AS THE strategic and economic value of oil skyrocketed during the first half of this year, many experts declared that the global distribution of power is rapidly shifting to oil exporters-specifically, Russia and the members of the Organization of the Petroleum Exporting Countries (OPEC). This belief has led to a lot of talk about the rise of "authoritarian capitalist" great powers and "the return of history."

But let's imagine-as The National Interest asked me to do-that the summer of 2008 turns out to be the all-time peak of oil prices, and that the end of the oil era is imminent. The first instinct is to assume that in this world-a world in which oil would be a minor commodity, irrelevant to both geopolitics and the global economy-America would be much better off. Oil-exporting autocracies would fade into obscurity, and the Middle East would revert to barren sand-strewn lands. This imagined future, after all, is what drives politicians from George W. Bush to Barack Obama to say that ending dependence on foreign oil will liberate America.

But would this really be the case? It may be that the assumptions we hold are grounded in a misunderstanding of the global order. Perhaps instead, without oil dominating their economies, the Middle East oil states would be far less dependent on the United States for trade, for security and for dollars. Perhaps the dollar would no longer be the world's reserve currency, which would severely hinder America's ability to fund its current-account deficit-and its military superiority. And then, perhaps, the security guarantee the United States provides to the Middle East-and by extension the entire oil-dependent world-would be null and void.

In short, a world that doesn't need oil may also be a world that doesn't need the United States. But when prices of oil are skyrocketing, people aren't thinking about the possible long-term implications of energy independence, only the short-term gains.

THE BELIEF that high oil prices will trigger a massive redistribution of power away from the United States and toward authoritarian energy exporters is front and center in the minds of strategists-and it makes some intuitive sense. The price of oil has been rising effortlessly over the last five years, spiking over $140 a barrel this past summer. The future trend line seems inevitable: prices will continue to go up. The demand for energy from fast-rising developing countries like China and India is unstoppable. National oil companies control 90 percent of the world's oil reserves; most are managed so inefficiently that investment in exploration has all but dried up. (Paradoxically, this dysfunction does a better job than OPEC at restricting supply to the market.) These factors, combined with political instability and volatility in many of the exporting countries, seem to guarantee a replay of the 1970s oil shocks.

Meanwhile, the exporters are certainly getting richer. This summer the United States Department of Energy estimated that in 2008, oil exporters would earn more than $1 trillion for the first time. HSBC projected that the Gulf Cooperation Council (GCC) states will earn more oil revenue in 2008 than during the entire decade of the 1980s. McKinsey projected that $9 trillion will flow into the Gulf members of OPEC alone by 2020.

Understandably, geopolitical analysts are disturbed by how oil powers are using these windfall profits. Major oil exporters have set up a bevy of development banks, state-owned enterprises and sovereign wealth funds (SWFs) to expand their economies and invest their assets more strategically, giving them greater financial leverage over energy-importing countries. Russia's Gazprom seems hell-bent on controlling the European Union's energy infrastructure. Arab sovereign wealth funds have acquired significant stakes in a number of preeminent financial institutions, including Citigroup, Credit Suisse and UBS. In acquisitions that symbolize the shift in the distribution of power, government investment vehicles based in the Persian Gulf have acquired the Chrysler Building and the Manchester City football club. Oil exporters are buying up "the West."

Beyond economics, the greater concern is that energy exporters are beginning to feel that they have carte blanche to pursue foreign policies that challenge the American-led order. Iranian leaders look bound and determined to thumb their nose at the United States on Israel, terrorism and nuclear nonproliferation. Venezuela's Hugo Chávez has promised to bankroll a socialist "Bolivarian order" to challenge American hegemony in the Western hemisphere. Russia, flush with double-digit economic growth and over $500 billion in foreign-exchange reserves, has invaded Georgia and pried away the territories of Abkhazia and South Ossetia in an effort to maintain its sphere of influence.

Indeed, as Fareed Zakaria recently wrote in Newsweek:

As the price of oil and other natural resources has risen over the past decade, Russia has become more dysfunctional, corrupt, dictatorial and assertive. And oil wealth everywhere-from Venezuela to Iran to Russia-breeds independence from and indifference to international norms, markets and rules.

The single best strategy for bringing Russia in line with the civilized world would be to dramatically lower oil prices, which would force the country to integrate or stagnate.

