Will the Price of Oil Sharply Increase Over the Next Year?

How Will the U.S and Saudi Arabia Respond to the 2025 War?

Given the considerable uncertainty in global energy markets due to war in the Middle East, I have been thinking about the aggregate market.

I was unaware of this huge growth in U.S crude oil production from roughly 2010 to the present. A 100% increase in output over a 15 year period!

The EIA recent posted this Report about Iran’s Energy Sector.

Here is a screen shot of Figure 4 from the report. Note that the units are different. In the Iran Graph the units are “millions of barrels of oil per day”. So, in 2024 , Iran was producing roughly 3.5 million barrels of oil per day while the USA was producing roughly 14 million barrels of oil per day. The increase in U.S production from 2010 to 2025 is more than double the current Iran production. More evidence is posted here.

Suppose that Iran stopped exporting oil for the next two years. If the U.S increased its daily production from 14 to 17.5, it could cover the Iran shortfall. This would be a 25% increase in U.S production. Given President Trump’s push for energy exports, an Iran retreat on oil production would provide President Trump with the momentum to push through Federal policies to “drill, baby drill”. This would reduce the U.S trade deficit and stimulate economic growth.

On the Demand Side, the question arises concerning how global vehicle drivers would respond to higher gasoline prices in the short run? The demand for vehicles continues to rise with per-capita income. It is believed that the short run demand for gasoline is price insensitive.

If there are other nations besides for the United States that could increase production then the price effects of the Iran shock will be dampened.

Take a look at this Figure Saudi Arabia’s oil production has not increased for a decade now. I have to believe that this nation could increase its production by 15% or more. If both the U.S and Saudi Arabia increased their production over the next months, the Iran supply reduction would not materially affect world markets.

I recognize that I am ignoring shipping logistics and military risks of actually delivering the oil to final consumers.

I also do not know how long it would take the USA and Saudi Arabia to increase their respective production levels. I also do not know what reserves each nation holds that would allow them to arbitrage the current high price levels before new supply arrives from these leading producers.

The point I want to emphasize here is that the growth of the U.S as a fracking powerhouse has offered the global benefit of stabilizing global oil markets as the U.S can credibly serve as the “competitive fringe” when global prices rise and are expected to be high. My claim could be tested using futures market price data and comparing it to the spot market data and using futures markets at different dates (6 months, 12 months) out into the future.