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 BP Foundation has awarded a three-year, $1.95 million grant to Stanford University for a broad research program on modern energy markets. The foundation is funded by BP, formerly British Petroleum, one of the world's largest energy companies. The gift will support the Program on Energy and Sustainable Development at the Stanford Institute for International Studies (SIIS). With the gift, BP joins the Electric Power Research Institute in Palo Alto, CA, as one of the program's core sponsors.

"This new partnership with BP will allow the program to accelerate research in several areas, including the design and operation of market-based policies to address the threats of global warming," said program director %people2%. "In addition to BP Foundation support, we look forward to learning more from BP's own experience as an energy company, which touches on every aspect of our program's research."

The agreement reflects a commitment by BP and Stanford to complement technical research with similar work on the legal, political and institutional dimensions of how societies derive value from energy, he added.

"Stanford University is undertaking ground-breaking research with the potential to have a profound impact on the organization of modern energy markets and the conduct of environmental policy," said Greg Coleman, BP's group vice president for environment, health, safety and security. "We hope that this is just the first step in a relationship which will become broader and deeper."

The agreement with Stanford is the latest in a series of BP partnerships with universities in the United Kingdom, the United States and China representing a total commitment of more than $100 million, according to BP officials. The Stanford agreement is expected to complement work under way at Princeton University, the Chinese Academy of Sciences and Tsinghua University, company officials added.

Founded in 2001, the SIIS Program on Energy and Sustainable Development focuses on the political, legal and institutional aspects of modern energy services, in collaboration with faculty from the Stanford School of Law and several university departments, including political science and economics. About half of the program's resources are devoted to research partnerships in key developing countries, including Brazil, China, India, Mexico and South Africa. Program researchers have examined the emergence of a global business in natural gas, reforms of electric power markets and the supply of modern energy services to low-income rural households in developing countries.

The program is housed in the Center for Environmental Science and Policy - one of five major research centers at SIIS, the university's primary forum for interdisciplinary research on international issues and challenges.

The United States needs natural gas. Developing countries many thousands of miles away are willing to supply it. This sleepy beachfront town and other communities along the Gulf of Mexico are likely to become the links between producers and consumers.

Altogether, energy companies are planning to spend more than $100 billion in the next decade to bring gas from developing countries to rich nations, according to PFC Energy, a Washington consulting firm. The only way to do it is to supercool the gas so that it condenses into a liquid, which is then compact enough to load onto tankers and send across oceans.

For years, this process was too costly to compete with relatively cheap domestic supplies of natural gas and with imports from Canada. But those supplies are tightening just as the demand for clean-burning gas is soaring. That has led to the most severe gas shortage in the last 25 years and caused domestic gas prices to double this year.

The gap between domestic supply and total demand is forecast to grow significantly over the next 20 years. That has made liquefied natural gas competitive, if only companies can find places that are willing to accept having L.N.G. terminals built nearby. "We've entered the gas age, and there's no turning back if we want a firm supply of a strategically crucial fuel," said Michael S. Smith, an investor who controls Freeport LNG, a Houston company that plans to build a receiving terminal on Quintana Island.

Mr. Smith and his partners, Cheniere Energy and Contango Oil and Gas, both of Houston, expect to begin construction of the terminal early next year on this tiny island about 70 miles south of Houston. The $400 million operation will be able to receive ships full of liquefied natural gas, warming the gas and piping it to a nearby plant owned by the Dow Chemical Company.

Quintana Island's attraction lies not only in its proximity to a plant that uses natural gas as a raw material but also in its location near the center of the nation's energy industry. That, it is hoped, will make political resistance to such projects tepid compared with the safety, aesthetic and environmental concerns in places like Northern California and Massachusetts.

Despite such concerns and worries that large, potentially explosive gas terminals could become terrorist targets, energy companies are eager to import liquefied natural gas. It is a shift that could avoid gas shortages forecast for the future, but could also increase the nation's dependence on foreign energy supplies.

"Just as we're debating the need to diversify our oil supplies, we're faced with an array of challenges to secure reliable and politically stable sources of gas," said David G. Victor, director of the Program on Energy and Sustainable Development at Stanford University.

