Toyota Considers Adding Night Shift to Meet Prius Demand

Company wants to increase production of the second-generation Prius hybrid from a planned 6,000 units a month to 10,000

Source: Financial Times

[Oct 30, 2003]

Toyota, the world's third-largest carmaker, is considering adding a night shift at a Japanese factory - the first in its history - to satisfy demand for environmentally friendly petrol-electric cars.

The company wants to increase production of the second-generation Prius hybrid from a planned 6,000 units a month to 10,000, and will decide soon whether to use a third shift at the Tsutsumi factory in Toyota City as a temporary measure. Demand for the car is running at almost double initial estimates.

An overnight shift would be an unprecedented move for the company, which has never run three-shift operations before. It is planning long-term night shifts at its UK factory in Derbyshire and French operations in Valenciennes to support European sales growth, but these will not start until next spring.

Third shifts are used by other vehicle manufacturers as a standard way to manage spikes in demand.

Teruyuki Minoura, senior managing director in charge of business development and purchasing, said the Prius was proving far more popular than expected.

"On a temporary basis we can work three shifts," he said. "It is under consideration."

The Prius has sparked controversy in the industry, as rivals believe Toyota is selling the technology at a loss. European carmakers have been particularly vocal in support of diesel, a rival fuel-efficient engine in which they have long had the lead.

But Kazuo Okamoto, senior managing director of research and design, insisted the Prius was making money and that profit margins were only slightly below those of similar sized saloon cars.

He said the company was in the process of deciding whether to expand the plant making the hybrid power unit for the Prius - which uses a battery-driven electric motor to support the petrol engine - to increase production in the long term.

"We need to make an investment to support the power unit plant," he said. "[But] it is not so expensive."

Toyota has committed itself to hybrid technology to set itself apart from rivals, with Honda the only other carmaker to sell petrol-electric vehicles.

Mr Okamoto said the image of the hybrid - damaged by criticism that the first-generation Prius was underpowered - would change next year when a hybrid Lexus RX off-roader, known as the Toyota Harrier in Japan, is due to launch. The sport utility vehicle will use the electric motor to boost acceleration.

"We want something distinctive for Toyota and in that sense we want to offer a better hybrid vehicle," he said. "That is performance."

The Tsutsumi factory produced just short of 10,000 Prius cars in September, its first full month, by using Saturday working and overtime. But sales in Japan alone reached 17,500 in the month and the US, where the hybrid was launched two weeks ago, has recorded 10,000 advance orders.
http://www.evworld.com/databases/shownews.cfm?pageid=news281003-01

Report Sees Slower Sales and Higher Hybrid Prices

28 models - 18 truck and 10 car models - are expected to offer hybrid powertrain options in 2008, forecasts J D Powers and Associates

Source: Just Auto.com

[Oct 28, 2003]

Hybrid electric vehicle sales expectations are lowering due to changes in some car makers' plans, which is contributing to higher-than-expected vehicle costs, according to the latest JD Power and Associates 2003 Hybrid Electric Vehicle Outlook.

Some car makers have revised their plans to produce hybrid electric vehicles, with many delaying the release of some hybrid vehicle models or dropping models from their hybrid programme altogether. In addition, the price premium charged to consumers for a hybrid powertrain option is expected to be higher over the next several years than previously expected. With these two factors combined, JD Power and Associates expects US consumers to purchase approximately 350,000 hybrid vehicles annually by 2008, down from previous expectations of 500,000.

"The hybrid-electric vehicle market has undergone some significant changes over the past several years, and those changes have caused many of the manufacturers to adopt a wait-and-see approach," said Walter McManus, executive director of global forecasting at JD Power and Associates. "Hybrid electric vehicles are still a growing portion of the market, but their share is rising at a slower rate than we previously expected. Higher-than-expected initial retail prices will slow sales growth, and slower sales growth will keep prices high."

Hybrid sales are expected to reach 40,000 units in 2003 with only three hybrid electric models currently on the market. However, manufacturers are preparing to introduce a dozen new hybrid electric models over the next two years, and hybrid sales are expected to exceed 177,000 by 2005. A total of 28 models - 18 truck and 10 car models - are expected to offer hybrid powertrain options in 2008.

