(FORTUNE Magazine) – BLACK SEAS. Black rain. Black death. The Persian Gulf is now the inferno that the oil industry has speculated about -- and dreaded -- for decades. More than 500 of the best oil wells on earth are burning like blowtorches in the Kuwaiti desert. Greasy clouds block the sun for hundreds of miles. The fourth-largest oil slick in history is sloshing around in the waters of the Gulf, threatening wildlife and water desalination plants. Oily rain is falling on gardens, livestock, and people all over the region and as far away as Turkey.

If the environmental consequences are tragic and grotesque, the economic pain resulting from oil's unique role in this conflict is surprisingly mild, at least in the short term. For the longer term the ease and speed of the - victory -- with its astonishingly low number of coalition casualties -- and the rapid return of comfortable energy prices could make it difficult for the White House to rally the nation around an effective energy policy. The President's recently announced plan could become a casualty of war. The industrialized world has assumed for years that a tragedy of this magnitude would create shortages, or fear of shortages, that would drive oil's price to the skies. Instead, top-quality Saudi crude has dropped to about $15 a barrel from $39, the high point right after Iraq's blitzkrieg into Kuwait last August. Crude costs less now than it did before the invasion. The world has the brilliance of allied forces and the political steadfastness of President Bush and the United Nations to thank for that. The power of Saudi reserves also played a key role, gushing into the market to make up for embargoed Iraqi and Kuwaiti oil. Consequently, for the next few years at least, Saudi Arabia is OPEC, and OPEC is Saudi Arabia. The kingdom is now producing roughly 8.5 million barrels of oil a day, more than a third of all OPEC production. That is up from some 5.5 million barrels, or less than 25% of OPEC's total, before the invasion. With a population of only 14 million, Saudi Arabia has greater flexibility than any of the 12 other members of OPEC to turn production up or down without injuring its economy. The Saudis have always been the biggest producers in the cartel. But in setting oil policy, they had to take into account the wishes of the local bullies -- Iran and Iraq -- who also happen to be price hawks. For now the bullies are out of the picture. Thus, the Saudis may spend less time cajoling other producers in the chambers of OPEC and more time simply adjusting their own oil spigots. How they make those adjustments will have a big impact on the rehabilitation of the Gulf, the world economy, and the energy picture in the U.S. Among the possible consequences: -- More stable oil prices. Though the Saudis have more room to maneuver, they will be besieged by such petitioners as poor oil-importing nations, which would like low prices, and war-torn oil-exporting neighbors, which would like high prices to help them rebuild. Unless their anger against Iraq gets the better of them, the always moderate Saudis will look for balance. They will want to hold prices high enough to maximize their revenues but low enough to keep their customers (including America, which buys 20% of its oil imports from the Saudis) hooked on oil and to discourage development of alternative fuels like those made from coal. Expect the Saudis to shoot for a price between $20 and $25 a barrel. To get there, they will have to cut production soon. John Lichtblau, chief executive of the Petroleum Industry Research Foundation, says OPEC production is now about 24 million barrels a day, while the world's demand for OPEC oil is slipping toward 22 million barrels a day because of the U.S. recession and a warm winter. It may be years, however, before the Saudis have to cut back to their pre- invasion levels. Crude oil output in two of the world's largest producing countries, the U.S. and the U.S.S.R., is falling between 4% and 6% each year. (American production is declining because the fields are aging and higher prices would be needed to spur the exploration required to bring on new fields. The Soviets are losing output because of mismanagement and economic disorder.) And although oil could start trickling into world markets from Iraq and even from Kuwait, it could be years before those once mighty producers repair all the damage to their oil industries and get production back up to full capacity. -- Weak American energy policy. If Saudi Arabia Victorious leads to more stable, moderate prices, that situation will lull the American consumer back into complacency about energy consumption and probably increase U.S. dependence on Middle East oil. The President's energy plan is designed to prevent that. It calls for increasing domestic supply by such measures as exploring the Arctic National Wildlife Refuge and for reducing consumption by running large fleets of vehicles like city buses on natural gas. But the measures advocated in the plan, many of which are now contained in a bill submitted by Senator Bennett Johnston (D-Louisiana), face a divisive battle in Congress. Environmentalists argue that the program wouldn't do enough to promote conservation, and they would like to kill any plan to explore for more domestic oil. The President, mindful of the recession, has steered away from measures that would cost consumers money, such as forcing auto companies to make cars that get better mileage or by further increasing gasoline taxes. In truth, for any energy plan to succeed in reducing our dependence on foreign oil, it would have to strike hard for more production and conservation. But the chances of enacting strong measures on both fronts are diminishing. < -- More shrinkage in the U.S. oil industry. Since most U.S. oil-producing companies are lean enough to make money when crude costs only $15 a barrel, prices in the low 20s leave them with good cash flow. But they will need to invest heavily to help clean up the environment, and it is hard to find new reserves that are economic when crude prices are under $30. If huge oil reserves were discovered in Alaska or on the outer continental shelf, the shrinkage might be slowed or even reversed. Otherwise, expect no great turnaround in the oil industry. And U.S. reserves (which fell 7% between 1985 and 1989) and production (which fell 15% in the same period) will continue to drop. -- More oil consumption. It has been rising about 2% a year in the U.S., with crude prices bouncing up and down in the high teens and low 20s in recent years. Stabilizing the price in the low 20s is unlikely to provide much incentive for American consumers to curb their appetites.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: OIL PRICES Anxiety -- and prices -- peaked in the fall, then fell to pre-invasion levels.