• Russian President Vladimir Putin's threatened invasion of Ukraine has given a boost to oil prices, and if they go much higher, U.S. oil producers may be more willing to drill again.
• More U.S. natural gas was shipped to Europe in the form of liquified natural gas in January than the amount that flowed through Russian pipelines, making the U.S. a bigger supplier for the first time, according to IHS Markit.
• U.S. oil companies have been much more conservative about drilling because of their increased focus on shareholders and the demand by investors that they give more funds back, but surging oil prices could ultimately be a catalyst for more drilling.

Russian President Vladimir Putin has long made it clear that he is no fan of U.S. shale drilling. But, if he invades Ukraine, he may unwillingly help bring back the American industry.

Like other global producers, the U.S. industry was crushed by the pandemic in early 2020. Oil prices crashed, and prices for crude futures even turned negative on the CME for a brief time. An extremely chastened U.S. industry reemerged, with executives more cautious than ever about throwing money down oil wells and angering shareholders.

The U.S. industry has been making a slow comeback, helped by rising oil prices, which are up more than 50% in the last year. Putin's threats against Ukraine have helped drive an already rising oil price well above $90 per barrel to a seven-year high, with nearly 30% of that price rise since the start of the year.

"The last thing they wanted to do was provide a price incentive for a rebound in U.S. oil and gas production," said Dan Yergin, vice chairman of IHS Markit. "They now succeeded in driving up prices, which is strengthening U.S. oil and gas production."

Russia has historically been the largest provider of both oil and natural gas to Europe, and the U.S. has long warned that its control of critical energy sources could prove to be a hazard for European consumers. Yergin said Putin has been a strong opponent of U.S. shale, and as far back as 2013, the Russian president told a public forum in St. Petersburg that shale was a grave threat.

Tense situation

President Joe Biden said Tuesday that the U.S. and Russia would continue to use diplomatic channels to avoid a military outcome, but warned the situation remains uncertain. Russia announced Tuesday it was pulling back some of its more than 100,000 troops on the Ukraine border. By Wednesday, however, NATO said Russia instead was increasing its troops.

Oil rose Wednesday, with West Texas Intermediate futures for March up 2.6%, at about $94.50 per barrel in afternoon trading.

"The geopolitics of energy is back with full fury," Yergin said.

Energy is clearly at the center of the conflict. European natural gas prices have been flaring all winter on concerns about short supply. First, the region was unable to put enough natural gas into storage. Then, Russia cut back some supply starting in the fall.

Russia sends natural gas to Europe via pipelines running through Ukraine and others, including Nord Stream I. The Nord Stream II pipeline — built to bring gas from Russia to Germany — is finished but still awaiting German approval.

Biden repeated Tuesday that if Russia invades Ukraine, that pipeline will not be allowed to operate.

Should Russia invade, the U.S. and its allies plan on imposing sanctions on the country, and analysts say a worst-case scenario for energy supplies would be either that the sanctions block Russian energy sales to Europe or Russia chokes off the supply in retaliation.

This comes as global oil demand has been moving back toward normal and is expected to pick up even more this summer as air travel improves.

U.S. energy dominance

Before the pandemic, the U.S. was the largest producer of both oil and gas. Yergin said the U.S. energy industry has regained its position of dominance, and is once more the top oil and gas producer.

In addition, the U.S. is a large exporter. The U.S. exported an average 2.6 million barrels a day of oil over the past four weeks, and 4.2 million barrels of refined products, including gasoline and diesel fuel, according to the Energy Information Administration weekly data.

The U.S. energy industry has also already proven to be an important alternative supplier for Europeans. In January, ships filled with U.S. liquefied natural gas were diverted from Asia and South America to European ports. According to IHS, that 80% year-over-year jump in LNG imports meant that the U.S., for the first time, provided more natural gas to Europe via ship than Russia did through its pipelines.

IHS Markit calculates that 7.73 billion cubic meters of U.S. gas was shipped to Europe in January, compared with 7.5 billion cubic meters through Russia's pipelines.

While U.S. LNG is helping Europe through the winter, it is not a sufficient replacement for Russian gas. Europe can process only so much liquefied natural gas, and analysts say it would still have a shortfall. Qatar also ships LNG to Europe and has capacity to increase its exports.

"This is the highest level of US LNG to Europe that we've ever seen. Looking at European imports from the US so far this month, they are holding up so we expect to see a similar level for February (over 5 million tonnes)," note Kpler analysts in an email to CNBC.

