In the future, 112 billion barrels will likely prove even shorter-lived. In the United States, gas-guzzling sport utility vehicles and larger homes are deemed essential. As the underdeveloped world industrializes, demand for oil by billions of people increases; China and India are building superhighways and automobile factories. Energy demand is expected to rise by about 50 percent over the next 20 years, with about 40 percent of that demand to be supplied by petroleum. 

Ever-increasing supplies of low-cost petroleum are thought to be vital to the U.S. and world economies, which is why the invasion of Iraq and the belief that controlling its 112-billion-barrel reserve would give the United States a limitless pipeline to cheap oil were so dangerous. The war in Iraq will definitely have an effect on the U.S. and world economies, but not a positive one. The invasion, occupation, and rebuilding of Iraq will cost the people of the United States both blood and treasure. But more to the point, Iraq could be a fatal distraction from many fundamental and extremely unpleasant facts that actually threaten the United States--one of which is the finite nature of petroleum resources.

Petroleum reserves are limited. Petroleum is not a renewable resource and production cannot continue to increase indefinitely. A day of reckoning will come sometime in the future. The point at which production can no longer keep up with increasing demand will mean a radical and painful readjustment globally to everyday life. 

In spite of that indisputable fact, people behave as if the global petroleum supply is unending. Predictions of the exhaustion of oil reserves seem to have lost all credibility. The public assumes that inexpensive oil will be available essentially forever. The idea that petroleum resources are finite and that petroleum production might peak in the near future seems to have vanished from all discussions of energy policy in Congress, in the press, and even among public interest groups. 

This surreal situation is due to several factors. One, certainly, is that pessimists have cried wolf too often. Forecasts of imminent shortages of oil, food, and other natural resources are confounded by the enormous display of material goods that envelops consumers in the West. For most people, the market price of any commodity is what signals shortage or plenty. Time and again, collapsing oil prices have succeeded rising oil prices, leading to the belief that oil will always become cheap again. That oil supplies are currently abundant and inexpensive and have been for nearly 20 years, and that the models used to predict peak oil production are not easy to understand, appear to ignore economic factors, and are based on proprietary data, explain to some degree the present feeling of permanent abundance. 

In reality, the differential between petroleum production cost and market price is so large that market price cannot be used as a measure of resource depletion. For example, the variation in the average price of oil between 1998 ($10 per barrel) and 2000 ($24 per barrel) had nothing to do with depletion of reserves and everything to do with an attempt to exercise "market discipline" by the Organization of Petroleum Exporting Countries (OPEC).

But the most important reason there seems to be an unending supply of oil is the activity of non-OPEC producers. Oil production is immensely lucrative. Large amounts of petroleum have been and will continue to be produced outside the Middle East at costs that are very low, $5-$10 per barrel, compared to the desired OPEC price range of $22-$28 per barrel. The opportunity to realize extraordinary profits provides irresistible pressure to produce as much oil as possible, as soon as possible.

Yet oil is a finite resource, and there are only so many places to look for it. Sooner or later petroleum production will decline, so sooner or later the prophets of depletion will be correct. The question then becomes: Can a peak oil forecast be made that is useful to the petroleum industry and to consumers, one that will alert them to the problems and allow for a redeployment of resources?

Answering that question requires an understanding of why the world's rising petroleum needs are being met without skyrocketing prices or supply shortages.

Everyone knows that the science and technology underpinning computers, telecommunications, and medicine have advanced dramatically over the last 20 years. The proof is everywhere, from ever more powerful personal computers, to increasingly sophisticated cell phones, to new medical imaging technologies and pharmaceuticals. 

Unknown to most people, however, advances in geological sciences and petroleum technologies have been equally profound and dramatic. Since the 1970s, plate tectonics has been providing a uniform framework for understanding the geology of the Earth's surface (including petroleum formation). Much as X-ray and nuclear magnetic resonance tomography examine structures within the human body non-invasively, three-dimensional seismography now allows potential oil-bearing formations to be evaluated in great detail. Nuclear magnetic resonance probes are used to determine porosity and hydrocarbon content as well as to estimate the permeability of these formations. Petroleum deposits are being brought into production on the continental shelves off Texas, Brazil, and West Africa in water up to 8,000 feet deep--areas that were, until recently, inaccessible. Technological advances like sub-sea terminals, directional drilling, and floating production, storage, and offloading ships have been developed to exploit smaller, previously uneconomic or unreachable deposits. Sophisticated science and technology coupled with unparalleled profitability has provided the foundation for the wide availability of oil.

Yet the same advances in geology and engineering that have provided consumers with seemingly limitless petroleum also allow much better estimates to be made of how much oil may ultimately be recovered. After a five-year collaboration with representatives from the petroleum industry and other U.S. government agencies, the U.S. Geological Survey (USGS) completed a comprehensive study of oil resources. The "USGS World Petroleum Assessment 2000" is the first study to use modern science to estimate ultimate oil resources. [1]

The importance of this assessment is difficult to overstate. Previous world oil resource evaluations have ranged from crude "back-of-the-envelope" calculations to estimates based on proprietary databases, and have often lacked enough detail to allow a comparison between production and estimated reserves. We now have credible, easily accessible long-term production records and science-based resource estimates for all of the important oil producing regions in the world--crucial for understanding how oil production might evolve over time. 

