How To Escape The Oil Trap

If I could change one thing about American foreign policy, what would it be? The answer is easy, but it's not something most of us think of as foreign policy. I would adopt a serious national program geared toward energy efficiency and independence. Reducing our dependence on oil would be the single greatest multiplier of American power in the world. I leave it to economists to sort out what expensive oil does to America's growth and inflation prospects. What is less often noticed is how crippling this situation is for American foreign policy. "Everything we're trying to do in the world is made much more difficult in the current environment of rising oil prices," says Michael Mandelbaum, author of "The Ideas That Conquered the World." Consider:

Terror. Over the last three decades, Islamic extremism and violence have been funded from two countries, Saudi Arabia and Iran, not coincidentally the world's first and second largest oil exporters. Both countries are now awash in money and, no matter what the controls, some of this cash is surely getting to unsavory groups and individuals.

Democracy. The centerpiece of Bush's foreign policy--encouraging democracy in the Middle East--could easily lose steam in a world of high-priced oil. Governments reform when they have to. But many Middle Eastern governments are likely to have easy access to huge surpluses for years, making it easier for them to avoid change. Saudi Arabia will probably have a budget surplus of more than $26 billion this year because the price of oil is so much higher than anticipated. That means it can keep the old ways going, bribing the Wahhabi imams, funding the Army and National Guard, spending freely on patronage programs. (And that would still leave plenty to fund dozens of new palaces and yachts.) Ditto for other corrupt, quasi-feudal oil states.

Iran. Tehran has launched a breathtakingly ambitious foreign policy, moving determinedly on a nuclear path, and is also making a bid for influence in neighboring Iraq. This is nothing less than an attempt to replace the United States as the dominant power in the region. And it will prove extremely difficult to counter--more so, given Tehran's current resources. Despite massive economic inefficiency and corruption, Iran today has built up foreign reserves of $29.87 billion.

Russia. A modern, Westernized Russia firmly anchored in Europe would mean peace and stability in the region. But a gush of oil revenues has strengthened the Kremlin's might, allowing Putin to consolidate power, defund his opponents, destroy competing centers of power and continue his disastrous and expensive war in Chechnya. And the "Russian model" appears to have taken hold in much of Central Asia.

Latin America. After two decades of political and economic progress in Latin America, we are watching a serious anti-American movement gain ground. Hugo Chavez in Venezuela--emboldened by his rising oil wealth--was the first in recent years to rebel against American influence, but similar sentiments are beginning to be heard in other countries, from Ecuador to Bolivia.