"Sales should increase dramatically as more hybrid vehicles, especially in segments other than compact cars, become available," McManus said. "But we still don't expect hybrid-electric vehicles to become mainstream any time soon."

The first hybrid electric model in the US market was the Honda Insight in 1999. The Toyota Prius debuted the following year, and the Honda Civic Hybrid went on sale in 2002. The first full-size pickup hybrids - Chevrolet Silverado and Dodge Ram - hit commercial fleets this year and will reach retail dealers in early 2004. The first SUV hybrid, the Ford Escape, will also reach dealerships in 2004.

"Trucks should account for about 35% of hybrid sales by 2005 and 64% of hybrid sales by 2008," McManus said. "We know, based on JD Power and Associates studies, that consumers express interest in a hybrid powertrain option in the same segments as their current vehicles. Trucks generally are more popular than cars, and they will be more popular in the hybrid market as well."

While hybrid vehicles are stirring up interest among consumers, these vehicles will only represent about 1% of the market by 2005 and reach 2% market share by 2008. Honda should see its share of the hybrid market soar to 58% this year based on strong Civic Hybrid sales. As other manufacturers enter the hybrid market, Toyota's hybrid share is expected to drop from 39% in 2003 to 20% by 2008 - about the same as Honda's projected share for 2008. General Motors is expected to see growth from less than 2% market share in 2003 to nearly 33% by 2008. DaimlerChrysler's share of the hybrid market should increase from slightly more than 1% in 2003 to nearly 15% by 2008, while Ford Motor Company's share should grow from 0% in 2003 to 6% by 2008.

By James R. Healey, USA TODAY

TOKYO — Japanese automakers seem to be betting heavily on gas-electric hybrid power — not only that it'll quickly become popular, but also that driving enthusiasts will embrace it.

Toyota's CS&S, which combines an electric-gas motor with four-wheel drive.

The evidence: Sporty models on display at the Tokyo Motor Show are hybrid powered. They are concept cars, which means they're not bound for imminent showroom production, but they point to what automakers see as the future.

"Hybrids definitely have Americans' attention," says Jon Berry, senior research director at RoperASW. Most of what he calls "the influentials" — people twice as likely as average to be asked for their opinions by car-buying acquaintances — have heard of hybrids, and 31% of them say they're interested in buying hybrids.

The cars get better fuel economy than gasoline engines with similar power. Batteries are recharged by the gas engine and during braking so hybrids don't need to be plugged in and charged as battery-power electric cars do.

Hybrids are viewed as good stopgap technology until fuel-cell electric cars are developed more than a decade from now, automakers are beginning to say, backing away from earlier optimistic timetables.

Fuel cells take the place of batteries and could be incorporated into hybrid drive systems. "It's good working on hybrid technology, because with a hybrid, you already have 60% to 70%" of the necessary hardware for a fuel-cell powertrain, says Patrick Pélata, Nissan executive vice president in charge of planning.

Hybrids of note at the show:

B9 Scrambler is a short 165 inches long on a stubby 97-inch wheelbase, but is a roomy 74 inches wide.

Subaru says the car's styling is meant to suggest the look of future Subarus. The automaker also says it will continue to actively pursue hybrid development.

Toyota CS&S: The name stands for "compact sport & specialty." It's a two-seater combining an electric motor with 1.5-liter gas engine and four-wheel drive.

Two small rear seats are hidden by a sliding canopy until needed. Front seats fold forward to cover and lock the steering wheel and storage areas, helping prevent otherwise easy theft when the top is down.

Toyota says the hybrid powertrain should be capable of accelerating the roadster from rest to 60 mph in about 8.5 seconds, and pushing it to a top speed of 125 mph.

The car is small: 155 inches long, 71 inches wide on a 100-inch wheelbase.

Toyota also sees the hybrid power system as a high-performance option in the Lexus RX 330 sport-utility vehicle hybrid coming to the USA soon. The automaker gives no specifics but promises V-8 power from the 3.3-liter V-6 coupled to an electric motor.

