Oil ShockWave is a scenario exercise developed by Securing America's Future Energy (SAFE) and the National Commission on Energy Policy. In this half-day exercise, top former government officials take part in a series of Principals meetings of the Cabinet over a seven-month period in order to advise the President on how to respond to a series of events that affect world oil supplies. The simulation is set six months into the future to provide distance from current events.
Situations are presented primarily through pre-produced newscasts shown on video screens as well as "injects" or notes given to Cabinet members throughout the Simulation. The participants are informed of their roles ahead of time, but they are not informed about the events and situations they will encounter. There is a certain amount of useful drama generated when the participants respond in real time to each new situation.
The purpose of a simulation exercise is to provide participants and observers with an opportunity to think through simulated emergency situations--in this case involving oil supply disruptions--and to discuss solutions to problems posed as part of the scenario. The sponsors of this exercise have made every effort to ensure that the events portrayed are highly credible and realistic. Experts in the fields of national security, world oil production and distribution, and macroeconomics were drawn upon to develop and verify the authenticity and plausibility of all aspects of the scenario from the oil market disturbances to the impact on oil prices and the economy.
Today's focus on oil is motivated by recent events. Over the last two years, oil markets have moved into uncharted territory. The world experienced one of the steepest increases in oil prices in more than a generation between the spring of 2003 and the fall of 2005, when prices doubled from $25/barrel to more than $50/barrel. Despite much higher prices, growth in world oil demand in 2004 was the highest seen since the 1970s. At the same time, OPEC production capacity has fallen in Iraq, Indonesia, and Venezuela. The result today is a global shortage of spare production capacity, which in turn has led to a large risk premium in oil prices. Recent trends suggest that today's high oil prices will continue until the world's spare production capacity is seen to be increasing.
At the end of the exercise, the participants have an opportunity to step out of their roles and discuss the exercise with each other and the observers. The post-scenario discussion (called a "hot wash") is likely to focus on what it was like to be a Cabinet member faced with these events and forced to make tough decisions. The participants are invited to reflect on what actions should be taken to better prepare ourselves in the future based on lessons learned from the Simulation.
