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Review and application of SSI study, “Known Unknowns: Unconventional Strategic Shocks in Defense Strategy Development”

The Strategic Studies Institute (SSI) at the US Army War College has issued many stimulating research papers in recent years, several of which deal with energy security issues. Nathan Freier’s recent SSI paper (which we will examine here) does not focus on energy issues. Rather, the central purpose of his study is to present a paradigm for the examination of potential strategic shocks.

I will summarize the key points of Nathan Freier’s “Known Unknowns” and then apply his paradigm to emerging energy security issues, primarily the phenomenon known as “peak oil” and its corollary, export decline.

It should be pointed out that (Rumsfeld’s alleged double-speak aside) the concept of Known Unknowns is a useful element in military/security analysis. The term is used to describe potential threats about which enough is known to identify them as significant issues, but crucial details of which remain unknown.

Freier’s central thesis may be summed up thus: DoD analysts should be particularly alert to unconventional nonmilitary security threats, some of which are not completely unknown; rather, a strategic shock can arise unexpectedly as an ‘early arrival’ along recognized trend-lines.

Similarly, the central point of my application of Freier’s paradigm to the issue of peak oil may be summed up thus: there are well-known trend-lines which point to impending energy security concerns. Meanwhile, industry and government officials largely deny these concerns. This ongoing situation provides a classic and real-time illustration of an evolving potential shock. It is precisely the sort of situation which Freier says needs to be noted and scrutinized by military analysts.

a. Review of Freier’s key points

In his introductory Summary, Freier begins with a bold prediction: “The likeliest and most dangerous future shocks will be unconventional…. Most will be nonmilitary in origin and character and not, by definition, military-specific events….” (Freier, p.vii).

He then focuses on “threats of context” which he defines as threats “emerging in the absence of hostile purpose or design.” He then adds that threats of context may be “both the least understood and the most dangerous” (p. vii).

Freier then notes DoD’s “inherent predilection against anything that smacks of speculation,” which he correctly views as entirely understandable. But he cautions against what he views as DoD’s corporate tendency to lack sufficient imagination in considering potential threats (p.1).

Freier indicates his encouragement at DoD’s post 9-11 willingness to consider a broader spectrum of potential shocks. He then states that his paper “targets the incoming senior defense team” (p. 2) and encourages them to further expand their spectrum of analysis.

Freier relates the “known unknowns” of his title to “predictable but unpredicted strategic shocks” (p. 4). These shocks may be so problematic that they are characterized as “events that… would make a big difference to the future, require hard choices today… [and] are so complex that it is hard to imagine what can be done in response” (p. 5).

b. Application of Freier’s paradigm to the example of Peak Oil

Since we now have several of Freier’s criteria to consider, we will explore the degree to which they might apply to the example of peak oil.

“Peak oil” refers to the point of maximum global oil production, its peak flow rate. While the primary focus of peak oil analysts was initially on the ‘below-ground’ issue of reserves, there is growing awareness that the maxing-out of oil production may be caused by a complex set of factors in addition to the physical reserves: investment, EROEI (energy returned on energy invested, or net energy), delivery systems, geopolitics, developments in alternative energy sources, etc.

There is considerable debate about many aspects of the peak oil theory: whether oil production will follow a symmetrical bell curve or an extended & bumpy plateau, whether the peak will correspond to the halfway point in consumption, and (most contentious of all) when the peak/plateau will occur.

However, there seems to be a growing consensus around the more imminent problem of export decline. Robert Hirsch, Jeffrey Brown and Jeff Rubin have all recently highlighted the fact that global oil exports must necessarily peak and decline within the larger production curve (since one cannot export oil which has not been produced).

Furthermore, these analysts warn that the export decline-curve is likely to be more precipitous than the overall production decline curve.

Peak oil analysts warn of our growing global dependence on petroleum (especially imported oil), our ongoing infrastructure commitments, and the decades required to achieve an orderly transition to post-carbon energy sources.

Should viable alternatives (and their attendant infrastructure) fail to be in place before the eventual oil supply constriction, the tightening supply of liquid fuels would certainly cause price spikes which would rapidly lead to what the British call “fuel poverty” (an inability to afford fuel).

In free-market economies, fuel poverty is likely to become a significant social problem prior to the occurrence of physical shortages of fuel. (For businesses and citizens who cannot afford fuel, the result is effectively the same: they simply will not have it.)

As applied to Freier’s criteria, a prolonged and severe fuel supply problem (ie. a price spike with or without actual shortages) should indeed make a big difference to the future. This is evidenced by the significant adjustments which have occurred following previous oil price spikes.

A major fuel supply problem would also require that some very hard choices be made by individual citizens, businesses & agencies, and by public administrators alike.

DoD and civilian first responders will not be immune from these impacts.

As the 2005 Oil Shockwave exercise confirmed, a fuel supply problem of unprecedented magnitude would present economic and social problems of such complexity that effective responses remain difficult to conceive of, let alone implement effectively. [1]

The history of fuel emergencies provides ample testimony to the difficulty of administering them: political indecision, bureaucratic bungling, black marketeering, fraudulent ration coupons, time & fuel wasted in line-ups, volatile emotions at the pumps, etc.

