AS THE strategic and economic value of oil skyrocketed during the first half of this year, many experts declared that the global distribution of power is rapidly shifting to oil exporters-specifically, Russia and the members of the Organization of the Petroleum Exporting Countries (OPEC). This belief has led to a lot of talk about the rise of "authoritarian capitalist" great powers and "the return of history."

But let's imagine-as The National Interest asked me to do-that the summer of 2008 turns out to be the all-time peak of oil prices, and that the end of the oil era is imminent. The first instinct is to assume that in this world-a world in which oil would be a minor commodity, irrelevant to both geopolitics and the global economy-America would be much better off. Oil-exporting autocracies would fade into obscurity, and the Middle East would revert to barren sand-strewn lands. This imagined future, after all, is what drives politicians from George W. Bush to Barack Obama to say that ending dependence on foreign oil will liberate America.

But would this really be the case? It may be that the assumptions we hold are grounded in a misunderstanding of the global order. Perhaps instead, without oil dominating their economies, the Middle East oil states would be far less dependent on the United States for trade, for security and for dollars. Perhaps the dollar would no longer be the world's reserve currency, which would severely hinder America's ability to fund its current-account deficit-and its military superiority. And then, perhaps, the security guarantee the United States provides to the Middle East-and by extension the entire oil-dependent world-would be null and void.

In short, a world that doesn't need oil may also be a world that doesn't need the United States. But when prices of oil are skyrocketing, people aren't thinking about the possible long-term implications of energy independence, only the short-term gains.

 

THE BELIEF that high oil prices will trigger a massive redistribution of power away from the United States and toward authoritarian energy exporters is front and center in the minds of strategists-and it makes some intuitive sense. The price of oil has been rising effortlessly over the last five years, spiking over $140 a barrel this past summer. The future trend line seems inevitable: prices will continue to go up. The demand for energy from fast-rising developing countries like China and India is unstoppable. National oil companies control 90 percent of the world's oil reserves; most are managed so inefficiently that investment in exploration has all but dried up. (Paradoxically, this dysfunction does a better job than OPEC at restricting supply to the market.) These factors, combined with political instability and volatility in many of the exporting countries, seem to guarantee a replay of the 1970s oil shocks.

Meanwhile, the exporters are certainly getting richer. This summer the United States Department of Energy estimated that in 2008, oil exporters would earn more than $1 trillion for the first time. HSBC projected that the Gulf Cooperation Council (GCC) states will earn more oil revenue in 2008 than during the entire decade of the 1980s. McKinsey projected that $9 trillion will flow into the Gulf members of OPEC alone by 2020.

Understandably, geopolitical analysts are disturbed by how oil powers are using these windfall profits. Major oil exporters have set up a bevy of development banks, state-owned enterprises and sovereign wealth funds (SWFs) to expand their economies and invest their assets more strategically, giving them greater financial leverage over energy-importing countries. Russia's Gazprom seems hell-bent on controlling the European Union's energy infrastructure. Arab sovereign wealth funds have acquired significant stakes in a number of preeminent financial institutions, including Citigroup, Credit Suisse and UBS. In acquisitions that symbolize the shift in the distribution of power, government investment vehicles based in the Persian Gulf have acquired the Chrysler Building and the Manchester City football club. Oil exporters are buying up "the West."

Beyond economics, the greater concern is that energy exporters are beginning to feel that they have carte blanche to pursue foreign policies that challenge the American-led order. Iranian leaders look bound and determined to thumb their nose at the United States on Israel, terrorism and nuclear nonproliferation. Venezuela's Hugo Chávez has promised to bankroll a socialist "Bolivarian order" to challenge American hegemony in the Western hemisphere. Russia, flush with double-digit economic growth and over $500 billion in foreign-exchange reserves, has invaded Georgia and pried away the territories of Abkhazia and South Ossetia in an effort to maintain its sphere of influence.

