Since World War II, no state has suffered so cruel a reversal of fortunes as Israel. Admired all the way into the 1970s as the state of "those plucky Jews" who survived against all odds and made democracy and the desert bloom in a climate hostile to both liberty and greenery, Israel has become the target of creeping delegitimization. The denigration comes in two guises. The first, the soft version, blames Israel first and most for whatever ails the Middle East, and for having corrupted U.S. foreign policy. It is the standard fare of editorials around the world, not to mention the sheer venom oozing from the pages of the Arab-Islamic press. The more recent hard version zeroes in on Israel's very existence. According to this dispensation, it is Israel as such, and not its behavior, that lies at the root of troubles in the Middle East. Hence the "statocidal" conclusion that Israel's birth, midwifed by both the United States and the Soviet Union in 1948, was a grievous mistake, grandiose and worthy as it may have been bat the time.

The soft version is familiar enough. One motif is the "wagging the dog" theory. Thus, in the United States, the "Jewish lobby" and a cabal of neoconservatives have bamboozled the Bush administration into a mindless pro-Israel policy inimical to the national interest. This view attributes, as has happened so often in history, too much clout to the Jews. And behind this charge lurks a more general one-that it is somehow antidemocratic for subnational groups to throw themselves into the hurly-burly of politics when it comes to foreign policy. But let us count the ways in which subnational entities battle over the national interest: unions and corporations clamor for tariffs and tax loopholes; nongovernmental organizations agitate for humanitarian intervention; and Cuban Americans keep us from smoking cheroots from the Vuelta Abajo. In previous years, Poles militated in favor of Solidarity, African Americans against Apartheid South Africa, and Latvians against the Soviet Union. In other words, the democratic melee has never stopped at the water's edge.

Another soft version is the "root-cause" theory in its many variations.

Because the "obstinate" and "recalcitrant" Israelis are the main culprits, they must be punished and pushed back for the sake of peace. "Put pressure on Israel"; "cut economic and military aid"; "serve them notice that we will not condone their brutalities"-these have been the boilerplate homilies, indeed the obsessions, of the chattering classes and the foreign-office establishment for decades. Yet, as Sigmund Freud reminded us, obsessions tend to spread. And so there are ever more creative addenda to the well-wrought root-cause theory. Anatol Lieven of the Carnegie Endowment for International Peace argues that what is happening between Israelis and Palestinians is a "tremendous obstacle to democratization because it inflames all the worst, most regressive aspects of Arab nationalism and Arab culture." In other words, the conflict drives the pathology, and not the other way around-which is like the streetfighter explaining to the police: "It all started when this guy hit back."

The problem with this root cause argument is threefold: It blurs, if not reverses, cause and effect. It ignores a myriad of conflicts unrelated to Israel. And it absolves the Arabs of culpability, shifting the blame to you know whom. If one believes former U.N. weapons inspector Scott Ritter, the Arab-Islamic quest for weapons of mass destruction, and by extension the war against Iraq, are also Made in Israel. "[A]s long as Israel has nuclear weapons," Ritter opines, "it has chosen to take a path that is inherently confrontational....Now the Arab countries, the Muslim world, is not about to sit back and let this happen, so they will seek their own deterrent. We saw this in Iraq, not only with a nuclear deterrent but also with a biological weapons deterrent...that the Iraqis were developing to offset the Israeli nuclear superiority."

This theory would be engaging if it did not collide with some inconvenient facts. Iraqis didn't use their weapons of mass destruction against the Israeli usurper but against fellow Muslims during the Iran-Iraq War, and against fellow Iraqis in the poison-gas attack against Kurds in Halabja in 1988-neither of whom were brandishing any nuclear weapons. As for the Iraqi nuclear program, we now have the "Duelfer Report," based on the debriefing of Iraqi regime loyalists, which concluded: "Iran was the preeminent motivator of this policy. All senior-level Iraqi officials considered Iran to be Iraq's principal enemy in the region. The wish to balance Israel and acquire status and influence in the Arab world were also considerations, but secondary."

Now to the hard version. Ever so subtly, a more baleful tone slips into this narrative: Israel is not merely an unruly neighbor but an unwelcome intruder. Still timidly uttered outside the Arab world, this version's proponents in the West bestride the stage as truth sayers who dare to defy taboo. Thus, the British writer A.N. Wilson declares that he has reluctantly come to the conclusion that Israel, through its own actions, has proven it does not have the right to exist. And, following Sept. 11, 2001, Brazilian scholar Jose Arthur Giannotti said: "Let us agree that the history of the Middle East would be entirely different without the State of Israel, which opened a wound between Islam and the West. Can you get rid of Muslim terrorism without getting rid of this wound which is the source of the frustration of potential terrorists?"

