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 Sparks and Stefan 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.

That's why last week's comment by Defense Secretary Robert Gates about the brief Gulf deployment of a second aircraft carrier was so terse and so telling. "I don't see it as an escalation," he said. "I think it could be seen, though, as a reminder." Gates would know—he was the CIA's deputy director in '88 and saw firsthand the treacherous complexities of an undeclared war.

Experts say that any U.S.-Iran conflict would involve a major naval element. Forty percent of the world's oil supply passes through the Gulf on vulnerable tankers. Add to that the menace from small boats bearing suicide bombers, like the ones Al Qaeda used on the USS Cole in 2000 and the French oil tanker Limburg in 2002, as well as the Iranian boats that swarmed an American freighter in January, and you've got a volatile zone where it's impossible to tell fisherman from foe.

As tensions mount, so does the chance for tragic errors. In March, a bullet warning boats away from a U.S. ship killed a peasant on the Suez Canal. It's easy to see how such an accident could lead to escalation. Not a prediction—just a reminder.
Christopher Dickey

Department Of Dissonance: EU Orchestras Shush Up
Did you know that an orchestra playing "Madame Butterfly" can be louder (at 135 decibels) than a pneumatic drill (120 decibels)? The European Union does, and in April its legislation on workplace noise—first passed in 2006 and extended for entertainment industries—took effect. Classical-music venues are scrambling to comply, and it's causing a splitting headache. London's Royal Opera House has spent more than $100,000 on noise-reducing screens and high-tech earplugs for staff, as well as a "noise schedule" to make sure its musicians don't breach the average daily limit of 85 decibels. Unsurprisingly, some top players haven't taken kindly to the plugs; one oboist likened his plight to that of a blindfolded race-car driver.

Oboists aren't the only ones straining to adapt—in Scotland, bagpipers have their kilts in a twist. "This law is absolutely unworkable," says Roddy MacLeod, director of the Glasgow International Piping Festival. But since a pipe band playing at full pelt hits 122 decibels—the level of a chain saw—pipers will have to plug up, too, or risk having Brussels clamp down on their Highland airs.
Sophie Grove

Technology And Society: Gaming To Relax
The CW has long held that videogames improve visual and spatial skills but that violent ones make it harder to control anger. Now a study by Carmen Russoniello of East Carolina University—to be released next week at the Games for Health Conference in Baltimore—finds that games can actually help you relax, affecting heart rates and brain waves in a way that suggests they could have therapeutic uses.

For the study, volunteers searched the Web for articles or played one of three games that exercised their visual and spatial skills, their wordplay or their point-and-shoot marksmanship. After 15 minutes, the volunteers were wired to EEGs, which measure brain waves, and a heart monitor and filled out questionnaires about their mood. Compared with the group that searched for articles, only the visual/spatial players showed a physiological stress reduction. But all three groups reported feeling more vigorous and less tense and depressed than before the games.

Now for the caveats, starting with the fact that the games' maker paid for the study (though Russoniello says it had no say in test design or data analysis). More problematic: the data are silent on whether the brain changes lasted more than a few minutes. The challenge for game makers now is to show that their products reduce stress better than a good book, a stroll in a garden or any other nonvirtual pleasure.
Sharon Begley

Fast Chat: Man Of The People
Evo Morales, Bolivia's first indigenous president, has presided over a deepening rift in his country between his populist supporters and the nation's elite. He met with NEWSWEEK's Barrett Sheridan during a visit to the United Nations. Excerpts:

Your country is the second biggest producer of natural gas in South America. Your government took control of that sector in 2006. How have foreign investors responded?
In 1999, there was $600 million in foreign investment. This year, $1.2 billion of investment is scheduled … investors will recoup their money. These companies have a right to make a profit.

So you ' ve acquired the necessary level of investment to avoid the fate of Venezuela, which has declining production levels?
That's our goal, to follow through on our commitments to Argentina and Brazil, to cover the domestic market and to expand. But in energy, we're talking not only about tapping hydrocarbons but also geothermal ... We also want to tap our lithium reserves.

You say that capitalism is destroying the earth and bringing about the environmental problems we see today. What alternative do you suggest?
As we [indigenous peoples] understand it, the earth is a mother and you can't, for the sake of accumulating capital in just a few hands, turn Mother Earth into a commodity.

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