Oil dependence as virtue.

• Author: Drezner, Daniel W.
• Position: Company overview

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 tins. 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."

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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 Chavez 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...