The very idea of a Jewish state is an "anachronism," argues Tony Judt, a professor and director of the Remarque Institute at New York University. It resembles a "late-nineteenth-century separatist project" that has "no place" in this wondrous new world moving toward the teleological perfection of multiethnic and multicultural togetherness bound together by international law. The time has come to "think the unthinkable," hence, to ditch this Jewish state for a binational one, guaranteed, of course, by international force.

So let us assume that Israel is an anachronism and a historical mistake without which the Arab-Islamic world stretching from Algeria to Egypt, from Syria to Pakistan, would be a far happier place, above all because the original sin, the establishment of Israel, never would have been committed. Then let's move from the past to the present, pretending that we could wave a mighty magic wand, and "poof," Israel disappears from the map.

Civilization of Clashes

Let us start the what-if procession in 1948, when Israel was born in war.

Would stillbirth have nipped the Palestinian problem in the bud? Not quite. Egypt, Transjordan (now Jordan), Syria, Iraq, and Lebanon marched on Haifa and Tel Aviv not to liberate Palestine, but to grab it. The invasion was a textbook competitive power play by neighboring states intent on acquiring territory for themselves. If they had been victorious, a Palestinian state would not have emerged, and there still would have been plenty of refugees. (Recall that half the population of Kuwait fled Iraqi dictator Saddam Hussein's "liberation" of that country in 1990.) Indeed, assuming that Palestinian nationalism had awakened when it did in the late 1960s and 1970s, the Palestinians might now be dispatching suicide bombers to Egypt, Syria, and elsewhere.

Let us imagine Israel had disappeared in 1967, instead of occupying the West Bank and the Gaza Strip, which were held, respectively, by Jordan's King Hussein and Egypt's President Gamal Abdel Nasser. Would they have relinquished their possessions to Palestinian leader Yasir Arafat and thrown in Haifa and Tel Aviv for good measure? Not likely. The two potentates, enemies in all but name, were united only by their common hatred and fear of Arafat, the founder of Fatah (the Palestine National Liberation Movement) and rightly suspected of plotting against Arab regimes. In short, the "root cause" of Palestinian statelessness would have persisted, even in Israel's absence.

Let us finally assume, through a thought experiment, that Israel goes "poof" today. How would this development affect the political pathologies of the Middle East? Only those who think the Palestinian issue is at the core of the Middle East conflict would lightly predict a happy career for this most dysfunctional region once Israel vanishes. For there is no such thing as "the" conflict. A quick count reveals five ways in which the region's fortunes would remain stunted-or worse:

States vs. States Israel's elimination from the regional balance would hardly bolster intra-Arab amity. The retraction of the colonial powers, Britain and France, in the mid-20th century left behind a bunch of young Arab states seeking to redraw the map of the region. From the very beginning, Syria laid claim to Lebanon. In 1970, only the Israeli military deterred Damascus from invading Jordan under the pretext of supporting a Palestinian uprising. Throughout the 1950s and 1960s, Nasser's Egypt proclaimed itself the avatar of pan-Arabism, intervening in Yemen during the 1960s. Nasser's successor, President Anwar Sadat, was embroiled in on-and-off clashes with Libya throughout the late 1970s. Syria marched into Lebanon in 1976 and then effectively annexed the country 15 years later, and Iraq launched two wars against fellow Muslim states: Iran in 1980, Kuwait in 1990. The war against Iran was the longest conventional war of the 20th century. None of these conflicts is related to the Israeli-Palestinian one. Indeed, Israel's disappearance would only liberate military assets for use in such internal rivalries.

Believers vs. Believers: Those who think that the Middle East conflict is a "Muslim-Jewish thing" had better take a closer look at the score card: 14 years of sectarian bloodshed in Lebanon; Saddam's campaign of extinction against the Shia in the aftermath of the first Gulf War; Syria's massacre of 20,000 people in the Muslim Brotherhood stronghold of Hama in 1982; and terrorist violence against Egyptian Christians in the 1990s. Add to this tally intraconfessional oppression, such as in Saudi Arabia, where the fundamentalist Wahhabi sect wields the truncheon of state power to inflict its dour lifestyle on the less devout.

Ideologies vs. Ideologies: Zionism is not the only "ism" in the region, which is rife with competing ideologies. Even though the Baathist parties in Syria and Iraq sprang from the same fascist European roots, both have vied for precedence in the Middle East. Nasser wielded pan-Arabism-cumsocialism against the Arab nation-state. And both Baathists and Nasserites have opposed the monarchies, such as in Jordan. Khomeinist Iran and Wahhabite Saudi Arabia remain mortal enemies. What is the connection to the Arab-Israeli conflict? Nil, with the exception of Hamas, a terror army of the faithful once supported by Israel as a rival to the Palestine Liberation Organization and now responsible for many suicide bombings in Israel. But will Hamas disband once Israel is gone? Hardly Hamas has bigger ambitions than eliminating the "Zionist entity." The organization seeks nothing less than a unified Arab state under a regime of God.