More than a dozen projects like the one here are seeking approval from regulators in North America, including several on the Gulf Coast and in the northern Mexican state of Baja California.

The United States is already the world's largest natural gas producer, and domestic production is expected to increase to 28.5 trillion cubic feet in 2020 from 19.1 trillion cubic feet in 2000, according to the Energy Information Administration. Still, demand is expected to far outstrip production, growing to 33.8 trillion cubic feet by 2020 from 22.8 trillion cubic feet in 2000.

The gas to close that gap - more than five trillion cubic feet, a 40 percent increase in 20 years - will have to come largely from outside the United States.

Almost all of America's imported natural gas currently comes by pipeline from Canada. But a growing market for gas within Canada and rapidly depleting Canadian wells are expected to weaken that country's ability to increase exports. Mexico, though believed to have large untapped gas reserves, is mired in nationalist debate over making it easier for foreign financiers and companies to explore for gas.

As a result, Mexico, a power in crude oil, is a growing importer of natural gas - and an attractive base for liquefied natural gas receiving terminals, which cost as much as $700 million to build. The Organization for Economic Cooperation and Development recently forecast that the percentage of North America's gas from imports would climb to 26 percent by 2030 from just 1 percent today.

Those imports will come mostly from developing nations like Equatorial Guinea, a former Spanish colony in West Africa where Marathon Oil of Houston plans to build an L.N.G. plant able to serve gas fields throughout the Gulf of Guinea.

Ambitious ventures are also under way in other West African countries, including Angola and Nigeria, where energy companies were recently burning gas escaping from oil drilling operations because there was no ready market for it. In the Middle East, small countries like Oman, a sultanate on the Strait of Hormuz, and Qatar, are emerging as important gas powers.

In South America, Trinidad and Tobago has become an early leader in exporting liquefied natural gas, although companies in Bolivia and Peru have had difficulties advancing efforts to export L.N.G. to California. Producers in Indonesia, Malaysia and Russia could step in to supply the West Coast, pushing the Andean countries to the margins of the business.

In some ways, the scramble for natural gas projects resembles the heady early days of the oil industry a century ago. Then, British, Dutch and American investors raced around the world to stake out interests in remote oil fields in the Middle East, Central Asia and the archipelagoes of the Java Sea.

Some regions are considered more promising than others. Industry executives point out that just three countries  Iran, Qatar and Russia  hold more than half of the world's natural gas reserves, inevitably focusing attention on the delicate interplay between politics and commerce in these places.

Russia, with the largest proven reserves, plans to start exporting liquefied natural gas in 2007 with deliveries to Japan. Iran, while off limits to American companies because of trade restrictions by the United States, has attracted Japanese, French, British, Indian and South Korean concerns interested in mounting gas ventures.

There are important differences, however, between past oil booms and the current interest in natural gas. For one thing, studies show the world will be swimming in natural gas supplies while oil reserves are expected to dwindle in the decades ahead. Just one area in Qatar, a monarchy near Saudi Arabia with fewer than a million people, is thought to have enough gas to supply the United States for 40 years, according to a study by Deutsche Bank.

The natural gas industry has to overcome several obstacles before evolving into a vibrant global market. Even with ample supplies there is no market for trading liquefied natural gas, as there is for crude oil. Instead, producers and customers sign long-term contracts, sometimes resulting in significant price differences from one year to the next or from one country to another.

One reason the natural gas market has remained fragmented is because the fuel is difficult and expensive to extract and transport. But these costs are declining, adding to the appeal of gas projects. Lord Browne, the chief executive of BP, said the cost of developing gas liquefaction plants had halved since the 1980's, while shipping costs had also fallen.

Shipbuilders are seeking to meet demand for tankers, with the global gas fleet expected to grow to 193 ships by 2006 from 136 in 2002, according to LNG One World, a gas- shipping information service operated by Drewry International of Britain and Nissho Iwai of Japan.

Natural gas is still not considered as crucial as oil for overall energy security since oil's main use is for transportation and there is no short-term alternative. Natural gas has a variety of important industrial uses, like serving as a raw material for fertilizer and generating electricity.