Yergin said Europe is the natural market for Russia's gas. "Europe was in an energy crisis before the Ukraine crisis. The difference now as opposed to 2009, when the Russians interrupted gas flow through Ukraine, the European pipeline system is more flexible, so it can move gas around, and there's the development of LNG," he said. "Five years ago, LNG couldn't make up for Russian supplies being lower."

Oil as a weapon

At the same time, the U.S. oil industry is expected to up production for a tight oil market by an estimated 900,000 barrels a day this year, Yergin said. The industry currently produces about 11.6 million barrels a day and could be back to prepandemic levels of 13 million barrels a day by next year.

Evidence of the oil industry's expanding production is showing up in an increase in rigs. According to Baker Hughes, oil industry rigs now total 516, up 19 rigs last week — the biggest gain in four years.

"I think the Ukraine crisis has solidified the oil gold rush for all the companies involved, now including the majors like Continental Resources, which just announced a doubling of their spending relative to their output," Again Capital partner John Kilduff said. "Continental is really doubling down on more production. They're willing to accept the higher costs for now to get more oil out of the ground over the near and medium term."

The U.S. is a big producer, but Russia is a bigger supplier of world markets, exporting about 5 million barrels a day. If there were an invasion, any loss of Russian oil would be felt globally.

Russia and its partners in OPEC+ have slowly been lifting production as demand returns from pandemic levels, and they should reach their goal by summer. But the Russian government has long been wary of oil prices getting too high, since the higher they go, the more incentive there is for U.S. producers to increase production.

If Russian crude exports were reduced, analysts expect Moscow's OPEC+ partner Saudi Arabia would turn on it spigots. The Middle Eastern country has spare capacity to pump oil that the U.S. does not have, and U.S. companies would need to drill new wells to generate much more oil.

Kilduff said the U.S. industry, however, is likely to see a surprising surge in oil production soon, since companies have been opening wells that had been drilled but uncompleted.

Analysts have said it's the incremental production from the U.S. and other non OPEC countries, like Brazil, that have been keeping oil prices from shooting sharply higher. But now U.S. producers could be put to the test, even if the Ukraine tensions subside.

Dan Pickering, chief investment officer of Pickering Energy Partners, said U.S. oil production has been increasing, but U.S. companies are still not drilling full speed ahead because of pressure from shareholders. Companies have been paying down debt, raising dividends and looking for ways to reduce their carbon output, under scrutiny from ESG [environmental, social, governance] investors.

Pickering said that, though relatively small, the jump in the rig count is important. "To me it's a reflection that oil prices are strong. That small incremental on the margin could be a confluence of a number of things," he said. "You don't have a frenzy going on to add activity right now. We have guys out in the Permian right now doing meetings. It's busy, but not a frenzy. We've seen frenzies. It feels pretty good in Midland. It doesn't feel frenetic."

He expects if the industry does move to increase drilling, the evidence of its efforts would come over the next year, not in the near future. But he noted that Exxon Mobil said it would boost its production in the Permian basin in Texas by 25% this year, and Chevron plans to up its output there by 10%.

"Let's assume Russia doesn't invade. Let's say oil goes to $82. That's still a damn good number. The real reinvigoration of this business is when there are no external influences and prices are still good," he said. "These guys are going to take baby steps for a while unless really pushed."

Pickering said oil futures suggest oil will be around $68 per barrel five years from now, a good but not great price like $90 would be.

"So the industry has more of a spring in its step. Remember they almost died in 2020. A lot of them did die and went into bankruptcy," he said. "Things are getting better. People don't trust it that much, and if you end up with a situation where a geopolitical event spikes oil prices, that's just going to reinforce this is a tight market. That's the kind of thing that boosts the industry's confidence level, even if they don't necessarily react to that kind of event."

According to IHS, private companies have been boosting production, and they typically account for 20% of increased volume, but this year that number will be 50%.

Kilduff noted that Devon Energy announced in its earnings release Tuesday higher-than-expected production, another sign that the industry is increasing output. The company beat earnings expectations and also kept its focus on shareholders, hiking its dividend. Devon shares were up more than 6% on Wednesday.

"After taking these companies to the wood shed for the past couple of years for for the low price environment, all of a sudden the economics make sense again, and that's getting them back to their old habits," Kilduff said.

— CNBC's Pippa Stevens contributed to this story.