The implications of Tillerson’s forecast, if it pans out, are extraordinary. A peak in gasoline demand in the U.S. implies that mature developed economies may reach a stage where their hunger for transportation fuels does not continue to expand indefinitely. Gasoline accounts for a whopping 45 percent of all oil consumption in the United States, according to the Energy Information Agency. So if gasoline demand peaks, we’re nearly halfway to a peak in overall oil demand. And what that means — if the principles of conservation and energy efficiency are applied all across the energy-consuming economy on a consistent ongoing basis, is that we might not be as disastrously hobbled by the threat of a supply peak as some of the more downbeat peak oil futurists fear.

Which is not to say that, globally speaking, we are anywhere near close to a global peak in gasoline demand. China and India are a long, long way from reaching that promised land, and it seems reasonable to assume that a massive expansion in car ownership in both countries will push the global oil supply-and-demand equation to the breaking point in the not-too-distant future. But there’s also the possibility that China and India might learn from the West’s example, and push much more aggressively for higher fuel economy standards, energy efficiency, and the rollout of hybrid and electric cars than the United States did.

But we’ll see. The one factor in depressed demand that I did not see Tillerson mention, at least as reported by Reuters, was the down economy. The true test of his thesis will come when real economic growth returns. If the 2007 peak holds even in the face of a healthy economy, then we’ll know the Exxon CEO is on to something.

BusinessWeek is especially effusive, speculating that the discovery might be one of the biggest finds of the decade, and, by the time it is fully deployed the latter half of the next decade, will be “raking in cash” like its BP operated Gulf-neighbor, Thunder Horse.

I am having some trouble reconciling the figures, however. BusinessWeek cites Fadel Gheit, an analyst at Oppenheimer (OPY) in New York, as figuring “that at a price of $60 per barrel, BP will earn pretax profits in the mid-$20s per barrel from Thunder Horse.”

That suggests that the cost of finding, developing, and extracting oil from Thunder Horse is about $40 per barrel.

But according to the Energy Information Agency, the cost of finding oil in the Gulf of Mexico, as of 2007, had risen to $50 dollars a barrel. The EIA puts average U.S. “lifting costs” — actually getting the oil out of the ground — at about $10 dollars. One would presume that the lifting costs would be even higher in ultra deep wells of the Gulf of Mexico. The Tiber Prospect well goes down 35,000 feet !

Those figures suggest a break-even point of at least $60 dollars a barrel, and possibly more.

A giant find it may be, but cheap oil, it ain’t.

In 1920, under the aegis of the League of Nations, Britain cobbled together the Kingdom of Iraq from the Ottoman provinces of Basra, Baghdad and Mosul in order to better exploit the holdings of the Turkish Petroleum Company, forerunner of the Iraq Petroleum Company (IPC). Later, Iraqi nationalists and the Baath Party of Saddam Hussein nationalized the IPC, provoking unrelenting British and American hostility. Hussein rewarded his Sunni allies in the Baath Party by giving them lucrative positions in the state company, part of a process that produced a dangerous rift with the country’s Shiite majority. And these are but a few of the ways in which modern Iraqi history has been governed by oil.

Iraq is, of course, one of the world’s great hydrocarbon preserves. According to oil giant BP, it harbors proven oil reserves of 115 billion barrels — more than any country except Saudi Arabia (with 264 billion barrels) and Iran (with 138 billion). Many analysts, however, believe that Iraq has been inadequately explored, and that the utilization of modern search technologies will yield additional reserves in the range of 45 to 100 billion barrels. If all its reserves, known and suspected, were developed to their full potential, Iraq could add as much as 6 to 8 million barrels per day to international output, postponing the inevitable arrival of peak oil and a contraction in global energy supplies.