But what would happen to this world if the astronomical price of "black gold" triggered a collapse in demand over the next decade and a battery of short-, medium- and long-term responses to that collapse ended the oil age? Would the Middle East still matter? Would the Venezuelas and Irans of the world rediscover humility? Would the United States' global position remain unchallenged?

LET'S SAY that conservation, substitution and recession cause a slide in the price of oil. This has already happened to some extent; after hitting $140 a barrel, as of mid-October, the price dipped below $70 a barrel. Now let's say that this trend continues: within a few years, a mix of greater exploration, greater conservation and the development of alternative energy sources causes the price of oil to fall even further, to $50.

Despite this drop, assume the memory of $140 oil looms sufficiently large in the minds of Western and Chinese consumers, so prevailing fears about energy security, combined with elevated concerns about global warming, spur investments in radical energy-saving innovations in transport and electricity generation. These innovations then allow many developing economies to "leapfrog" the pollution-intensive phase of economic development, further lessening demand for oil. The price of all hydrocarbon-based sources of energy plummets, as environmentally friendly alternatives replace oil and natural gas almost everywhere.

By the end of the next decade, then, we would be living in a world where oil prices had dropped in real terms to levels not seen since before the 1973 oil shock. In this alternative future, the only place Americans would see a combustion engine is on the "NASCAR classic" circuit.

If this scenario actually came to pass, optimists might anticipate being able to rejoice at a return to the end of history, while pessimists might fear that the oil-exporting states would descend into anarchy.

But, to imagine one way in which this scenario could play out, let's fast-forward to 2025. What actually happened in the world after oil turned out to be something entirely unexpected.

The Year is 2025

Beijing is the most authoritative voice in the international arena. Unencumbered by the resource curse, the Middle East is at long last stable, once-fragile African countries are active participants in the global economy and authoritarian regimes suffer from their inability to adapt while nuclear weapons proliferate. The United States, meanwhile, enjoys only second-tier-power status.

CONTRARY TO the most dire predictions, the end of the oil era did not destroy the Persian Gulf states. Instead of becoming the sand dunes of desperation the West expected, the Gulf states put money into education and infrastructure, and loosened their religious constraints. While the West assumed the Persian Gulf contained brittle and feckless sheikhdoms, in reality these governments proved resilient and adaptive.

That is because at the beginning of the twenty-first century, the GCC regimes had sufficient institutional memory to recall the previous oil bust of the late eighties and early nineties. Unlike in past booms, they did not permit consumption to rise at the same rate as their trade surpluses; the governments of the Gulf spent less than 45 percent of their oil revenue in 2008. The excess revenue filled the coffers of the region's sovereign wealth funds and central banks. And so, by 2010 the Abu Dhabi Investment Authority was sitting on close to $1 trillion in assets. These funds were large enough for the GCC economies to use the interest income without drawing down on the principal of the funds in order to invest in the non-oil aspects of their economy.

These changes had less to do with the character of the regimes than the fact that they moved up the learning curve. Back in the 1970s, most oil exporters did one of three things with their bulging coffers: they passively recycled their petrodollars through American banks; dramatically expanded their welfare states and increased consumption of luxury goods; or invested in ill-conceived white-elephant industries in their home countries. None of these strategies worked terribly well. The subsequent downturn in the oil market in the 1980s led cash-strapped GCC regimes into politically sensitive budget cuts and increased borrowing. Despite predictions that the sheikhdoms would collapse, they were able to retrench and survive the lean years.

So this time, these states saved enough during the oil spike of 2008 to maintain their standard of living even after petroleum ceased to be a strategic commodity. Governments across the region began by investing in the basic infrastructures necessary for a diversified, modern economy. Qatar was already spending more than $1.5 billion a year on research and development. Saudi Arabia commissioned six "knowledge cities," at a cost of more than $100 billion, for construction in the kingdom's less developed regions. And they ploughed significant sums-$20 billion by 2008-into their educational infrastructure.

The emirate of Dubai took it a step further, leading the way toward sustained economic growth in the post-oil era. During the final oil boom, it was the hub of nonpetroleum business activity. The $10 billion foundation the emirate established to fund higher education in the region was just the beginning. Since Dubai anticipated running out of oil by 2020 anyway, it took the lead in remaking itself as a financial and transport hub in the global economy. It liberalized its markets and began to tolerate a much more cosmopolitan lifestyle than the rest of the Middle East.

