Chinese oil producer CNOOC has withdrawn its $18.5bn (£10.4bn) bid for US firm Unocal, leaving the way clear for Chevron to acquire the business.
US politicians were unhappy at the CNOOC moves
CNOOC cited "unprecedented political opposition" in the US as a reason for ditching its offer.
Some US lawmakers have claimed that the deal posed a potential threat to US national security.
Unocal's board recommended Chevron's $17.3bn offer, even though it was substantially lower than CNOOC's bid.
Despite the bid from CNOOC, whose parent company is controlled by the Chinese government, trumping Chevron's cash-and-stock offer it could not gain Senate approval.
At the start of July the Republican-led US House of Representatives voted to block the Bush administration from backing CNOOC's takeover attempt.
"CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the US," the company said in a statement.
"Accordingly we are reluctantly abandoning our higher offer to the clear disadvantage of Unocal shareholders and employees," it continued. After the announcement CNOOC's shares rose to a new record in Hong Kong trading adding 2.8% to HK$5.50.
"This is good for CNOOC, it clears away the uncertainty risks," said John Koh, fund manager at Daiwa Asset Management which holds CNOOC shares.
State-controlled CNOOC was one of four big oil groups that emerged after the 1999 restructuring of China's oil industry.
CNOOC was given offshore exploration and production assets, and had to work closely with foreign oil majors to improve its offshore technology.
Oil analysts say that as a result it has the Chinese oil sector's most professional management team.
Alongside Shell, it shares ownership of the $4.3bn Daiyu Bay petrochemical plant that is China's biggest joint-venture investment.