Mazda Ibuki: The sports car relies mainly on its 1.6-liter gas engine, triggering the electric motor when a power boost is needed. As is common in hybrids, the gas engine quits running when the car is stopped more than a moment, such as at a stoplight. The engine restarts immediately when the driver toes the gas pedal.

Mazda says the electric motor being connected to the gas engine minimizes engine vibrations. That, in turn, allows the use of a lighter flywheel on the engine, which improves acceleration. Mazda says the setup should be able to produce 160 hp or more.

Smallest of the hybrid sports cars on display, Ibuki is just 144 inches long and 68 inches wide, on a 92-inch wheelbase.

Hinting at what the replacement for the Miata sports car will look like, the Ibuki is closer to a production model than the others are. Nissan CEO Carlos Ghosn called it his favorite non-Nissan vehicle at the show.

 
http://www.cars.com/news/stories/111103_storya_an.jhtml?page=newsstory&aff=bayarea

Hyundai Plans U.S. Hybrid by 2006

Posted: 11/11/03 10:00 a.m. CST

By Richard Truett

Automotive News

Won Suk Cho, president of Hyundai America’s technical center here, said Hyundai aims to have a hybrid of its Getz five-door hatchback on the market in Korea next year and follow with a hybrid for the U.S. market by 2006.

The vehicles will use Hyundai-developed technology, Cho says.

Hyundai has tested electronic powertrains in a small fleet of battery-powered cars on public roads in Hawaii.

Hyundai also is working with UTC Fuel Cells of South Windsor, Conn., to develop its own fuel-cell vehicles.

Cho said Hyundai needs experience with batteries, electric motors and gasoline-electric hybrids so that it can use much of its own technology when it converts to fuel-cell vehicles.

Early models of the Getz are being tested in South Korea, according to Cho, who also is overseeing the company’s efforts to develop the fuel-cell powertrain.

Cho said Hyundai plans limited production next year of the Getz for the Korean market to gauge consumer interest.

Hyundai has been working on electric cars for more than a decade.

“We started developing this in 1990,” he said. “We tried developing the battery ourselves, but we had so many hurdles to break through. At this moment we are trying to develop a [fast] charging system for the battery. The current technology means you need eight hours charging time. But we need to develop electric vehicles with an hour charging time.”

Cho would not say which vehicle the U.S.-bound hybrid powertrain will be used in, nor would he discuss its fuel mileage or performance.

Hyundai’s hybrid could be either a strong hybrid that uses the electric motor to propel the car at low speeds or a mild hybrid that uses the electric motor to assist the gasoline-powered engine. The Toyota Prius is a strong hybrid; the Honda Civic and Insight are mild hybrids.

“At this moment, let me say it is a bit similar to Honda,” said Cho.

http://times.hankooki.com/lpage/biz/200401/kt2004011220142011860.htm

January 12, 2004 Korea Times

Staff Reporter

Korean carmakers have joined in global competition to develop futuristic vehicles featuring efficiency in fuel consumption and friendliness to the environment.

The race has become escalating with the global strengthening of pollution controls including the Kyoto Protocol to the United Nations Framework Convention on Climate Change in 1997. Both multinational carmakers, including Hyundai Motor, have devoted much of their investment to developing fuel-efficient cars as natural resources like petroleum are depleting at a rapid pace.

The global futuristic car market, including eco- and environmentfriendly cars, promise lucrative futures for car makers, according to the Samsung Economic Research Institute (SERI). It predicts the market to exceed $1 trillion in 2012.

“It is an open market for any company since the market has yet to be established. Anybody can take the initiative in the future car market,” SERI economist Bok Deuk-kyu, told The Korea Times.

The automobile companies have tried to devise vehicles powered by sun, alcohol, hydrogen and electricity. Only a few of them were successful and profitable. As a result many industrialized countries have focused on developing fuel cell vehicles or hybrid cars for those reasons.

A hybrid car is a vehicle powered by a traditional gasoline-engine and an electricity fuel cell. Hybrid vehicles are environmentand ecology-friendly. They use fuel cells when running at a low speed and use 15 to 20 percent less gasoline than conventional cars.

