Marshall Brain's Blog

Simulated oil meltdown shows U.S. economy's vulnerability

From the article:

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.

The article is fascinating because its scenario could happen tomorrow. It has nothing to do with "peak oil" -- it has to do with very poor planning and the resulting effects of an instantaneous "oil shock" (see peak oil for details). The article explores the kind of scenario that caused the Arab oil embargo in the 1970s to have such debilitating effects on the United States.

The gist of the article is simple: Even though the world consumes 84 million barrels of oil every day, supply and demand are balanced on a knife edge right now. Therefore, a very small aberation in supply (e.g. - the loss of just 600,000 barrels a day from Nigeria) can have a huge effect on the price of gasoline in the United States. The article concludes with this thought, "The simulation taught him how little influence policy-makers would have in reversing an oil shock wave."

The fact that we are in a situation of such vulnerability is very, very sad. We spend so much time and money worrying about far off threats, but here is a threat to national security and the economy that is right under our noses. Yet we do nothing to mitigate our vulnerability. We are, in essence, sitting ducks.

We can easily get ourselves out of this situation if we simply make the conscious decision to do so. There are many different technologies we can use to supply the energy we need. See The U.S. can be energy self-sufficient within a decade for details.