We Americans tend to have short memories when it comes to economic problems (among other things), so it's probably worth taking an occasional look backwards to illuminate the present.
On Nov. 1 last year, a group called Securing America's Future Energy ran a game-playing
exercise with nine mucky-mucks like former Treasury Secretary Robert E.Rubin, prize-winning author and consultant Daniel Yergin, former deputy Secretary of State Richard L. Armitage and Gen. (Ret.) John P. Abizaid. The goal: to dramatize the risks of a price shock if some unexpected event threatened world oil supplies. The scenario: unrest rocks Azerbaijan and an explosion cuts off a million-barrel-a-day pipeline. The scenario was called "Shockwave" and
it envisioned an urgent meeting of the National Security Council to deal with the "crisis."
And what was the price of oil during this hypothetical crisis? $115 a barrel - slightly less than the current price.
That brings to mind one lesson and one question.
The lesson: People get used to high oil prices surprisingly quickly -- although they're definitely not happy about it and the prices are definitely hurting the economy.
The question: Even if the Bush administration convened a National Security Council meeting to treat oil prices as an international crisis, what could policymakers do? The answer is that options with immediate impact are limited. Back in November a lot of the recommendations of the hypothetical group had to do with a limited release of oil from the Strategic Petroleum Reserves, displays of diplomatic support for the Azerbaijan government, and analyses of which one of several groups might plausibly have blown up the pipeline. The fact that there wasn't any easy and quick recipe for solving the price crisis was part of the sponsoring group's point: That energy efficiency, reduced dependence on foreign imports and diversified sources of oil supplies are pressing matters before a crisis strikes.
Here's a link to Oil ShockWave, last fall's hypothetical situation.