Nailing down the energy heartland of the planet

Iraq’s great hydrocarbon promise has been continually thwarted by war, foreign intervention, sanctions, internal disorder, corruption and plain old ineptitude. Saddam Hussein did succeed for a time in elevating oil output, in the process raising national income and creating a well-educated middle class. However, his ill-conceived invasions of Iran in 1980 and Kuwait in 1990 led to devastating attacks on Iraqi oil facilities, as well as trade embargoes and crippling debt, erasing much of his country’s previous economic gains. The trade sanctions imposed by Presidents George H.W. Bush and Bill Clinton in the wake of the First Gulf War only further eroded the country’s oil-production capacity.

When President George W. Bush launched the invasion of Iraq in March 2003, his overarching goals all revolved around the geopolitics of oil. He and his top officials were intent on replacing Saddam Hussein’s regime with one that would prove friendly to American oil interests. They also imagined that, greeted as liberators by a grateful population, they would preside over a radical upgrading of Iraq’s petroleum capacity, thereby ensuring adequate supplies for American consumers at an affordable price. Finally, by building and manning a constellation of major military bases in a grateful Iraq, they saw themselves ensuring continued American dominance over the oil-soaked Persian Gulf region, and so the energy heartland of the planet.

All of this, of course, proved to be a mirage. The U.S. invasion and ensuing occupation policies provoked a bitter Sunni insurgency that quickly overshadowed all other American concerns, including oil. As a result, no matter how much money they poured into the task, the Bush administration and its Baghdad agents found themselves incapable of boosting petroleum output even to the levels of the worst days of Saddam Hussein’s regime — and so their plans to use oil revenues to pay for the war, the occupation and the reconstruction of the country all vanished into thin air.

The data provided by BP on yearly production tallies cannot be starker when it comes to the impact on oil output of the insurgency, rampant corruption, the loss of the nation’s oil professionals (many of whom fled into exile amid sectarian warfare) and other related factors. Prior to the American invasion, Iraq was pumping 2.6 million barrels of oil per day, already significantly below its pre-invasion peak of 3.5 million barrels per day. In the first year of the ill-starred U.S. occupation, production quickly plunged to a paltry 1.3 million barrels per day. Only in 2007 did it finally top the 2 million mark and, with improved security, 2.4 million in 2008. Assuming conditions continue to improve, Iraqi output could, for the first time, exceed pre-invasion levels, though barely, in 2009 or 2010 — six years or more after Baghdad fell to American forces.

A sea change in Iraqi oil production?

Until recently, most analysts assumed that Iraq would continue, at best, to make modest progress in its efforts to increase daily output. There were too many obstacles, it was argued, to achieve dramatic breakthroughs. These included continued insurgent attacks on pipelines and production facilities; corruption in the Oil Ministry and major energy production enterprises; the failure of parliament to adopt a national hydrocarbons law; differences between the Kurdish Regional Government (KRG) and the central government over who has the right to award what sort of oil contracts in Kurdish-controlled territories and the reluctance of major foreign oil firms to venture into or invest in a major way in such a dangerous and unstable place.

Recently, however, the Oil Ministry has made noticeable progress in overcoming at least some of these obstacles. Under the leadership of Oil Minister Hussain al-Shahristani, a former nuclear scientist who was jailed and tortured by Saddam Hussein for refusing to assist in the development of nuclear weapons, corruption has been substantially reduced and various production bottlenecks eliminated. Shahristani has also won support from Prime Minister Nuri Kamal al-Maliki for the participation of foreign firms in the development of Iraqi oil fields, even though this has alienated many in Iraq who oppose any such involvement. Once derided for ineptitude, the Oil Ministry is beginning to be viewed as a functioning, professional operation.

