Jun 29, 2005 (From the CalCars-News archive)
There have been several news reports; the Washington Post and Knight Ridder reports follow.
And see the full participant list and more details at Securing America's Future Energy http://www.secureenergy.org/shockwave_overview.php
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; 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."
Simulated oil meltdown shows U.S. economy's vulnerability
By Kevin G. Hall
Knight Ridder Newspapers
Fri. June 24, 2005
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.