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With Iraq's invasion of Kuwait in August, 1990, oil was back, front and center, in world politics. At one of the first White House meetings at the outset of the crisis, some argued that the United States would simply need to adjust to a \"post-Kuwait world.\" Not so fast, said [George Bush]. One country's swallowing another was not exactly the right way in which to mark the entrance into the post-Cold War era. The invasion, Bush was also convinced, struck at the fundamentals of U.S. global strategy and the global economy. What was at stake was not whether gasoline was $1.10 a gallon or $1.30 a gallon, but the possibility of a basic shift in the global balance of power. A \"Greater Iraq\" that included Kuwait would hold 20 percent of world oil reserves. If it extended its control, either directly or indirectly, over Saudi oil, Baghdad would be holding almost half of total world reserves. Saddam Hussein would undoubtedly have translated such sway into political, economic and military power on a global scale. The American response to the gulf crisis grew out of long-standing policies, going back to President Harry Truman, which sought to keep the petroleum resources of the Persian Gulf from falling into hostile hands. The link was direct from the Bush policies back to Jimmy Carter's 1980 Carter Doctrine, enunicated after the Soviet invasion of Afghanistan. Carter was explicit in expressing his concerns about the security of Mideast oil. But a consequence of Bush's own oil background and of the Texas and oil connections of other key members of his administration was their avoidance of mentioning what was obviously of central concern to them, too - oil and the global balance - for fear of further stirring public suspicion. Instead, they reached for euphemisms, such as \"jobs,\" to explain America's stake in stopping Saddam Hussein's aggression. Yet the other face of oil has not disappeared. While the environment will be the new administration's immediate focus, it will also be engaged by America's enduring security concerns and strategic stakes, like all postwar administrations. Recently, Iraq, perhaps responding to stronger internal pressures, has been making moves to test U.S. resolve during the transition. [Bill Clinton] has been explicit in warning that U.S. policy in the Persian Gulf will remain consistent in this heavily oil-dependent world.

\"Now with a new epilogue that speaks directly to the current energy crisis, \"The Prize\" recounts the panoramic history of the world's most important resource: oil. Daniel Yergin's timeless book chronicles the struggle for wealth and power that has surrounded oil for decades and that continues to fuel global rivalries, shake the world economy, and transform the destiny of men and nations. This updated edition categorically proves the unwavering significance of oil throughout the twentieth century and into the twenty-first by tracing economic and political clashes over precious \"black gold.\" With his far-reaching insight and in-depth research, Yergin is uniquely positioned to address the present battle over energy, which undoubtedly ranks as one of the most vital issues of our time. The canvas of his narrative history is enormous -- from the drilling of the first well in Pennsylvania through two great world wars to the Iraqi invasion of Kuwait, Operation Desert Storm, and now both the Iraq War and climate change. The definitive work on the subject of oil, \"The Prize\" is a book of extraordinary breadth, riveting excitement, and great value -- crucial to our understanding of world politics and the economy today -- and tomorrow.\"--Back cover.

It is oil that gets most of the attention. Prices around $66 a barrel, driven by high demand growth, are fueling the fear of imminent shortage - that the world is going to begin running out of oil in five or 10 years. This shortage, it is argued, will be amplified by the substantial and growing demand from two giants: China and India. Where will this growth come from? It is pretty evenly divided between non-OPEC and OPEC. The largest non-OPEC growth is projected for Canada, Kazakhstan, Brazil, Azerbaijan, Angola and Russia. Within the Organization of Petroleum Exporting Countries, significant growth is expected to occur in Saudi Arabia, Nigeria, Algeria and Libya, among others. Our estimate for growth in Iraq is quite modest - only 1 million barrels a day - reflecting the high degree of uncertainty there. In the forecast, the United States remains almost level, with development in the deepwater areas of the Gulf of Mexico compensating for declines elsewhere. This is not the first time that the world has \"run out of oil.\" It's more like the fifth. Cycles of shortage and surplus characterize the entire history of the oil industry. A similar fear of shortage after World War I was one of the main driving forces for cobbling together the three easternmost provinces of the defunct Ottoman Turkish Empire to create Iraq. In more recent times, the \"permanent oil shortage\" of the 1970s gave way to the glut and price collapse of the 1980s.

