Where energy is concerned, everything seemed simple before the Iraq War. The US would topple Saddam, Iraq's vast oil reserves would be unleashed after a short period of reconstruction, and world petroleum prices would drop to under $20 per barrel. Instead, world oil prices have soared to $35 per barrel. No surprise, then, that new attention is being focused on energy supplies. But the basic message is clear: current energy patterns are risky and must change.
Two interconnected energy issues will shape our economic and geopolitical future for decades to come. The first is that dependence on Middle East oil is increasingly risky. Nobody knows how much oil is left and how much it will cost to extract, but the peak of global oil production will probably be reached sometime in the next quarter century, perhaps even in the next few years. Remaining oil supplies will be concentrated in the volatile Middle East.
Meanwhile, global demand for energy will soar as the economies of China, India, Brazil, and other countries grow. If the Middle East is already at a breaking point, imagine what could happen if competition for Middle East oil intensifies among America, Europe, China, India, Japan, and others.
The second great challenge is that our modern energy system is destabilizing the global climate. Petroleum and other fossil fuels (coal and natural gas) are causing long-term changes in the global climate, but few people appreciate the risks.