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Skids are Greased for Oil Crisis

When geologists speak of Hubbert's Peak, they're not talking mountaintops or hairdos. They're referring to a time - maybe not so far off - when the world will run out of fertile new oilfields and new ways to recover oil, and petroleum supplies will begin an inevitable and maybe very fast slide.

Today, almost all OPEC nations appear to be pumping flat-out, yet the world still is just an oil workers strike or pipeline saboteur's attack away from big trouble.

That's a clear sign that the old OPEC cushion - excess capacity that allowed Middle East producers to control the market and price - is no more.

That might be good news, except that Iraqi insurgents are demonstrating almost daily how small groups of fighters can make outsized shock waves through the world economy simply by going after the oil infrastructure.

The potential for Middle East terrorists bent on bringing the West to its knees is sobering.

With supplies so tight and demand surging, even a few disruptions in world oil supplies could fan inflation and torpedo recoveries.

Adding to the problem is that Russia, the world's No. 2 oil exporter after Saudi Arabia, could see disruptions to oil shipments. Russian leader Vladimir Putin seems determined to go to any lengths in his political vendetta against oil baron Mikhail Khodorkovsky, even if it means sacrificing the health of the country's oil sector.

But on top of that, a number of major oil-producing nations have lost capacity or face instability threatening output, including Indonesia, Venezuela and Nigeria.

Any excess oil has long since disappeared down the maw of surging economies in China and India and a recov ering one in the United States. Only Saudi Arabia can open its spigots at will, but how long its reported 11 million barrel-a-day bonus stream could run before running out is unknown.

Meanwhile, industry experts believe the once-ballyhooed Caspian Sea lode - advertised at potentially 200 billion barrels of oil - almost a second Persian Gulf - could be far less rich and far riskier to develop than once assumed.

Carl Larry, a senior energy analyst for Barclays Capital Inc. in New York, thinks the days of below-$30-a-barrel oil are gone forever - and the days of $50 or $60 a barrel may be coming.

"I don't think a lot of oil companies were prepared to see demand grow as it has," he said.

What hasn't been surprising is how blasé U.S. consumers appear in the face of nearly doubled gas prices.

"As long as the economy is strong, people will take higher prices and still drive," said Larry, Barclays' associate director of energy futures.

"Hubbert's Peak" comes from a theory advanced more than 50 years ago that U.S. oil supplies were running out faster than anyone had anticipated. M. King Hubbert, a Shell Oil research geophysicist in Texas after World War II, crunched numbers on known fields and exploratory techniques, sketched out a bell chart and announced that U.S. oil production would peak in the late 1960s or early 1970s and then go into steep decline.

At a time of huge new finds and predictions of 500 years' worth of oil, Hubbert's "pimple" was laughed at. Then, around 1970, it came true.

Ever since, the United States has become increasingly dependent on foreign sources of oil.

Recently, some scientists tried to take the same principles and apply them to the world scene.

Kenneth Deffeyes, a Princeton emeritus professor who used to work with Hubbert at Shell, wrote in "Hubbert's Peak: The Impending World Oil Shortage," that world oil production could begin to drop between 2004 and 2009.

The Hubbert's Peak forecasts have some flaws. They're heavily dependent on accurately projecting how much oil there is in the world - a hotly disputed number. And since they're based on past behavior, they're likely to understate what might happen in times of acute shortage when radical new techniques and approaches will become profitable.

But what Hubbert got right is the human tendency to believe that everything will muddle along approximately as it is, and to assume that short-term fixes will repair all problems, even oil-supply problems.

The market is telling us something today - that investments in the future are needed.

Hubbert's Peak may be only theoretical. But good theories have a way of proving true. It's past time for the United States to take the present-day oil crunch seriously - and to develop serious policies to confront it, including comprehensive energy and gas-tax reforms.

Sullivan is The Plain Dealer's foreign-affairs columnist and an associate editor of the editorial pages.

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