Out of desperation and jealousy, the other emirates of the UAE adopted similar strategies and policies. Abu Dhabi created new SWFs like Mubadala for the express purpose of partnering with Western multinational corporations, like General Electric. In exchange for acquiring stakes in these firms, the Western companies agreed to invest in Abu Dhabi. With depressed markets elsewhere, they were eager to establish a toehold in the Middle East.

The rest of the Gulf governments took notice of the success of their more cosmopolitan neighbor. Thus they were able to make a fairly smooth transition to ordinary, non-resource-based economies by following the Dubai model. With ballooning numbers of young people entering the workforce, anything that promoted job creation was deemed consistent with the Koran as a way to achieve sustainable non-oil development. The Saudi regime protected itself from clerical criticism by offsetting its new liberalized visa regime with the innovation of a two-hundred-mile "zone of Islam" around the holy shrines of Mecca and Medina. This grand compromise allowed the GCC states to take more radical steps, such as recognizing Israel, without losing the support of conservative clerics.

All this has left a region filled with economic prosperity, more open societies and decreased extremism. The Gulf states are liberalized, but not completely democratized. Though not all of these states have made the transition with the same success as Dubai, the GCC states have integrated their economies to the point where they share a common currency and a common external tariff. The combination of enhanced security and an economic union created a rising tide lifting all the sheikhdoms.

THOUGH POORER energy-exporting states were initially hit hard by plummeting oil prices, as it turned out they have also faired well. The first stages were difficult because most of these countries were unstable or failing regimes that lacked diversified economies. States like Nigeria, with nondemocratic and weak governments unable to force change, stripped of oil rents, had only a few years to adjust to a much harsher economic environment. This time political scientists and economists were proven right. Exactly what was expected to happen did in fact come to pass: the end of oil for these governments meant the end of several bloody and divisive conflicts, and these states became more stable and prosperous.

During the oil era, theory held that despite the apparent boost in revenues, an economy dependent on the export of natural resources like diamonds or oil suffered from a "resource curse." Oil revenues brought a host of negative effects, civil war being the most obvious.¹ The reasoning behind this relationship was assumed to be straightforward. The more wealth controlled by the state, the more incentive for political groups to wrest control of it by any means necessary. At the same time, oil wealth would increase the likelihood of a "rentier state"-one that is disconnected from its citizens because it does not need to rely on them for resources. Rentier states are therefore more vulnerable to external and internal challenges to their authority.

After the first OPEC oil shock in 1973, the likelihood of a petroleum-rich state being involved in a conflict more than tripled. Long-standing disputes in Colombia, Nigeria, Sudan and Indonesia were linked to or exacerbated by conflicts over the distribution of oil wealth. Theorists saw a tight correlation between a country having an oil-rich economy and being enmeshed in civil war. Disputes over the distribution of oil revenues helped to extend the civil war in post-2003 Iraq. Five years after the overthrow of Saddam Hussein, different ethnic groups were still battling over the final administrative status of oil-rich Kirkuk.

Without oil, many economists and political scientists predicted that these smaller, resource-dependent states would be free of the "resource curse." Nigeria, Iraq, Angola and Sudan would see an end to resource-driven conflicts and become more stable.

And for many states, these assumptions about a post-oil era held. The removal of internal and external oil did contribute to the end of long-standing conflicts. Shockingly enough, the end of the oil era meant that Iraqi ethnic groups cared a lot less about who administered Kirkuk. Across the globe, fears of resource wars in sub-Saharan Africa and Central Asia disappeared. Fragmented states like these became less divided and more representative.

Granted, the effects of declining oil prices weren't all magical. In some of these war-torn societies, like Sudan, the bitterness and blood feuds have a self-sustaining momentum, propelling continued fighting even after the main catalyst disappears.

AND TRULY, not all of the oil-dependent governments were as fortunate as the GCC. For the middle-income states-like Russia, Venezuela and Iran-the end of the oil age turned out to be a disaster. These regimes once had leveraged their oil revenues to increase their power. With only empty coffers and domestic chaos left after the oil crash, however, nuclear states ended up launching diversionary wars and nonnuclear governments built atomic weapons in the hopes of regaining some semblance of control, all in the vain hope of bolstering domestic support and cohesion. Yet, everyone predicted that without oil, these autocratic oil-exporting behemoths would disintegrate because of domestic instability and spending sprees, and that's exactly what happened.

