New Worlds: How The $200 Oil Scenario Could Change Everything

Now that $100-per-barrel oil has gone from doomsday scenario to everyday fact of life, along came OPEC president Chakib Khelil last week, forecasting $200 crude by 2010. And no one is scoffing. With demand expected to rise an additional 1.5 percent this year, and oil producers either struggling or not really trying to ramp up production, Goldman Sachs had already predicted prices could reach $200 before Khelil did. And Deutsche Bank energy analyst Adam Sieminski last week said it could even hit $250.

Think about that forecast again: $200 by 2010. Even at $112, the closing price last week, oil is transforming the world. Americans are switching to small fuel-efficient cars, and all manner of alternative energies are becoming economically viable. Forgotten regions like Canada's Alberta province are awakening as frontier boom provinces. On the downside, energy prices are a major driver of the food price inflation that is now producing riots, and toppling leaders, across the developing world. Oil populists in Iran, Venezuela and Russia have emerged as the rich troublemakers of a global age, even as oil wealth brings new life and hope of reform to petropowers in the Middle East. The implications of $200 oil, for better and worse, are almost too large and diverse to imagine. If today Dubai is a spectacular boomtown, and Hugo Chávez is a cocky pain in America's neck, then how much more so if they suddenly have a 100 percent increase in revenue?

But let's home in on one big, less obvious prospect. A quick doubling in oil prices could spell the end of the globalized "flat" world that had seemed so inevitable to enthusiasts and skeptics alike. According to Jeff Rubin, chief economist at Canada's CIBC, oil-price hikes work just like a "tariff" on trade. Already, he says, oil at $100 has added enough to the cost of shipping to wipe out 45 years' worth of tariff reductions that have lowered borders to trade and allowed India, China and other countries to boom. If oil hits $200, Rubin says, energy and transport costs could start displacing labor costs as the chief factor determining where (or even if) companies base offshore production. With oil at $200, it would cost $10,000 more to send a 40-foot shipping container to the Eastern United States from China, rather than from Mexico. As a result, China would start looking more to customers in Japan than in the United States. Western Europe would turn to Eastern Europe, and regionalization would be the new globalization. And that's just one possible shock.
—John SparksandStefan Theil

Olympic Countdown: A Torch Risk China Chose
Ever since China won the 2008 Games, it's planned to wow the world by running a second Olympic torch up Mount Everest. But now that the worldwide torch tour has drawn embarrassing protests against China's handling of Tibet, the inherent risks of the Everest leg—expected sometime this week—are mounting.

The Chinese have tried to prep the unpredictable conditions by paving a road to base camp and building a million-dollar high-altitude torch that burns solid fuel like a rocket. They've trained cameramen in mountaineering to capture the conquest. But as Tibet rallies spread, they locked down Everest and began refusing to say where the torch was, even hinting that there are "many" decoys. This may foil protesters but will cast doubt on the ascent. As of last week, the Chinese team was held back by high winds. To this day, some question China's claimed first ascent of Everest's North Face in 1960, because it was accomplished under cover of night. The news blackout may raise similar doubts.
—Lily Huang

America V. Iran: Where War Would Begin
If there's war between America and Iran, it may start at sea. It's happened before: in 1988, the two navies fought the biggest air-sea battle since World War II. After mines nearly sank a U.S. guided-missile cruiser, U.S. planes destroyed an Iranian frigate.