As a result, there are clear indications that Iraq’s oil industry could be poised for a major turnaround. Among the most significant recent developments:

* Late last year, Iraq’s state-owned North Oil Company signed a $3.5 billion, 20-year service contract with the Chinese National Petroleum Corporation (CNPC) to develop the Adhab oil field in Wasit province, southeast of Baghdad. Originally negotiated under the Saddam Hussein regime, the deal was put on hold after the 2003 invasion and only given final approval in November 2008. This is the first major contract the government in Baghdad has signed with a foreign oil firm since the Iraq Petroleum Company was nationalized in the 1970s. It also represents the first significant investment by a company from China in Iraq. Under the agreement, CNPC and its partners will develop the Adhab field and deliver all resulting crude oil to state refineries; as the field’s main operator, CNPC will be paid a fee by the Iraqi government for its engineering work and all delivered petroleum.

* In May, the Oil Ministry reached an accord with the Kurdistan Regional Government that, for the first time, will allow the Kurds to export oil from fields under their control. Previously, the Baghdad government had refused to recognize any contracts signed by the KRG with private oil firms to develop fields in their territory and had prevented the Kurds from exporting oil from these fields through pipelines controlled by the central government. Under the accord, the KRG will initially be allowed to export 100,000 barrels per day from the Tawke and Taq Taq fields, with higher rates expected in the future; 73 percent of the resulting revenues will go to the central government, 15 percent to the Kurds, and 12 percent to the foreign oil companies that signed production contracts directly with the KRG, bypassing the central government in Baghdad. This agreement paves the way for a significant increase in output from Kurdish-controlled areas, which are thought to hold substantial reserves of untapped petroleum.

* In June, the Oil Ministry conducted its first auction of rights to operate existing fields in the country’s major producing areas. This represented a major — even staggering — shift in policy, opening the door for the first time in three decades to the participation of major international oil companies in the operation — if not the ownership — of the country’s nationalized oil fields. Although opposed by many key groups in Iraq, ranging from the oil workers’ union to significant factions in parliament, the move was taken to secure outside expertise in modernizing and upgrading the country’s crumbling oil infrastructure, thereby boosting output in a country that still relies on oil for more than 75 percent of its gross domestic product and about 95 percent of its revenues. In fact, many foreign companies chose not to bid in the auction’s opening round, finding the returns being offered insufficiently attractive. Nevertheless, one Western firm, BP, won the right (in partnership with CNPC) to operate the giant Rumaila field, Iraq’s largest. The Oil Ministry has since indicated that it will conduct additional auctions, including one for the right to explore for oil, on terms as yet unrevealed, in the country’s undeveloped south and west — possibly laying the groundwork for significantly more intrusive participation by foreign firms.

Taken together, these steps — aimed at securing the necessary external financing and expertise to achieve a significant boost in production — represent a genuine sea change in the way the Oil Ministry has been overseeing the country’s hydrocarbons industry. If all goes as planned, it intends to increase output by 1.5 million barrels per day, and another 4 to 5 million barrels by 2017. These efforts, if successful (and given recent history, that remains a big “if”), would place Iraq among the world’s top four or five oil producers, along with Saudi Arabia, Russia and the United States.

A new petro-state servicing the global economy?

No one should underestimate the potential obstacles in the way of this objective. Any number of factors — a rise in opposition to giving away any part of the national “patrimony” to foreigners, a significant increase in insurgent violence, heightened factional fighting in Baghdad, a sharpening of tension between Baghdad and the Kurds, an increase in corruption — could prevent the realization of these ambitious goals. Moreover, pending the passage of a national oil and gas law (a goal pursued by U.S. officials for years), the major foreign oil companies will remain reluctant to sink too much money into Iraq, fearful that their assets will not be protected.

Nevertheless, it appears that, for the first time since the outbreak of the Iran-Iraq War in 1980, the stars in the energy firmament are aligning in ways that may favor Iraq’s reemergence as a major oil producer. Whereas the major powers once competed among themselves for influence in Iraq or backed one or another of Iraq’s local rivals in efforts to weaken or contain that country, all now seem inclined to invest in, and benefit from, the reconstruction of its energy infrastructure. The Bush administration, which looked with alarm at Saddam Hussein’s growing ties to Russia and China, invaded the country in part to reassert American dominance in the Persian Gulf region and diminish the role played by Moscow and Beijing. Today, Washington appears to welcome the growing role of Chinese and Russian firms in the rehabilitation of Iraq’s dilapidated energy infrastructure.

