Averting an Energy Crisis

GAS PRICES are skyrocketing; the average price of a gallon of regular hit $3.50 last week. Venezuela has threatened to cut off oil exports to the United States. The dollar has fallen by 30 percent against the euro over the past two years. Could things possibly get worse?

Yes. Real-world events underscore the nation's acute energy security vulnerabilities. Over the last year oil prices have surged in a short period of time without any single precipitating event. The effects are stark. Every $10 increase in the annual price of a barrel of oil costs the economy $75 billion.

The average American household spends $5,750 a year on energy, up more than $2,000 from just four years ago. The increase in the cost of gasoline alone amounts to a more than $1,500 tax on the typical American family. Over much of the past decade, Americans have been able to compensate for rising energy costs by drawing on the also-rising equity of their homes. But that did not solve the problem; it camouflaged it. And now that the mortgage crisis and the resulting collapse in property values have taken that crutch away, Americans are more conscious of the impact of the rising cost of oil on their livelihoods.

The United States consumes 25 percent of the world's oil: 21 million barrels every single day. The transportation sector - not just cars, but the trucks and airplanes that are crucial to delivering goods and services - use petroleum products for 97 percent of its energy needs. And the picture is not getting any better: demand in the United States is expected to grow by 30 percent - to 27 million barrels per day by 2030.

Add to this continued instability - and in some cases, hostility - in some of the world's most prolific oil-producing nations, and the conclusion is clear: America's dependence on oil, particularly oil from unstable and undemocratic parts of the world, threatens national security and economic stability.

Last night, in the Forum of the Harvard Kennedy School, a group of former high-level government officials gathered to take part in Oil ShockWave, a high-tech, realistic simulation exercise based on an all-too-possible scenario: a series of geopolitical events leading to a sudden and sustained jump in the price of oil.

The simulation illustrates how one small event in one corner of the world can cascade through the entire global supply system. Courses of action, at that point, would be limited. Would Americans accept an emergency restriction on driving, rationing, or forced carpools? Would we have to deplete our strategic stores, which are held in reserve largely for extreme contingencies, including military shortages? Would we be willing to send troops to secure oil facilities abroad? Would we have to bow to the demands of nations like Iran and Venezuela?

This is not just the stuff of Tom Clancy; these are scenarios we may have to one day face if we continue down our current path. None of them is palatable, and none is even guaranteed to work. Once the crisis occurs, it is already too late.

The objective is to keep the crisis from occurring. Since we cannot control the entire global oil market, we need to do the next best thing: reduce our dependence on oil and increase our resilience and capacity to cope with interruptions. There are meaningful steps we can take, from reducing demand through fuel-economy and other standards, to increasing the production and deployment of alternatives, to looking at other methods of powering our transportation sector (like electricity), to expanding domestic production of energy in an environmentally responsible way, to working in concert with other major consumers to increase strategic reserves.

The alternative - waiting until the real crisis occurs - is unacceptable.

Graham Allison is director of the Belfer Center for Science and International Affairs at the Harvard Kennedy School. Robbie Diamond is founder and president of Securing America's Future Energy.