“The biggest obstacle facing Korea is the technological lag. To cope with the forerunners, Korea must increase its investment in developing the energy efficient cars,” Bok said.

Last October, futuristic cars and fuel cells were included among the top 10 next-generation growth engines which would power the Korean economy and double per-capita income to $20,000.

The government expects Korea would become the world’s fourth largest automobile producing country by 2012 when its investment plans are implemented on schedule.

But Korea has lagged behind other competitor countries in investment. In 2001, Korea invested less than $6 million in developing hydrogen-based fuel cells, compared with $135 million for Japan, Bok said. Bok predicted 100 million won is needed to develop a fuel cell-powered vehicle.

On the strength of large-scale governmental supports, Japanese auto giants have led the futuristic car development. Toyota Motors introduced the world’s first massproduced hybrid vehicle Prius in 1997. More than 120,000 units have been sold. The company unveiled hybrid models Crown sedan and Estima in 2001 and 2002.

Toyota sold 6,698 units of Prius in the Japanese market last year, 20,119 units in the U.S. market and 1,317 units in the European market, according to Bok.

Honda Motor, another Japanese auto giant, introduced two hybrid models, Insight from 1999 and Civic Hybrid from 2002, to the market. It sold 2,369 units of two hybrid models in the Japanese market, with 16,211 units in the U.S. and 51 units in the Europe, Bok said.

Hyundai Motor, Korea’s largest auto manufacturer, is leading futuristic vehicle development in Korea. Hyundai announced last November that it would introduce the nation’s first hybrid car based on its five-door hatchback Click this year. It seeks to produce the cars for domestic consumption and export by 2006.

Since 1995, Hyundai has introduced several hybrid vehicles for display at auto shows but has yet to develop a model for commercialization. It introduced its first hybrid FGV-1 at the Seoul Motor Show in 1995. The world’s seventh car giant developed hybrid versions of Avante in 1999 and Verna in 2000.

Hyundai Motor became the seventh company in the world to produce a vehicle run on hydrogen cells extracted from methanol in 2000. It also unveiled its sport utility vehicle Santa Fe equipped with the fuel cell in 2001. Hyundai said it would introduce fuel cell vehicles in 2010, following the test run in 2004.

“Twentieth century industrialization was driven by the internal combustion engine. But the fuel cell will take the position in the 21st century,” a Hyundai official said. He said Hyundai would be at the forefront of the 21st century industrial revolution through commercialization of fuel cell vehicles.

General Motors (GM), the largest automaker in the world, is aiming to become the largest fuel cell vehicle producer, with annual sales of one million units by 2010. GM has spent some $1 billion in fuel cell development since 1997.

In cooperation with its affiliate Opel, GM unveiled the Hydro- Gen1 in 2000 and HydroGen3 in 2001, which are powered by liquefied hydrogen.

GM Daewoo Auto & Technology said it has no plan to develop the futuristic cars, a company official said. Rather. It will take part in the efforts of its mother company GM, he added.

Despite Hyundai’s efforts, Korea is behind other competitor countries in technology edge over the futuristic car. “Since Korea is a late starter and has invested less than other countries, competitiveness of domestic hybrid cars and fuel cells is less than half the level of other forerunners,” Bok said.

When competitiveness of industrialized countries in hybrid cars is set at 100, Korea gets score of 38, Bok said.

“The Korean companies still do test runs, while competitors have begun commercializing of the futuristic cars,” Bok added.

He said it would be better for Korea to join a network for futuristic car development as Daimler- Chryler does with Shell and Norsk Hydro, Bok said.

Bok also proposed a strategic alliance with China and Japan.

kenbae@koreatimes.co.kr

Wall Street Journal February 4, 2004 PAGE ONE

POWER AND PERIL

• Page One:

By ANDREW HIGGINS

Staff Reporter of THE WALL STREET JOURNAL

In April 1975, America's ambassador to Saudi Arabia, James Akins, sent a confidential cable to Washington denouncing as "criminally insane" an idea then being floated in the media: America should seize Saudi oil fields to break an Arab oil cartel and ensure a supply of cheap energy to fuel the U.S. economy.