Populist leaders like Vladimir Putin, Hugo Chávez and Mahmoud Ahmadinejad responded to the oil boom by dramatically increasing government expenditures. For instance, state-owned firms in Russia, with the expectation of sustained oil revenues, went on a borrowing spree. These types of actions bought popular support for the regimes, but the collapse of oil prices left them abjectly unprepared to sustain those expenditures. Like the GCC economies, many of these countries had official reserves and sovereign wealth funds. But their reserves were much smaller than the Gulf states-within a year or two after the end of oil these governments spent most of their principal. It did not help that some of these reserve funds had been raided before the oil boom even ended. Iran's Oil Stabilization Fund, for example, was quickly depleted because Ahmadinejad and his political allies proved unable to stop themselves from draining it for domestic spending programs during the boom years. Hugo Chávez did the same thing with the state-owned oil company Petróleos de Venezuela, S.A. (PDVSA). When the financial storm came, these rainy-day coffers were bone dry.

And then these states got desperate. They faced rising levels of domestic unpopularity and great powers eager to see them toppled. They undertook two types of actions in response to their predicament. Some countries launched diversionary wars in an effort to rally disaffected citizens around the flag. Azerbaijan revived its simmering dispute with Armenia, and Libya intervened in Chad-again. Ecuador announced an "alliance" with the last fragments of Colombia's FARC rebels, while Russia attempted to annex the Russian-speaking provinces in Kazakhstan.

Each of these moves led to short-term increases in support for the regime. But none of them successfully prolonged their leaders' grip on power. After all, diversionary wars have never been a terribly successful tactic to hold power over the long term. After the initial euphoria, discontent with the notion of a prolonged war led to coups d'état in each of these countries. Russia was hardest hit. Domestic instability following its Kazakh misadventure deepened the political and social malaise triggered by its demographic decline. In the ultimate sign of its weakness, Moscow essentially outsourced the mineral resources of Siberia to China.

Other post-oil regimes tried to ensure their longevity by developing nuclear weapons. Typically, nuclear programs serve multiple purposes. They can be a credible deterrent against aggression by external actors. Internally, the announcement of joining the nuclear club can swell national pride in countries that already have strong nationalist sentiments-i.e., Iran and Venezuela.

By the time the nationalist rapture in response to their nuclear programs wore off, the regimes were convinced that they had cemented their hold on power. But in Venezuela this was not the case. Regional outrage at the government's nuclear announcement-led by former near-nuclear states Brazil and Argentina-undermined Venezuela's international support, and Chávez did not survive. In the end, South America remained a nuclear-free zone of democratic countries.

In Iran, however, the clerics maintained their hold on power-and the effects of Iran's nuclear weapons were regional in scope. Saudi Arabia responded by quickly purchasing a deterrent. Riyadh's decision to go nuclear balanced Iran's arsenal, and the GCC turned into a military as well as an economic alliance. Iraq and Egypt decided to go nuclear, too. While the first instinct was to worry about a nuclear exchange in the Middle East, the end of oil also meant that the region was less vital to great-power interests-there were no external actors to precipitate a regional crisis. Thus, the existence of these nuclear deterrents has helped to keep the peace in the Middle East.

As a result of all this, many of the positive trends seen in the very poor and very rich oil-exporting countries have not occurred in the middle-income states. But the temporary instabilities in the autocracies eventually sorted themselves out. While no one in the West was thrilled with the increase in nuclear-weapons states, the realists were proven right: states with nuclear weapons do refrain from attacking each other. South America remained free of both nuclear weapons and autocratic governments.

THIS SPREAD of democracy, the persistence of peace and economic growth, and the demise of a top competitor (Russia) should have been beneficial to the United States. But in fact it helped the other great powers much more, for the end of the oil era brought about the end of the dollar era-and the definitive end of American hegemony.

For decades, presidential candidates pledged to end America's addiction to foreign oil. The presumption was that dependence on foreign energy was a constraint on U.S. action. Once it ended, it was thought, American power would again reign supreme. But instead it turned out that the United States was better positioned to maintain its power during the oil era than in the post-oil age.