Reactionary Utopia vs. Modernity: A common enmity toward Israel is the only thing that prevents Arab modernizers and traditionalists from tearing their societies apart. Fundamentalists vie against secularists and reformist Muslims for the fusion of mosque and state under the green flag of the Prophet. And a barely concealed class struggle pits a minuscule bourgeoisie and millions of unemployed young men against the power structure, usually a form of statist cronyism that controls the means of production. Far from creating tensions, Israel actually contains the antagonisms in the world around it.

Regimes vs. Peoples: The existence of Israel cannot explain the breadth and depth of the Mukhabarat states (secret police states) throughout the Middle East. With the exceptions of Jordan, Morocco, and the Gulf sheikdoms, which gingerly practice an enlightened monarchism, all Arab countries (plus Iran and Pakistan) are but variations of despotism-from the dynastic dictatorship of Syria to the authoritarianism of Egypt. Intranational strife in Algeria has killed nearly 100,000, with no letup in sight. Saddam's victims are said to number 300,000. After the Khomeinists took power in 1979, Iran was embroiled not only in the Iran-Iraq War but also in barely contained civil unrest into the 1980s. Pakistan is an explosion waiting to happen. Ruthless suppression is the price of stability in this region.

Again, it would take a florid imagination to surmise that factoring Israel out of the Middle East equation would produce liberal democracy in the region. It might be plausible to argue that the dialectic of enmity somehow favors dictatorship in "frontline states" such as Egypt and Syria-governments that invoke the proximity of the "Zionist threat" as a pretext to suppress dissent. But how then to explain the mayhem in faraway Algeria, the bizarre cult-of-personality regime in Libya, the pious kleptocracy of Saudi Arabia, the clerical despotism of Iran, or democracy's enduring failure to take root in Pakistan? Did Israel somehow cause the various putsches that produced the republic of fear in Iraq? If Jordan, the state sharing the longest border with Israel, can experiment with constitutional monarchy, why not Syria?

It won't do to lay the democracy and development deficits of the Arab world on the doorstep of the Jewish state. Israel is a pretext, not a cause, and therefore its dispatch will not heal the self-inflicted wounds of the Arab-Islamic world. Nor will the mild version of "statocide," a binational state, do the trick-not in view of the "civilization of clashes" (to borrow a term from British historian Niall Ferguson) that is the hallmark of Arab political culture. The mortal struggle between Israelis and Palestinians would simply shift from the outside to the inside.

My Enemy, Myself

Can anybody proclaim in good conscience that these dysfunctionalities of the Arab world would vanish along with Israel? Two U.N. "Arab Human Development Reports," written by Arab authors, say no. The calamities are homemade. Stagnation and hopelessness have three root causes. The first is lack of freedom. The United Nations cites the persistence of absolute autocracies, bogus elections, judiciaries beholden to executives, and constraints on civil society. Freedom of expression and association are also sharply limited. The second root cause is lack of knowledge: Sixty-five million adults are illiterate, and some 10 million children have no schooling at all. As such, the Arab world is dropping ever further behind in scientific research and the development of information technology. Third, female participation in political and economic life is the lowest in the world. Economic growth will continue to lag as long as the potential of half the population remains largely untapped.

Will all of this right itself when that Judeo-Western insult to Arab pride finally vanishes? Will the millions of unemployed and bored young men, cannon fodder for the terrorists, vanish as well-along with one-party rule, corruption, and closed economies? This notion makes sense only if one cherishes single-cause explanations or, worse, harbors a particular animus against the Jewish state and its refusal to behave like Sweden.(Come to think of it, Sweden would not be Sweden either if it lived in the Hobbesian world of the Middle East.)

Finally, the most popular what-if issue of them all: Would the Islamic world hate the United States less if Israel vanished? Like all what-if queries, this one, too, admits only suggestive evidence. To begin, the notion that 5 million Jews are solely responsible for the rage of 1 billion or so Muslims cannot carry the weight assigned to it. Second, Arab-Islamic hatreds of the United States preceded the conquest of the West Bank and Gaza. Recall the loathing left behind by the U.S.-managed coup that restored the shah's rule in Tehran in 1953, or the U.S. intervention in Lebanon in 1958. As soon as Britain and France left the Middle East, the United States became the dominant power and the No. 1 target. Another bit of suggestive evidence is that the fiercest (unofficial) anti-Americanism emanates from Washington's self-styled allies in the Arab Middle East, Egypt and Saudi Arabia. Is this situation because of Israel-or because it is so convenient for these regimes to "busy giddy minds with foreign quarrels" (as Shakespeare's Henry IV put it) to distract their populations from their dependence on the "Great Satan"?