Scoffing at the bravado of what he called America's "New Hawks," he warned that any attempt to take Arab oil by force would lead to world-wide fury and a protracted guerrilla war. This "could bring only disaster to the United States and to the world," he wrote.

His 34-page cable, obtained under the Freedom of Information Act, did not go down well in Washington. The idea of invading Saudi Arabia wasn't the work of cranks but of senior policy makers. Discussion of a military strike never got beyond the preliminary planning stage, but the idea terrified the Saudis, who laid plans to booby-trap oil wells.

A few months after sending his cable, Mr. Akins was out of a job. He believes that his memo, which stoutly defended the Saudis' right to control their oil, "was basically the cause of my being fired."

The episode, with its echoes of today's bitter quarrels over Iraq and relations with the Saudi kingdom, highlights America's struggle with a quandary that has tormented it for decades: how to deal with countries that America doesn't trust, that don't trust America but that can dictate the fate of America's economy through their control of oil.

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For more than half a century, the U.S. has veered between confrontation and cajolery as it strove to secure a pillar of its global power: a steady flow of fuel at a stable price from the Persian Gulf. The U.S. has jumped from country to country in search of reliable friends.

It has often stumbled: The shah of Iran was overthrown. Saddam Hussein mutated from prickly partner to foe. The House of Saud still stands but wobbles, both at home -- where a divided ruling family staggers between reform and reaction -- and in Washington, where people ask how an ally could spawn 15 of the 19 Sept. 11 hijackers.

"Our big problem all along has been that our great friends often don't turn out to be so reliable," says William Quandt, a Middle East scholar who was on the White House's National Security Council during oil shocks caused by the 1973 Arab embargo and the 1979 Iranian revolution.

While many Arabs believe last year's invasion of Iraq was a petroleum grab, there's no evidence the U.S. plans to hold on to Iraqi oil fields or put them up for sale. Indeed, occupation officials have recommended a strong, state-controlled Iraqi oil sector, even if that means limited investment opportunities for U.S. oil companies. Washington's avowed goal in Iraq was entirely different: reducing the threat of terrorism by seeding a democratic government in place of one run by a dangerous tyrant.

Still, with the U.S. occupation, the quest for a solid ally in a region holding two-thirds of the world's known oil reserves has begun afresh, in a risky new direction. Instead of vesting hopes of stability in authoritarian leaders, Washington now seeks wrenching change by prying open closed political systems. No Gulf producer is a democracy. Of the world's known oil reserves, only 9% is situated in countries rated "free" by the U.S. research group Freedom House.

Since the 1970s crises, America has scoured the globe for other supplies, in an effort to reduce the dependence of global oil markets on Gulf states alternately cursed and courted. The U.S. has looked to the North Sea, Alaska, Mexico and, more recently, Russia, the Caspian Sea and West Africa. It has also poured money into fuel cells and other such technologies.

Much new oil has been found, and the U.S. has become far more efficient in energy use. But none of this disturbs a hard truth: America's economy, the engine of its global pre-eminence, depends on some of the world's most anti-American nations. By 2020, the federal Energy Information Agency expects, the Persian Gulf will account for 54% to 67% of world oil exports, up from around 30% now.

The White House believes giving Iraq democratic rule can help lance the boil of Mideast anti-Americanism. This, in turn, might help solve what President Bush, in a speech early last year, identified as a big problem: a dependence for oil "on countries that don't particularly like us." Whether America's initiative works in Iraq, whose oil reserves are second only to Saudi Arabia's, could also have an impact on the Saudis. A big unknown is whether the "democratic revolution" Mr. Bush has promised spreads to the doggedly undemocratic kingdom.

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See the biggest producers 0and consumers of oil around the globe.

Today, haunted by terrorism, the U.S. makes a different calculation. Citing the absence of political freedom in the Mideast, Mr. Bush said in a speech last fall "it would be reckless to accept the status quo."

Also out to overthrow the status quo, however, are America's enemies in the region. Democracy, if it really takes hold there, could amplify their voices. Anger at Western use of Arab oil has been a theme for decades of populist rhetoric, both secular and Islamist. Just last month, Osama bin Laden, in a tape played on al Jazeera television, denounced the U.S. occupation of Iraq as a "big power" plot to control the Gulf's oil. Years earlier, Mr. bin Laden offered his own policy for an oil market he called the "biggest theft in history." A barrel of crude, the Saudi-born al Qaeda leader said in 1998, ought to cost $144, quadruple its current price.

