Terrorists yesterday struck oil facilities in the US and Saudi Arabia, pushing oil prices to a record $120 a barrel and doubling to $5,214 the expected annual petrol bill for the average US household. Economists warned of the imminent collapse of the US's economic recovery and a loss of more than 2m jobs, the largest drop since 1945.
None of this is true, but the scenario is thoroughly plausible, according to high-ranking former government, military and intelligence officials who made up the US cabinet in a simulation exercise that is gaining increasing attention from members of Congress, the White House and oil executives.
"The risk of supply disruption in the oil markets now appears to be at one of the highest levels in history, primarily because of the thin cushion of spare capacity," John Dowd, analyst at Sanford Bernstein, which prepared the simulation's price reactions, told the international terrorism and non-proliferation subcommittee of the House's international relations committee last week.
"With only 2.2m barrels a day of spare capacity, which is enough to meet a little more than one year of demand growth, the oil markets are at the mercy of political stability in Venezuela, Nigeria and Iraq, as well as potential terrorist acts," he said.
"I sat in the situation room for more than 20 years under five different presidents. I think it was very realistic," said Robert Gates, former director of the CIA, who played the role of national security adviser in the simulation.
During the simulation, engineered by the National Commission on Energy Policy and the advocacy group, Securing America's Future Energy, participants took on the roles of members of the US cabinet and were asked to advise the president.
They were given scenarios of oil supply interruptions via television news bulletins and memos. As events unfolded, economists and former oil executives briefed them on the markets' reaction. The role-play was set in December 2005.
Participants included Gene Sperling, national economic adviser under President Bill Clinton; Linda Stuntz, deputy secretary of energy under President George Bush the elder; Richard Haass, until June 2003 the principal foreign policy adviser to secretary of state Colin Powell; and General PX Kelly, retired commandant of the Marine Corps and member of the joint chiefs of staff.
For the scenario, which included the evacuation of foreign workers from Saudi Arabia and unrest in Nigeria, analysts at Sanford Bernstein calculated that a 4 per cent reduction in world oil supply would increase prices by more than 170 per cent.
As the world saw last week, with the death of King Fahd and the smooth transfer of the kingdom's throne to longtime de facto ruler Crown Prince Abdullah, even the slightest sign of trouble in Saudi Arabia, which holds 25 per cent of the world's oil reserves and almost all of its spare capacity, sends prices higher.
The mock cabinet concluded that America's strategic petroleum reserve was of limited usefulness in such a crisis - it chose to tap it only when prices went to $120 a barrel. Using some of the emergency barrels too early could send prices higher, they said, because traders would worry that less emergency oil would be available if a more serious disruption ensued.
But the limited size of the stocks - the equivalent of two months of US imports - meant the reserve was useless for longer-term disruptions, such as an evacuation of all foreign personnel from Saudi Arabia, which was one of the scenarios presented in the role-play.
Despite the shortcomings, the US this month is expected to complete filling the reserve to 700m barrels.
More broadly, the simulation showed that, even with the recent passage of the energy bill, the US has few tools to counter a sudden reduction in supply. Oil facilities were too large to guard, the mock cabinet found, and diplomatic solutions were marred by unreasonable (in US eyes) demands by countries such as Saudi Arabia, which among other things had demanded that the US stop putting it under pressure over democratisation.
Gates concluded that Americans could probably be persuaded to adjust their behaviours to reduce their oil consumption for about a year if they saw the shortage of oil as an issue of national security.
"The real problem is year two to five," he said. "How do you impose that kind of daily pain on Americans for a three- to four-year period before alternatives can be felt?"
Sperling said after the simulation: "What I learned was that, when you face an energy crisis, you better have a pound of prevention - if not, you're left with only an ounce of cure."
Robbie Diamond, president of Securing America's Future Energy, the nonpartisan organisation that created the war game and advocates reducing US dependence on oil, said: "There's nothing like watching, listening and learning as a group of former cabinet members and senior government officials sit in a mock situation room responding in real time to a series of plausible and credible events. This is hopefully something that all champions of this issue can use to build support for serious action." The question now is whether lawmakers in Washington will take the issue as seriously as their retired counterparts who took part in the simulation.