Let's Not Play The Oil Game; We know what needs doing. By not acting, we leave ourselves at the mercy of the market and those who would manipulate it.

Byline: Richard N. Haass (Haass is president of the Council on Foreign Relations and author of "The Opportunity: America's Moment to Alter History's Course")

No doubt it's a sign of the times. Today's war games have more to do with the falling supplies and rising price of oil than with tanks and armored personnel carriers rolling across borders. Consider just such an exercise, conducted several months ago at the World Economic Forum in Davos. The setting was late December 2006. In a simultaneous three-front strike, terrorists sank a tanker in the Bosporus, blocking the Turkish straits linking the oilfields of the Caspian Sea with the Mediterranean. They also successfully attacked the oil port of Valdez in Alaska. An assault on the critical Ras Tanura complex in Saudi Arabia was rebuffed, but several million barrels a day (roughly 5 percent of world supply) were taken off the oil market for at least four months.

Overnight, prices jumped to $120. U.S. gasoline prices shot to $5 a gallon. Participants in the game included the CEO of a major global oil company, a head of the national oil company of an important Middle East producer, senior officials from the International Energy Agency and the U.S. government, the president of a large insurance company and various counterterrorism and energy experts. I played the U.S. Secretary of State. The wargamers recommended specific steps, including parallel drawdowns of national strategic oil reserves, a temporary relaxing of environmental regulations to make it easier to refine crude oil into gasoline, lower speed limits and requirements for a minimum number of passengers in private vehicles. These relatively modest moves ensured adequate supplies but did not eliminate upward pressure on prices, which stayed high until the integrity of the global oil network could be re-established. Longer-term recommendations focused on preventive measures to guard global oil installations and transit routes so that a bad situation did not grow worse.

What surprised me is how sanguine the participants seemed about the political and economic consequences of far more costly oil. But it is highly unlikely that this muted reaction would be mirrored in the real world, especially if U.S. gasoline prices were to reach $5 or $6 per gallon. Nor did the players consider other eventualities, such as a meltdown of the global financial system.

What can we learn from this exercise? First: with global demand and supply balanced so closely, and with so little excess production capacity, it doesn't take much for oil ...