Since returning to the White House, President Trump has prioritized energy independence and oil production, going so far as to declare an “energy emergency” amid reversing regulations to encourage drilling.
His administration has positioned increased oil output as a solution to economic challenges by promising lower fuel prices, replenished strategic reserves, and expanded energy exports. Market realities, however, may limit the effectiveness of this strategy.
The U.S. is already the largest global oil producer. But it’s the price of oil, not government policies, that act as the primary driver of crude production. Global energy markets already have a surplus, reducing the likelihood that companies will aggressively expand operations. And many large oil companies have shifted their investment priorities toward shareholder returns and emerging industries like artificial intelligence, trying to increase the analytical process of determining where to drill rather than doubling down on extraction projects.
While short-term increases in production are possible, sustained growth would require oil prices to remain well above their break-even level — typically $65 to $70 per barrel for U.S. shale operations. With crude prices hovering just above that threshold, companies will likely hesitate to expand aggressively.
Fracking, the dominant extraction method today for U.S. shale oil, carries significant cost considerations. Unlike traditional oil wells, fracking operations decline in productivity much faster and require continuous investment in new wells. With inflation still elevated and interest rates near their highest levels since December 2007, the high cost of capital may deter fracking companies from increasing production unless oil prices stay consistently high.
Trump’s tariff policies may also counteract the broader goal of reducing energy costs. The president has announced 10 percent tariffs on Canadian oil imports, despite Canada supplying more than half of U.S. crude imports. That move could push gasoline prices higher in the American Midwest, where refiners rely heavily on Canadian crude. Tariffs on energy imports contradict the administration’s goal of making oil cheaper, and could instead create cost pressures on consumers and businesses. Retaliatory tariffs from Canada could further disrupt the flow of essential energy commodities, adding further volatility to prices.
While the administration has removed restrictions on drilling on federal lands and offshore areas, history suggests that such moves do not always lead to increased output.
During Trump’s first term, similar efforts were largely ignored by the industry, as companies focused instead on higher-yield, lower-risk “known” shale projects. While deregulation helps and should be encouraged, that alone is not sufficient to stimulate a major oil boom. Firms base drilling decisions on long-term price forecasts, not short-term policy changes.
Other macroeconomic trends are shaping global energy production trends. In fits and starts, the world is transitioning toward clean energy and electrification, investment in renewables, improved battery storage, and alternative fuels. Oil companies themselves are positioning for a more diversified future rather than making long-term commitments to fossil fuel expansion.
Ultimately, the Trump administration’s push for expanded oil production aligns with an America First energy policy. But market fundamentals, corporate strategy and trade policies may limit the effort’s overall impact.
Even if domestic production rises, structural barriers, including economic constraints on investment, shifting global demand and pricing pressures, suggest that oil alone cannot fully resolve America’s financial and inflationary challenges. A balanced approach that includes not only deregulation also private research and trade cooperation is likely to prove more effective in ensuring long-term economic stability.
Peter C. Earle is senior economist and director of economics and economic freedom with the American Institute for Economic Research.
