World oil prices continue to soar – driven by the continuing power struggle in Iraq, by fears for the solvency of the Russian oil giant Yukos, and by surging demand for oil in Asia, notably in China. Even President Hugo Chavez’s convincing victory in Venezuela on August 15 — and his pledge to continue supplying the United States with 1.5 million barrels daily in spite of his political differences with Washington — has not checked the upward trend.

Some observers predict that oil prices could soon break through the $50 a barrel ceiling. But, they add, there is no need to panic. In real terms, oil prices are still only about half the level reached in 1979!

High oil prices, however, have some immediate consequences. They check the rate of growth of industrial economies, and might even trigger a recession; they stimulate the search for alternative sources of energy; and they pump money into Arab pockets.

The British weekly The Economist has estimated that ‘With oil prices at their highest level in two decades, revenues of $600 million a day are gushing into the Gulf, double the volume during the 1990s. The monarchies of the Gulf Cooperation Council are alone likely to earn $35 billion more from oil exports this year than last…’ – and that excludes big producers such as Algeria, Libya and Iraq.

Preparing for a post-oil era

Arabs should beware. The bonanza will not last for ever. Instead of frittering away their oil wealth on conspicuous consumption, on real estate extravaganzas and uncertain overseas investments, the Arabs should devote every surplus dollar to preparing their societies for a post-oil economy. As most Arabs are today under 30 years of age, a radical change could occur in their lifetime, and it could be painful. Urgent measures need to be taken to prepare for the day when the world economy will no longer be dependent on Arab oil.

Instead of deregulating their economies, eliminating corruption, privatising their inefficient state-owned industries and stimulating growth in non-oil sectors, high Arab oil revenues have created a sense of complacency and retarded the introduction of much-needed reforms. Most Arab economies have stagnated over the past two decades with the result that 80 million Arabs out of a total of 290 million still live below the poverty line.

It is almost certain that within three, four or, at the latest, five decades from now, the petrol pump will have been left behind and replaced by some other form of energy-provider. At present, the world’s 500 million cars are driven by internal-combustion petrol engines. By 2030, the number of cars is forecast to increase to more than two billion, largely due to growth in Asia. What new technology will drive them? Might many of them be all-electric vehicles? Or might they be powered by hydrogen fuel cells – hydrogen being, after all, the most abundant element in the universe?

Whatever the answer, tomorrow’s cars are most unlikely to be the gas-guzzlers we see on the roads today, pumping carbon dioxide into the atmosphere and contributing fatally to global warming and climate change.

Writing earlier this month in the Financial Times, Wolfgang Reitzle, chief executive of a leading international energy company, announced that ‘the US, Japan, China and the European Union have focused on hydrogen technology as the most likely mainstay of continued economic development.’ Industry, he said, is putting its long-term money on the hydrogen fuel cell. Fuel-cell-powered aircraft, trains, boats and trucks are in development. The Chinese are ahead of the pack: fuel cell bus services are due to begin in Beijing next year.

A recent 500-page report by America’s National Academy of Science concluded that ‘hydrogen has the potential for replacing essentially all gasoline and eliminating almost all CO2 from vehicular emissions over the next 50 years.’

Energy is one of the major planks in John Kerry’s campaign to unseat George W Bush at next November’s US presidential election. The Democratic challenger blames the Bush administration’s Middle East policies — notably the war in Iraq — for adding $8-$15 a barrel to the price of oil. He wants the US to reduce its dependence on Arab oil and to adopt a policy of ‘energy independence’.

Kerry has pledged that, if he becomes President, he will spend $30 billion to encourage Americans to buy cleaner cars and to subsidize carmakers to convert to cleaner technologies. Above all, he wants to promote a shift to fuel cell technology and has urged US industry to develop renewable sources of energy, such as wind and solar power.

Kerry’s energy policies appeal to the growing ‘Green’ lobby, which has applauded his pledge to introduce a ceiling on America’s emission of greenhouse gases.

The race for a new energy source

‘Energy independence’ sounds good but will not be easy to achieve: the United States consumes a quarter of the world’s oil but sits on only 3% of its proven reserves. In spite of the difficulties, however, no one should underestimate the innovative powers of American industry, nor its ability to divert enormous resources to developing a new technology if it looks like being a winner.

Whatever the politicians may say, America’s overthrow of Saddam Hussein — and its ambition to install a pro-American regime in Baghdad — were driven in large part by the looming world oil shortage. World oil supplies are expected to peak between 2010 and 2020, and would then be unable to meet the exploding world demand for oil. The major powers, with the US in the lead, are engaged in a scramble for remaining oil stocks – to fill the supply gap before an alternative energy source becomes widely available, probably in the second half of this century.

According to Wolfgang Reitzle quoted above, hydrogen is the most viable replacement. ‘Every dollar spent on hydrogen,’ he says, will save us many more when the final rush for oil begins.’

But hydrogen — which as a constituent of water is all around us — is not easy to harness. In theory, switching from fossil fuels to hydrogen is extremely tempting: it would end dependence on oil, reduce air pollution in cities and check the build-up of greenhouse gases that are already being held responsible for severe climate change. But, in spite of billions of dollars now being spent on research, no one has yet found a simple, safe and cheap way to produce hydrogen.

Hydrogen atoms are bound to other elements in molecules, such as water. To work in fuel cells, hydrogen atoms must be split off from these molecules. At present, this is a costly process. Storing hydrogen on board a car is also a problem, which has not yet been solved satisfactorily. The hydrogen would need to be compressed or liquefied, but this in turn would require it to be chilled to just a few degrees above zero, a process consuming large amounts of energy. Since hydrogen gas is highly flammable, safety is another concern for which no adequate solution has yet been found.

For the cars of the future to be powered by hydrogen fuel cells would require the creation of a massive new hydrogen infrastructure. Mass-market hydrogen cars would need the new fuel to be available at filling stations. Where is to be produced? Is it to be produced in centralised plants and then trucked or piped to filling stations? Or could it be produced on site?

Experts say that huge problems will need to be resolved in producing and storing hydrogen, in converting it to electricity, in supplying it to consumers, and in overcoming safety concerns.

Nevertheless, car and energy companies are pumping billions of dollars into building prototypes of vehicles and filling stations, while governments are pursuing hydrogen as a potential replacement for car fuel.

Change is coming and the higher the oil price the faster it will come.

Patrick Seale is a veteran British expert on the Middle East. He worked for several years as a foreign correspondent for Reuters and the British Sunday newspaper, The Observer. He now lives in Paris, is working on a new book, runs a consultancy for a short list of clients and writes two weekly syndicated articles for newspapers in several countries. His books include: