Still Stuck over a Barrel

By John Greenwald

A new warning that the global energy crisis is far from finished

The nightmare is both grim and grimly plausible. A ruinous new energy crisis once again doubles or triples oil prices. Economies are battered, and governments around the world topple. In the U.S., business goes into a slump that can be compared only with the Great Depression.

That chilling prospect is one of the possibilities foreseen in Global Insecurity: A Strategy for Energy & Economic Renewal (Houghton Mifflin; 427 pages; $15.95), a sometimes frightening, but still generally hopeful, survey of the energy outlook published last week. The book, which is edited by Political Scientist Daniel Yergin of Harvard University and Martin Hillenbrand, director of the Atlantic Institute for International Affairs in Paris, was prepared during the past four years by a group of mostly academic contributors from the U.S., Western Europe and Japan. They included: Teruyasu Murakami, a senior consultant at the Nomura Research Institute in Japan; Ian Smart, a private British energy consultant; and Althea Duersten, a senior economist at the World Bank.

Yergin, co-author of the 1979 bestseller Energy Future and contributor of two of the twelve essays in this volume, warns that a devastating energy crisis could erupt at any time. He writes: "That, in a nub, is the problem for the United States and the entire industrial world, and is why we have undertaken this study." Yer gin fears that the current small glut in perils supplies will lull industrialized countries into the type of complacency that leads U.S. auto buyers to want to rush back to big cars as soon as gas prices seem to abate.

Global Insecurity insists that oil shocks are likely to occur as long as consuming nations remain addicted to petroleum from the explosive Middle East, which has some 60% of the non-Communist world's known oil reserves and which ships 65% of the crude involved in international trade. Any type of conflict in the area could disrupt the flow of oil and plunge the world into a crisis.

Middle East upheavals, of course, remain a constant threat, as evidenced by Iran's invasion of Iraq last week. Arab ministers last month considered using their so-called oil weapon to pressure the U.S. and Israel over the fighting in Lebanon, although they ultimately took no action. Turmoil ranging from the fall of a key government like that of Saudi Arabia to the expansion of Soviet influence in the region could also shut off supplies.

Some analysts were nervously wondering whether Iran's invasion of Iraq would reduce oil shipments, thus drying up the remains of the petroglut and pushing prices higher. Most experts, though, felt that the war is unlikely to trigger an immediate crisis because the global economic slump continues to hold down energy use. But the energy situation will again become dangerous once world economies start growing. Writes Yergin: "The more likely flash point occurs when accidents interact with a market in which demand is rising, as was discovered in 1973 and 1979. Thus, the world enters the danger zone when economic activity and energy demands are on the upswing."

The authors warn that the Organization of the Petroleum Exporting Countries remains powerful despite the excess oil supplies that depressed prices earlier in the year and the group's inability to set production quotas in Vienna two weeks ago. If the oil producers could find the political will to curtail output sharply, say the authors, a barrel of crude oil that now costs $34 could reach $72 by the year 2000.

Any new full-blown crisis would be far worse than the 1973 and 1979 oil shocks, the book says, because it would come on top of the damage done by those setbacks. The study estimates that the previous jolts have cost the U.S. and its major trading partners a total of $1.2 trillion in lost eco nomic growth between 1974 and 1981. In addition, the increased prices have dou bled unemployment rates and nearly tri pled the pace of inflation. The shares of their gross national products that Western economies spend on energy have also tri pled. Writes Yergin: "Thus, an oil price rise of any given magnitude will now have a greater effect on the consuming nations than the first or second shock did."

The authors say that the solution to this dangerous predicament is to wean energy users away from Middle Eastern oil. To achieve this, Global Insecurity urges a three-pronged effort: finding new reserves, developing alternative sources like solar power and syn thetic fuels, and conserving energy by using it more efficiently.

The authors acknowledge that Western economies have made strides in these areas, yet they in sist that much more must be done.

The study applauds the U.S. strategic oil stockpile, for example, but wishes that it were being filled faster. Said Yergin last week: "We are in a race between crisis and adjustment. There has unquestionably been a lot of adjustment of which we can be proud, but the potential crisis is still there."

Japan offers the most success ful model for coping with short ages and high prices. That country, which imports 85% of its energy, has maintained relatively strong economic growth while cutting back energy consumption.

In the U.S., competing interests continue to stymie the development of a coherent energy policy, whereas in Japan, business, labor and government leaders worked out a unified strategy. Japanese firms, for example, invested far more heavily than their American counterparts in making factories more efficient and shifted out of energy-intensive industries like petrochemicals.

The authors are also encouraged by the development of fuel-efficient cars and housing in some countries, and other signs that the energy problem is being taken seriously. France has cut its dependence on Middle Eastern oil by pressing ahead with a massive program for developing nuclear power. As a result of such efforts, the growth of oil consumption has slowed markedly in the industrial world. The authors are hopeful that countries will continue cutting back. "This is an optimistic work,"they write, "for our conclusion is that a reasonable adjustment, while not foreordained by any means, is certainly possible." In the race between crisis and a solution to global energy problems, Yer gin and the other authors are betting on adjustment.

- By John Greenwald

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