War Game Exposes Grim Reality: Few Oil Crisis Options

The Oil Shockwave simulation event poses a hypothetical but very feasible scenario: What if there were a serious, crippling disruption to the world’s oil supply?

Terrorists strike the world’s largest oil production facility in Saudi Arabia, sending global oil prices skyward: What should the U.S. president do?

For three hours Wednesday, a group of former high-ranking U.S. government and military officials and business experts weighed the options should this hypothetical—yet realistic—scenario unfold. Amid moody war room lighting in a hotel ballroom in Washington, D.C., flanked by giant video screens, the cadre reached a bleak, if unsurprising, conclusion: There are few weapons, in the short term, for fighting an energy crisis.

“How did we let this happen?” asked Stephen Hadley, reprising his role as national security adviser in the George W. Bush administration. “How does the president answer the question that ‘We’ve known we were dependent on oil for 20 years, and everybody’s been talking about energy independence, how come we’re at this point?'”

Raising that question was the central aim of the Oil Shockwave simulation, staged by the nonprofit advocacy group Securing America’s Future Energy (SAFE)—a coalition of retired military leaders and business officials who aim to frame energy as a national security issue.

Drawing on its military members’ real experience in war gaming, SAFE has organized Oil Shockwave simulations several times since it was founded in 2005. But that was when the price of oil was pushing $60, not $100 as it is today, SAFE President Robbie Diamond noted to the audience. “Unfortunately . . . it’s much easier to write the scenario now than it was in 2005,” he said.

Ripping the Saudi Safety Net

The real-life events that helped set the stage for this year’s Oil Shockwave, of course, were the “Arab spring” and Libyan conflict, during which world oil prices have soared to their highest levels since the recession had knocked them down in 2008. Despite the upheaval in the Middle East and the loss of Libyan oil to the market, the world has not faced a true shortfall in oil supply. Keeping the situation in check is the market’s confidence that the one nation with true spare oil production capacity, Saudi Arabia, can pump out more petroleum if needed.

(Related: “Pictures: Oil States—Are They Stable? Why It Matters” and “Oil Markets Churn Over Egypt’s Potential as a Gateway for Revolt“)

So naturally, the Oil Shockwave simulation pressed the government role players to game out the options for the president should that safety net be shredded, by imaging a direct strike at Saudi Arabia’s huge oil facility at Abqaiq. (Abqaiq was site of a real-life terrorist attack in 2006, which caused oil prices to spike briefly before it became clear the damage was contained.)

As the surrounding video screens warned that U.S. gasoline prices were on track to shoot to $6 per gallon ($1.58 per liter)—about 70 percent higher than they are in real life today—the first option on the table was release of the Strategic Petroleum Reserve. But the role players noted that it already had been tapped by the Obama administration in a coordinated move with European nations to prod the slow economy.

(Related blogs: “Like Selling a Military Jet to Pay for a Memorial Day Parade,” and “Sour Reactions to the IEA’s Oil Release“)

“The more you use it, the less value it has in terms of price impact,” said Stuart Eizenstat, playing the role of Treasury secretary, drawing on his experience not only as deputy secretary during the Clinton administration but as chief domestic policy adviser to President Jimmy Carter during the 1970s oil crises. “Using [the SPR] in the Libyan situation has already, in effect, devalued it. Using it again, unless it’s a true emergency—a genuine shortage—would further devalue it.”

Former White House press secretary Ari Fleischer, playing the role of counselor to the president, brought up ideas for increased oil production that were favored by the administration of George W. Bush, but for which he could never gain congressional approval—including opening up the Arctic National Wildlife Refuge in Alaska to drilling. But he conceded that there might be another direction to take.

“[Either] open up America, and take tracts of land that were previously totally closed: ANWR, offshore oil, domestic oil, and open them up . . . or go in the opposite direction and make America green once and for all,” Fleischer said. “Anything else is just doodling in the margins of history.”

But Hadley was not convinced that the choice was either-or. “Ari, you put them as alternatives,” he said. “Let me ask the secretary of energy, are they alternatives, or can they be complementary?”

A Battery-Buying Spree?

John Hofmeister, the former president of Shell Oil Company, playing the role of energy secretary, noted that there was a difference between trying to plan a long-term energy policy and trying to cope with an immediate crisis.

“We have a need in the short- and medium-term which can only be met with more hydrocarbons,” he said. “With all the cars we have, nobody’s going to rush out and buy batteries tomorrow, because the cars aren’t available. We have to make way for the next 10 or 15 years for healthy supplies of domestic hydrocarbon energy, and make a pathway for green economy.”

With short-term options few, the mock cabinet instead focused on the long-term and—unsurprisingly—arrived at much the same strategy advocated by SAFE (which is partner with the electric car advocacy group, the Electrification Coalition): Use increased domestic oil production as a stopgap while developing electric vehicles to reduce oil dependence.

“The best way to insulate our economy and our national security options is to sever our link between transportation and oil,” said SAFE spokesman Justin Kitsch in an interview before the simulation. “When people say we need more solar energy and wind energy and coal energy to reduce our dependence on foreign oil, well, that oil is used to for transportation. Those other sources are used for electricity generation. The only way you can do it is to link transportation to the electrical grid.”

Of course, the move to electric cars will take years. It’s not a solution for a sudden oil shortage today. But as Hadley noted toward the end of the Shockwave simulation, only long-term thinking can provide more short-term options in an energy crisis.

“The president has to do something bold—it’s a real challenge for his leadership, it’s an opportunity for him actually to become a great president,” he said. “We need to become the arsenal of energy, but as part of that leadership, we need to sketch out a comprehensive energy plan.”

National Geographic