Take the Cairo Declaration against "U.S. hegemony," endorsed by 400 delegates from across the Middle East and the West in December 2002. The lengthy indictment mentions Palestine only peripherally. The central condemnation, uttered in profuse variation, targets the United States for monopolizing power "within the framework of capitalist globalization," for reinstating "colonialism," and for blocking the "emergence of forces that would shift the balance of power toward multi-polarity." In short, Global America is responsible for all the afflictions of the Arab world, with Israel coming in a distant second.

This familiar tale has an ironic twist: One of the key signers is Nader Fergany, lead author of the 2002 U.N. Arab Human Development Report. So even those who confess to the internal failures of the Arab world end up blaming "the Other." Given the enormity of the indictment, ditching Israel will not absolve the United States. Iran's Khomeinists have it right, so to speak, when they denounce America as the "Great Satan" and Israel only as the "Little Satan," a handmaiden of U.S. power. What really riles America-haters in the Middle East is Washington's intrusion into their affairs, be it for reasons of oil, terrorism, or weapons of mass destruction. This fact is why Osama bin Laden, having attached himself to the Palestinian cause only as an afterthought, calls the Americans the new crusaders, and the Jews their imperialist stand-ins.

None of this is to argue in favor of Israel's continued occupation of the West Bank and Gaza, nor to excuse the cruel hardship it imposes on the Palestinians, which is pernicious, even for Israel's own soul. But as this analysis suggests, the real source of Arab angst is the West as a palpable symbol of misery and an irresistible target of what noted Middle East scholar Fouad Ajami has called "Arab rage." The puzzle is why so many Westerners, like those who signed the Cairo Declaration, believe otherwise. Is this anti-Semitism, as so many Jews are quick to suspect? No, but denying Israel's legitimacy bears an uncanny resemblance to some central features of this darkest of creeds. Accordingly, the Jews are omnipotent, ubiquitous, and thus responsible for the evils of the world.

Today, Israel finds itself in an analogous position, either as handmaiden or manipulator of U.S. might. The soft version sighs: "If only Israel were more reasonable..." The semihard version demands that "the United States pull the rug out from under Israel" to impose the pliancy that comes from impotence. And the hard-hard version dreams about salvation springing from Israel's disappearance.

Why, sure-if it weren't for that old joke from Israel's War of Independence: While the bullets were whistling overhead and the two Jews in their foxhole were running out of rounds, one griped, "If the Brits had to give us a country not their own, why couldn't they have given us Switzerland?" Alas, Israel is just a strip of land in the world's most noxious neighborhood, and the cleanup hasn't even begun.

Earlier this month, the so-called EU Three--Britain, France and Germany-- achieved an important victory for global security, convincing Iran to suspend its uranium enrichment and plutonium reprocessing activities pending further negotiation on its nuclear question. Though Iran claims that it does not desire a nuclear bomb, the West has long been skeptical of the oil-rich state's contention that it seeks a nuclear fuel cycle for energy purposes alone. Europe and the United States (and of course Israel) will sleep better knowing that Tehran is not pursuing enrichment activities, whatever their alleged purpose.

But the EU3 agreement, which fails to discuss consequences for Iran if it breaks the deal, is vulnerable to being undermined not only by Iran but also by the United States; both have already raised eyebrows in the wake of the accord. Iran raced to produce uranium hexafluoride, a gas that can be enriched into bomb fuel, before it began to observe the temporary suspension on Monday. And both President George W. Bush and outgoing Secretary of State Colin Powell have publicly aired their suspicions that Iran will continue its drive for nuclear weapons under cover of the deal.

At the moment, administration hawks are pressing to confront the mullahs at the United Nations Security Council, where economic sanctions could be considered; calls for using force and for regime change are likely to follow.

Military action is inadvisable at this point, because of a dearth of solid intelligence and the secretive, geographically diffuse nature of Iran's nuclear sites. If the issue reaches the Security Council with the United States and Europe continuing along divergent paths, the inevitable deadlock will deal a severe and lasting blow to international security. Therefore, the agreement must be fortified to keep the Iranians honest, the Europeans effectively engaged and the U.S. hawks bridled.

This can be achieved through a U.S.-European accord laying out trigger mechanisms for specified consequences if Iran violates certain benchmarks. For example, if Iran fails to allow inspectors the access accorded by the Nuclear Nonproliferation Treaty's additional protocol--which Iran is provisionally observing pending ratification--or resumes enrichment and centrifuge-building activities, it could face severe economic sanctions, censure by the Security Council (necessitating cooperation from Russia and China), or in the event of hostility, a forceful response.

We don't know yet whether Tehran will play by the rules. The regime has mastered the art of behaving badly and then seeking rewards for getting back into line. To date, the Europeans have played into its hands, offering carrots for compliance without wielding sticks to punish violations.

