Daniel Yergin

The immediate effect of Asia's crisis will be an oil shock, but in the longer term, Asia's energy needs will be the problem. Asia's energy demand will be more than nine million barrels of oil per day higher in 2010 than it was in 1996-a difference greater than the entire current output of Saudi Arabia. But market integration and cooperation will prevent conflict as countries work together to utilize Central and Southeast Asian natural gas reserves. China, for one, has already reached agreements to develop oil fields in Kazakstan and build a massive pipeline to its Xinjiang province. The South China Sea will remain a concern, but the current crisis will help nations move toward the market and away from state control of energy.

Currently, oil prices are low and supplies plentiful. But the key to understanding energy policy (in which, for the USA, oil is central), is uncertainty. Analyzes the 'margin of security in supplies', recommending that US energy policy should (1) slow the growth of oil imports (2) strengthen the domestic oil and gas industry (3) increase natural gas use (4) promote energy efficiency (5) support energy R&D (6) fortify the strategic reserve to 100 days (7) renew the US commitment to the International Energy Agency (8) ensure competitive markets.

Consider the plight of some distinguished oil expert, a modern-day Rip Van Winkle who had been lulled in the summer of 1978 into a long nap by the then widespread predictions for the 1980s--ample oil supplies at constant or even declining real prices. By the beginning of 1980 he would have awakened to a thoroughly disorienting situation. He would have thought that the year was 2000, for 20 years of anticipated change had been telescoped into one. From $12-13 per barrel in late 1978, oil prices had risen to the $30-35 range, a level that many 1978 predictions had not anticipated until the year 2000. And political threats to the world's oil supply that had been discussed as potentially serious five to ten years in the future had become visibly critical in 1979 alone. It was a fateful 18 months.

Almost exactly five years after the first oil shock, the second began. The parts of the puzzle are arranged quite differently this time around, but the two central pieces are the same. The upheaval in Iran has meant an interruption of supply and a loss to world production already as great as that from the 1973 embargo; the tight world oil market which had been predicted, just last fall, only for the mid-1980s or beyond is already upon us. And, as a direct result, the OPEC countries-which in December 1978 had already announced a substantial price rise during 1979-are further increasing prices.