THE ELECTION-YEAR mudslinging over gas prices officially began on March 29, when Dick Cheney accused John Kerry of flip-flopping on his support for increased gas taxes. "After voting three times to increase the gas tax and once proposing to increase it by 50 cents a gallon," Cheney charged, "he now says he doesn't support it."

With gas prices rising to record levels, Kerry was only too happy the vice president brought up the topic. That evening, Kerry told the crowd at a San Francisco fundraiser that if the cost of a gallon kept creeping toward $3, "Dick Cheney and President Bush are going to have to carpool to work together. Those aren't Exxon prices, ladies and gentleman, those are Halliburton prices!" That zinger elicited a huge roar and zipped around the world as the sound bite du jour. It was such a hit, Kerry added it to his stump speech.

The Bush campaign struck back with a new television ad, entitled "Wacky." "Some people have wacky ideas," says a mildly sarcastic male voice. "Like taxing gasoline more so people drive less. That's John Kerry." A vaudevillian image of 12 guys in business suits riding a gigantic, clownish bicycle jitterbugs across the screen.

You can't squeeze a whole lot of policy detail into a 30-second ad or an evening-news sound bite. But after sifting through the rhetorical chaff on gas prices, the parameters of the current national debate on energy policy become clear.

For the Bush campaign, gas taxes are out of the question. There will be no discussion of, say, the wide-ranging benefits that Europeans have derived from their $5 per gallon, or the fact that we pay a gas tax to the Saudis rather than our own public coffers. Gas taxes are simply "wacky." You'd have to be even more "wacky" to talk about people driving less.

The message coming from the Democrats is equally demagogic. Though the Kerry campaign has issued policy papers focused on reducing American dependence on foreign oil (buried deep within the Kerry web site), in public he has tended to steer clear of discussing these ideas. Rather, he uses his airtime to criticize the president.

While crowds love Kerry's line about Bush and Cheney riding to work together, there is something disappointing about the Democratic nominee ridiculing the idea of carpooling. In addition to reducing traffic, car-sharing happens to be one of the fastest, cheapest, most high-impact ways that Americans can make real reductions in daily oil consumption. Car-sharing should be part of the Democratic platform, not a laugh line.

Kerry and the Democrats' other gasoline talking points are equally ill-advised. Telling the president to do a better job of "jaw-boning" the Saudis does not address the need to make America less beholden to foreign energy suppliers. Nor does the call to release oil from the Strategic Reserve.

The strategy for both campaigns so far has been pretty simple: Gas prices are rising rapidly. Blame it on the other guy. Present yourself as the guy who will make gas cheaper.

In the age of the 30-second campaign ad, we've come to expect this sort of approach to complex issues. It's the norm. But America is on the cusp of an energy crisis that is going to redefine the way we live—whether our leaders prepare us for it or not.

IN 1956, a Shell Oil geologist named M. King Hubbert stood up before a meeting of the American Petroleum Institute and, much to the chagrin of his bosses, predicted that oil production in the continental United States would peak and begin to decline starting in the early 1970s.

According to his colleague and author of the book, Hubbert's Peak, Ken Deffeyes, "Almost everyone inside and outside the oil industry rejected Hubbert's analysis." They simply didn't want to hear it. The 1960s was the greatest decade of global oil discovery ever. Vast new reserves were found all over the world. Soon all but a faithful few simply forgot about Hubbert's forecast.

Hubbert arrived at his prediction through an analysis of oil-field discoveries. By 1956, after drilling tens of thousands of holes across the continental United States, some oilmen had a pretty solid idea of what was in the ground. The discovery of new reserves in the lower 48 had peaked in the 1930s and had been in decline ever since. Hubbert noted that, when plotted over time, the rate of discovery formed a nearly perfect bell-curve. He theorized that the annual rate of oil production would form a similar bell curve, more than a few decades later. The highest point of this second curve would be the year that the U.S. produced more oil than it ever had before and ever would again. That would be the "oil peak."