In fact, the passing of the oil age eliminated a key capital inflow for the United States. Just a few years into this new era, the oil-exporting economies were sitting on close to $2 trillion in dollar-denominated assets, and the Gulf was one of the few capital-rich regions that relied on American security. A key pillar of support for the dollar was GCC resistance to the economic logic of diversifying their holdings away from dollar-denominated assets. The implicit quid pro quo of this arrangement was that in return for security guarantees, the Gulf regimes pledged to continue to preserve and defend the value of the dollar.

In the short term, the end of the oil era reinforced this guarantee. With their primary source of income evaporating before their eyes, the first instinct of all of the regimes in the region was to bind themselves even closer to the United States. Iran's decision to go nuclear only reinforced that trend.

But to everybody's surprise, America's security guarantees soon became less relevant, and the gravitational attraction of its economy diminished. When the GCC economies retrenched, they became unable-and unwilling-to invest large sums in American debt. The post-oil recovery of the Gulf economies gave these governments greater confidence in their ability to prosper. Without oil being an all-consuming commodity, the GCC states were able to trade much more extensively with Europe and the Pacific Rim than with the United States. Large Muslim minorities in those regions made them a more natural location for Arab foreign direct investment. This made it much harder for Washington to sustain its whopping fiscal deficit. Forced to choose between guns and butter, the American people opted to reduce their military obligations and maintain social services. The end of the dollar as the reserve currency was simply the coup de grâce.

And so it was not surprising that GCC central banks jointly announced that they would use a trade-weighted basket of the dollar, euro and the renminbi to determine their exchange rate. This announcement tipped other central bankers into selling dollars.

By 2025-a mere fifteen years after the beginning of the end of oil-only 20 percent of official reserves were held in dollars. The United States was forced to finance its current-account deficit-which for many years had been fueled by the insatiable American demand for energy-in euro-denominated bonds.

Meanwhile, the European Union was freed from its greatest strategic vulnerability-energy dependence on Russia and the Middle East. It took advantage of the switch in the Middle East's economic orientation and expanded its membership across the Mediterranean. A key bottleneck to China and India's long-term economic development was removed. Service exports surged to China and India-economies that, unconstrained by energy, were growing even faster after the end of oil than before. Furthermore, the way in which oil ended-replaced by new, low-carbon energy sources-prevented the most dire effects of global warming from coming true. This disproportionately benefited the developing world-and India and China in particular. America ended up weak, Europe became stronger and more unified, and India and China finally ascended.

THE YEAR 2008 was pivotal for the United States, but not in the way that most expected. Preoccupied with wars, an election and a financial crisis, no one anticipated what an impact oil-with its instability-generating, recession-fueling global reach-would actually have on the country's future trajectory. Looking back, though, it is clear that in the macro sense, the decline and fall of oil has brought significant benefits to the world. Long-standing civil wars ended peacefully. Freed from the resource curse, regions plagued by instability have joined the twenty-first-century economy. The predicted effects of global warming have been significantly curtailed. The new geopolitical and economic facts of life crystallized. The security situation in the Middle East is, to a surprising degree, stable. China and India continue their rise to middle-class economic status. The European Union's greatest security headache is no more.

Of course, not all the effects have been positive. The burst of diversionary wars and nuclear proliferation affected unstable areas of the globe. Countries like Iran and Russia have remained mostly shut off from the world because of the aftereffects of oil's collapse. But, oddly enough, the biggest loser among the great powers turned out to be the United States. The end of oil impacted the old cold-war superpowers the worst, although America came out slightly less bruised and battered. With their nuclear arsenals, neither country has become irrelevant. In the end, however, both countries have turned inward in response to the declines in their fortunes. Russia still matters on a regional scale, and the United States maintains its hemispheric influence. Washington, however, is no longer the world's superpower. It isn't even first among equals. Stripped of its enduring security allies, Washington remains an important voice in world affairs, but not as authoritative as Beijing.

At the beginning of the twenty-first century, America knew that it was addicted to oil. What it did not realize was that it was also addicted to the security benefits that came from an oil-based global economy. Washington did not plan for the transition to a post-hydrocarbon society, despite warnings from its own National Intelligence Council about a disconcerting future. The United States proved ill-prepared to cope with the rapid decline of its influence and resources.

This bout of American isolationism will likely be temporary. The effects of oil's demise on world politics are not.

Daniel W. Drezner is a professor of international politics at the Fletcher School at Tufts University and a senior editor at The National Interest. His most recent book is All Politics Is Global (Princeton University Press, September 2008).