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Abstract: This paper introduces a novel approach combining radial borehole fracturing with Water-Alternating-Gas (WAG) injection, enabling simultaneous WAG injection and shale oil production in a single vertical well. A numerical reservoir model incorporating the modified exponential non-Darcy law, stress sensitivity, and diffusion is established and solved by Newton–Raphson method. The spatial distribution of permeability reduction shows that stress sensitivity enhances the non-Darcy effect, with apparent permeability decreasing to 0–92.1% of the initial value, highlighting the importance of maintaining reservoir pressure. Continuous CO2 flooding leads to early gas breakthrough, while continuous water flooding has less displacement efficiency. A 30% water-to-gas injection time ratio improves oil production and delays gas breakthrough compared to continuous CO2 injection. Optimal conditions for effective recovery are identified as an initial production period of 100 d and a well vertical spacing of 30 m. This study compares the production capacity of WAG operations under radial borehole fracturing and horizontal well fracturing. When the number of wells is two for both cases, the production capacity of radial borehole fracturing is comparable to that of five-stage horizontal well fracturing, indicating that radial borehole fracturing can serve as an alternative or supplement to horizontal well fracturing when the reservoir volume is limited. This study offers a new method and theoretical basis for the efficient development of shale oil.