Still, the growth in demand for liquefied natural gas in the United States is expected to outstrip other parts of the world. It is likely to grow 35 percent in the next five years, compared with 20 percent in other North Atlantic countries and 12 percent worldwide, according to Deutsche Bank. Hence the rush to proceed with projects that supply liquefied natural gas to the United States.

"The world could be consuming more gas than oil by 2025," Philip Watts, the chairman of the Royal Dutch/Shell Group, the large British-Dutch energy company, said in a recent address to industry executives in Tokyo. "We must be prepared for growing geopolitical turbulence and volatility in an increasingly interdependent world."

The United States has only five terminals capable of receiving L.N.G., including one in Puerto Rico. Almost 20 are on the drawing board, but opposition to the terminals has already prevented the start of work on several of them. Earlier this year, for instance, Shell and Bechtel Enterprises shelved a plan to build a terminal about 30 miles north of San Francisco because of stiff public opposition.

California remains perhaps the most difficult place in the country to gain approval for gas-receiving terminals. This has encouraged imaginative proposals like one last month from BHP Billiton, Australia's largest energy company, for a $600 million floating terminal 20 miles off the coast of Oxnard in the southern part of the state. It remains to be seen whether any of the California projects will be built.

An air of resignation hangs over even the critics of the plan to build the terminal on Quintana, which is scheduled to start operating by 2007. Officials from Freeport LNG have told residents that they expect to make more than $1 million a year in tax payments to the city, a substantial sum for a community of 40 homes that is the smallest municipality in Texas.

At the Jetties, a restaurant on the island's edge overlooking the brown water of the Gulf of Mexico, the walls are plastered with warnings of the perceived dangers of receiving tankers full of potentially combustible gas from far-flung parts of the world. But the restaurant's employees seem to believe that the terminal will be built, inevitably changing the island's easygoing atmosphere.

"People come out here to drink beer on the beach and look at the birds and the gulf," said Dana Difatta, a cook at the restaurant. "Imagine what they'll think when they're staring at some huge vats holding natural gas. Will they be horrified or relieved?"

America's farm lobbyists have long been pressing their government to launch a formal trade dispute against the European Union's ban on genetically modified crops. This week they got their way, as the US and more than a dozen allies started proceedings within the World Trade Organisation.

For US farmers - the world's top planters of GM crops - the case is a welcome chance to crack open a lucrative market. But the case may ultimately do their country more harm than good.

Now is a particularly bad time to embark on a dispute that will inflame anti-Americanism in Europe. In the broader, already deteriorating relationship with continental Europe, the US has much more important issues at stake, notably reviving the Doha round on trade and mending diplomatic relationships strained by the Iraq war. Moreover, a close look at the options reveals that each of the plausible outcomes from a dispute would leave the US worse off than before.

First, the US could pay the political costs of launching an inflammatory dispute and then lose. Most press accounts compare this case with one of the first disputes ever handled by the WTO: the EU's ban on beef that had been produced using hormones. The EU lost because its ban had no basis in science and in "comparable" areas of food policy it had adopted much less strict rules - a telltale sign that the ban was a protectionist gambit.

On the surface, the cases appear similar. Although the science on the health risks of GM food is contested, essentially all the credible evidence shows that these foods are safe, which would seem to indict the EU ban. But in critical ways the cases differ. Across the board, the EU is tightening food safety regulations in ways that seem irrational by standard cost/benefit tests but, crucially, are broadly non-discriminatory and consistent - the key tests for whether a trade ban is legitimate. Moreover, the GM ban is a temporary measure - unlike the permanent ban on beef hormones - and trade rules allow more flexibility for countries that implement temporary measures when they can claim the science is uncertain.

Second, the EU could change its rules in the middle of the dispute. For several years, EU bureaucrats have been designing a new set of standards that would "reopen" Europe's markets to GM foods if traders complied with onerous tracing and labelling requirements. This shift would make it harder for the US to win because trade laws are tolerant of labels that allow consumers to make the final choice. While the US might respond by dropping the suit, it would be more likely to redirect the dispute against the tracing and labelling rules. In the past, hotly contested trade disputes have usually taken on a myopic life of their own. Each side digs in and the political damage spreads.