It’s a reasonable assumption that behind this unprecedented shift lies an acknowledgement of the inescapable reality of peak oil. As things stand now, the world will soon reach a maximum level of sustainable daily oil output, followed by an inevitable contraction in available supplies. Many experts believe that the peak in conventional (liquid) oil output is likely to occur in the very near future, perhaps in the 2010-2015 timeframe, with global output topping out about 5 to 10 million barrels per day higher than today’s 85 million barrels.

Hitting the peak moment in that timeframe, and at that level, would prove devastating to the world economy, as global energy demand is expected to climb far higher, thanks to rising consumption patterns in China, India and other dynamos of the developing world. It’s not hard, then, to do the math. An addition of perhaps 6 million supplemental barrels per day from Iraq would make a striking difference in the energy equation. In fact, it might prove the difference between squeaking by and a catastrophic worldwide shortage. Under such circumstances, it is understandable that — no matter what their governments felt about the Bush administration’s invasion and occupation of Iraq — the major powers now share a common interest in facilitating that country’s recovery as a major oil exporter.

For devastated Iraq, of course, these last years were a disaster and real reconstruction of the country still remains a long way off. For the United States, gone are expectations of converting Iraq into a model Middle Eastern democracy, or of inserting a Western-trained, pro-U.S. regime in Baghdad. Nor is there any expectation that the state-owned Iraq National Oil Company will be completely privatized — once the dream of Bush-era neocons. Nonetheless, the (re)emergence of a functioning Iraqi petro-state working closely with foreign energy firms to boost global oil supplies (with American troops, whether based in Iraq or neighboring countries, providing ultimate security) would be an outcome that could be sold to Congress and, presumably, a majority of the American public.

Within Iraq itself, conditions may favor such an outcome. Although various Iraqi factions have enormous differences, all recognize that their future prosperity rests on the successful development of the nation’s hydrocarbon reserves. While Shiites, Sunnis and Kurds may each hope to benefit disproportionately from this great treasure, they all realize that some degree of cooperation — for example, in the construction and maintenance of export facilities — is essential to their ambitions, however disparate. While the bargaining over the terms of cooperation may seem endless, and violence may sometimes accompany these negotiations, it is likely that some sort of collaborative structure will, in the end, emerge. A gradual drawdown, if not total departure, of American forces will, in all likelihood, only accelerate this process.

So it has finally come to this dismal possible end point: After all the blood and tears, all the death and destruction, almost all interested parties seem to be returning to the only vision of the country, however depressing, that has demonstrated any viability. In the future, Iraq is likely to be an oil-fueled petro-state with no function other than to service global markets and enrich local elites as well as the technocrats that assist them. This may be not be an inspiring vision — especially for Iraqis who have suffered so much — but it might possibly be the only reality available that will circumvent the horrific bloodletting of the past 30 years.

As it happens, the recent release of the 2009 IEO has provided energy watchers with a feast of significant revelations. By far the most significant disclosure: The IEO predicts a sharp drop in projected future world oil output (compared with previous expectations) and a corresponding increase in reliance on what are called “unconventional fuels” — oil sands, ultra-deep oil, shale oil and biofuels.

So here’s the headline for you: For the first time, the well-respected Energy Information Administration appears to be joining those experts who have long argued that the era of cheap and plentiful oil is drawing to a close. Almost as notable, when it comes to news, the 2009 report highlights Asia’s insatiable demand for energy and suggests that China is moving ever closer to the point at which it will overtake the United States as the world’s No. 1 energy consumer. Clearly, a new era of cutthroat energy competition is upon us.