FDR and the King

America has been fretting about dependence on foreign oil since the early 1940s, when Interior Secretary Harold Ickes wrote a gloomy article titled "We're Running out of Oil!" It warned: "If there should be a World War III, it would have to be fought with someone else's petroleum." Soon thereafter, geologist Everette Lee DeGolyer returned to the U.S. from Saudi Arabia and reported that "the center of gravity of world oil production is shifting ... to the Middle East."

With this in mind, Franklin D. Roosevelt, though seriously ill, made a stop on his journey home from the 1945 Yalta conference to meet the Saudi king, Abdul Aziz Ibn Saud. Their encounter on a battleship in the Suez Canal established bonds that, for more than half a century, would tie the two countries: oil and security. It also raised an issue that would divide them for just as long -- establishment of a Jewish state. Roosevelt wanted it in Palestine. The king suggested Jews get land in Germany.

America's wish to keep Persian Gulf oil secure took a violent turn in Iran. In 1953, the CIA carried out a British plot to topple an Iranian leader who had nationalized the Anglo-Persian Oil Co.

At first, the U.S. had no enthusiasm for an idea it saw as a last gasp by Britain's expiring empire. Christopher Woodhouse, an official the U.K. sent to Washington to lobby for the plan, wrote later how he helped win over the U.S.: "I decided to emphasize the Communist threat to Iran rather than the need to recover control of the oil industry."

The resulting coup against Mohammed Mossadegh brought back the exiled Iranian shah, Mohammed Reza Pahlavi, who promptly invited U.S. companies to join a new international consortium to run Iran's oil industry. Washington poured in arms, turning Iran into a Cold War bulwark against the Soviet Union.

On prices, however, Iran's and America's interests diverged. The shah became a truculent hawk in the Organization of Petroleum Exporting Countries. "He turned out to be the most hard-driving of all," says James Schlesinger, secretary of defense in the mid-1970s and later energy secretary. "It was a great disappointment to Kissinger and Nixon, who thought the shah was a pal of theirs."

Saudi Arabia also disappointed. On Oct. 17, 1973, Mr. Kissinger met with other top U.S. officials to discuss the Yom Kippur Arab-Israeli war and possibility of oil-supply disruptions. Reporting on a meeting held earlier in the day with Arab envoys, he described the Saudi foreign minister as a "good little boy," according to recently released transcripts, and predicted confidently: "We don't expect an oil cutoff in the next few days." Minutes later, an aide rushed in with a bulletin: Saudi and other Arab oil producers had announced an immediate cut in output. Prices leapt 70% overnight and later quadrupled. The U.S. sank into a recession.

Mr. Nixon launched a plan to end all imports by 1980. It flopped: Imports rose 40% by the target date. Mr. Kissinger turned to the Soviet Union for help, offering wheat in return for oil. The "bushels for barrels" plan fizzled.

The Military Option

Behind the scenes, officials mulled a more robust response to Arab cuts. Ambassador Akins says he knew something was afoot after a barrage of articles appeared championing war against Saudi Arabia. Particularly belligerent was one that appeared in Harper's under the byline Miles Ignotus, a pen name. Titled "Seizing Arab Oil," it argued that "the only countervailing power to OPEC's control of oil is power itself -- military power."

Its author was Edward Luttwak, a hawkish defense expert then working as an adviser to the Pentagon. Mr. Luttwak says he wrote the piece after discussion with several like-minded consultants and officials in the Pentagon, including Andrew Marshall, who was, and remains, head of the Defense Department's in-house think tank, the Office of Net Assessment.

Mr. Luttwak says they wanted to demonstrate the merits of "maneuver warfare," the use of fast, light forces to penetrate the enemy's vital centers. "We set out to revolutionize war," Mr. Luttwak says. Last year's invasion of Iraq, he says, "was the accomplishment of that revolution." Mr. Marshall says that "Mr. Luttwak worked for me on several related subjects, but I do not recall cooperating on the article."

