The Thirst for Oil.(American consumption)

The fat book opens like the tale of another age, with a nighttime image of auto lights streaking red and white past the World Trade Center. Released last May, the Bush energy policy warns that dwindling supplies of oil and gas, an antiquated power grid and burdensome regulation threaten to drag the United States into the "worst energy-supply crisis since the 1970s." In his introductory speech, Bush spelled out a scary 20-year scenario in which America becomes increasingly "vulnerable to price shocks, supply interruptions and, in the worst case, blackmail." Four months later the World Trade Center was suddenly gone, and it would no longer do for the U.S. president to evoke other crises, or a time of post-oil-shock stagflation. Yet if Bush's projections were ever true, they still are, raising a scary question: is there really an energy crisis ahead?

For decades presidents have been coming up with plans to deal with the fact that one day the world will run out of its key source of energy, oil. Bush's plan is almost unique in that it is all-American. Especially since September 11, Washington's rallying cry has become "freedom from foreign oil." But there is no definition of freedom--1.7 million barrels a day to replace imports from Saudi Arabia, 650,000 barrels to replace supply from Iraq? There is no explanation of where the United States might realistically find so much oil. There is no recognition that any crisis in the United States would be inextricably linked to energy supplies and demand everywhere in the world. Not since the Ford administration, says energy strategist Anthony Cordesman, has "an energy strategy addressed so little. This policy acts as if the rest of the world didn't exist."

The global view suggests, in fact, that there is no supply crisis. We know there's a lot more oil worldwide now than in the 1970s. Using increasingly advanced probes and sensors, surveys that once estimated total global reserves at 650 billion now find more than a trillion barrels. At present-day consumption rates, it looked in 1970 as if oil would run out in 33 years--that is, next year. This year, the same calculation puts the day of reckoning in 2046. In the United States, much of Texas, including the fabled Panhandle, has long since run dry, but oil companies have found new sources in the crooks and crannies of old fields, extending the expected life of reserves an additional 16 years. The threat of a shortage is receding, assuming we can reach the oil in the ground.

Buying oil is much easier today, too. Then and now, the Middle East oil cartel sat on roughly two thirds of known reserves, but in 1970 its members sold directly to customers--and could punish them individually. Today oil is sold on an international market mediated by thousands of middlemen and futures exchanges around the world, a system that has done much to undermine OPEC's clout. "They can't cut off our oil supply, they can only cut off oil supply," says Prof. William Hogan of Harvard. "It's a very blunt political weapon, so they stopped using it as a weapon."

The potential for crisis is shrinking. The '70s won't come back because the United States learned from the dismal era. Jimmy Carter responded to oil shocks by trying to micromanage the price of oil, which only made matters worse. Consider, by contrast, what happened after bankruptcies and brownouts rolled through California, the world's seventh largest economy, in early 2001. Prices shot up and Californians started cutting back on demand--leaving cars in the garage, turning off escalators and lights at night. Regulatory hurdles were cleared from the path of new energy-plant construction, and a feared second summer of even worse blackouts never came. "You know, it's hard to have a supply crisis today," says Adam Sieminski, a strategist for Deutsche Bank. The energy market works: if prices are allowed to go up, demand goes down. Crisis averted.

The United States is also increasingly immune to oil shocks. In 1980, when prices shot up due to the Iran-Iraq war, ...