(Sources: Exxon Corp. Background Series, September 1980; Fadhil Chalabi; US Department of Energy)

Countries	Number of Wells Producing Oil	Average Barrels per Well, Daily
Iraq	250	13,700
Saudi Arabia	937	10,200
Iran	547	5,700
Qatar	95	5,300
Kuwait	801	3,100
Libya	896	2,300
Egypt	432	1,200
US	508,000	17

In late January, the International Monetary Fund finally released its Standby Agreement, signed with the Iraqi government a month previously. The Agreement provided a future financing facility, but more significantly allowed the cancellation of 30% of Iraq�s debt owed to the Paris Club of creditor nations � in exchange for Iraq�s compliance with the IMF�s conditions on economic policy. Jubilee Iraq, the Iraqi anti-debt network, and other civil society groups criticised the undemocratic timing of the deal, coming before the new government is appointed but one week after the December elections, thus denying Iraqi voters a chance to react through the ballot box.

Most controversial was the slashing of fuel subsidies, the first phase of which occurred as a requirement of the signing of the deal, suddenly and without alternative social protection programmes in place. The hike in fuel prices led to protests on the streets of Iraq, and the resignation of the Oil Minister, Ibrahim Bahr al-Uloum. Unnoticed in the small print however, was a deadline of the end of 2006 for passing an Oil Law, and a requirement that the IMF be involved in drafting the law. The law will set out the future framework of Iraq�s oil industry, and the IMF is known to favour bringing in foreign companies.

In February, officials of the Oil Ministry attended workshops in the USA, in which oil industry lobby group the International Tax and Investment Center pushed again for Iraq to give multinational oil companies long-term control of the country�s oil through a form of contract known as a Production Sharing Agreement (PSA) � which PLATFORM�s research has shown could cost Iraq up to $200 billion in lost revenue. The use of PSAs has now been publicly accepted by senior politicians and Oil Ministry officials � although only in international fora, especially oil industry conferences. There remains a desperate need for public debate in Iraq.

Meanwhile, the oil majors continue to position themselves for the PSA bonanza, once the oil law is in place. Two weeks ago, Shell was awarded a contract to provide metering at Iraq�s export terminals � a job that elsewhere would have gone to a specialist metering company. Combined with Shell�s earlier deals � to provide Iraq�s Gas Master Plan, to examine the geology of the huge Kirkuk field, and to advise on expansion of the Missan gasfield � the company now has access to Iraqi export data, geological studies and natural gas prospects, and most importantly, to key officials in the Oil Ministry. The other majors have similar deals.

However, at a conference last week in Amman, all of the five Iraqi trade union federations, unanimously called on the government to �refuse all foreign control over the oil sector, whether by privatisation or by production sharing agreements�. The coming months will be crucial to this issue.

The regional assembly may vote as early as next week on creating the agency. Setting it up could further destabilize the divided nation.

Leaders of Iraq's Kurdish north have unveiled a controversial plan to consolidate their hold on the region's future petroleum resources, raising concerns about how the ethnically divided nation will share its oil revenue. The Kurdish parliament will be asked to vote on the creation of a Ministry of Natural Resources that would regulate potentially lucrative energy projects in newly discovered oil and natural gas fields within the three provinces of Iraqi Kurdistan.

The new ministry, if established, would be another step in the Kurds' gradual retreat from the Baghdad government, as well as a potentially destabilizing development in a country already on the verge of fragmenting along ethnic and religious lines. "They have the right to make a decision in their territory, but it is dangerous," said Mohammed Aboudi, a divisional director-general of the national Oil Ministry and a government advisor. "They are starting to search for oil without any consultation with the central government. What if Basra does the same, or any other province?"

Interim Oil Minister Ibrahim Bahr Uloum, advised of the proposal, warned against unilateral decisions on oil. "At the end of the day, it's important to have coordination and communication, especially with oil, because it's a very sensitive issue," Bahr Uloum told the Los Angeles Times. Long oppressed and marginalized under Arab governments in Baghdad, Kurds pushed aggressively for a constitution that limits the central government's power and gives regional officials the authority to exploit newly discovered oil and gas fields. In a controversial move in November, a Norwegian energy firm began drilling for oil in northern Kurdistan. The regional government had signed the deal without seeking approval from Baghdad.

The constitution is deliberately vague about how future oil profit is to be distributed nationally, leaving a highly volatile issue unresolved. A vote on the proposed Kurdistan Ministry of Natural Resources could come as early as Monday in the Kurdish regional parliament, which is debating a plan to reunify and streamline the two halves of the Kurdistan Regional Government. Kurds and their advocates characterized the proposed regional organ as a slight elevation in status to a Cabinet-level post for the state-owned oil company that manages such matters and dismissed concerns in the capital as overblown.

