NEWSROOM

Oil Dependence Creates Severe National Security and Economic Risks, Top Officials Find at Crisis Simulation Event

Sunday, July 24, 2005
 

The dependence of the U.S. on oil creates serious national security vulnerabilities that, if exploited, could result in widespread economic dislocation and increased global instability, according to former top government officials who gathered today to examine how the nation might manage an oil supply crisis.

The findings of these leading experts comes amid reports of terrorist threats against oil-rich Nigeria, a state-owned Chinese company's bid for a major U.S. oil firm, and as Congress considers energy legislation that does little to curb U.S. oil dependence.

In a scenario confronted by the bipartisan panel of intelligence, military, and energy experts, a series of events over several months - unrest in Nigeria, an attack on an Alaskan oil facility, and the emergency evacuation of foreign nationals from Saudi Arabia - drives the price of oil to over $150 per barrel. These events lower expected employment levels by more than 2 million jobs, embolden countries that are major oil producers and consumers to pressure the U.S. on key foreign policy concerns, and cause a variety of other significant economic and security challenges.

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:

Participants included:

Robert M. Gates, former Director of Central Intelligence;

Richard N. Haass, former Director of Policy Planning at the Department of State;

General P.X. Kelley, USMC (Ret.), former Commandant of the Marine Corps, member of the Joint Chiefs of Staff;

Don Nickles, former U.S. Senator;

Carol Browner, former Administrator of the Environmental Protection Agency;

Gene B. Sperling, former National Economic Advisor;

Linda Stuntz, former Deputy Secretary of Energy;

Frank Kramer, former Assistant Secretary of Defense for International Security Affairs, and;

R. James Woolsey, former Director of Central Intelligence.

Senators Richard Lugar (R-IN) and Joe Lieberman (D-CT) served as co-chairs of the Oil ShockWave event.

Other key findings:

  • Once oil supply disruptions occur, there is little that can be done in the short term to protect the U.S. economy from its impacts, including gasoline above $5/ gallon and a sharp decline in economic growth potentially leading into a recession.
  • There are a number of supply and demand-side policy options available that would significantly improve U.S. oil security. Benefits from these measures will take a decade or more to mature, and thus should be enacted as soon as possible.
  • Supply-side measures include promoting developing of conventional oil reserves in nations currently off limits to private investment through enhanced U.S. diplomacy, increase research and development into environmentally-benign extraction of unconventional oil reserves such as oil shale and tar sands, and enable siting of new liquid natural gas and other energy facilities.
  • Demand-side measures include promoting energy efficient passenger vehicles with incentives for hybrid electric vehicles , strengthen fuel economy standards, and increase research and development into plug-in hybrids and hydrogen fuel cell vehicles.
  • Alternative fuel measures include increased research and development that enable ethanol production from plant materials, fischer-tropsch diesel from domestic coal, and hydrogen from coal and eventually from renewable sources.

    While not seeking to reach unanimous conclusions, the following key findings and recommendations were embraced by a majority of participants.

    The findings are the product of Oil Shockwave, an oil supply crisis simulation co-sponsored by Securing America's Future Energy (SAFE) and the National Commission on Energy Policy. The event was designed to simulate a decline in world oil production due to regional instability and terrorism and, then, present a mock cabinet-level meeting with the task of advising the president on a national response.

    To ensure Oil ShockWave presented participants with a credible and realistic set of circumstances, the scenario included substantial input from former members of the oil industry, oil analysts and traders, former and current military officials, intelligence and national security experts, and other specialists. These individuals include David Frowd, former Head of Royal Dutch/Shell Upstream Strategy and Planning Department; and Rand Beers, former Special Assistant to the President and Senior Director for Combating Terrorism.

    "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 SAFE President Robbie Diamond. "This issue deserves immediate attention."

    "We can neither drill nor conserve our way out of this problem—we must do both," said Jason Grumet the Executive Director of the National Commission on Energy Policy. "The energy bill pending before the U.S. Senate is a significant step in the right direction but we must do much more to protect our economy from the risks of oil supply disruptions."

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