Peak oil becomes the new norm

As recently as 2007, the IEO projected that the global production of conventional oil (the stuff that comes gushing out of the ground in liquid form) would reach 107.2 million barrels per day in 2030, a substantial increase from the 81.5 million barrels produced in 2006. Now, in 2009, the latest edition of the report has grimly dropped that projected 2030 figure to just 93.1 million barrels per day — in future-output terms, an eye-popping decline of 14.1 million expected barrels per day.

Even when you add in the 2009 report’s projection of a larger increase than was once expected in the output of unconventional fuels, you still end up with a net projected decline of 11.1 million barrels per day in the global supply of liquid fuels (when compared with the IEO’s soaring 2007 projected figures). What does this decline signify — other than growing pessimism by energy experts when it comes to the international supply of petroleum liquids?

Very simply, it indicates that the usually optimistic analysts at the Department of Energy now believe global fuel supplies will simply not be able to keep pace with rising world energy demands. For years now, assorted petroleum geologists and other energy types have been warning that world oil output is approaching a maximum sustainable daily level — a peak — and will subsequently go into decline, possibly producing global economic chaos. Whatever the timing of the arrival of peak oil’s actual peak, there is growing agreement that we have, at last, made it into peak-oil territory, if not yet to the moment of irreversible decline.

Until recently, Energy Information Administration officials scoffed at the notion that a peak in global oil output was imminent or that we should anticipate a contraction in the future availability of petroleum anytime soon. “[We] expect conventional oil to peak closer to the middle than to the beginning of the 21st century,” the 2004 IEO report stated emphatically.

Consistent with this view, the EIA reported one year later that global production would reach a staggering 122.2 million barrels per day in 2025, more than 50 percent above the 2002 level of 80.0 million barrels per day. This was about as close to an explicit rejection of peak oil that you could get from the EIA’s experts.

Where did all the oil go?

Now, let’s turn back to the 2009 edition. In 2025, according to this new report, world liquids output, conventional and unconventional, will reach only a relatively dismal 101.1 million barrels per day. Worse yet, conventional oil output will be just 89.6 million barrels per day. In EIA terms, this is pure gloom and doom, about as deeply pessimistic when it comes to the world’s future oil output capacity as you’re likely to get.

The agency’s experts claim, however, that this will not prove quite the challenge it might seem, because they have also revised downward their projections of future energy demand. Back in 2005, they were projecting world oil consumption in 2025 at 119.2 million barrels per day, just below anticipated output at that time. This year — and we should all theoretically breathe a deep sigh of relief — the report projects that 2025 figure at only 101.1 million barrels per day, conveniently just what the world is expected to produce at that time. If this actually proves to be the case, then oil prices will presumably remain within a manageable range.

In fact, however, the consumption part of this equation seems like the less reliable calculation, especially if economic growth continues at anything like its recent pace in China and India. Indeed, all evidence suggests that growth in these countries will resume its pre-crisis pace by the end of 2009 or early 2010. Under those circumstances, global oil demand will eventually outpace supply, driving up prices again and threatening recurring and potentially disastrous economic disorders — possibly on the scale of the present global economic meltdown.

To have the slightest chance of averting such disasters means seeing a sharp rise in unconventional fuel output. Such fuels include Canadian oil sands, Venezuelan extra-heavy oil, deep-offshore oil, Arctic oil, shale oil, liquids derived from coal (coal-to-liquids, or CTL), and biofuels. At present, these cumulatively constitute only about 4 percent of the world’s liquid fuel supply but are expected to reach nearly 13 percent by 2030. All told, according to estimates in the new IEO report, unconventional liquid production will reach an estimated 13.4 million barrels per day in 2030, up from a projected 9.7 million barrels in the 2008 edition.

But for an expansion on this scale to occur, whole new industries will have to be created to manufacture such fuels, at a cost of several trillion dollars. This undertaking, in turn, is provoking a wide-ranging debate over the environmental consequences of producing such fuels.

