The Case for Market-Led US Energy Security
America’s energy security was built by letting the market lead. It’s a lesson worth remembering.
The recent conflict between Israel and Iran, with the United States joining as a co-belligerent, led to doomsday predictions about how catastrophic it would be if the Strait of Hormuz—where a fifth of the world’s oil and gas transits—became impassable. One need not be an energy economics expert to realize that would have meant bad news for energy prices.
The good news, however, is that recent research demonstrates US economic resistance to global oil price shocks, meaning the United States in 2025 fares better under higher oil prices than the United States in 2005. Simply, the United States is more energy secure today than it has been in a long time. But while there have been some recent positive energy policy developments, an overreliance on governmental interventions means we’re forgetting the lessons that delivered energy security in the first place.
How We Got Here: Production, Not Politics
Increased US energy production explains our improved energy security landscape. The United States went from being a net importer of oil and petroleum products in 2005 (12.5 million barrels per day) to a net exporter in 2024 (2.3 million barrels per day). Similarly, our natural gas production has more than doubled since 2005. Clearly, being a major energy producer mitigates much of the economic downside from energy price spikes, which is what energy security is all about. The relevant policy question then is: What got us here in the first place?
While many would likely point to fracking and directional drilling technologies that have massively unlocked US oil and gas resources, they would be missing the forest for the trees. Yes, innovation in the energy sector is important, but the conditions that allow energy innovation to flourish are critical. Directional drilling technology was first demonstrated in the 1970s, but it wasn’t until the 2000s, when energy prices were rapidly rising, that the technology gained traction.
Innovation Thrives in Competitive Environments
The “tight oil and gas” resources that directional drilling unlocked in shale formations were expensive to extract, and even in 2014, when the “fracking boom” was in full swing, it was estimated that oil needed to be above $60 per barrel ($82 in today’s value) for shale extraction to be profitable. By 2016, that had fallen to the $29-43 range, roughly where it still stands today. What occurred is called a “knowledge spillover,” where an early-stage technology becomes widespread and its costs begin to decline. Importantly, that occurred because of the federal government’s hands-off approach: we didn’t stop oil companies from making a profit when prices were high or rescue them when they needed to innovate to stay in business.
Ronald Reagan’s Market-Based Response
That lesson is well appreciated now, but it had an important precursor: how President Reagan effectively ended the energy crisis of the 1970s. When Arab members of OPEC embargoed the United States over its support of Israel, oil prices roughly quadrupled. Even after the embargo was lifted, energy prices remained stubbornly high, and politicians had few solutions. President Carter’s “Crisis of Confidence” speech from 1979 could easily be confused with a speech from Biden or Obama, given its focus on alternative energy.
But Ronald Reagan saw it differently. The problem wasn’t a scarcity of oil, but that the industry was handicapped by price controls, which removed any reason for them to increase production. Early in his administration, Reagan lifted these price controls. One can almost comically point to media outlets confidently predicting the move would spell disaster for gasoline prices, then three months later assuring the nation that the collapsing pump prices could not have been thanks to Reagan’s policies (don’t trust your lying eyes!).
Trust the Market
Returning to the present day, much of the current administration’s focus has been on steering the power of government towards industries it sees as more important for energy security. While this may seem intuitive, it could be counterproductive. Reliance on mechanisms like the Defense Production Act or emergency authorities under the Federal Power Act and Endangered Species Act signals to industry that lobbying for special treatment leads to profitability. But shielding industry from the forces of competition does not create abundance. History teaches us to take a hands-off approach to energy markets and let competition drive productivity.
What that would look like is better permitting across the board, curtailed energy subsidies and mandates, and increased access to federal energy and mineral resources for the private sector. Energy success stories prove that we should let the market do its thing, because politicians—no matter how smart—are never omnipotent. We must leverage the efficiency of a free market’s dispersed choice to deliver abundance, which would benefit us and our overseas buyers. If the administration embraces this philosophy—which was pursued with great success during the first Trump administration—we will all be more energy secure.