Outcome Grim at Oil War Game
Outcome Grim at Oil War Game
Former Officials Fail to Prevent Recession in Mock Energy Crisis
By John Mintz
Washington Post Staff Writer
Friday, June 24, 2005; Page A19
The United States would be all but powerless to protect the American economy in the face of a catastrophic disruption of oil markets, high-level participants in a war game concluded yesterday.
The exercise, called "Oil Shockwave" and played out in a Washington hotel ballroom, had real-life former top U.S. officials taking on the role of members of the president's Cabinet convening to respond to escalating energy crises, culminating in $5.32-a-gallon gasoline and a world wobbling into recession.
The American people are going to pay a terrible price for not having had an energy strategy," said former CIA director Robert M. Gates, who took on the role of national security adviser. Stepping out of character, he added that "the scenarios portrayed were absolutely not alarmist; they're realistic."
The exercise began with ethnic unrest in Nigeria, leading to the collapse of the oil industry in that west African nation. Then al Qaeda launched crippling attacks on key energy facilities in Valdez, Alaska, and Saudi Arabia.
But the war game's participants -- including former CIA director R. James Woolsey, former Marine Corps commandant Gen. P.X. Kelley and former EPA administrator Carol Browner, soon realized the U.S. government had few options in the short term to prevent an economic crash in this country and worldwide.
When the exercise's planners first met last year, oil was in the $40-a-barrel range. As they fantasized where oil prices would be for the war game's start in an imagined late 2005, they said, they set them at $58 but worried they were being absurdly pessimistic. Yesterday, the closing price for a barrel of oil was $59.42.
The war game players also referred several times to other real-life events of today. A major feature of the exercise was how China's voracious appetite for oil is driving up world prices, and only yesterday it was announced the Beijing government, in a bold and unprecedented act, is bidding to buy the U.S. oil company Unocal.
The exercise was organized by two nonprofit groups that focus on the national security implications of U.S. dependence on foreign oil: the National Commission on Energy Policy and Securing America's Future Energy (SAFE). The scenarios were dreamed up by a team of former oil industry executives and government officials, including Rand Beers, a White House counterterrorism official who quit in 2003 to protest the Iraq war.
The underlying situation dramatized in the exercise -- and accepted by most energy analysts -- is that tolerances are so tight between supply and demand, that even small disruptions in the delivery of oil and natural gas can cause cascades of unpleasant developments.
The war game contemplated that when oil prices spiked and the Cabinet met to consider its options, it realized it had almost no clout to influence events.
The standard response, drawing on the Strategic Petroleum Reserve, was symbolic at best. The president should not give in to Saudi offers that the kingdom would lower prices if he stopped pressing for Saudi democracy, the participants agreed. Within weeks conditions were worsening -- the Valdez oil terminal was on fire, as was a major Saudi oil port, and Western technicians were being killed there.
Foreign oil firms soon pulled tens of thousands of workers out of Saudi Arabia. Suddenly lacking technical expertise, Saudi facilities could no longer play their decades-long role of guaranteed "swing" provider of oil in response to disruptions elsewhere. As the global recession deepened, there was no "central banker" of oil to smooth out temporary dislocations.
The participants concluded almost unanimously that they must press the president to invest quickly in promising technologies to reduce dependence on overseas oil, such as hybrid cars powered by gasoline and plug-in electricity; and cars that run on fuels derived from prairie grasses, animal waste and other products. They all agreed these projects would take years to yield any benefit but should not wait for the kind of crisis they were dramatizing.
"If you want to put a frown on the face of [Saudi] Wahhabis, talk about 100-mile-per-gallon vehicles," Woolsey said. "We don't need a Manhattan Project to do it."
The scenario removed only 3.5 million barrels of oil from a global market of more than 83 million barrels, resulting in the following consequences:
* Gasoline prices of $5.74 per gallon;
* Global oil price of $161 per barrel;
* Heating oil prices of $5.14 per gallon;
* Fall of gross domestic product for two consecutive quarters;
* Drop in consumer confidence by 30 percent;
* Spike in the consumer price index to 12.6 percent;
* Ballooning of the current accounts deficit to $1.087 trillion;
* Decline of 28 percent in the S&P 500;
* Aggressive pressure on the U.S. from China to end arm sales to Taiwan,
* Demands from Saudi Arabia for changes to U.S. policy regarding the Mid-
East peace process
Not a new scenario and not an unknown result, just a news story. Notice the scenario plays on the results of continuing terrorist action that disturbs oil production. While they are right that oil consumption will help reduce the pressures, this study also supports the war on terrorism .... probably why so many credible names came to play.
Right now locally we are sitting at around $5.35/gallon ($1.18/L) and they are talking about prices in Montreal of $1.35/L ($6.13/gallon).
No terrorists, no war games, just one little old hurricane and one major US oil supply region. Now add the above scenario to the mix and watch the economies of the world take a sudden nose dive.
The premise is correct of course we are too dependant on oil. We are lucky here in BC since we have abundant hydro resources plus coal and potentially offshore oil.
As the old Chinese insult goes: "May you live in interesting times." Our times should definitely be interesting in the next few years.
a news story with a message you may choose to heed or ignore, something that many of the residents of new orleans did. those that ignored were....
Originally Posted by Madman
yes it does play on terrorist activities, much like what is happening today, watch the news much?
Originally Posted by Madman
it does support the "war on terrorism" because it highlights the vulnerabilities of the u.s. due to it's dependance on oil. take out a tiny portion of an already strained delivery system and the outcome could be drastic. this why the u.s. and indeed the worlds powers are scrambling to secure the worlds remaining deposits, the oil party is over.