Lately we have been engaged in more forward planning sessions here than is normal. In these, we build scenarios based on world situations, oil and gas prices and activity levels. Our results of late have been disquieting. Our worst case scenario goes something like this.

Sometime toward the middle of this month, the situation in the Middle East deteriorates seriously. Israel, in response to increased terrorists attacks, conducts a lightening war against at least one neighboring state accused of supporting terrorist activities. The United States, already embroiled in Iraq and resented by the Arab world, supports the Israeli move. In return, the Arabian countries vow an economic war against the United States and begin by restricting production and imposing oil price hikes. Oil skyrockets from US $26 per barrel to $45. As the standoff escalates, the Arab OPEC countries suspend oil sales to the United States. In short order, gasoline rationing is discussed and sales are suspended on Sunday in the United States. Americans queue in long lines for gasoline, which rises from $1.40 per gallon to $7.23 per gallon. Purchases are restricted to 10 gallons. Within days, the country is in panic. Throwing all opposition aside, the US Congress rapidly authorizes drilling and production in the Arctic National Wildlife Refuge (ANWR), the only large, indigenous supply in sight.

But first oil from ANWR is at least 2 years away and the situation worsens. By December, jet fuel supplies have fallen by 10% and large blocks of flights are cancelled. Another 15% fall in jet fuel supply is projected. The US Congress, to stave off impending disaster, mandates a national 55-mph (88-kph) speed limit to save oil. It's all too little avail and, in mid December, the President takes the unprecedented step of urging Americans to forego traditional lighted Christmas displays to save energy.

But the situation continues to worsen. By January, the price of Arabian oil has reached $102 per barrel. Japan and other industrialized, major oil importers are hard hit. Inflation is running in double digits in the United States and businesses are beginning to fail. By March, the situation is critical. US economic output has dropped by over a trillion dollars per year and nearly a million jobs have been lost. More drastic measures are being planned.

Then, in late March, the crisis ends as the United States pulls out all stops to buy good will in the Middle East by brokering a peace. Oil exports to the United States resume, although at a much higher price than previous exports. The United States and many industrialized allies recover slowly through high inflation and a recession. Almost a decade will be required to repair the damage.

If you think that this is a scary scenario, you are right. And, if you remember the Arab Oil Embargo Crisis of late 1973 and early 1974 you don't even have to think - you know it's scary. Aside from the fact that I inflated the figures to 2003 price levels and replaced the Trans-Alaskan Pipeline with ANWR, the scenario is true to life. It began 30 years ago this month.

Are we close to another crisis of this magnitude? It's hard to tell. The accord within OPEC is more solid than it was then. The international economy is more integrated. The world political order has changed. Still, tensions run extremely high just now and another embargo can't be ruled out. In fact, it has been recently discussed and the threat openly made. And there are more rogue factions out there now. Any investment made to forestall another oil embargo would be a good investment.

There is an old saying that history doesn't repeat itself but historians do. Let's hope that it's true.




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