(FORTUNE Magazine) – THE CONFRONTATION in the Persian Gulf conjures a host of horrible prospects: Shuttered factories. Gasoline lines. Blood in the sand. It might not come to that, of course. Iraq could yet withdraw from Kuwait, stabilizing oil prices and the world economy. But even if this crisis goes no further, even if the troops come safely home, even if the price of oil soon falls, Iraq's invasion of Kuwait will be remembered as the beginning of the end of the Age of Oil. A historic shift is in the air. Disorder in the Persian Gulf is looking more like the norm than the exception. Policymakers and executives around the globe are asking, in the words of Jack Bowen, chairman of Transco Energy, a Houston natural gas and pipeline company, ''What does this stuff really cost? Is it the price OPEC gets? Or is it OPEC's price plus trade deficits, unemployment, inflation, and higher military expenditures?'' The lesson has been driven home for good: You just can't count on Mideast oil. The world will most likely respond with a concerted hunt for alternatives, starting with non-OPEC oil. That's logical, because the dark goo that provides 39% of the world's energy, more than any other source, will be a staple of the global economy for decades. Neither coal, which is the second- largest energy provider with 28%, nor natural gas, with 21%, can quickly replace oil, particularly as a transportation fuel. But explorers aren't likely to find enough new oil to make OPEC a nonfactor in world energy. After the oil price spikes of the Seventies, the industry mounted a rig-spinning exploration and development campaign outside OPEC that produced new supplies, mainly in Mexico, Alaska, and the North Sea. This production, together with conservation, brought the cartel and oil prices low in 1986. But then demand revived, and non-OPEC oil production -- the preferred barrels -- couldn't keep pace. When oil-consuming nations wanted growth, they had to draw once more from the wells of OPEC. And they have been returning in such numbers recently that the cartel's spare capacity has dwindled from 12 million or 13 million barrels a day in the mid-Eighties to four million. Thus governments and consumers will probably become more willing to pay a premium for non-oil energy, such as natural gas and coal, within their own borders. Their goal: maximum control of their energy futures. The most likely consequence: a long, slow ascendance of natural gas, which most experts believe is more plentiful than oil and more evenly distributed around the globe. How quickly oil will lose favor, and eventually market share, depends on the outcome in the Persian Gulf. A United Nations embargo against Iraq and Kuwait, if effective, will remove about four million barrels of crude and refined products a day from a world market that consumes about 65 million barrels a day. Most experts believe there is enough spare capacity in countries like Saudi Arabia, the United Arab Emirates, and Venezuela to make up the shortfall. To avoid getting caught with an empty tanker in the resulting dislocations, oil companies are bidding up the price of crude. Says Ted Eck, chief economist for Amoco: ''We're not thinking about price; we are focusing on feedstock.'' Prices may bounce around between $25 and $30 per barrel until the kinks are worked out. AFTER THAT, there are roughly two possible outcomes. The first is a relatively uneventful siege of Iraq, followed by a peaceful resolution and return to the status quo -- that is, to explosive ethnic and religious competition. During this time prices should settle in the low to middle 20s, according to Dennis Eklof, a senior consultant in the consulting firm Cambridge Energy Research Associates. Once peace is restored, however, prices are not likely to return to the pre-August $14 range. Those prices owed much to OPEC members' cheating on their quotas. Tiny Kuwait and the Emirates, the worst miscreants in the eyes of the cartel, won't resume such practices lightly. The second possibility is that a shooting war breaks out, disrupting Saudi Arabia's five million barrels a day of production, or the Emirates' two million barrels, or both. This would create the world's first serious crude- oil shortage since World War II and drive prices to unknowable heights. (In the oil crises of 1974 and 1979, supply and demand remained nearly in balance. It was the fear of shortage, which led to miscalculated government allocation rules and to such panic stockpiling as topping off the tanks of automobiles, that drove prices up.) Neither outcome to the present mess is likely to restore confidence in Persian Gulf oil. So what should the U.S. do? Once the world's greatest oil producer, the U.S. is aging rapidly as an oil power. Production fell 6% last year, and imports account for around 50% of our needs, compared with less than 30% in 1985. The U.S. is the most drilled-up land on earth, with 600,000 of the world's 900,000 producing wells. An average well produces about 15 barrels a day in the U.S., vs. 9,000 barrels a day in Saudi Arabia. Stopping the growth of dependence on foreign oil will not be easy, as experience shows. When oil prices leaped in the Seventies, they set off a drilling boom that employed almost five times as many rigs (about 4,500) as ; are working today. That effort, along with prior discoveries in Prudhoe Bay, was barely able to lift U.S. production 4% between 1979 and 1985, after which production began falling again. The chances of reversing the decline in production and expanding output today are even more remote. Doing so would probably require the discovery of gigantic new reserves several times larger than Prudhoe Bay. HOW CAN the U.S. reduce its dependence on foreign oil? There's no mystery: increasing exploration and development, stepping up conservation, and switching to alternative fuels. Every bit would help. Last year the U.S. used 16.5 million barrels a day, on average, and produced 9.2 million -- 600,000 barrels a day less than in 1988. Replacing that oil from abroad at today's prices would add over $5 billion to the trade deficit of some $95 billion this year. All those calls we keep hearing for an energy policy numb the ears, but they are right. The question is, what policy changes would really do the trick? The Department of Energy is drafting a list of options known as the national energy strategy for delivery to President Bush by year-end. Before that, it would make sense -- and break fresh ground -- to assemble a team of experts from Congress, the Environmental Protection Agency, the Energy Department, environmental groups, and energy companies to synthesize a strategy that addresses both the environment and energy. Call it an envenergy policy. After the Exxon Valdez accident last year, environmentalists beat back an industry attempt to open the Arctic National Wildlife Refuge and the outer continental shelf to oil and gas exploration. The inevitable result will be more oil imported in tankers that may be less safe than oil and gas wells. Now, with conflict in the Gulf and rising oil prices, environmentalists are understandably afraid the tide will turn against them. Step back from the rush of today's news, and it becomes clear that the nation needs to upgrade both energy supplies and environmental quality. But that's tough to do when policy is being whipsawed between cataclysmic events. An envenergy policy would put us all on the same track. It might recommend, for instance, drilling the outer continental shelf because it contains mostly gas, the cleanest-burning fossil fuel, which won't befoul beaches in the event of a leak. Here are some policies for an envenergy team to consider:

-- Attack transportation. Cars and trucks burn some eight million barrels of oil a day, almost equal to total imports. Several measures could help reduce that. First, promote natural gas as a fuel for fleets of cars and trucks (not including commercial rentals), which make up about 5% of the nation's vehicles. Switching to natural gas would be tough for most motorists: Even if you could buy a natural gas car, you couldn't find a service station to refuel it (unless you are in Denver, where Amoco recently opened a station with a natural gas pump it hopes will attract daring converts). But fleet garages can be equipped with the compressors and hoses used to refuel with natural gas. General Motors promises to produce 1,000 gas trucks a year by 1992, and several companies, including United Parcel Service and Brooklyn Union Gas, are converting some of their fleets to gas. If UPS and the post office refitted their fleets, 255,000 vehicles in all, it would save almost ten million barrels of oil a year, more than one day's imports. Second, improve the gasoline efficiency of cars. Corporate average fuel economy (CAFE) standards imposed by Congress helped push the nation's miles per gallon from 14 to 28. Dennis Eklof of Cambridge Energy estimates this saves the U.S. about two million barrels of oil a day, roughly the production of Kuwait. Another route to conservation might be to raise the tax on gasoline, which varies state to state and averages about 27 cents a gallon, the lowest in the developed world. The tax in Japan is $1.62 a gallon, in Italy $3.08. Raising the tax would be least painful, and perhaps most effective in the long run, if the federal government committed itself to raising it, say, 5 cents a year for the next 20 years. That leaves everyone plenty of time to plan and adjust.

-- Explore the remaining frontiers. Do whatever is necessary through increased safety regulations and oversight to prevent environmental damage. The oil- bearing reservoirs of Prudhoe Bay will yield more than nine billion barrels, equal to about three years of imports, before they are finished. And right next door -- off limits -- in the wildlife refuge are similar underground formations in the same geologic trend. Not to explore them is shortsighted. Other frontiers exist off the shores of California and Florida.

-- Reduce regulatory delays. Bowen of Transco recommends creating a fast track for priority energy projects, shortening the time spent on hearings and public review and allowing some projects to move ahead even as issues are thrashed out in court. Off Southern California is an oil field called Point Arguello that should yield at least 200 million barrels. Chevron has drilled production wells but for a year has not been allowed to produce oil by order of the California Coastal Commission.

-- Promote natural gas. One of the quickest ways to do this would be to speed up certification of new pipelines by the Federal Energy Regulatory Commission. In New England many businesses that burn gas in the summer must switch to imported fuel oil in the winter because pipelines into the region can't handle any more gas. New lines, such as the Iroquois project, which would bring gas from Canada, have been winding their way through the regulatory process for four years. The American Gas Association, a trade group, says that within five years new gas pipelines could eliminate the need for 1.3 million barrels of oil a day, about 15% of today's imports.

-- Boost research into alternative energy sources. Europe and Japan make more use of nuclear power (see table) than the U.S. Plant designers are thinking up much safer technologies, which must be tested and refined. In one compact design the reactor building is capable of absorbing all the heat the reactor can emit in the event of a cooling system failure. More research is needed into safe means of disposing of spent fuel. Argonne National Laboratory near Chicago is studying techniques for reducing its radioactive life. Fusion reactors, which will produce almost no waste, will need at least two decades of additional development. If nuclear power can be made safe, then electric cars using power generated by nuclear stations would solve many of today's problems.

-- Expand the Strategic Petroleum Reserve. It contains almost 600 million barrels of crude and is scheduled to expand to 750 million. The SPR's 70 days' supply of imported oil may be one of the reasons prices didn't fly up the way they did in the aftermath of the Iranian revolution and the start of the Iran- Iraq war a decade ago. Additional supplies should be even more stabilizing. In the debate that broke out over how the SPR should be used, some politicians urged the President to open the tap to keep consumer prices from rising. Others said it should be used only to compensate for a real fall in oil supplies. In the present dispute, with the possibility of a war in the Gulf that could create monumental shortages, the President is wise to keep the reserves in check.

^ MANY NATIONS will be considering similar options in the years ahead, and their collective actions will likely change the face of the energy business. A consequence to watch for: The oil industry will embark on its last great elephant hunt, the pachyderms being huge oil fields. Explorers at British Petroleum estimate that the earth holds about 1,300 sedimentary basins in which oil might be found, of which 300 remain unexplored because they were too remote or because politics placed them off limits. Both conditions are changing. Technology is bringing far-off basins, such as those in ocean depths of up to a mile, within reach. (Instead of production platforms standing on the ocean floor over the wells, pipelines would gather the crude from these deep wells and transport it to platforms in shallower waters.) And countries like Vietnam and Argentina that have kept oil and gas explorers at arm's length are beginning to open up in the hope of developing their own energy sources. For decades predictions in the oil business have been followed by caveats like ''If anyone invades the Saudi oil fields, all bets are off.'' When the present confrontation is over, even if the good guys win, it's a safe bet that the caveats won't go away. This isn't the last crisis in the Persian Gulf. That fact, and the world's reaction to it, will shape the energy business for years to come.

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