"Forming a new ministry is an arrangement that will help increase oil production," said Peter Galbraith, a former U.S. diplomat who has advised the Kurds. "If oil production increases in Alaska, it may be that the Alaskans get a major part of the benefits, but Alaska is still part of the U.S." Besides, control of the oil under their soil is their birthright, said Fadhel Merani, an Irbil-based official of the Kurdistan Democratic Party, or KDP, one of two political groups controlling the Kurdish region. "People have the right to express what they feel," he said in a telephone interview, "but they have to understand other ethnic groups' feelings also, especially those who suffered in the past."

But though few contest the legality of the Kurdish proposal to create a parallel agency, Iraqi officials argue that doing so now, without coordination with the national Oil Ministry and amid a mounting national crisis over the failure so far to form a government, risks exacerbating already violent ethnic passions and fueling the perception that the country is coming apart. "There is still a central government," Aboudi said. "There is a Ministry of Oil. Yes, there is no political stability in Iraq. It doesn't mean we leave all laws and regulations and every region does what it wants."

Iraq's 4 million Kurds, nestled in a mountainous, Switzerland-sized region that has been autonomous since the 1991 Persian Gulf War, have been charting their own course for a while. Kurds fought side by side with U.S. special forces three years ago as they stormed into the oil-rich cities of Kirkuk and Khaneqin during invasion of Iraq. With a language and culture distinct from Iraq's Arab majority, Kurds have isolated themselves in their relatively safe enclave, looking upon the violence ravaging the rest of the country with some detachment.

Kurds and their supporters say the creation of a new ministry is well within the parameters of the constitution. "There are people who haven't faced the reality of what has gone on in Iraq," Galbraith said. "They still think that the old central state is going to be put back together again. It's not going to happen in Kurdistan. It's not going to happen in the south. It's not going to happen in Baghdad."

Each half of the Kurdish region, which split apart in a 1990s civil war between forces of the Patriotic Union of Kurdistan, or PUK, and the KDP, has its own ministries of defense, interior, health and education. The Iraqi Constitution, ratified in an Oct. 15 referendum, gives Kurdistan the authority to wheel and deal with the international petroleum industry within Irbil, Sulaymaniya and Dahuk, where Kurds make up more than 95% of the population.

But Kurds also lay claim to much of the region around Kirkuk, which is said to contain up to 40% of Iraq's proven oil reserves. A referendum on the disputed area's future is to take place by the end of 2007. Officials in Baghdad, including allies of the Kurds, said they were blindsided by news of the proposed ministry. "We know what the ambitions of the Kurds are," said Iyad Samarrai, a leader of the Iraqi Islamic Party, a Sunni Arab group. "But everybody agreed to make such moves within the [national] political process."

Times researcher John L. Jackson in Los Angeles contributed to this report.

U.S. aid agency USAID is providing an adviser to the Iraqi government, through consultancy BearingPoint Inc. (BE), to help draft a critical petroleum law, a spokesman for the agency said this week. The law, which the soon-to-be-formed Iraqi government is expected to formulate, is seen as a critical piece of legislation for foreign investment in the country. However, many non-governmental organizations have warned the U.S. against exerting any influence on the management of the Iraqi oil industry.

At the request of the U.S. State Department, the agency is providing a petroleum advisor to Iraq from February to June through its contract with BearingPoint, USAID spokesman David Snider told Dow Jones Newswires in an e-mail. "The advisor will be providing legal and regulatory advice in drafting the framework of petroleum and other energy-related legislation, including foreign investment," he wrote. He added the advisor would work with Iraqi experts and those from the Iraq Reconstruction Management Office, which coordinates the U.S. reconstruction program in the country. BearingPoint and the State Department both referred calls to USAID.

Greg Muttitt, an expert with U.K.-based non-governmental organization Platform, criticized USAID's involvement, saying decisions regarding the Iraqi oil industry shouldn't be influenced by other countries. However, Snider stressed that any advice would only be provided at the request of the Iraqi government. Muttitt said a BearingPoint report issued in December 2003 on the Iraqi oil industry favored foreign participation as the most efficient way of developing the sector.

