President Donald Trump and Treasury Secretary Scott Bessent want a strong economy. They are particularly eager to remove regulatory barriers to increased production of oil and gas, two energy commodities of which the United States has vast reserves. Because of shale oil reserves, the U.S. holds the world’s largest recoverable oil reserve base — more than Saudi Arabia or Russia. The U.S. has 264 billion barrels of recoverable oil reserves, more than Russia with 256 billion and Saudi Arabia with 212 billion.
It is understandable that Trump and Bessent want to increase production of oil and oil equivalents by 3 million barrels a day by 2028. Increased output would strengthen the economy and perhaps reduce the trade deficit. And the trade deficit is a fixation for Trump.
Now, however, Trump is undermining his own policy goals of a strong economy and a more dynamic oil and gas industry by suggesting sanctions against Russia could be removed and indicating support for Russia’s full reintegration into the global order. Why Trump would undermine the economy and weaken the domestic energy industry is perplexing, particularly as Russia is an enemy of the U.S. and is guilty of war crimes in Ukraine, Syria, West Africa, and elsewhere.
Sanctions against Russia, because of its aggression against Ukraine, harm Russia’s production and export of oil and natural gas. But when the Russian supply of both oil and natural gas was removed from the global market, prices increased. In turn, higher prices brought out new supplies, including from the U.S. Removing sanctions against Russian energy will again increase the global supply of both oil and gas. Prices for oil and gas will fall. The U.S. energy sector will be damaged. In that sense, Trump’s budding rapprochement with Russian President Vladimir Putin would be a major victory for the Russian energy sector and the Russian economy more broadly.
The U.S. is not a low-cost producer of oil. About 64% of total oil production comes from shale oil fields, principally in Texas’s Permian Basin. Extracting shale oil is capital-intensive and significantly more expensive than production from conventional oil fields. The average cost of oil production in Russia is significantly lower than in the U.S. Almost all Russian oil production is from conventional oil formations. In the U.S., the cost of production from a new shale oil well ranges from $60 to $70, depending on the location in the Permian Basin.
By contrast, Russia’s all-in cost of oil production is about $44 a barrel. And the marginal cost to produce an additional barrel from an existing well is in the range of $5 to $10. Marginal production costs in the U.S. are significantly higher.
If sanctions are removed, Russia will take market share from the U.S. Importantly, the U.S. Energy Information Administration already forecasts that global oil prices will fall in 2025 and 2026 even if sanctions are not lifted. Lifting sanctions will further pressure the outlook for the global oil market and will reduce investment in U.S. production. Well-paying jobs would be lost. The U.S. trade deficit would increase. Domestic production would be hit by lower global prices. The U.S. would have fewer barrels to export. Removing sanctions undermines a central goal of this administration: a lower trade deficit.
A similar tale applies to natural gas. Production costs for U.S. natural gas are competitive with Russian gas, but transportation costs are very different. Until Russia’s most recent invasion of Ukraine, many countries in Western Europe, especially Germany, relied on cheap Russian natural gas to power their industries and to heat their homes in winter. The gas was transported by pipelines. But with the invasion and the imposition of sanctions, Germany and other European countries started to import liquefied natural gas, or LNG, from the U.S. Exports of U.S. LNG to Europe surged, and the U.S. became the world’s largest LNG exporter. Before sanctions, Germany imported 20% of Russia’s total production of natural gas.
Energy costs for the German industry and U.S. industry were similar. But with sanctions, energy costs for the German industry surged. Because of transportation costs, U.S. LNG is significantly more expensive than the cost of Russian gas imported across pipelines. Removing sanctions will reinvigorate German and wider European manufacturing. U.S. manufacturing will face yet another global competitor.
If sanctions are lifted and Russia is fully reintegrated into the global economic system, the countries of Europe will likely resume importing Russian natural gas through existing pipelines. U.S. LNG exports to Europe will plummet.
Given Trump’s very vocal disdain for the politics of Western Europe as well as comments by senior members of his administration, including statements by Vice President JD Vance, it is probable that Germany and other European nations would enjoy “sticking it to” both the U.S. natural gas industry and also the U.S. oil sector more generally. Trump’s aggressive, almost bellicose, foreign policy positions risk alienating the U.S. from previously close allies.
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By removing sanctions and not continuing to impose costs on Russia not only for the invasion but also for the war crimes committed against Ukraine, its people, and Ukrainian POWs, Trump would harm the U.S. economy to the measure of hundreds of billions of dollars.
More generally, the domestic oil and natural gas sectors are responsible for more than 2 million well-paying jobs. The typical energy job pays over $80,000. Oil and gas extraction employment is even more lucrative, with salaries above $200,000. Removing sanctions against Russia would harm the U.S. economy and worsen our trade deficit.