The British Government was reluctant to approve Gulf Oil's entry into Kuwait because it did not want to do anything that might undercut its own position in the region. London also wanted to avoid injuring the prospects of Britain's national champion, Anglo-Persian Oil, half of whose shares had been acquired for the Government by Winston Churchill on the eve of World War I. But some officials counseled caution. \"The last thing we want,\" said a diplomat in the Foreign Office, \"is an oil war\" with the United States. The way to a solution appeared clear in April 1932, when Anglo-Persian gracefully stepped aside. Sir John Cadman, the company's chairman, told British officials that geological reports \"leave little room for optimism\" for oil in Arabia. As for Kuwait itself, he cavalierly said, \"The Americans are welcome to what they can find there!\" In the new mood, Kuwait nationalizedthe Kuwait Oil's holdings. As the Kuwaiti oil minister at the time explained, \"Oil is everything in Kuwait.\" Gulf and B.P. asked for $2 billion in compensation. They got $50 million. \"Whatever you did, you got paid for,\" one senior Kuwaiti told them.

ADVOCATES and critics of nuclear power share a basic belief - that the age of petroleum will come to an end during the next few decades and industrial society will have to run on some new energy source. All they disagree about is what the new source will be. For the advocates, the ''nuclear imperative'' is clear. In the words of one utility executive, ''It's almost a miracle that it came along when it did.'' Critics like [Mark Hertsgaard] believe that nuclear energy is actually a liability - a dangerous, expensive and still unproven technology. The high stakes led to fierce competition, which Mr. Hertsgaard does a particularly good job of reporting. The sales manager of one of the four reactor manufacturers in this country described how the competition worked, at least through the early 1970's: ''A reactor vendor would come out with a new design, and in response to challenges from other people, he would make it about 5 to 7 percent larger to justify it to the utilities. And that reactor would sell like hot cakes for about a year, and then the vendor on the bottom of the heap would come out with a new design that was another 5 percent larger, and he'd sell for the next year and a half.'' MR. HERTSGAARD'S book is marred by his efforts to place ultimate blame for the nuclear quagmire on ''monopoly capitalism.'' He is certainly right that there have been some cozy and questionable relationships between the Government and private companies in the nuclear power business. But the view he presents of how the economy works is quite askew. He proves conclusively that big companies are in the nuclear business. Is that a surprise? The scale of the enterprise is such that it does not make much sense for the corner alternative energy store to attempt to go into the business. Engineering companies that have the skills to build big dams will also build big power stations.

Half a year before the October 1973 Yom Kippur War, which led to the Arab oil embargo and the quadrupling of oil prices, Egypt's president, Anwar el-Sadat, was talking aloud about using the \"oil weapon\" -- this at a time when the oil market was already tightening, eroding the surplus supplies that buffer the market against serious disruption. Early this year, six months before the invasion of Kuwait, the public rhetoric of Iraq's president, Saddam Hussein, was becoming increasingly belligerent in tone -- even while the oil market was once again tightening rather rapidly. Yet a third clue to the future of the Soviet oil industry arises from the 1920's. The new Bolshevik Government, desperate for hard currency, glutted the world market with Russian oil, driving down the price. That inspired the oil tycoons of the day to meet in August 1928 at Achnacarry Castle in Scotland, where they set about creating a worldwide cartel to manage prices and supply. This arrangement -- openly called the As-Is system -- lasted until World War II, and for a time even the Soviets participated. IN THE LATE 1950's, THE SOVIET UNION, desperate once again for hard currency, launched another, even larger oil export campaign, part of what became known as the Soviet Economic Offensive. Allen W. Dulles, the Director of Central Intelligence, warned President Eisenhower, \"The free world faces a quite dangerous situation in the Soviet capacity to dislocate established markets.\" Senator Kenneth B. Keating, the New York Republican, went even further, declaring: \"Khrushchev has threatened to bury us on more than one occasion. It is now become increasingly evident that he would also like to drown us in a sea of oil if we let him get away with it.\" The Soviet Union's exports of oil and natural gas provide more than 60 percent of its hard-currency earnings, which in turn make it possible to buy the food and technology that keep the beleaguered country afloat. But the Soviet oil industry is in the grip of its own crisis, brought on by inefficiency and low productivity, poor organization and technological backwardness, wasteful expenditure and environmental neglect. \"Energy policy has been the single most disruptive factor in Soviet industry since the mid-1970's and one of the leading proximate causes of the downturn and stagnation of Soviet economic growth,\" according to Thane Gustafson in \"Crisis Amid Plenty,\" his most recent book on the industry. \"For the reformers under Mikhail Gorbachev, no other issue of economic policy is so great an obstacle to their plans.\"

Near the end of a recent visit to the United States, the president of a national oil company in a member nation of the Organization of Petroleum Exporting Countries wrote out a list for his hosts: a shale-oil project in Colorado, a coal project in West Virginia, a tar-sands oil-extraction program in Canada, the Alaska natural-gas pipeline. ... The list went on. Beside each item he wrote one of three words - ''delayed,'' ''postponed'' or ''canceled.'' ''What we're seeing,'' he said, ''is the death of the alternatives.'' He was talking about alternatives to American dependence upon imported oil. The performance was surprising. One might expect an official from an OPEC country to applaud prospects for an increase in American demand for his country's most valuable asset. In fact, he was frightened. The scenario was all too clear to him: Without the alternatives to imported oil, the United States requires more and more overseas petroleum; a sudden, unexpected event -an assassination, a war, a revolution - cuts deeply into available supply. The price soars, and the world economy is traumatized. ''In that case,'' he said, envisioning the effect of a global recession on the long-term demand for his country's products, ''everybody loses.'' Without that growth divi-dend, America becomes a ''zero-sum society,'' in which the main task of the political system becomes, as the economist Lester C. Thurow puts it, ''loss allocation.'' The recent budget fight was a battle over who loses how much. And in the economic slump that would follow the next oil shock, the battle would be much more painful, intensifying social conflict as energy became an engine of ''ungrowth.'' Protectionist impulses would also mount, temporarily insulating some industries from the pressures of the world market, but also penalizing consumers, retarding adjustment, undermining critical Western-alliance relations and lowering overall incomes.

Driven by fierce competition for markets for their oil, some of the world's major oil exporting nations are seeking to transform themselves into the modern equivalent of the ''Seven Sisters,'' the American and British oil companies that controlled much of the world's production, refining and distribution until the Organization of Petroleum Exporting Countries gained ascendancy in the 1970's. Thus, the Saudi purchase may well touch off a flurry of similar deals as worried exporters try to nail down markets for the 1990's. There have always been powerful economic reasons to tie together the ''upstream,'' where the production and oil is, and ''downstream,'' where the markets are. The greatest risk for someone with a lot of oil to sell is to be denied access to markets in which to sell it. The greatest risk for someone with a marketing system is to be denied access to crude oil. Today, Kuwait is not only a country; it is also an integrated oil company, with a large refining and distribution system in Europe. The European motorist can buy his gasoline at an Esso, a Mobil or a ''Q-8'' station -pronounced ''ku-eight.'' For 30 years, Venezuela has sought to assure access to the United States market and to establish itself as a reliable supplier. Today, the Venezuelan state oil company has two large joint ventures in the United States - one involving Citgo and the 7-11 Stores - with possibly more to come, as well as two in Western Europe.

LEAD: President Bush's decision last week to limit offshore drilling demonstrates that hardly any politician can risk being seen as anti-environmental. The reason for this is the growth of the environmental consciousness among the American people. While the environmental consensus has emerged as a potent political force in the last few years, its strength, we found, would be tested in an economic downturn. After all, the focus on such concerns tended to recede during the economic slump of the 1970's. The consensus could also be challenged by the public's worries about the adequacy of energy supplies, we found.