Fracking: Establishing United States Dominance in the Oil Industry

In 2014, the United States oil industry seemed to have hit a goldmine. They discovered a new technique called “hydraulic fracturing” or fracking. This new technology allowed the United States to drill for oil in places where they could not do earlier. The shale oil reserves in Montana, North Dakota and Texas, which were earlier considered worthless, suddenly became very precious.

The dramatic story of another oil boom came into existence. Boomtowns were set up overnight to cash in on the economic benefits being brought about by fracking. The employment in the oil and gas industry increased by leaps and bounds and the skill of the American entrepreneur once again came to be applauded by the entire world.

The fracking boom was big enough that the entire world had to sit up and take notice. Within a matter of months, oil prices plunged around 33% from $100 to $67 owing to the excess supplies that were being introduced into the market by American oil companies. Of late, oil prices have been reduced to as much as $40 levels, owing to the massive supply being created by the use of fracking.

In this article, we will have a closer look at the economic and geopolitical implications of the fracking boom.

What is Fracking ?

Fracking is a new technology that is used to drill for oil where there are shale oil reserves. The technology includes horizontally drilling into the rocks and releasing a blend of chemicals called “slick water”. These chemicals cause the rocks to crack immediately, and as a result, natural gas which is locked in them is released. This natural gas is then liquefied under high pressure, and the end result is oil which can be produced much cheaper than the traditional drilling process.

Fracking is not a new technology per se. It has been around for decades now. However, earlier explosions had to be carried out for “fracking” and this was not environmentally acceptable. However, the use of slickwater eliminates the need for explosions, and this has been the reason behind the large-scale oil production being carried out by American corporations.

Economic Impact of the Fracking Boom

The fracking boom has had one very obvious economic impact. It has flooded the world market with additional supply thereby engineering a dramatic fall in prices. Some of the other economic impacts that have resulted from the fracking boom are as follows:

  • Making America Self-Sufficient:

    The fracking boom promises to make America self-sufficient in terms of energy in the next couple of decades. This seems extremely probable given the vast reserves of shale oil that have been discovered all over the American continent. Although the estimates of the amount of oil that can be extracted from them have been downgraded, it will still be enough to fulfil America’s needs.

    At the present moment, the United States has already surpassed Saudi Arabia and Russia as the number one oil producer in the world. American oil companies are now producing more than 1.5 billion oil barrels per day!

  • Reduced Imports:

    America’s self-sufficiency in terms of energy is a huge reason to cheer for its central bank. Energy, or more specifically oil, was the number one import that America had to make. Given the strategic nature of this commodity, Americans had to purchase it, no matter how adverse the effects were on current account deficit or the trade deficit. The fracking boom has provided an alternative i.e. to indigenously produce oil, thereby creating employment in the country itself while drastically lowering the pressure on the nation’s foreign exchange reserves.

    America has already cut down its oil exports by 44% saving a huge amount of foreign exchange. Also, the US is expected to be a net exporter of oil by 2025 from being the biggest importer today!

  • Reduced Military Expenses:

    About one-third of the military expenses being incurred by the United States every year i.e. around $200 billion can be attributed to being aimed at protecting the supply routes from the Middle East to America. Hence, if the United States is able to achieve self-sufficiency with regards to its energy requirements, this expenditure can be eliminated and the debt being incurred by United States government can be drastically reduced.

  • Reduced Volatility:

    Earlier, the oil supply was largely in the hands of the Middle Eastern countries. These countries are prone to war and conflict and therefore the price of oil remained extremely volatile on account of fluctuating supply from these countries. The extra oil being produced by the United States of America will help to reduce the overall volatility in the oil market.

Geopolitical Impact of the Fracking Boom

  • End of the Middle East Dominance: The fracking boom is also likely to have a huge geopolitical impact on the Middle East. Since newer and more viable sources of oil will be available, the power that OPEC countries hold over the world will be diminished and the oil market will no longer be driven by a cartel.

  • Russian energy power: Russia supplies more than 30% of the energy needs of the European continent. In some European countries, more than 70% of the energy needs are met from Russian supply. Hence, Russia has a huge leverage over European countries which it has used in events like its recent invasion of Ukraine. If Europe can find an alternate supplier in the form of the United States, then the Russian dominance over this region is bound to decrease.

The fracking boom has already created a huge impact on the global oil market as well as the geopolitical landscape. The impact is likely to grow much bigger over the years to come in case the boom continues.


❮   Previous  Article Next  Article   ❯

Authorship/Referencing - About the Author(s)

MSG team comprises experienced faculty and professionals who develop the content for the portal. We collectively refer to our team as - “MSG Experts”. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.