The White House is starting to get very nervous about the price of oil.

How do I know?

Last Thursday several former US national security officials took part in an oil crisis fire drill aptly named, "Oil Shockwave".

The exercise was established to investigate the economic and national security consequences of America's dependence on oil by simulating a major global oil supply crisis.

You know...the supply crisis that is right around the corner. The one Mike Schaefer has been talking about since 1997.

The drill replicated a decline in world oil production due to supply volatility and terrorism. Participants were given the opportunity to think through simulated emergency situations and discuss solutions to problems created as part of the scenario.

The Players

Oil ShockWave was developed by two nonprofit groups that focus specifically on the national security implications of U.S. dependence on foreign oil; the National Commission on Energy Policy and Securing America's Future Energy Securing America's Future Energy (SAFE)

Experts and analysts in the fields of world oil production, national security, and economics were called upon to participate in the event.

Oil Shockwave 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 and member of the Joint Chiefs of Staff;
William Perry, former Secretary of Defense;
Don Nickles, former US Senator (R-OK);
Carol Browner, former Administrator of the Environmental Protection Agency;
Gene B. Sperling, former National Economic Advisor;
Linda Stuntz, former Deputy Secretary of Energy;
R. James Woolsey, former Director of Central Intelligence

The Game

In the half-day exercise, participants assumed cabinet-level roles where they used sophisticated video and computer modeling in an unscripted, real-time environment that demonstrated the economic impact of major disruptions to the world's oil supply.

The exercise began with cultural conflict in Nigeria, which led to the collapse of the oil industry in the west African nation. Then al Qaeda launched attacks on major energy facilities in Valdez, Alaska, and Saudi Arabia.

Drawing from the Strategic Petroleum Reserve, the experts first initiative, had no positive effect.

Inside a few weeks the situation worsened. The Valdez oil terminal and a major Saudi oil port was on fire with Western technicians being killed there.

Soon foreign oil firms pulled tens of thousands of workers out of Saudi Arabia. Lacking technical expertise to run the facilities, they were unable to produce as much oil making matters worse. The global recession deepened.

The Outcome

The outcome from the oil war game was frightening at best.

The scenario removed only 3.5 million barrels of oil from a global market, 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.

The war game concluded that when oil prices spike, the president's Cabinet can do next to nothing to influence events.

One staff writer from The Washington Post wrote, "The United States would be all but powerless to protect the American economy in the face of a catastrophic disruption of oil markets."

Former CIA director Robert M. Gates, who took on the role of national security adviser said, "The American people are going to pay a terrible price for not having had an energy strategy." He added, "the scenarios portrayed were absolutely not alarmist; they're realistic."

The participants concluded that the president must find ways to reduce America's dependence on overseas oil.

When we first started talking about the energy crisis there were many skeptics and naysayers.

Now that the coming oil crisis is attracting the attention of politicians and the media, our hypothesis is becoming less a theory and more of a reality.

-Luke Burgess