Mr. Schlesinger says an oil-field grab was never adopted as policy but the Pentagon did examine the possibility. It concluded that the "only difficulty would be sabotage."

Britain's National Archives last month released several secret reports on America's likely response to the oil crisis. A December 1973 assessment by Britain's Joint Intelligence Committee said Washington might use subversion to "replace the existing rulers of Saudi Arabia, Kuwait and Abu Dhabi with more amenable men" or try "gun-boat diplomacy" to intimidate existing rulers. But an invasion to seize Arab oil fields was "the possibility uppermost in American thinking," the report added. It said Mr. Schlesinger had told Britain's ambassador "it was no longer obvious to him that the United States could not use force."

Another British intelligence report from the period outlined a "dark scenario" under which U.S. policy makers would use force "despite their experience in Vietnam.... This would, of course, be a highly dangerous policy with only slim chances of success." Military action, the U.K. intelligence committee warned, would provoke Arab sabotage and leave America's European allies "badly torn."

While weighing ways to punish Arab oil producers, Washington played down the Iranian shah's price aggressiveness. Iran's anti-Soviet stance trumped its unhelpfulness on energy. The U.S. Defense Intelligence Agency gave an upbeat assessment of the shah's prospects in September 1978, saying he was "expected to remain actively in power over the next 10 years." Three months later, he fled a country in chaos, with Americans held hostage and Ayatollah Khomeini in power. Iran quit exporting oil for nearly a year. World prices nearly tripled.

Relations With Iraq

With Iran ruled by stridently anti-American mullahs, Washington tilted toward Iraq, which also had a new leader, Saddam Hussein. The Baath Party to which he belonged had first grabbed power in 1963 after a coup backed by the U.S. against the Iraqi government of Abdul Karim Qasim, whom the U.S. saw as dangerously leftist. Among his sins: He had hosted a meeting that set up OPEC.

When Mr. Hussein invaded Iran in 1980, Washington initially stayed aloof, but grew worried when the tide turned and Iraq faced defeat. The U.S. then provided Iraq with satellite pictures and other help.

Donald Rumsfeld, as President Reagan's special Mideast envoy, visited Baghdad twice. He discussed the idea, never followed up, of building a pipeline out of Iraq through Jordan. "I noted that Iraq's oil exports were important," Mr. Rumsfeld reported after a 1983 meeting with Iraqi Foreign Minister Tariq Aziz, according to a cable obtained by the National Security Archive. Mr. Rumsfeld visited again the following year, despite an uproar over Mr. Hussein's use of chemical weapons against Iran.

A 1988 national-security directive enshrined the wooing of Iraq as policy. "Normal relations" with the Hussein regime, it said, "would serve our longer-term interests and promote stability in both the Gulf and the Middle East." But this courtship, too, ended in tears: Iraq invaded Kuwait in 1990, seized its oil fields and began moving troops toward Saudi Arabia. Once again, a partner had become an enemy.

American concerns about oil were by no means the only motive for the multinational effort to drive Iraq out of Kuwait, but they weighed in the balance. Then-Defense Secretary Dick Cheney told a White House meeting "we should sort this out from strategic interests in Saudi Arabia and oil," according to a book by the first President Bush and his national security adviser, Brent Scowcroft.

The U.S. rushed troops to drive back Iraq and defend Saudi Arabia, which became a cornerstone of a newly declared "New World Order" -- a rampart against Iraq, an eager market for warplanes, and a generally reliable steward of the oil market. The kingdom, says Mr. Schlesinger, who sits on the U.S. Defense Policy Board, "worked hard to keep us tranquilized" by managing oil prices.

What to do about Mr. Hussein, once driven out of Kuwait, stirred fierce debate. Letting him continue building up his arsenal would, among other perils, put "a significant portion of the world's supply of oil ... at hazard," wrote Mr. Rumsfeld, Paul Wolfowitz, Richard Perle and 15 other conservatives in a 1998 letter to President Clinton urging regime change.

