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Global Economy Faces Trouble

October 26, 1997

The talk these prosperous days, from Wall Street to Wuhan, is of boundless economic horizons. But just over the horizon lies a familiar patch of troubled waters, a blue-green whirlpool called the Persian Gulf.

As the global economy sped ahead in 1997, navigating through market dips and Asian currency scares, optimists began speculating about a ``repeal″ of the laws of boom and bust. But they’d better repeal the laws of internal combustion first.

A check of America’s gas tank tells you why: The United States is importing more than half the oil it burns. And Persian Gulf petroleum is even more important elsewhere in the world economy, especially in parts of Asia where the optimism already is tempered by currency crises and stockmarket slumps.

It’s been a generation since the industrial world first learned what an oil crisis could mean.

At that time, in 1973, an Arab embargo led to a quadrupling of oil prices and a world recession. A few years later, Iran’s revolution produced another global oil squeeze and economic slump.

In those years, the United States relied on imports for as little as one-third of its oil.

The new heavy dependence on foreign oil troubles some in Washington. Hazel O’Leary, the former energy secretary, said earlier this year that ``we need a wake-up call″ that only a new oil price shock might provide.

Oil traders, of course, don’t need reminders. When the U.S. aircraft carrier Nimitz rushed to the Persian Gulf this month, amid heightening tensions there, crude oil prices jumped almost $2 a barrel, to more than $23.

That ``crisis of the month″ may be subsiding, but the twists and turns of the Gulf whirlpool remain unpredictable:

_In the Gulf’s tight quarters, crowded with American, Iranian and other naval vessels, miscalculations and mishaps easily can escalate into confrontation.

_Iran and Iraq might clash over Iraq’s sheltering of anti-Iranian guerrillas, a flashpoint for tensions in recent weeks.

_Iraq might draw U.S. or broader international retaliation if it violates ``no-fly″ zones or rejects U.N. weapons inspections.

_Terrorists might again attack American forces in the region. If an Iranian link is uncovered, a major Gulf showdown could result.

Crises like these would each affect the flow of oil in different ways. For one thing, long-distance pipelines make the region less dependent on Gulf shipping than it once was. But any Gulf conflict inevitably would drive oil prices up sharply and quickly. And the waves and ripples from such an emergency, even if short-lived, would reach everywhere.

America’s oil imports have been climbing since the mid-1980s, as domestic oil production declined by more than 25 percent. The U.S. appetite grew in the ’90s with the booming economy and the popularity of sport utilities and other gas-hungry vehicles. So far this year, imports have supplied 55 percent of consumption, one-fifth of that coming from the Persian Gulf.

In Asia, the heavier dependence grew even more quickly.

China, an oil producer, became an oil importer in 1993 as it modernized industry from coastal Shanghai to inland Wuhan. Expanding automobile ownership across East Asia may help boost global consumption from today’s 73 million barrels a day to over 90 million by 2010, energy analysts say.

Already operating at more than 90 percent capacity, oil producers will scramble to keep up. The big energy companies have big plans for the Caucasus and Central Asia, but the flow from many of those fields lies years over the horizon.

Until then, the Gulf, with its oil and its crises, lies comfortably _ and uncomfortably _ closer at hand. It’s a fact of life sometimes forgotten as stock indexes have risen on Wall Street, but never forgotten in the whirlpool itself.

``My job is stability,″ a U.S. destroyer captain told a reporter in the Gulf earlier this year. ``Because if this neck of the world blew up, what would really suffer is the world economy. That’s what it all comes back to _ economics.″

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EDITOR’S NOTE _ Charles J. Hanley has reported on international affairs for The Associated Press since 1976.

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