Therefore, the Bush administration's apparent comfort with a military option can serve as an important deterrent against Iranian cheating, arming the EU3 agreement with teeth that it would not otherwise have. Iran desires economic incentives but does not yet desperately need them; without a credible threat of U.S.-backed sanctions imposed by the international community, the mullahs can simply decide one day that the restrictions have ceased to be worth their while, and break any deal as though it were merely a business contract.

For the United States, accepting the EU3's carrot-based approach (provided the benchmarks are added) will show the world that it still supports negotiated diplomacy and multilateralism, even in cases where military threats loom. Participating in this framework will also send a message to Iran that the United States is not ruling out renewed relations. This would resonate with the largely pro-American Iranian populace, who despise their regime and are seeking inroads to break free of it.

But if the United States instead presents itself as a unilateralist maverick, it will hinder its own interests; the only thing Iranians disdain more than the mullahs is outside meddling with their deeply nationalistic desire for self-determination. The more overtly hostile the United States acts toward Iran, the more the mullahs are able to spin America's posture to alienate Iranians against the "Great Satan."

The way to keep the Iranian regime in check while speeding its demise is to insure the nuclear agreement through benchmarks and triggers, and then give the mullahs exactly what they ask for in terms of increased access to international institutions like the World Trade Organization.

Such carrots can also be Trojan Horses, allowing the forces of democratic reform within Iran to blossom by enabling pro-democracy elements to make global connections. The U.S. and Europe should saddle up those horses together.

Are federal fiscal deficits accelerating deindustrialisation in the United States? For four decades, employment in U.S. manufacturing as a share of the labour force has fallen further and faster than in other industrial countries. In the mid-1960s, manufacturing output was 27 per cent of gross national product and manufacturing's share of employment was 24 percent. By 2003, these numbers had fallen to about 13.8 percent and 10.5 percent respectively. Employment in manufacturing remains weak, with an absolute decline of 18,000 jobs in September shown in the Labor Department's payroll survey.

At the same time, the orgy of tax-cutting, with big revenue losses, continues unabated. On October 6, House and Senate negotiators approved an expansive tax bill that showers businesses and farmers with about $145bn in rate cuts and new loopholes -- on top of what were already unprecedented fiscal deficits. These are principally financed by foreign central banks, which hold more than half the outstanding stock of US Treasury bonds. Moreover, meagre saving by American households is forcing US companies also to borrow heavily abroad.

The upshot is a current account deficit of more than $600 billion a year. America's cumulative net foreign indebtedness is about 30 percent of gross domestic product and rising fast. How will this affect manufacturing? The transfer of foreign savings to the US is embodied more in goods than in services. Outsourcing to India aside, most services are not so easily traded internationally. Thus when U.S. spending rises above output (income), the net absorption of foreign goods -- largely raw materials and manufactures -- increases. True, in this year and last the high price of oil has also boosted the current account deficit. However, since the early 1980s, the trade deficit in manufactures alone has been about as big as the current account deficit -- that is, as big as America's saving shortfall (for more detail, see http://siepr.stanford.edu).

If U.S. households' and companies' spending on manufactures is more or less independent of whether the goods are produced at home or abroad, domestic production shrinks by the amount of the trade deficit in manufactures. The consequent job loss depends on labor productivity in manufacturing, which rises strongly through time. If the trade deficit in manufactures is added back to domestic production to get "adjusted manufactured output", and labor productivity (output per person) in manufacturing stays constant, we get projected manufacturing employment. In 2003, actual manufacturing employment was just 10.5 percent of the US labor force, but it would have been 13.9 percent without a trade deficit in manufactures: the difference is 4.7m lost jobs.

In the 1980s, employment in manufacturing began to shrink substantially because of the then large current account deficit attributed to the then large fiscal deficit: Ronald Reagan's infamous twin deficits. With fiscal consolidation under Bill Clinton, the savings gap narrowed but was not closed because personal saving weakened. Now under George W. Bush, the fiscal deficit has exploded while private saving is still weak. The result is heavy borrowing from foreigners and all-time highs in the current account deficit. The main component remains the trade deficit in manufactures, intensifying the shrinkage in manufacturing jobs.

Is there cause for concern? Note that I do not suggest that the trend in overall employment has decreased, but only that its composition has tilted away from tradable goods -- largely manufactures. In the long run, growth in service employment will largely offset the decline in manufacturing. However, the rate of technical change in manufacturing is higher than in other sectors. It is hard to imagine the US sustaining its technological leadership with no manufacturing sector at all.

