Monday, September 10, 2007

If Iran Provokes an Energy Crisis: Modeling the Problem in a War Game

Note the wording of that Heritage Foundation headline.

From the press release:

From December 2006 to March 2007, Heritage Foundation scholars conducted a computer simula­tion and gaming exercise that examined the likely economic and policy consequences of a major oil disruption in the Persian Gulf. The exercise utilized a realistic scenario, state-of-the-art macroeconomic modeling, and a knowledgeable team of subject-matter experts from government, business, aca­demia, and research institutes from around Wash­ington, D.C.

This project was a proof-of-principle investiga­tion that combined computer modeling and gaming to capture how U.S. decisions during a crisis might affect how global energy markets and the U.S. econ­omy adjust to sudden and significant disruptions of oil supplies. In this scenario, the United States responded to a crisis precipitated by an attempted Iranian blockade of the Strait of Hormuz.

They found that under worst-case circumstances:

  • The price of West Texas Intermediate (WTI) crude would peak in the third quarter of 2007 at $150 per barrel, an increase of $85 per barrel;
  • Real (inflation-adjusted) gross domestic prod­uct (GDP) would fall by over $161 billion in the fourth quarter of 2007;
  • Private non-farm employment would decline by over 1 million jobs by the middle of 2008; and
  • Real disposable personal income would be more than $260 billion lower by the fourth quarter of 2007. MORE