Newsweek: Will Oil Prices Lead to a New Tech Boom?

[RedEarth]

Dec. 18, 2006 issue - The world will never be quite the same. High oil prices are not only changing the political and economic landscapes but they could also change energy itself, because they are stimulating the most widespread drive for technological innovation this sector has ever seen. The political shifts are striking, wherever you look. Russia was so flat on its back at the end of the 1990s that Western banks and companies competed to see who could close its Moscow offices faster. Today, even though Vladimir Putin says he does not like the term, Russia certainly appears to be an energy superpower, using oil and gas to restore its position in the world. Balances of political power are shifting in other ways. In 2006, after his nonstate lunch with President Bush in Washington, China's President Hu Jintao took off directly for state visits to Saudi Arabia and Nigeria.

Meanwhile, that other balance, in supply and demand, has been extremely tight. Even without actual disruptions, possible threats to supply—from the war in Lebanon and from rising tensions over Iran's nuclear program—were enough last summer to push oil prices above $78 a barrel, accompanied by forecasts of $100 a barrel. But then a slowing U.S. economy and growing inventories, and the prospect of rising non-OPEC production, sent prices down. That was enough to alarm OPEC into cutting production in order to stem the downward trend and keep prices above $50 to $55 a barrel. That's not exactly a low price; it's still double the OPEC price band of just a few years ago.

The flow of funds illuminates how much has changed. OPEC's revenue has tripled over the past four years, from $199 billion in 2002 to about $600 billion in 2006. The Mideast's trade surplus is 50 percent greater than that of emerging Asia. While oil states are recycling a good deal of this resurgent wealth back into the United States and Europe—as they did in the 1970s—this time much more is going into investments in Asia and local and regional financial markets and development. What used to be said of Shanghai—that it employed up to a quarter of all the world's building cranes—is now being said of Dubai. Petrodollars are also fueling political assertiveness in countries such as Iran (where oil revenue rose from $19 billion in 2002 to $60 billion in 2006) and Venezuela (from $21 billion to almost $50 billion over the same period).

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