Peace Would Change Little in Gulf or U.S.

It could be that the oil markets are right and that the Persian Gulf crisis has taken a turn toward a peaceful settlement.

Even though the price of crude rebounded slightly on Tuesday, it has fallen $12 a barrel--to just over $29--in the last week or so as reports from the Middle East have pointed toward a diplomatic solution to the crisis begun Aug. 2 when Iraq invaded Kuwait.

Middle East experts attach particular weight to remarks by Saudi Arabia’s defense minister, Prince Sultan Ibn Abdulaziz, that if Iraq withdraws from Kuwait it could later be granted authority over some Kuwaiti coastal territory. Sultan said Tuesday that he had been “misinterpreted,” but that didn’t stifle informed speculation.

“One hears of a divergence of views between hawks and doves within the Saudi royal family,” says James Akins, former U.S. ambassador to Saudi Arabia and now a consultant in Washington. “Well, Sultan is a dove.”

“We may be seeing the beginning of a break toward a diplomatic solution,” says Thomas L. McNaugher, a senior fellow at Brookings Institution and author of “Arms & Oil: U.S. Military Strategy and the Persian Gulf.”

Oil prices are falling because if Iraq and Kuwait’s production--4 million barrels a day--comes back on the market while increased output continues from Saudi Arabia and Venezuela, the world will be awash in oil. “Prices could go as low as $10 a barrel,” says Joseph Tovey of Tovey & Co., an investment bank specializing in energy. That would be a temporary low, of course, but the outlook would be for reasonable oil prices in the next year. And that would be beneficial to the world economy.

To be sure, Middle East prospects could shift toward war again. But for now the trend is toward diplomacy, and reports are sunny--including one that Saddam Hussein was visited in a dream by the Prophet Mohammed and told to withdraw from Kuwait.

What does that mean to you? First and foremost it means that almost all U.S. troops could come home from the Persian Gulf.

The U.S. Navy would continue to patrol the Gulf, of course, and some U.S. ground forces would remain in the area for a time to help “internationalize the security of Kuwait,” as one expert puts it. Ultimately, forces from Arab League nations would serve as defenders of the tiny sheikdom, perhaps under United Nations auspices as part of what President Bush has called a “new world order.”

Significantly, the old idea of selling sophisticated weapons to small countries such as Kuwait so that they could defend themselves took a beating in this crisis. Kuwait had U.S. Hawk missiles, for example, but did nothing with them, and the Hawks fell easily into Iraqi hands.

Otherwise, the Iraqi crisis really hasn’t changed much. If there is a diplomatic solution in the next few months, the Middle East will go back to being pretty much the same unstable place it has been for thousands of years. “The normal pattern in the region is a balance of power system, with shifting alliances,” says William Quandt, a former official of the National Security Council and Middle East scholar.

Syria has benefited by effectively taking over Lebanon, says one expert. Egypt is poorer and will need U.S. or Saudi aid because its people won’t be able to resume work immediately in Kuwait and Iraq and send money home.

The Saudi royal family will continue to rule the oil-rich desert kingdom, “but maybe Sultan--the one making diplomatic noises to Iraq--will replace King Fahd on the throne,” speculates one expert.

Militarily, Iraq will be checked by its old enemy Iran, says McNaugher. But Iraq’s immediate need--whether Saddam Hussein remains ruler or not--will be money. Iraq’s economy is destitute, and it owes $55 billion to European nations. So Iraq will want to sell as much oil as it can.

That will mean gasoline prices coming down 35 cents or more a gallon in the United States next year. And longer term it could presage a decade of reasonable oil prices, settling at about $20 to $25 a barrel, says economist Anthony Finizza of Arco.

Such prices will support drilling and production of new U.S. oil while at the same time leaving retail gasoline and heating oil costs only a bit higher than they were before the Iraq crisis--not including new state and federal energy taxes.

There will be a lot of talk about conservation, to break U.S. dependence on oil from the unstable Middle East. But we’ve heard such talk before. “After the crisis in Iran in 1979, we imposed no new taxes to affect our energy usage,” notes John Lichtblau, head of the Petroleum Industry Research Foundation.

And chances are that Americans wouldn’t change their energy-using ways much now--were it not for environmental pressures and restrictions.

Thanks to environmental needs, however, the next few years should see more use of natural gas--which is in plentiful supply--and, beyond gas, some real technological change on the U.S. energy front in this decade.

But otherwise, the more things change, the more they stay the same is the rule here, just as much as in the Middle East.