The report, a copy of which was obtained by Dow Jones Newswires, says that closing oil exploration and production to foreign participation "has generally led to both production and fiscal difficulties." Muttitt criticized the BearingPoint report for using Azerbaijan as an example of how the Iraqi oil industry could attract large amounts of foreign investment. He said Azerbaijan's oil revenue management suffers from "a lack of transparency and good government." BearingPoint declined to comment on the report.

A number of international oil majors have expressed interest in investing directly into Iraq's oil exploration and production. Royal Dutch Shell PLC (RDSB.LN) has approached the Iraqi oil ministry to explore options for a contract to help the country double output at a field in the oil-rich south, oil officials have previously told Dow Jones Newswires, but the company hasn't commented. In 2001, when Saddam Hussein was still ruling the country, Royal Dutch Shell said it held discussions on access to the 2-billion-barrel Ratawi oil field in southeastern Iraq. Iraq aims to become one of the world's leading oil producers, with output exceeding 5 million barrels a day.

Oil-prospecting activities in Kurdish-administered northern Iraq are gathering pace following a Norwegian company's discovery of new oil reserves there, while other small international oil firms from Canada and Britain have also become involved. Still, despite the optimism of the firms, some experts say security concerns and legal uncertainties remain brakes on development.

With the Kurdish north markedly safer than most other parts of Iraq, smaller international petroleum companies are becoming increasingly interested in prospecting for oil there. While the oil giants still hesitate, some Norwegian, Canadian, and British firms are already there and expressing increasing optimism.

Possibly New Oil Fields

Helge Eide, managing director of DNO of Oslo, Norway, says the company has been active in the Kurdish-administered region for some time and already has found new oil reserves. He said the company's first well, Tawke No 1, is now getting ready to start test-producing oil. "We are progressing with our early test-production plan with the objective to start test production [in the] first quarter of next year," Eide said.

It is not yet clear whether the regional licenses would also be recognized by the central government in Baghdad, because the new Iraqi Constitution appears to many observers to give some licensing rights to both governments. Eide added that the area is close to the Turkish border, some 300 kilometers from Kirkuk, and does not appear to be part of the long-established Kirkuk or Mosul oil fields. He said this makes the find even more exciting. "This is a complete new area, where there have been very limited -- if any at all -- exploration activities," he noted. "So this is definitely a complete new prospect, and if we can confirm commercial oil volumes, it will be characterized as a complete[ly] new field."

Other oil companies are also getting increasingly interested. One is Heritage Oil from Canada. It has already signed two memorandums of understanding with Kurdish regional authorities for an area comprising some 1,300 square kilometers. Production-sharing agreements are currently in the final stages of negotiation as well. "We are already working in terms of the normal tasks that are to be expected in the initial stages, which are the geological field surveys, all the preliminary assessments that are necessary to define what is going to be the exploration program," Heritage chairman and chief executive Micael Gulbenkian said.

Legal Gray Area

Experts agree that the prospects for new oil finds seem good. But some are worried about the legal framework and validity of the granted licenses. Catherine Hunter, a senior analyst with Global Insight in London, said it is not yet clear whether the regional licenses would also be recognized by the central government in Baghdad. This is because the new Iraqi Constitution appears to many observers to give some licensing rights to both governments.

"That's not entirely clear from the actual wording of the constitution itself, and that's why again, we are seeing very small prospective companies in that region, rather than the major oil companies who are likely to wait for a more certain regulatory climate before they go in there," Hunter said. Oilman Eide said, however, that he is counting on the Kurdish regional administration remaining a self-governing power in the region. So, he said, his company is not worried. "We believe that the political development and the constitutional arrangement now, which provides for such agreements to be signed, it was a right decision for us to do that," he said.

Analyst Hunter cautions that despite the as-yet-unknown extent of the Kirkuk oil fields and the possible significant untapped deposits further north, the Kurds may be overestimating their total potential reserves. She said the total estimates of some 45 billion barrels put forward by the regional administration may be too high and prompted, at least in part, by the administration's desire to attract investors.

Still, whatever the total reserves turn out to be, the Kurdistan authorities' optimism seems to be bringing in more, newly interested oil companies. Most recently, Sterling Energy, the first company from Britain, has been granted an exploration license in the region, too. DNO's Eide said he welcomes the competition. "It's positive that other companies now are also starting operations up there," he said. "OK, we were very early and we have been progressing very well with the seismic and drilling, but I think in general it's positive that other companies now are entering this area."

