Warnings on Oil

Complacency is insidious. By definition, complacent nations and people aren't aware of it.

So it's hardly surprising that two important warning notes about America's chief energy source, petroleum, slid by with little notice from citizens happily gassing up for summer on the open road.

First, there was a speech by Deputy Secretary of State Strobe Talbott warning that the US economy could be damaged if reforms turn sour in the oil-rich republics south of Russia. "It would matter profoundly to the United States," he said, "if [terrorism, religious extremism, or outright war] were to happen in an area that sits on as much as 200 billion barrels of oil."

Talbott is a charter member of Friends of Bill (from Oxford days), so the implication is that the Clinton administration is placing new focus on the oil-rich states at the northern end of the world's greatest oil region, which curves northeastward from the Persian Gulf past the Caspian Sea. We'll see.

Meanwhile, the second warning bell, barely heeded, came from the US Congress and the German government. In Congress a move is afoot to make a fourth sale of oil from the strategic oil reserve stored away after the second oil shock of the 1970s. In Germany, Chancellor Kohl's cabinet has agreed to sell a portion of similar reserves. Both moves come under the label of helping to balance budgets.

The trouble is this is roughly equivalent to having Pharaoh sell grain from Joseph's proposed seven-year stockpile after only a few of the fat years have gone by, with the lean years when the grain is supposed to be used still in the future.

Complacency is the culprit, as already noted. The industrial world has had a decade of plentiful supply and steady prices. The worries of the 1970s have receded. Little attention is paid to the increasing proportion of imported oil.

But oil demand is growing as world prosperity spreads. Unused oil production capacity (discovered oil not yet pumped and distributed) is the slimmest it has been since the current long bull market started in the early 1980s.

No reason for alarm. Just caution. Barring a major interruption of the kind Talbott hopes to ward off, price and supply stability should persist for the next several years. But in these fat years it would be wise to leave the lean years' stockpile untouched.