The Coming Oil Revolution

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With one swift stroke Iraqi President Saddam Hussein's takeover of Kuwait seems to have overturned the rules of international oil. No matter how the chain of events triggered by Baghdad's military aggression unfolds, the Organization of Petroleum Exporting Countries (OPEC) will no longer be what it once was. Commercial ties between oil-producing countries and their main markets in the consuming industrial countries will be transformed, investment patterns will shift radically, and energy policy in the United States will take on a new meaning.

Saddam Hussein is not responsible, however, for more than accelerating an already rapid pace of change that was transforming the petroleum sector even before last summer. The immediate repercussion of the international embargo of trade with Iraq and occupied Kuwait was a doubling of the price of oil. But even without the recent turmoil in the Middle East, higher oil prices-about $40 a barrel-were almost a certainty for the late 1990s.

No one can dispute that the unfolding of events in the gulf will have a significant short-term impact on oil markets; Iraq's invasion of Kuwait has made it virtually impossible to return to the oil order of the past. Any outbreak of war will obviously affect more than oil prices, as will any continuing U.S. military presence in the gulf, where the legitimacy of traditional political regimes has been sorely challenged. Whether Saddam Hussein will survive the U.N.-imposed embargo, or a war, and whether either will result in an Iraqi withdrawal from Kuwait remain open questions. In any case, the world's new petroleum arrangements will be influenced far less by the denouement of the military situation in the gulf than by developments in the oil arena itself.