That is because the oil companies must not only weigh the possibility of getting returns from their drilling but also the security risks of doing business in Iraq. And the presence of more companies can only reassure the early arrivals that their calculations in choosing to work in the Kurdish-administered region were right.

Iraq has the world�s second largest proven oil reserves. According to oil industry experts, new exploration will probably raise Iraq�s reserves to 200+ billion barrels of high-grade crude, extraordinarily cheap to produce. The four giant firms located in the US and the UK have been keen to get back into Iraq, from which they were excluded with the nationalization of 1972. During the final years of the Saddam era, they envied companies from France, Russia, China, and elsewhere, who had obtained major contracts. But UN sanctions (kept in place by the US and the UK) kept those contracts inoperable. Since the invasion and occupation of Iraq in 2003, everything has changed. In the new setting, with Washington running the show, "friendly" companies expect to gain most of the lucrative oil deals that will be worth hundreds of billions of dollars in profits in the coming decades. The new Iraqi constitution of 2005, greatly influenced by US advisors, contains language that guarantees a major role for foreign companies. Negotiators hope soon to complete deals on Production Sharing Agreements that will give the companies control over dozens of fields, including the fabled super-giant Majnoon, but no contracts can be signed until after elections, when a new government takes office. While regional governments angle for influence over the foreign oil contracts, most Iraqis favor continued control by a national company and the powerful oil workers union opposes de-nationalization. Iraq's political future is very much in flux, but oil remains the central feature of the political landscape.

The administration's energy policy has consisted of "dig, drill, explore." Because most of that expected exploration would be in Western wild lands and the oceans, this makes for sad environmental news. Moreover, putting all our energy expectations into an ever-drier store of domestic oil sets the stage for more dependence on volatile foreign sources later. A study published last year says such policy rests future prosperity on ever-shakier ground. Instead, the country could largely wean itself of foreign oil dependence within a few decades through conservation and new technologies, including ultralight hybrid vehicles and more efficiently made ethanol and similar fuel sources. The report—conducted by the respected Rocky Mountain Institute, funded in part by the Pentagon and written for business and military leaders—predicts that prosperity will belong to businesses that dare to create new markets instead of catering to existing ones.

A Declaration of Energy Independence

In the 30 years since the oil shocks of the 1970s, our original hopes to achieve energy independence have given way to the less ambitious goal of achieving energy security, defined as "secure access to adequate supplies of primary energy at affordable cost." Perhaps the most rigorous and surely the most dramatic analysis of what it will take to wean us from foreign oil was tasked by the Pentagon and carried out by the Rocky Mountain Institute, a respected center of hard-headed, market-based research. The report, Winning the Oil Endgame: Innovation for Profits, Jobs and Security, is now out in book form and has received positive reviews.

Nearly 30 years ago, Amory Lovins took on the utility industry. The industry was predicting a high-energy future filled with nuclear power plants. Mr. Lovins called the forecasts "the hard path" because they committed us to producing ever more energy. He suggested an alternative, "Soft Energy Paths." He pointed out that the least expensive, safest and most secure energy we could acquire wouldn't come from more drilling and more nuclear power plants. It would come from using energy more efficiently. Amory Lovins—ridiculed as a dreamer at the time—was right. The conventional wisdom was wrong. Energy efficiency in the next decade reduced our oil consumption so fast it broke the pricing power of OPEC and crushed oil prices. Now working with a team from his Rocky Mountain Institute and with the support of the Department of Defense, he has a bolder idea—apply energy efficiency to end our dependence on oil. Not just foreign oil. All oil.

With Oil or Without it?

Researchers at the Rocky Mountain Institute do not dwell much on predictions and speculations, but rather suggest what practical steps and specific investments need to be made to create a better energy future for the world. In their new book, Winning the Oil Endgame (www.oilendgame.org), the authors propose to gain oil independence by 2025 via energy conservation and by gradually substituting oil with biofuels and natural gas. The idea of oil independence has become a quite fashionable slogan these days, and there are two issues here: first, reducing dependency on oil, and second, reducing dependency on foreign oil. I think it is unlikely to achieve the second without achieving the first, and this is also an important path these authors have taken. Essentially, Amory and colleagues suggest going beyond the oil age with oil (not without it), and this practical idea may carry us through a new energy future.