More uncomfortably, more Congressmen, pundits and voters feel justified in claiming that foreigners use unfair trade practices to steal U.S. jobs, particularly in manufacturing, and hence in urging protectionism. The irony is that, if imports were somehow greatly reduced, this would prevent the transfer of foreign saving to the United States and lead to a credit crunch, with a possibly even greater loss of US jobs.

The answer is not tariffs, exchange rate changes or subsidies to manufacturing that further increase the fiscal deficit. The proper way of reducing protectionist pressure and relieving anxiety about U.S. manufacturing is for the government to consolidate its finances and move deliberately towards running surpluses -- in short, to eliminate the U.S. economy's saving deficiency.

STANFORD -- With oil prices heading toward $50 a barrel, what would happen if the markets really blew?

Ever since the late 1970s, Washington's answer to such an event has relied on oil stockpiled mainly by the federal government, to be released if market instability warranted it. Today, the U.S. Strategic Petroleum Reserve contains 666 million barrels -- nearly 65 days of imports -- worth nearly $30 billion at current prices. Our industrialized allies have similar stocks, India has started one and China, whose oil imports are rising rapidly, is expected to create a reserve soon. Through the International Energy Agency in Paris, the major oil importers have agreed, in principle, to coordinate their stockpiles.

Unfortunately, reserves in the United States and most democracies are nearly feckless as a policy instrument. The legislation that created the U.S. reserve gave the power to buy and sell stocks to a federal agency, now the Department of Energy, that, in effect, passes the decision on to the president. White House control automatically converts every key decision into a highly political act.

In July 2000, President Clinton's order to transfer some strategic reserves to fill a newly created Northeast Home Heating Oil Reserve had obvious political implications for Al Gore's presidential bid. In 1996, Congress required the sale of more than $220 million of stockpiled oil to help pay down the budget deficit, another political move, though one that, in hindsight, looked wise when oil prices tanked two years later.

The uncertainty of reliable production in Russia and Iraq, coupled with the general threat of new terrorist attacks, makes for many worrisome scenarios. But a cloud of political suspicion would hang over any management decision. If President Bush released stockpiled oil to stabilize prices in an election year, no matter how justified his action, he surely would be accused of political pandering. And if he rightly refused to release oil because speculative trading doesn't meet the standard of "severe energy supply interruption," as called for in the 1975 legislation setting up the Strategic Petroleum Reserve, would he face charges that he was rewarding his oil buddies with record profits?

One way to take the politics out of governing the Strategic Petroleum Reserve would be to mechanize decision-making, such as by setting a price trigger for sales and fills. President Reagan's Council of Economic Advisors, among others, considered this option and wisely demurred. In the 1980s, the international spot market for oil was not fully developed; prices were mainly driven by opaque long-term contracts, not market dynamics. Price triggers act similarly to price controls, increasing the risk of creating true scarcities in oil supply. Such automatic triggers would have smoothed small gyrations in the oil market but failed when most needed to dampen large price swings.

There's a better way: independent management of the strategic reserve. In contrast to an automatic mechanism, an independent authority would be able to detect subtle economic and political shifts that determine our true vulnerability to oil shocks. More important, such an authority would depoliticize Strategic Petroleum Reserve decision-making, which would enable us to use the stockpile for its originally intended purpose of providing a credible bulwark against the most severe chaos in oil markets.

The president could create an independent board to manage the reserve within existing legislation, but that would not completely remove a political taint. New legislation would better accomplish the job. Congress and the president should look to the Federal Reserve as a model. The Strategic Petroleum Reserve needs its own resources, with politicians supplying broad guidelines for action and periodic review rather than direct control. Such a change would not only affect the United States but would also require remaking the International Energy Agency into something closer to a central bankers' forum.

New management for America's oil reserve would spark new thinking about the optimal size and operation of strategic stocks. Until now, most public debate has focused on the reserve's size. The International Energy Agency suggests that its member countries keep a petroleum stockpile roughly equivalent to 90 days of domestic consumption. In truth, the optimal size of strategic reserves is not a single quantity but depends on political and economic conditions. A competent independent authority would make it possible to carry a smaller stockpile -- at lower cost. Because today's oil prices are formed in highly liquid markets, the standard of "severe supply interruption" is largely meaningless. The better standard is our willingness to absorb price shocks. For that there is no simple answer, yet independent economic authorities can make the wisest choices.

More than 30 years after our first oil shock, the Strategic Petroleum Reserve still wears polyester and bell-bottoms. A dose of market reform and political independence can bring its fashion up to date and create a truly useful tool for protecting the U.S. economy.

The post-1970 crisis in the Islamic world and Pakistan's role

It is possible to trace today's crisis in the Islamic world back to the time of the Prophet (pbuh) and the four Righteous Caliphs. Many Salafists among Muslims and many so-called Orientalists among Westerners do just that. Opposed in every other way, they both believe in an Islamic "essence" unchanged since then. Others go back to the 19th century CE, to the onset of Western domination over much of the Muslim 'umma. Yet it seems to me that to understand today's crisis adequately we need go no further back than the years around 1970 in Islam's old Arab and Iranian heartlands. Admittedly a number of factors had to come together to produce the dilemmas we still live with.

