War Game Underscores Energy Vulnerability
Oliver B.Patton
Washington Editor
As fuel prices soar into the stratosphere, it's hard to imagine that these might be considered the good old days. But that is precisely what would happen under a scenario recently played out by national security and energy strategists, in which the oil markets suffer a relatively mild disruption.
In a war game called "Oil Shockwave," former top U.S. officials scrambled to deal with a scenario in which a series of events drive oil prices up to $161 a barrel over the course of several months.
The result: Two million jobs disappeared, oil producing and consuming nations were emboldened to pressure the U.S. on a variety of policy issues, and the country faced overwhelming security and economic challenges.
The "players" in the game included former CIA directors R. James Woolsey and Robert M. Gates, former Senator Don Nickles, retired Marine Corps Commandant General P.X. Kelley, and former Environmental Protection Agency administrator Carol Browner. They took on the roles of Cabinet officers who convened to deal with a series of unexpected developments in the world oil market.
First, there was civil unrest in Nigeria, leading to collapse of that country's oil industry. Then al Qaeda attacked oil facilities in Alaska and Saudi Arabia, leading to the evacuation of foreign nationals from Saudi Arabia.
The immediate effect of these events was relatively small: They removed just 3.5 million barrels from a global market of more than 83 million barrels.
But the ripple from that splash crescendoed into a tidal wave. Gasoline rose to $5.74 per gallon, heating oil went up to $5.14 per gallon, the economy plunged into recession, consumer confidence fell by 30%, and the S&P 500 dropped 28%, among other disasters.
China, whose appetite for oil and other commodities is reshaping the world economy, used its increased leverage to push for an end to U.S. arms sales to Taiwan. And Saudi Arabia - which, due to loss of production, could no longer play a moderating role in the oil market - began to press for changes in U.S. policy with respect to the Middle East peace process.
The lesson: "This simulation serves as a clear warning that even relatively small reductions in oil supply will result in tremendous national security and economic problems for the country," said Robbie Diamond, president of the non-profit group Securing America's Future Energy (SAFE). "This issue deserves immediate attention."
SAFE and the National Commission on Energy Policy, another non-profit that studies the security implications of America's dependence on foreign oil, organized the war game.
Among the findings:
• Once the oil supply is disrupted, there is little that can be done in the short run to soften the impact.
• The U.S. does have ways to improve its oil security, but they will take a decade or more to mature. One is to promote development of conventional oil reserves in countries that are currently off limits to private investment. Another is to increase research into alternative sources of oil, such as oil shale and tar sands.
• On the demand side, the government should promote energy efficient vehicles such as hybrids and electrics. It also should strengthen fuel economy standards and increase research into alternatives such as hydrogen fuel, ethanol from plants, and diesel from coal and hydrogen.
"We can neither drill nor conserve our way out of this problem - we must do both," said Jason Grumet, executive director of the National Commission on Energy Policy. He said the energy bill now pending in the Senate is a step forward, but "we must do much more to protect our economy from the risks of oil supply disruptions."
Washington Report continued...
