OVERESTIMATES OF ARAB OIL POWER are an important and harmful influence on policy toward the Middle East. The following myths, or outdated facts, support the world's misjudgment of the power of the Persian Gulf oil producers--especially Saudi Arabia, but also Iran, Iraq, and the Gulf states.

(1) Most of the world's oil reserves are in the Middle East. Wrong. That is only true for "conventional" oil, the stuff that flows easily. When you count "unconventional" oil, Canada has larger reserves than Saudi Arabia. There is more unconventional oil than conventional oil, and most of it is in the western hemisphere--principally Canadian oil sands and Venezuelan heavy oil.

Technological developments over the last 10 years have reduced the cost of producing unconventional oil to below $15 a barrel, so that it is being produced profitably at the price at which oil has sold for almost all of the last 30 years. We'll see later why the much lower production cost of Gulf oil gives the Gulf countries less power than people think. Already a million barrels a day of unconventional oil is being produced, and it is just as good as the black goo pumped in the old-fashioned way.

All kinds of objections are made to the recognition of unconventional oil, partly because of the long history of disappointments with it. Some of the oil sands are much harder to exploit than others. Production requires a lot of energy. Greens will prevent some of this oil from being recovered. Even so, 30 million barrels a day of new production can be added by 2020 with costs below $15 a barrel. There is plenty of time to bring production cost down on the more difficult half or three-quarters of the total resource.

(2) The world can't get the increased oil supply it will need in coming years without buying a larger share from the Persian Gulf. Wrong. There are many potential sources of increased oil supply--in addition to unconventional oil. In 2020 the Gulf may supply even less than the 23 percent of the world total it provided last year.

New oil-production technology--such as the use of computers to reduce finding costs and directional drilling to reduce production costs--has greatly expanded the amount of oil available outside the Gulf region. And the end of the Soviet Union started a process of opening large deposits in Russia and the Caspian Basin. As a result, much more oil will flow from West Africa, the former Soviet Union, off-shore South America, the Gulf of Mexico, and other regions than people expected a few years ago. And the reduced cost of liquefying and shipping natural gas may reduce the demand for oil.

If there is to be enough oil in 2020 without an increase in the share coming from the Gulf, the rest of the world will have to add roughly 100-120 million barrels a day of gross new production by then (including both replacements for existing and new wells as their production falls and programs to get more oil from old fields). But there is probably almost 200 million barrels a day potentially available by 2020 outside the Gulf. This includes up to 40 million barrels a day in the former Soviet Union (more than half in Russia and the rest in the countries of the Caspian Basin), 40 million barrels a day of unconventional oil from Canada and Venezuela, another 45 million barrels a day from the western hemisphere, mostly offshore, 25 million barrels a day from West Africa, and 40 million barrels a day from the rest of the world. Of course none of these totals will be reached; the world doesn't need that much oil, and investors won't drill for more oil than is needed.