ISSUED BY: GCIS Communications Command Center
SOURCE: The Heritage Foundation
22March2011 9:00amEST
GCIS INTELLIGENCE UPDATE: The 2010 Heritage Energy Game demonstrated that there are significant vulnerabilities in the domestic and international energy network. Coordinated attacks by terrorists and other violent nonstate actors could cause a massive drop in oil production and price spikes that would seriously harm the U.S. and the global economies. The reality may be even harsher: wide, prolonged instability in the Middle East may threaten Saudi Arabian and other Persian 
Gulf oil production, including spare capacity. Careful implementation of select policies could limit the economic damage, but implementation of misguided policies could easily make such a crisis even worse. The United States and its allies would need to exercise decisive and effective leadership to deal with the crisis, but this requires the U.S. to develop an assertive international energy policy, preferably before such a crisis.
In June 2010, The Heritage Foundation conducted a simulation exercise to assess the strategic and economic impact of a major energy supply disruption caused by coordinated terrorist attacks on key nodes in the global energy infrastructure. The exercise built on two prior games conducted in 2006 and 2008[1] and included two iterations.
The purpose of the exercise was to examine the international and domestic responses to the crisis, examine the principal actors’ interactions, and simulate the effects on world oil supply, demand, and prices. Analysts at The Heritage Foundation’s Kathryn and Shelby Cullom Davis Institute for International Studies developed the simulation exercise to assess the long-term and short-term policy implications of the oil disruptions. Analysts in Heritage’s Center for Data Analysis measured the effects of these disruptions on the U.S. economy and the international oil price. Under the business-as-usual (baseline) scenario:
- Petroleum prices jump from $75 per barrel to $250 per barrel and eventually fall back to $125 per barrel after two years;
- Gasoline prices jump to $8 per gallon and remain above $4 per gallon throughout the first year;
- Gross domestic product (GDP) losses exceed $300 billion per year for both years of the crisis;
- Employment drops by more than 1.3 million the first year and drops an additional 1.1 million in the second year for a total two-year drop of 2.4 million.
