Regionalism won't stop at trade. There will be new financial and service hubs in energy-rich areas like Russia, Latin America and the Gulf. Sovereign Wealth Funds will continue to buy up big chunks of Western banks and blue-chip companies, as well as investing more broadly in a new range of countries and currencies (which is likely to make forex movements stronger and more unpredictable). The rise of the Sovereign Wealth Funds has already triggered a protectionist backlash, including U.S. moves to step up the vetting of foreign investors in American firms.

Worse conflicts are possible. "As areas like the Mideast and Africa, Russia and Venezuela continue to rise, you're going to see increasing energy greed, aggressive behaviors and neocolonial actions on the part of various countries," predicts Scott Nyquist, the head of McKinsey's energy practice. As Iran gets richer, Hizbullah might get stronger. China will clearly wield more might in Africa. Western ideas about civil society, the environment and women's rights could be displaced with new sets of values.

More blood will almost certainly be spilled. Oil wealth tends to wreak havoc on a nation's economy and politics, discouraging diversity, aggravating ethnic grievances and making it easier to fund insurgencies. Oil countries now host about a third of the world's civil wars, up from one fifth in 1992. "There's a vicious cycle, which you can see played out in places like Iraq and Nigeria, where conflict fuels higher prices, and higher prices in turn fuel conflict," says UCLA's Ross.

The lack of any spare capacity in the global pipeline makes it difficult to solve such situations with sanctions; taking any oil off the market would, at this point, merely ignite an already explosive situation. The megatrends fueling the global supply shortage tend to feed on one another. Higher prices fuel the growing tendency of oil states like Russia and Venezuela to re-nationalize fields. That often leads to lower output, due to the inefficiency of most state oil companies, notes Sanford Bernstein analyst Ben Dell. The publicly traded companies have to go where they can. As fields in peaceful places (Alaska, the North Sea) are tapped out, the hunt for new oil has moved into conflict zones (Nigeria and Angola) or geologically extreme territory (Siberia, the deep sea). And while higher prices are already driving down energy consumption in rich nations, that drop does not offset the booming demand in emerging markets.

Meanwhile, though numerous green technologies hold plenty of promise, none of them are going to save the day any time soon. "It's a false god," says Robin West, chairman of PFC Energy. "There will be step changes in technology, but people forget the scale of the oil business. Ethanol production was 5 billion gallons last year, with huge subsidies to farmers and rising food prices. But that's the size of one production platform off the coast of West Africa."

So, what's to be done? For starters, policy makers might stop grilling big oil companies about why prices are so high (since they now control only a small percent of known reserves, it's largely out of their hands), support smarter green initiatives (wind and solar credits rather than ethanol boondoggles) and stop pandering to voters with subsidies and gas-tax cuts that ignore the new reality—oil is a finite resource, more people want more of it, and the profligacy with which we've used it is going to change. "There's a fuel that's cheap, clean and readily available, and it's called conservation," says West. By some estimates, the world could save 25 percent of its oil usage with simple measures like driving the speed limit, turning off lights, and fully using the green technology we already have (hybrids, better insulation, etc, etc). While it's never been the inclination of rich nations—particularly America—to rein in consumption, it's a notion we'll undoubtedly become more comfortable with as energy prices rise. It happened in the 1970s. It will happen again—and if we're very lucky, it will become the important and lasting effect of $200 oil.

With Barrett Sheridan in New York, Keith Naughton in Detroit, Stefan Theil in Berlin, Michael Freedman in Paris and George Wehrfritz in Hong Kong

© 2008