The USGS assessment allocates reserves to three separate and distinct categories. The first is "proven reserves," or petroleum that can be produced using current technology. The second category is "undiscovered reserves"--oil deposits that are highly likely to exist based on similar areas already producing oil. The third category is "reserve growth" and represents possible production from extensions of existing fields, application of new technology, and decreased well spacing in existing fields. Oil in this last category can be extracted much less rapidly than oil in the proven and undiscovered categories. (For purposes of determining the approximate year of peak or constant output, the best that can be hoped for is that all proven reserves are produced and all undiscovered reserves are found and produced as rapidly as needed. Petroleum from reserve growth, produced at much lower rates, can be ignored. According to the USGS, it is available only to lengthen the period of peak production or to reduce the decline in a field's output.)

As of January 1, 1996, OPEC's proven and undiscovered reserves amounted to about 853 billion barrels, while similar non-OPEC reserves were 769 billion barrels, according to the USGS assessment. Based on actual production patterns in many non-OPEC oil producers, output can increase until there remains between 10 and 20 years of proven plus undiscovered reserves (as determined by the USGS), at which point a production plateau or decline sets in, depending on the reserve growth that is actually available.

Given that non-OPEC production rates are nearly twice as great as OPEC rates, and assuming stable prices and 2 percent per year market growth, non-OPEC production will reach a maximum sometime between 2010 and 2018 based on resource limitations alone (assuming complete cooperation of producers and that all undiscovered oil is actually found and produced as rapidly as needed). [2] Once this happens, OPEC will control the market completely, and it is unlikely that production will increase much longer.

Yet this simplistic analysis is too optimistic. There is no such thing as "non-OPEC oil," but rather U.S. oil, Norwegian oil, and oil produced by various other countries. In particular, about 39 percent of non-OPEC proven plus undiscovered reserves are located in the former Soviet Union. It is only a matter of time before these countries reach an agreement with OPEC on how to divide the oil market, at which point the current illusion of unlimited oil resources will end, not due to resource constraints but to political factors. 

Yet the U.S. public, industrial and political leaders, environmentalists, and policy-makers in general do not believe that they need to be concerned with the finite supply of oil and its unfavorable (from the U.S. perspective) geographic distribution. As noted earlier, the overwhelming majority behaves as if inexpensive oil will be readily available far into the distant future.

This attitude is reflected in U.S. policy toward Iraq. One might expect that a major consequence of the U.S. conquest of Iraq would have been full control of Iraqi oil reserves, reducing or eliminating the ability of OPEC to set prices, and giving the United States a permanent--because oil is forever--overwhelming strategic advantage. It would allow the United States to dictate production rates and lower prices, which would serve two important aims. Reduced prices would reward consumers in the West, buying their support for U.S. policies. It would also deprive oil producers of the revenues with which they could challenge the U.S. domination of the Middle East. Oil prices could be expected to drop to between $15 and $20 per barrel once existing Iraqi fields were refurbished and large new deposits were developed. 

However, lower prices would stimulate consumption and decrease the incentive to develop more inaccessible reserves, essentially those of the non-OPEC producers. If non-OPEC producers fail to develop those harder-to-get-at reserves, peak oil production will more likely occur earlier, at the front end of the 2010-2018 forecast. So the very success of the current effort to seize control of the Middle East would doom U.S. imperial ambition to failure within the next 10 years, from an oil supply standpoint.

This scenario is now implausible given the bitter Iraqi resistance to U.S. occupation, and it is not clear when Iraqi production might reach, much less significantly exceed, its pre-invasion level. 

To understand what may unfold, given current levels of sabotage and chaos in Iraq, one must examine how the petroleum marketing system has changed over the past year, and in particular the role that OPEC producers have played. 

In 2002, Iraqi oil production averaged two million barrels per day. The United States must have understood that an attack might interrupt production, which would in turn cause a large increase in the price of oil. Since this would have a severe negative impact on the world economy, it would further inflame anti-American sentiment throughout the world and even turn U.S. voters against the enterprise. The conclusion: Lost Iraqi production had to be replaced. Thus, an agreement was reached with OPEC to stabilize the markets by increasing production levels as needed. 

In March 2003, the Saudi oil minister reassured the International Energy Agency of Saudi Arabia's longstanding policy and practice of supplying the oil markets reliably and promptly, and highlighted the collective responsibility that producing countries have shown in addressing the concerns of world oil markets. This was most likely viewed as a temporary measure, as it was assumed that Iraqi production would be restored and expanded rapidly after the United States took charge. 

In addition to the impending interruption of Iraqi production, in early 2003 Venezuelan oil production was far below its OPEC quota due to a conflict between populist president Hugo Chavez and the business community; Nigerian production was also depressed by civil strife. 

OPEC rose to the occasion (or, more likely, felt compelled to rise to the occasion, given the huge U.S. military presence in the Persian Gulf in preparation for war) and increased production by about 3.2 million barrels per day--equivalent to the production of the Norwegian North Sea sector--virtually overnight, more than compensating for lost Iraqi, Venezuelan, and Nigerian production.

About 65 percent of the increase came from just two countries, Saudi Arabia and Kuwait; Saudi Arabia alone contributed more than half and probably controls what remains of any spare production capacity.

The critical role that OPEC, in particular Saudi Arabia, plays as the swing producer for the world oil market is clearly evident from this episode, which allows one to quantify the ability of the Saudis to affect the world oil market and the world economy. 

The U.S. assault on Iraq has not undermined the power of OPEC and Saudi Arabia. On the contrary, it has if anything enhanced that power. This will not change until Iraqi oil production significantly exceeds its pre-invasion level. Thus, even in the short term, and on the most cynical level, U.S. Iraq policy vis-a-vis oil has been a failure.