Oil production in a major Gulf exporter is disrupted, prices surge to a record high and the world's major economies slump into recession, triggering a major rethink of the Western consumer lifestyle. It may sound like today, but this all happened once before, in the 1970s, when oil prices last approached US$100 a barrel in today's money. The difference now is that instead of a revolution in Iran, which caused output to collapse in 1979, a major driver behind this rally has been the US invasion of Iraq, which has constrained Iraqi output for the past five years.
And instead of an embargo on the US by Arab oil exporters, as there was in 1973, today's high prices can be partly attributed to unexpectedly strong demand in China. But the effect on the world economy is the same and the result in the long term may be similarly negative for Gulf oil exporters, too. In fact, the outcome could be even more catastrophic this time around. After the oil price shocks of 1973 and 1979, nuclear power came of age on a commercial scale, Westerners conserved power by switching off the lights and car engines got smaller and more efficient.
After oil prices peaked in 1980, a combination of more oil supply, more alternatives and constrained demand led to two decades of low prices, culminating in the price collapse to $10 a barrel in 1998. Ten years later, the third oil price shock of recent decades is a rerun - with a difference. Free electric car plug-in points have sprouted up in central London parking bays, atomic energy has come back from the dustbin of history and renewables such as wind, solar and biofuels are for the first time truly economically viable.
High oil prices, fuelled partly by perceptions of a looming scarcity of the planet's hydrocarbons, are driving energy demand towards these other fuels. But behind the fear of oil running out is a far greater, irreversible challenge to the hydrocarbon era, in the shape of controls on carbon emissions, brought about largely by the burning of oil and other fossil fuels. The energy industry has embraced carbon trading as a means of limiting emissions in some regions, but has learnt to take with a pinch of salt some of the measures and targets set out by climate change experts.
Traditionally, the industry has taken heart from the lack of international consensus over the basics of a global pact on climate change. But in the wake of the Group of Eight meeting in Japan earlier this month, where the world's top polluter - the US - edged towards a commitment to a system of controls, it is worth looking at what the experts are recommending. It is enough to send a chill down a Gulf oil minister's spine.
A recent paper by Professor Nicholas Stern of the London School of Economics, who wrote a British government report on climate change in 2006, said that electricity production and the global car fleet would have to become completely carbon-free by 2050 to stabilise carbon concentrations in the atmosphere at 450-500 parts per million. That is just 42 years from now. If these goals are to be achieved, or even approached, the shift to nuclear power will become an avalanche. Plug-in electric cars will no longer be a novelty, but the norm. Unlike fuel efficiency and other conservation measures, these shifts in fuel use could prove to be irreversible. The International Energy Agency has called this scenario an "energy revolution".
In its long-term forecasts, the agency expects oil to remain king of the energy mix for at least another two decades, but its base-case forecasts have already become vulnerable to dramatic revisions. The pace of the switch away from oil and gas will accelerate with every extra dollar on the price of a barrel, and every new agreement on carbon controls. Gulf oil powers, with more than 100 years of crude underground at current extraction rates, may think this shift is happening too soon and too quickly.
The response of the UAE and other Gulf oil exporters should include three policies. The first is to bring down the energy price to a more sustainable level - below $100 a barrel for crude oil, limiting the flow of investment into more marginal energy sources while oil remains abundant. The second is to invest in carbon capture, which allows hydrocarbons to be burnt with zero atmospheric emissions by pumping the polluting gases underground, thereby extending the viability of the petroleum era.
The last is to build a sustainable non-oil economy fast, while the current upswing in the commodity cycle lasts, because the coming downswing could last for several decades, if not forever. tashby@thenational.ae