Articel reprint on oil

‘Wargame’ simulation of major oil crisis.

Simulated oil meltdown shows U.S. economy’s vulnerability

By Kevin G. Hall
Knight Ridder Newspapers

WASHINGTON – Former CIA Director Robert Gates sighs deeply as he pores over reports of growing unrest in Nigeria. Many Americans can’t find the African nation on a map, but Gates knows that it’s America’s fifth-largest oil supplier and one that provides the light, sweet crude that U.S. refiners prefer.

It’s 11 days before Christmas 2005, and the turmoil is preventing about 600,000 barrels of oil per day from reaching the world oil market, which was already drum-tight. Gates, functioning as the top national security adviser to the president, convenes the Cabinet to discuss the implications of Nigeria’s spreading religious and ethnic unrest for America’s economy.

Should U.S. troops be sent to restore order? Should America draw down its strategic oil reserves to stabilize soaring gasoline prices? Cabinet officials agree that drawing down the reserves might signal weakness. They recommend that the president simply announce his willingness to do so if necessary.

The economic effects of unrest in faraway Nigeria are immediate. Crude oil prices soar above $80 a barrel. June’s then-record $60 a barrel is a distant memory. A gallon of unleaded gas now costs $3.31. Americans shell out $75 to fill a midsized SUV.

If all this sounds like a Hollywood drama, it’s not. These scenarios unfolded in a simulated oil shock wave held Thursday in Washington. Two former CIA directors and several other former top policy-makers participated to draw attention to America’s need to reduce its dependence on oil, especially foreign oil.

Fast-forward to Jan. 19, 2006. A blast rips through Saudi Arabia’s Haradh natural-gas plant. Simultaneously, al Qaida terrorists seize a tanker at Alaska’s Port of Valdez and crash it, igniting a massive fire that sweeps across oil terminals. Crude oil spikes to $120 a barrel, and the U.S. economy reels. Gasoline prices hit $4.74 a gallon.

Gates convenes the Cabinet again. Members still disagree on whether America should draw down its strategic oil reserves. Homeland Security chief James Woolsey, who ran the CIA from 1993 to 1995, argues that a special energy czar is needed with broad powers to bypass the bureaucracy and impose offshore oil drilling and construction of refineries.

That won’t help now, though, or resolve any short-term issues, counters Gene Sperling, who was President Clinton’s national economic adviser.

The energy secretary suggests that relaxing clean-air standards could help refiners squeeze out every last drop of gas. That makes the interior secretary, former Clinton Environmental Protection Agency chief Carol Browner, bristle. She blames Detroit for the mess because automakers failed to develop hybrids and other fuel-efficient cars.

The Cabinet can’t agree on even the simplest short-term solutions. There aren’t many options beyond encouraging car pools and lowering thermostats. There’s no infrastructure in place to deliver alternative fuels such as ethanol or diesel made from soybeans or waste products.

Fast-forward again, to June 23, 2006. Emboldened Saudi insurgents attack foreign oil workers, killing hundreds. A mass evacuation follows from the world’s pivotal oil producer, the one country that could be counted on to boost production during shortages in global supplies.

A take-charge guy with a Texas accent who led the CIA from 1991 to 1993, Gates calls yet another war-room meeting. Global recession looms. The world economy turns on cheap oil. Without foreign oil workers, how will Saudi Arabia meet its production targets and quench the oil thirst of America, China and India?

Oil prices have reached an unthinkable $150 a barrel. In Philadelphia, Miami and Kansas City, Mo., gas prices reach $5.74 a gallon. Now it takes $121 to fill that midsized SUV.

You get the picture. The scenario is intended to show how vulnerable the U.S. and world economies are because of dependence on oil from places where political instability threatens orderly production and distribution.

This year the world is consuming about 84 million barrels of oil a day. America alone guzzles about 20.8 million barrels a day. Experts think oil-producing nations have only 1.5 million barrels a day or less of unused production capacity right now. A disruption anywhere could cause market panic and spiking prices. That’s largely why oil and gasoline prices are so high right now.

Saudi Arabia and other countries are trying to increase production, but that won’t help much before next year at the earliest. Meanwhile, any hiccup in production, delivery or refining could cause disaster.

“A million or a million and a half barrels of oil a day off the market is a very realistic kind of scenario. You can think of a dozen different countries around the world … where you can see that happening. Or even a natural disaster could do that,” Gates said in an interview.

Former CIA chief Woolsey described as “relatively mild” the scenarios that the National Commission on Energy Policy and the advocacy group Securing America’s Future Energy simulated. Both groups are pushing for reduced dependence on conventional oil.

“It was striking that by taking such small amounts off the market, you could have such dramatic impact” on world oil prices, said Robbie Diamond, the president of Securing America’s Future Energy.

Richard Haass was a top adviser to former Secretary of State Colin Powell until 2003. The simulation taught him how little influence policy-makers would have in reversing an oil shock wave.

“I think where most of the work has to happen now, both intellectually and politically, is on demand” reduction, Haass said. “I think where most of the work has to happen now, both intellectually and politically, is on demand” reduction, Haass said.
Interesting premise.

Yet another country to keep an eye on.

9 thoughts on “Articel reprint on oil

  1. I knew that Nigeria was famous for it’s advance fee scams, but I was only vaguely aware that they shipped that much oil.

  2. I read an interesting fiction novel about a year ago that was based on a severe oil shortage in the US. I can’t remember the name of the book, but in it, the US had been under an oil embargo by the Middle East for about five years. The resulting oil shortage left people freezing (having soon depleted all the wood in their areas) and short of food in major urban areas, especially in the north. The oil-producing Western states of the US had grown resentful of having to supply oil to the Eastern US at fixed prices that were less than what they could have sold it to foreign competitors for and were resentful of the increased taxes collected to aid the Eastern cities. The central conflict in the book was the Feds in the East trying to stop a politician who was quietly marshalling support for secession of the West from the US. It painted an interesting picture of how an oil shortage might affect the US in the long run.

  3. The Great Divide, by Frank M. Robinson and John F. Levin. ISBN076534968x.

    And from the back cover:…The country has been split into two distinct factions over energy—“the haves” (those states that are fuel self-sufficient) and the “have nots.” The inept execution of a flawed foreign policy in the Middle East has resulted in an Arab-backed oil embargo. Now the country is in the grips of the most severe winter in years, and rationing has led to unrest and rioting in the streets…and certain politicians and business power brokers are ready to make a move. As masses freeze in Chicago and the northeast, fuel-sufficient sunbelt conspirators seek to separate themselves from the rest of the nation, make their own foreign policy, and govern by their own rules…and to do it they will resort to blackmail, bribery, and even murder. The Consititution is only a stumbling block, and it can be amended.”

  4. More than I fear an oil shock, I fear the governments bone headed reactions to one. Price controls, rationing, martial law, all are in the cards if things got “truly out of hand”.

    I really need my knee better now so I can get my bicycle legs back.

    My motorcycle “only” gets 35 miles to the gallon, maybe the time is coming when I should “downgrade” to a Kawasaki KLR650, better “GOOD” ability (handles streets and trails well), gets 50 miles to the gallon. Put a plastic gas tank on it and you have huge range. Built like a tank.

    Right now the military uses the 250cc version for desert warfare, that says something:

  5. I’d actually given up looking, but my previous dig destabilized a pile of books, caused an avalanche, and lo and behold, there it was. Perhaps fate wants you to read the book…Lol!

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