Third is the most likely (and worst) outcome: the US could win. The victory would be Pyrrhic because the issues are fundamentally ones of morality and technology - they must be settled in the courts of consumer opinion. On this score, the beef hormones case is instructive. Even today, hormone-treated beef is no more able to find European consumers than it was before the US won its case; and the years of legal wrangling have led to counter-sanctions that have harmed a wide variety of unrelated products and industries. The antagonism over GM foods appears to be unfolding in much the same way.

A better strategy would have been to stay the course that US policy has followed ever since the controversy over GM crops broke out in the late 1990s. Time is on America's side because the technology is already proving itself in the marketplace and European opponents will find themselves increasingly isolated.

But now that Washington has pulled the trigger, what can be done? The greatest danger is that both sides of the Atlantic slide into a tit-for-tat retaliation. But a trade war will cause untold harm to an alliance already in stress and make it harder to rejuvenate the soggy world economy. Cooler heads must prevail.

In Europe, the critical need is to reform the moratorium on GM foods. Frustration over its inability to get the import ban lifted is what pushed Washington to this desperate act. In the US, serious movement in Europe must be seized as pretence to rescind the WTO case before the antagonisms of hearings, judgment, appeal and retaliation unfold.

STANFORD, California - The Bush administration wisely backed away this month from formally challenging Europe's ban on genetically modified foods. It made no sense to antagonize Europeans over the food they eat when they are pivotal to more weighty matters, such as a new resolution on Iraq.

Still, Washington's threat that it would file a case against the European Union at the World Trade Organization had palpable benefits. Even the countries with the most hostile policies on engineered food - France and Germany among them - took steps toward allowing the European Union to work on replacing the blanket ban with a new system for tracing and labeling engineered food.

But the decision to back off also means that American farmers are still denied access to the lucrative European market. European consumers still pay more for food than they should. And developing countries that could most benefit from engineered crops are still frightened that losing their "engineering-free" status will make it impossible to export food to Europe.

Yet the science on food safety is as certain as it ever gets: There is no known danger from eating engineered food.

Having backed down, the Bush administration will find it hard to make the threat of going to the trade organization credible again and to continue the momentum toward removing Europe's ban. But even harder for the administration will be keeping domestic politics at bay.

The biggest threat to the success of the U.S. strategy on engineered foods is in the American heartland, which is angling for a fight with Europe over the ban as the 2004 elections approach. Senator Charles Grassley of Iowa called the decision to defer a trade dispute "the usual snobbery" of a State Department "more concerned about international sensitivities than the American farmer." Two tactics should guide the effort to open Europe's markets. One is to let the Europeans lead their own reform.

The engineered foods available to consumers today mainly benefit farmers who can grow them at lower cost. These foods look and taste the same as their traditional counterparts. For rich consumers in Europe willing to pay a bit more, it is easy to focus on hypothetical risks and shun these products. But the next generation of engineered foods, already nearing the marketplace, will have healthful benefits for consumers - fruits that contain cancer-fighting lycopene, for instance - and this will make it harder for European countries to bar all these foods.

During the furor last summer over Zambia's rejection of genetically modified corn, prominent European politicians were forced to declare that these foods were safe - a blatant contradiction of Europe's own policies.

The other tactic is outreach to the developing world. In the poorest nations, agriculture provides the livelihood of most of the population, and agricultural research proves that genetic engineering can make crops that poor farmers grow both healthier and more productive.

Yet research on engineered crops and support for farmers who grow them lack money, not only in U.S. agricultural development and extension programs but also at the international agricultural research centers that were the engine of the first green revolution. In the last decade American support for international agricultural research has declined considerably.

An American program that would finance agricultural research on novel uses for genetically modified crops in developing countries would help those countries and could eventually help open European markets.

An American-led effort to pry open those markets would backfire. But one led by a developing country could succeed, as Europe considers the moral issues posed by barring food from a country which needs to sell its crops to survive. So far, few developing countries (South Africa is one exception) allow commercial planting of engineered crops. The United States needs to overcome the fears of the developing nations by growing such crops there and demonstrating how they could transform agriculture.