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Is Saudi Arabia Running Out of Oil?

When oil prices have doubled to $80 and a second Great Depression threatens global political stability, our president will assemble a 9/11-style commission to explain the intelligence and policy failures that led to the crisis. The verdict will be familiar: The stunning blow to the world economy brought about by the sudden, unexpected depletion of fossil fuel should have been anticipated and prevented.

When that day comes -- in five years or perhaps 20, who knows -- many of the key exhibits will have been penned by Matthew Simmons, a Houston energy analyst and banker at Simmons & Co. International.

Simmons is now shouting from the rooftops -- writing think-tank white papers, giving speeches and finishing a book set for publication next year -- that the world is quickly running out of affordable oil and gas, and that no amount of Middle Eastern pumping can bail us out.

While much of the so-called "peak oil" story is well known, what's news is Simmons' startling claim, based on personal analysis, that Saudi Arabia's pumping capacity is in decline.

Aramco, the company in charge of Saudi oil operations, disputes Simmons' assertion and has debated him in public policy forums. But Simmons isn't easily dismissed, as he's no antiestablishment crank. In addition to his role as chief executive of a major energy-focused investment bank, which counts Halliburton (HAL) and the World Bank among its clients, he's a member of the Council on Foreign Relations and was an adviser to President Bush's election campaign and Vice President Dick Cheney's infamous energy task force.

A Pervasive, Regressive Tax

Simmons' point of view is especially relevant today because the price of oil appears persistently stuck at $35-plus despite Saudi officials' vows to help push it down by increasing supply. Higher energy prices act like a pervasive, regressive tax, robbing consumers of money that would otherwise go to buy discretionary goods such as cars, clothes and computers.

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