Are we running out of oil? Are we in danger of another energy crisis of the magnitude of the 1970s "oil shocks" that condemned us to a decade of economic stagnation? And with our desultory regard for conservation and alternative energy sources, are we risking ever greater oil dependence on the volatile Middle East?

Yes, yes and yes.

Of course we're running out of oil and natural gas; they're non-renewable resources, and the rate of discovery of so-called "elephants" has been on the decline for decades since the halcyon days of Alaska's Prudhoe Bay and the North Sea. Worse, the more recent discoveries have been made in some of the world's most remote and politically unstable places — among them, Nigeria, Sudan, Russia, Indonesia and the former Soviet republics of central Asia.

The critical issue is how soon will the oil run out? It's estimated that we've already exhausted about half of the original 2 trillion barrels of oil on Earth, which is a bit alarming given the relatively primitive state of global industrialization in the early decades of oil exploration. We're sure to run through the remaining half of the Earth's oil endowment much faster, especially with the emergence of China, India and other developing world nations as dynamic, oil-hungry economies.

The two factors weighing most heavily on fretful energy forecasters are geopolitics and the behaviour of oil-producing corporations.

Political instability:

An otherwise sanguine Martin Wolf of U.K.'s Financial Times, who expects current high oil prices to spur discoveries that will ease the world oil price, as in the past, acknowledges that, "After Sept. 11, 2001, the U.S. entered an ideological conflict with the world's oil superpower (that is, the Middle East), which itself is politically riven." The test of wills between the White House and several Mideast regimes "should make us all very nervous," says Wolf, especially given the increasingly precarious state of the ruling House of Saud.

The obvious parallel is the 1979 collapse of the Shah of Iran, whose regime, like the current regime in Riyadh, was a U.S. ally with only fragile local support. "If a collapse of the Saudi regime removed the country's supply from world markets, even temporarily, 10 per cent of global output would vanish," Wolf notes.

The weak Saudi government, Osama bin Laden's principal target, is highly vulnerable. "Just one successful Al Qaeda attack on the giant production facilities of Saudi Arabia or Abu Dhabi could produce a global recession," writes Don Coxe, chairman of Chicago's Harris Investment Management, in Maclean's.

The political uncertainties radiate outward from Riyadh. In Iraq's botched occupation, saboteurs have prevented the world's No. 2 nation in oil reserves from returning even to its prewar output of 2.5 million barrels per day, with the White House's promise of a quick ramp-up to 6 million barrels per day now regarded as a distant dream.

Libya is back in business again, now that dictator Moammar Gadhafi has repudiated his nuclear-weapons ambitions, ending an 18-year U.S. embargo against the world No. 9 oil-reserve holder. Here again, though, the caprice of Gadhafi is a real concern. That also applies to the ever-shifting dictates of Russian president Vladimir Putin, Venezuela's Hugo Chavez and kleptocratic dictators in central Asia. Government by fiat is a mighty deterrent for even the world's largest oil companies to commit to multibillion-dollar exploration programs in regions were governments routinely renege on deals, and expropriation and eviction are real prospects.

Oil companies' retreat:

With oil prices now 30 per cent higher than the average for 2000-2003, and Canadian pump prices approaching $1 per litre, oil companies should, by tradition, be deploying their windfall profits into the search for new reserves.

But that's not happening this time. Increased worldwide spending this year on exploration and production (E&P) is projected at just 9 per cent — less than half the increase following previous oil-price jumps. ExxonMobil Corp. and ChevronTexaco Corp. are among the oil majors who've refused to boost their E&P budgets this year. Which means junior and mid-sized producers account for most of this year's modest increase in E&P activity.

As noted, the oil majors are super-cautious about committing to mega-projects in unstable regions. They're also jittery about a sudden, sharp decline in oil prices that would make a hash of their long-term payout projections — understandably, given that as recently as the late 1990s, oil slumped to about $10 (U.S.) a barrel, or just one-quarter of today's price.

The oil majors have learned from their earlier misplaced exuberance. "What they're saying," analyst Paul Sankey of Deutsche Bank Securities told the Wall Street Journal last month, "is, `we've blown it in the past, we're not going to do that again.'"

And, as never before in modern times, the industry's decision-making power is concentrated in very few hands. A rash of late-1990s mergers among top-tier oil producers created a tight fraternity of about half a dozen companies large enough to take on the biggest projects.

Merger architects like Lee Raymond of the former Exxon Corp. and Sir John Browne of BP PLC (which triggered the takeover boom by absorbing Amoco Corp. and Arco Corp.), initially hailed their combinations as super-producers uniquely capable of opening up the world's most daunting regions to oil and gas production.

Instead, the new giants have focused on paying off their acquisition-related debt, cutting personnel and other costs, shedding marginal properties and buying back their own stock in order to boost share prices to which executive pay is tied.

The charitable view is that Big Oil is merely reacting to investor expectations. "CEOs are listening to what institutional shareholders want," Lehman Brothers Inc. analyst James Crandell told Business Week in June. "Production growth is a secondary goal, if it's a goal at all."

The less charitable view is that consumers are now at the mercy of a cabal of like-minded Big Oil CEOs who are no longer forced to bet their companies on a potential giant discovery — as the plucky Arco did in Prudhoe Bay in partnership with Exxon — because of a tacit understanding among today's majors that they won't compete for the kinds of projects that once could make a company.

Chemical producer Jon Meade Huntsman of Utah, whose firm has been whipsawed by soaring oil prices, along with airlines, power utilities and other sectors, complains in Business Week that "we've got (an oil) monopoly that's, in effect, more dangerous than during the Rockefeller era" of the early 20th century.

The current oil price surge has been a boon to alternative-energy entrepreneurs seeking financing for their projects. And concerns about global warming and energy self-sufficiency have put alternatives to fossil fuels on the national agenda of countries like Canada, where in the recent federal election campaign both the Liberal and NDP platforms promised outsized commitments to wind power.

But these are long-term solutions, at best. After decades of research, fuel cells have yet to show any sign of becoming a practical alternative to the internal combustion engine. Electricity generated from solar panels is about 10 times more expensive than power generated by traditional means. Wind-turbine technology has dropped significantly in price, and is now competitive with natural-gas-fired power plants.

But it's still no match for coal-generated power in price. Thirty-four years since the first Earth Day put environmental awareness on the map, alternatives to fossil-fuel energy will account for only an estimated 6.7 per cent of U.S. energy consumption this year.

In the meantime, a nasty combination of political hurdles, arguably misplaced Big Oil priorities, stunted conservation efforts, and unanticipated soaring demand from China and the Indian subcontinent is conspiring to bring on a full-blown crisis.

Without a meaningful increase in investment to develop new energy sources, the world could face a severe supply shortage by 2020, British energy consultant John Westwood of Douglas-Westwood Ltd. told the Wall Street Journal last month.

"As far as we're concerned, this is not the real crunch," Westwood said of the current oil-supply squeeze. "This is just a practice."