The 20th century struggle against colonialism raised high hopes that the departure of the colonisers would usher in a new era of dignity and prosperity for Muslims. The main ideology of these hopes was the kind of republican nationalism associated with Gamal 'Abd al-Nasser in Egypt and Muhammad Mossadeq in Iran. By about 1970 these hopes had collapsed.

Not only had Israel persisted as a reminder that decolonisation did not mean an end to subordination, but the 1967 Six Days' War was such a catastrophe that its casualties were not just military: it discredited the republican nationalist ideology as well. The Arab world was rent by rivalries between republicans and monarchists, with the Cold War protagonists egging them on and paying them rents for friendship. Worst of all, the postcolonial regimes turned out to be authoritarian and corrupt.

Nor was that the whole story. There had also been much economic and social development, yet it was of very special kinds. State-led industrialisation had been based mainly on oil and gas, and oil and gas are special commodities. The iron and steel that drove earlier Western growth had created new middle and working classes; oil and gas do not, and their profits are easily captured by sitting elites. To pay for industry, moreover, states ran down agriculture. Within decades this drove millions from farms and small towns into cities that then exploded their infrastructures. The states offered education, particularly at higher levels - at one point Egypt was producing 75,000 graduates a year - but beginning about 1970 states were withdrawing from the economy and turning responsibility for growth over to captive and anaemic private sectors. So more and more first-generation graduates were entering increasingly slack economies with no real prospects for jobs or dignity.

All this was a recipe for political radicalism, and the ideological vacuum left behind by discredited republican nationalism was filled by the dream of recreating the unity and purity of the original 'umma in the 7th century CE. That dream had been part of Islamic discourse almost from the beginning, but it had mainly appealed to the 'umma's fringes, the Bedouin soldiers of the Khariji movement, the small townsmen of Islam's middle years who had then become Shi'a or Sufis. Now, around 1970, the dream had been modernised by thinkers like Sayyid Qutb in the Arab lands, 'Ali Shariati in Iran, and Maulana Abu-l-'Ala Maududi in this country, and in that form it entered the Islamic mainstream. It became the chief ideology of opposition to the authoritarian and corrupt postcolonial regimes.

The result has been thirty years of savage and bloody civil war among Muslims. It has struck Westerners and Israelis too, but most of the victims have been Muslim, because the regimes were now headed by Muslims. When Syrian leader Hafez al-Assad retook the city of Hama from Sunni insurrectionists in 1982, he killed at least 10,000 people, three times the casualties of September 11.

What would it take for Muslims to transcend this crisis? Time after time in their history they have overcome huge challenges by creating marvellous new syntheses of thought and feeling and practice. I have no doubt that they have the spiritual and intellectual and physical resources to do so once again. But what would be the elements of renewal at this new stage?

Some elements have already been moving into place.

As the civil war has proceeded, there has been covert movement on both sides toward a new centre. Regimes have been Islamising themselves. They have been introducing some Islamic law and some Islamic practice into their governance. Conversely, Islamists have been entering the political system. They now run for election; they enter cabinets; they serve in parliaments; they function as (more or less) loyal oppositions.

The process has been drenched in bad faith on both sides, but movement has been real.

Concurrently, more and more Muslims who might have become Islamist political revolutionaries two decades ago are now forsaking politics for community action in the 'umma. Rather than bombs and guns, the name of the game is now schools, clinics, charities, and the Islamic piety of individual Muslims and their families.

Moreover, with the end of the Cold War sitting regimes can no longer collect rents from the USSR, and they find it harder to collect rents from the US now that competition with the USSR is over. Even the new rents the US is paying since September 11 will never match Cold War largesse. There will never again be enough official assistance to keep regimes in power by sustaining their growth rates.

Now they must rely instead on private foreign direct investment (PFDI). This is because all over the world production of knowledge is replacing production of things as the engine of economic growth. PFDI flows mainly on economic grounds. It is not attracted by the archaic, state-dominated, information-shy economies of the Arab Middle East and Iran. Their share of world PFDI has fallen from 12 percent in 1990 to 3-4 percent today. To attract it, they need reforms that will make them less rigid, less state-dominated, and less information-shy. Such economic reforms typically lead to demands for political reforms too. That is their quandary.

Such pressures will not end Islamist radicalism. The conditions that give it birth are often still there. But such pressures do tend to force radicalism to the margins of the 'umma once again. Osama is a perfect example: through the 1990s he was forced step by step back to the only place in the world where he now had a double layer of protection and hence the space and time needed to mount an operation like September 11.