A group sponsored by the James A. Baker Institute for Public Policy and the Council on Foreign Relations also called Mr. Hussein a menace but suggested an easing of sanctions against his regime -- to allow oil-sector investment and also to reduce anti-American rage. "Like it or not, Iraqi reserves represent a major asset that can quickly add capacity to world oil markets and inject a more competitive tenor to oil trade," said its report.

New Look at the Saudis

The Sept. 11, 2001, attacks brought the debate to a head, heightening fear of Iraq and creating doubt in some minds about the reliability of Saudi Arabia. The Saudis worked to calm oil prices after the attacks, increasing their output. But as the homeland of so many of the hijackers, Saudi Arabia lost much of the trust won back since the 1970s oil embargo.

Conservative pundits began decrying the kingdom as an adversary. Some urged the conquest of Iraq partly as a way to ease dependence on the Saudis. Former Director of Central Intelligence James Woolsey says he and most other U.S. officials had viewed the Saudis as "somewhat idiosyncratic but generally as allies." Now, he says, officials woke up to the dangers of depending on "vulnerable autocracies and pathological predators."

Richard Haass, director of policy and planning at the State Department when the war in Iraq started, says the U.S. in the past "always gave Saudi Arabia a bye" on political questions and "never looked at what went on internally so long as their foreign policy met our basic requirements: energy, base access, the peace process" in Israel. After Sept. 11, Americans "internalized the lesson that what goes on inside Saudi Arabia can affect us, and affect us fundamentally."

In August, the last U.S. Air Force unit quietly left the Prince Sultan air base outside Riyadh, ending a deployment that dated to the 1991 Gulf War and removing one of Mr. bin Laden's rallying cries. With U.S. forces ensconced in Iraq, Qatar and Kuwait, the U.S. no longer needs Saudi bases. At the same time, the Pentagon has been working on a reshuffle of forces elsewhere. It envisions shrinking the U.S. military presence in Europe and putting some 20,000 troops in Africa and the Caucasus, in part to help protect emerging oil-production areas.

The 2001 attacks gave new impetus to the quest for energy diversity. Two decades after bushels-for-barrels, the U.S. again turned to Moscow. Russian oil production, now mostly in private hands, has picked up from a post-Soviet slump and, at over eight million barrels a day, nearly equals Saudi output. But Russia consumes plenty of this oil itself and has big trouble getting the rest to market. An Arctic export pipeline project pushed by Washington hit an unexpected hurdle when Russia jailed its main backer, oil tycoon Mikhail Khodorkovsky.

This year's U.S. presidential election, meanwhile, has revived energy angst. "It's time to make energy independence a national priority, and to put in place a plan that frees our nation from the grip of Mideast oil in the next 10 years," Sen. John Kerry states in a TV campaign ad.

"We've been going round in circles for decades," says Milton Copulos, a consultant the Energy Department hired in the 1980s to gauge Soviet oil potential. Now president of a think tank called the National Defense Council Foundation, Mr. Copulos has assessed hidden economic and military costs of imported oil. If military spending directly related to protecting oil supplies and other costs were reflected at the pump, he figures, gasoline would cost $5.28 a gallon in the U.S. "We are always looking for a quick fix, but the fundamental problem is we have to wean ourselves off oil," he contends.

Unless this happens, Saudi Arabia will remain the pivot of U.S. energy security. It now creaks under political and other pressures, but Washington has to keep it turning. Mr. Bush recently named James C. Oberwetter, a Texas oil lobbyist and former head of the American Petroleum Institute, as ambassador to the kingdom.

Iraq, though a potential big producer, pumps less than a quarter of the Saudi output. Sabotage is one of the hindrances to Iraqi production, seeming to bear out a warning voiced by Ambassador Akins in 1975 about Saudi Arabia.

"There are scrub bushes, there are gullies, there are many places where guerrillas can be hidden," he wrote in his cable decrying the notion that the kingdom could easily be conquered and pacified. "Given the inevitable hostility of the country and its allies ... it is difficult to believe [oil] production could ever be brought back."

Write to Andrew Higgins at andrew.higgins@wsj.com 7

http://online.wsj.com/article/0,,SB107672353622829940,00.html

Wall Street Journal February 16, 2004

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