases. Unfortunately, the oil intensity of the U.S. economy is among the highest in the world and eclipses that of any other major power, even China—which is surprising, because in many ways China is still a developing country, and developing countries tend to be less oil efficient than fully industrialized countries. Because U.S. economic output relies more heavily on oil consumption than any of its peers or rivals, it is likely that oil price spikes would disproportionately damage its economy. Thus, the oil security problem confronting the United States is not “just” a prosperity issue, but a matter of relative economic gains (and losses) in the event of an oil shock, with ramifications for the balance of power.
The nature of U.S. oil vulnerability remains poorly understood, even by policy experts and the informed public, as myths and misconceptions have clouded energy issues for decades. It has been apparent to Washington since the early 1970s that the United States faces an oil security problem, however murky the official understanding of it may be, and that the political volatility of the Middle East, the world’s most important oil producing region, raises the potential for supply disruptions. The flexibility of oil markets can cushion the impact of disruptions more than policymakers realize, but the United States and other countries use policy tools to provide additional insurance beyond market adaptation. Unfortunately, policymakers’ misunderstandings of the oil market have led the United States to adopt policies that are ineffective, costly, or misguided.
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