Nor will such pressures automatically generate the new Islamic synthesis the planet needs. But they do create a new opportunity for Muslims to fashion an authentically Islamic modernity that is adequate to their history and their hopes.

I would argue that September 11 did not change this basic picture. It came as a shock to most Muslims, and even Islamists asked themselves whether Osama's methods were the best path to the common goal. Iraq, of course, has been much more problematic. There military defeat was so rapid and complete that it rekindled the usual Arab feelings of helplessness and rage, and the botched aftermath has given these feelings time to swell and take political form. Radicalism is reconstituting itself, but - it should be noted - on a new basis.

For Osama, for Dr Ayman al-Zawahiri, Islam may still be the banner of revolutionary overthrow. For younger Muslims, Islam is increasingly the badge of membership in national communities. It is no longer just an ideology for outsiders. More and more it is the ideology of outsiders and deprived or threatened ruling ethnic elites: Sunni Tikritis in Iraq, Pushtuns in Afghanistan. Driven toward the margins by repression, cooptation or military defeat, Islamism is re-entering the body politic through the service entrance of Islamo-nationalism.

The consequences can be unhealthy. If only Muslims should be citizens, Christians and Jews are excluded in ways quite novel in Islamic experience, and quite dangerous. But there may also be a new and exciting opening for an Islamic legitimation of the modern nation-state that is valid for Sunnis.

So far, the only place in the Islamic heartlands to produce such a legitimation has been Iran. Not long before he died in 1989, Imam Khomeini ruled on religious grounds that in emergencies national interests can take precedence over the shari'a. It helps explain how Iran has emerged from the charismatic phase of Islamic rule without widespread violence. But Iran's special Shi'i traditions make it hard to transpose to Sunni-majority societies. Taliban rule in Afghanistan was perhaps an effort to create a version for Sunnis, but it ended before it succeeded. In both cases, moreover, the effort took place within a theocratic framework, direct rule by 'ulema.

Theocracy is not a mainstream Islamic tradition and will not appeal in most Muslim countries. A broader version of religious legitimation of the nation-state could be taking shape now in Iraq. It may be that the Americans are needed both as a parameter and as a target. But the outcome is very uncertain, the circumstances very special. And Iraq too has a majority of Shi'a.

Where does Pakistan fit in this picture? I see some similarities and more differences.

Like some Arab states, Pakistan inherited a postcolonial security threat that has absorbed disproportionate resources and has thereby reinforced older socio-political structures and a traditional sense of political irresponsibility: someone else is always to blame.

Although Pakistan was founded as an Islamic nation-state by modern means and modern people, here too modernity is so associated with the West that it must be denied as un-Islamic.

And Pakistan too has been stranded by the end of the Cold War and the onset of the IT era in economics. New rents from the war on terrorism will not restore the levels of official assistance Pakistan attracted before 1990, and private foreign direct investment has not rushed in to fill the gap.

But Pakistan is also different from the Arab world and Iran in relevant ways. Some are counterintuitive; most are to Pakistan's advantage.

First, Pakistan is not dependent on oil and gas, and can be better off for it. Pakistan is dependent on cotton, and compared to oil and gas, cotton and cotton textile production makes for larger middle and working classes, better attuned to modern political and economic needs than Middle Eastern elites.

Second, Pakistan is less developed than the old Islamic heartlands - more agricultural, less urbanised, less educated - and that too can help. It has not destroyed its agriculture. Except for Karachi, rural outmigration has not exploded its cities, and even there civil war has been on an ethnic and not a religious basis. And the graduating cohorts entering the limp economy have been relatively small. In other words Pakistan has not yet produced the conditions that brought Islamist radicalism to the centre of Middle East politics. It therefore has a window of opportunity to create better structures less conducive to civil war.

Third, Pakistanis have been struggling for over half a century to bring religion and politics together in a functioning system of governance. The need to experiment came with Pakistan's original mandate; it has led through the Ahmedi riots, the Objectives Resolution, the MRD in 1977 (sic: PNA is meant), and various Islamisation steps thereafter. Certainly, however, experimentation has been particularly intense since 2002. Its outcome is also quite uncertain.

What this means, though, is that Pakistanis have a wealth of lived experience wrestling with issues that are newer and more destructive in other Muslim societies, and of doing so mainly without violence. They should therefore be better able to integrate the religious impulse into a basically democratic political system without first establishing theocracy. If they can, it will be a first version of religious legitimation for the modern nation-state in a society with a recognisably Sunni majority. Where Pakistan fits in todayís Islamic world is as a major test case. Not for Americans: for Pakistanis. And for all the other members of the 'umma.

*Footnote: This essay draws on themes from the writer's book on Islam and a talk he gave at the Administrative Staff College in Lahore on May 24, 2004.