Indeed, as Fareed Zakaria recently wrote in Newsweek:

As the price of oil and other natural resources has risen over the past decade, Russia has become more dysfunctional, corrupt, dictatorial and assertive. And oil wealth everywhere-from Venezuela to Iran to Russia-breeds independence from and indifference to international norms, markets and rules.

The single best strategy for bringing Russia in line with the civilized world would be to dramatically lower oil prices, which would force the country to integrate or stagnate.

But what would happen to this world if the astronomical price of "black gold" triggered a collapse in demand over the next decade and a battery of short-, medium- and long-term responses to that collapse ended the oil age? Would the Middle East still matter? Would the Venezuelas and Irans of the world rediscover humility? Would the United States' global position remain unchallenged?

 

LET'S SAY that conservation, substitution and recession cause a slide in the price of oil. This has already happened to some extent; after hitting $140 a barrel, as of mid-October, the price dipped below $70 a barrel. Now let's say that this trend continues: within a few years, a mix of greater exploration, greater conservation and the development of alternative energy sources causes the price of oil to fall even further, to $50.

Despite this drop, assume the memory of $140 oil looms sufficiently large in the minds of Western and Chinese consumers, so prevailing fears about energy security, combined with elevated concerns about global warming, spur investments in radical energy-saving innovations in transport and electricity generation. These innovations then allow many developing economies to "leapfrog" the pollution-intensive phase of economic development, further lessening demand for oil. The price of all hydrocarbon-based sources of energy plummets, as environmentally friendly alternatives replace oil and natural gas almost everywhere.

By the end of the next decade, then, we would be living in a world where oil prices had dropped in real terms to levels not seen since before the 1973 oil shock. In this alternative future, the only place Americans would see a combustion engine is on the "NASCAR classic" circuit.

If this scenario actually came to pass, optimists might anticipate being able to rejoice at a return to the end of history, while pessimists might fear that the oil-exporting states would descend into anarchy.

But, to imagine one way in which this scenario could play out, let's fast-forward to 2025. What actually happened in the world after oil turned out to be something entirely unexpected.

 

The Year is 2025

Beijing is the most authoritative voice in the international arena. Unencumbered by the resource curse, the Middle East is at long last stable, once-fragile African countries are active participants in the global economy and authoritarian regimes suffer from their inability to adapt while nuclear weapons proliferate. The United States, meanwhile, enjoys only second-tier-power status.

 

CONTRARY TO the most dire predictions, the end of the oil era did not destroy the Persian Gulf states. Instead of becoming the sand dunes of desperation the West expected, the Gulf states put money into education and infrastructure, and loosened their religious constraints. While the West assumed the Persian Gulf contained brittle and feckless sheikhdoms, in reality these governments proved resilient and adaptive.

That is because at the beginning of the twenty-first century, the GCC regimes had sufficient institutional memory to recall the previous oil bust of the late eighties and early nineties. Unlike in past booms, they did not permit consumption to rise at the same rate as their trade surpluses; the governments of the Gulf spent less than 45 percent of their oil revenue in 2008. The excess revenue filled the coffers of the region's sovereign wealth funds and central banks. And so, by 2010 the Abu Dhabi Investment Authority was sitting on close to $1 trillion in assets. These funds were large enough for the GCC economies to use the interest income without drawing down on the principal of the funds in order to invest in the non-oil aspects of their economy.

These changes had less to do with the character of the regimes than the fact that they moved up the learning curve. Back in the 1970s, most oil exporters did one of three things with their bulging coffers: they passively recycled their petrodollars through American banks; dramatically expanded their welfare states and increased consumption of luxury goods; or invested in ill-conceived white-elephant industries in their home countries. None of these strategies worked terribly well. The subsequent downturn in the oil market in the 1980s led cash-strapped GCC regimes into politically sensitive budget cuts and increased borrowing. Despite predictions that the sheikhdoms would collapse, they were able to retrench and survive the lean years.

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