For example, any significant increase in biofuels use — assuming such fuels are produced by chemical means rather than, as now, by cooking — could substantially reduce emissions of carbon dioxide and other greenhouse gases, actually slowing the tempo of future climate change. On the other hand, any increase in the production of Canadian oil sands, Venezuelan extra-heavy oil and Rocky Mountain shale oil will entail energy-intensive activities at staggering levels, sure to emit vast amounts of CO2, which might more than cancel out any gains from the biofuels.

In addition, increased biofuels production risks the diversion of vast tracts of arable land from the crucial cultivation of basic food staples to the manufacture of transportation fuel. If, as is likely, oil prices continue to rise, expect it to be ever more attractive for farmers to grow more corn and other crops for eventual conversion to transportation fuels, which means rises in food costs that could price basics out of the range of the very poor while stretching working families to the limit. As in May and June of 2008, when food riots spread across the planet in response to high food prices — caused, in part, by the diversion of vast amounts of corn acreage to biofuel production — this could well lead to mass unrest and mass starvation.

A heavy energy footprint on the planet

The geopolitical implications of this transformation could well be striking. Among other developments, the global clout of Canada, Venezuela and Brazil — all key producers of unconventional fuels — is bound to be strengthened.

Canada is becoming increasingly important as the world’s leading producer of oil sands, or bitumen — a thick, gooey material that must be dug out of the ground and treated in various energy-intensive ways before it can be converted to synthetic petroleum fuel (synfuel). According to the IEO report, oil sands production, now at 1.3 million barrels a day and barely profitable, could hit the 4.4 million barrel mark (or even, according to the most optimistic scenarios, 6.5 million barrels) by 2030.

Given the IEO’s new projections, this would represent an extraordinary addition to global energy supplies just when key sources of conventional oil in places like Mexico and the North Sea are expected to suffer severe declines. The extraction of oil sands, however, could prove a pollution disaster of the first order. For one thing, remarkable infusions of old-style energy are needed to extract this new energy, huge forest tracts would have to be cleared, and vast quantities of water are used for the steam necessary to dislodge the buried goo (just as the equivalent of “peak water” may be arriving).

What this means is that the accelerated production of oil sands is sure to be linked to environmental despoliation, pollution and global warming. There is considerable doubt that Canadian officials and the general public will, in the end, be willing to pay the economic and environmental price involved. In other words, whatever the IEO may project now, no one can know whether synfuels will really be available in the necessary quantities 15 or 20 years down the road.

Venezuela has long been an important source of crude oil for the United States, generating much of the revenue used by President Hugo Chávez to sustain his social experiments at home and an ambitious anti-American political agenda abroad. In the coming years, however, its production of conventional petroleum is expected to fall, leaving the country increasingly reliant on the exploitation of large deposits of bitumen in the eastern Orinoco River basin. Just to develop these “extra-heavy oil” deposits will require significant financial and energy investments and, as with Canadian oil sands, the environmental impact could be devastating. Nevertheless, successful development of these deposits could prove an economic bonanza for Venezuela.

The big winner in these grim energy sweepstakes, however, is likely to be Brazil. Already a major producer of ethanol, it is expected to see a huge increase in unconventional oil output once its new ultra-deep fields in the “subsalt” Campos and Santos basins come online. These are massive offshore oil deposits buried beneath thick layers of salt some 100 miles off the coast of Rio de Janeiro and several miles beneath the ocean’s surface.

When the substantial technical challenges to exploiting these undersea fields are overcome, Brazil’s output could soar by as much as 3 million barrels per day. By 2030, Brazil should be a major player in the world energy equation, having succeeded Venezuela as South America’s leading petroleum producer.

