Armageddon in the oil patch: repent while there is still time

The new US president, who has been in office for just four shaky months, plans to make a statement to the American people at a matter of hours, and he -- or she -- needs advice from the White House's economic and national security teams.

The stage is now set for Shockwave 2007, a oil-crisis simulation featuring some of past administrations' top advisers, including Bill Clinton's former Treasury Secretary Robert Rubin as the new president's national security advisor, George W. Bush's former deputy secretary of state Richard Armitage in a promotion to secretary of state and Clinton's former Environmental Protection Agency chief Carol Browner as the energy secretary.

The nine advisers are meeting in a horseshoe-shaped table in a high-tech war room -- complete with three floor-to-ceiling screens protecting fictional newscasts, tickers of stock quotes and oil and gas prices serving as backdrop -- to decide what to do.

There's talk about releasing from the 700-million barrel Strategic Petroleum Reserve, but that policy is rejected because it "really isn't a supply emergency," according to new Energy Secretary Browner. She talks about requiring a national speed limit of 55 miles an hour and banning driving on Sundays, suggestions that are largely pooh-poohed by the president's chief political adviser, played by Mike McCurry, Bill Clinton's former press secretary. He exclaims of the Jimmy Carteresque suggestion, "What are we going to have him do, wear a sweater? It's May!"

In the end, the team comes up with a five main suggestions for the president's upcoming speech. They recommend the President let Americans know what the events in Azerbaijan mean for oil prices and the economy; call for an expansion of funds to help low energy Americans cope with higher fuel prices; say that the White House is ready to use the SPR and will talk with US allies about a coordinated release if such a move is necessary; highlight the seriousness of the US' addiction to foreign oil; and call for the US to lead by example of energy conservation, and implore for the rest of the world to follow.

In the next few months, the high prices erode demand somewhat, but now there's a new crisis to deal with: even while the Azeri-Armenia situation deteriorates, the International Atomic Energy Agency has discovered a Iranian secret uranium enrichment facility, and intelligence indicates that Iran is "on the cusp of developing the bomb," according to the national intelligence director, played by Philip Zelikow, best known as the executive director of the 9/11 Commission.

The US and EU are threatening more sanctions on Iran, and as a result Tehran responds with its own "sanctions against the west": a cut of crude exports of 350,000 b/d, with the threat of more to come. Russia may veto UN sanctions on Iran, Venezuela's Hugo Chavez says he'll match Iran's export cut and crude oil prices have screamed up over $150/barrel.

Hedge funds are failing left and right, airlines are paring down flights because of fuel costs, some truckers have stopped runs, and even school districts are canceling the start of school years because of high fuel prices. The president's national economic advisor, played by Daniel Yergin, who wrote a Pulitzer-prize winning book on the history of oil, warns that forecasts show recession, double-digit inflation and inflation close to 8% in the nation's near future thanks to the supply-driven spike in oil prices.

The advisors are now seriously talking about releasing the SPR. But many express fear that it will do little good, and could lead to retaliatory actions that leave oil prices higher than present. In the end, the advisers recommend the president conduct a "small test of the SPR" in coordination with IEA members to show that the industrialized nations can and will use their emergency reserves. There also is talk about moving the Pacific fleet to the Middle East and Mediterranean, mobilizing the National Guard and reservists and preparing the country for a military draft that would include women. And, of course, there's talk about global conservation efforts on the energy front.

But frankly, the options are fairly limited, largely due to a series of previous administrations' failure to take the tough steps necessary to reduce demand in increase supply.

And that's exactly the point of the exercise -- to show the effects of America's dangerous over-reliance on foreign crude oil, and to implore lawmakers to take a bipartisan, common-sense approach to energy legislation.

Shockwave's sponsors -- Securing America's Future Energy and the Bipartisan Policy Center -- said before the November 1 event that they chose the scenario because it was plausible in the current geopolitical environment. It also is particularly compelling given current price levels, edging toward the $100/barrel mark.

At the end of the exercise, oil prices were over $163/barrel and gasoline prices were topping $5.50/gal. It certainly gave everyone participating and watching something to think about.