New powers, new problems

The IEO report hints at other geopolitical changes in the global energy landscape, especially an expected stunning increase in the share of the global energy supply consumed in Asia and a corresponding decline by the United States, Japan and other first-world powers. In 1990, the developing nations of Asia and the Middle East accounted for only 17 percent of world energy consumption; by 2030, that number, the report suggests, should reach 41 percent, matching that of the major first-world powers.

All recent editions of the report have predicted that China will eventually overtake the United States as No. 1 energy consumer. What’s notable is how quickly the 2009 edition expects that to happen. The 2006 report had China assuming the leadership position in a 2026-2030 timeframe; in 2007, it was 2021-2024; in 2008, it was 2016-2020. This year, the IEO is projecting that China will overtake the United States between 2010 and 2014.

It’s easy enough to overlook these shifting estimates, since the reports don’t emphasize how they have changed from year to year. What they suggest, however, is that the United States will face ever fiercer competition from China in the global struggle to secure adequate supplies of energy to meet national needs.

Given what we have learned about the dwindling prospects for adequate future oil supplies, we are sure to face increased geopolitical competition and strife between the two countries in those few areas that are capable of producing additional quantities of oil (and undoubtedly genuine desperation among many other countries with far fewer resources and far less power).

And much else follows: As the world’s leading energy consumer, Beijing will undoubtedly play a far more critical role in setting international energy policies and prices, undercutting the pivotal role long played by Washington. It is not hard to imagine, then, that major oil producers in the Middle East and Africa will see it as in their interest to deepen political and economic ties with China at the expense of the United States. China can also be expected to maintain close ties with oil providers like Iran and Sudan, no matter how this clashes with American foreign policy objectives.

At first glance, the International Energy Outlook for 2009 hardly looks different from previous editions: a tedious compendium of tables and text on global energy trends. Looked at another way, however, it trumpets the headlines of the future — and the news is not comforting.

The global energy equation is changing rapidly, and with it is likely to come great power competition, economic peril, rising starvation, growing unrest, environmental disaster and shrinking energy supplies, no matter what steps are taken. No doubt the 2010 edition of the report and those that follow will reveal far more, but the new trends in energy on the planet are already increasingly evident — and unsettling.

Not too long ago, I wondered whether the slumping price of oil might hamstring efforts to reduce fossil fuel consumption. If gas prices fell far enough, would Americans attempt to breathe new life into their SUV love affairs? But that doesn’t seem to be a high priority for fussing about at the moment. Even if a would-be car buyer could qualify for financing right now — a doubtful prospect for millions of Americans –  judging by consumer spending figures, belt-tightening is the order of the day. Economic turmoil has even gutted the potency of the one campaign issue with which the McCain campaign enjoyed real success: offshore drilling.

Ironically, the pressure to pass a bailout bill became so intense that Congress was able to package long-delayed renewable energy tax breaks and incentives into the legislation, which means that even as the lower price of oil wreaks havoc on clean energy business models, solar power, at the very least, is set to boom for several years. This is a very good thing: as California Gov. Arnold Schwarzenegger told an audience at the Solar Power International conference in San Diego on Monday night, “We should not give in to those who say environmental goals should take a back seat until the economy improves … That’s short-sighted thinking. Tough economic times mean we need more solar, more green jobs.”

Barring a worldwide depression that lasts for a very long time, oil prices will eventually resume their upward climb, although perhaps not quite at the same pace as we have recently witnessed, given what may be a chastened attitude toward speculation on the part of Wall Street for years to come.

For peak oil doom and gloomers the events of the last few months should be instructive. It has long been a tenet of faith that peak oil will wreak apocalyptic economic havoc: Higher and higher oil prices will simply be unbearable — for industry, agriculture and consumers alike. But if the last few months are any guide, one of the first casualties of an economic downturn will be high oil prices, which will have the immediate effect of reducing the peak oil economic challenge, at least temporarily. If, in the meantime, we keep our eye on the ball, as Schwarzenegger recommends, the path ahead may be bumpy, but it doesn’t necessarily have to be catastrophic.