Perhaps it is this fractious history which prompted the authors of a recent RAND study to recommend that authorities simply allow market forces to do their work, to refrain from attempting to ration fuel, and certainly to not interfere with pricing. [2]

However, UK emergency planners have taken steps to prevent local fuel stocks from being drained by uncontrolled panic buying. The British are determined to ensure that some fuel will be preserved for essential services and supply chains, and have rewritten their emergency legislation and empowered local authorities in order to grapple with the complexities of potentially having to allocate fuel. [3]

c. Trend-lines and predictable crises

Many crises are problems which were simply ignored, and Freier builds on this point. He argues that strategic shocks “are at once both predictable (and often predicted) but also un- or inadequately anticipated and accounted for” and cites a 2007 Naval Postgraduate School (NPS) report, “In hindsight, it is clear that most shocks are the products of long-term trends... (p. 6).

With this context in mind, let us consider the following ten trends:
- oil-field discovery rates (by volume) have peaked and been declining for decades.
- EROEI (net energy) rates are similarly declining.
- oilfield depletion rates continue to accelerate.
- there is growing consensus that the ‘easy oil’ is nearly gone.
- the number of countries with export capacity continues to decline and there is growing awareness that export decline and overall affordability may become problematic in the near term.
- the ‘grey factor’: oil industry veterans are retiring just as the industry must contend with new technological challenges.
- the ‘rust factor’: much of the existing oil & gas infrastructure is old and must be replaced.
- apart from temporary recessionary dips, global consumption (ie. global dependence) has increased to the present rate of about a thousand barrels a second.
- there are still no viable solutions to replace petroleum (when one considers energy density, the volumes of net energy, flow rates, infrastructure requirements, the convenience & flexibility of liquid fuels, etc).
- the media continue to overlook the issue of “the end of cheap oil.”. Therefore the public remains largely unaware, while politicians continue to avoid an issue for which they have no ready and viable solution.

Freier also makes the astute observation that the sources of strategic shocks “often lie outside ‘traditional or permitted’ areas of defense inquiry” (p. 7). In raising this aspect, he may have hit the nail on the head, particularly when it comes to energy security.

d. Optimism, denial and the need for military analysis

North American oil security depends primarily on the ability of private industry to deliver a steady supply of affordable fuel. Industry is subject to government oversight, but this is conducted by a range of agencies at various levels, all of them civilian.

The interplay between the oil industry and government is dynamic and complex. It is not subject to military oversight despite its implications for our overall economy, domestic social order and military capability, all of which could be severely and rapidly compromised by a major fuel emergency.

For years, the ongoing and optimistic position of both industry and government agencies has been that peaking is not imminent and that there are no foreseeable oil supply problems.

The few military analysts who have investigated the evidence on peak oil & export decline and found it credible thus remain in the awkward position of either ignoring what could potentially be a fundamental threat to national security, or daring to contradict the official/expert position of national and international agencies which have primary responsibility for energy security.

Military personnel may be understandably reluctant to overstep traditional boundaries of inquiry.
However, they should feel particularly entitled to scrutinize fuel supply issues because energy security is clearly essential to national security. Furthermore, should a Shockwave scenario in fact arise, the military is invariably ‘the default’ should civilian plans prove ineffective at containing a fuel emergency.

DoD has every reason to be proactive and prudent when it comes to fuel supply issues.

Returning to the matter of trend lines, Freier points out that strategic shocks may result from a “rapid, unanticipated arrival at the natural end of a well-recognized and perilous trend line... [an] unforeseen escalation of recognized hazards” (p. 9).

Again, the ten oil trends listed above are well-recognized and should be regarded as perilous insofar as our energy security depends not only on an uninterrupted supply, but that this supply be generally affordable as well.

Thus we have a set of trend-lines which military/security analysts should subject to impartial scrutiny. Analysts should also consider the degree to which some of this information is routinely discounted or denied (at least publicly) by the oil industry and by civilian agencies.

A recent CNA study which was co-authored by a dozen retired senior US officers comes close to addressing this point: “Both the defense and civilian systems have been based on dangerous assumptions about the availability, price and security of oil and other fossil fuel supplies. It is time to abandon those assumptions.” [4]

Abandoning assumptions is a welcome and necessary first step, but analysts (both civilian and military) must do much more than that: they must investigate impartially & thoroughly and establish conclusions which err on the side of prudence.

Analysts should consider the degree to which denial (of the potential for supply & affordability problems) by civilian and military authorities alike may itself increase both the likelihood and the magnitude of an oil supply shock.

It remains to be seen whether the “no foreseeable problem” reassurances (which are routinely issued by industry and government to the media and the public) would withstand scrutiny by knowledgeable & objective military analysts.

e. Interdisciplinary response

Having pointed out the complexity of attempting to respond to strategic shocks, Freier then points out that “the most disruptive prospective shocks must become the subject of detailed interdisciplinary examination” (p. 26).

Freier further specifies that “plausibility, strategic relevance, and impact” (p. 28) are key factors which should be considered in DoD’s determination as to whether an imagined threat warrants further scrutiny.

Returning to the example of oil supply, we have an abundance of plausible evidence from credible sources. If correct, this information is of direct strategic relevance with the potential for overwhelming social impact.

Given that all sectors of society are now reliant on affordable fossil fuel in many complex ways, an examination of the risks and potential solutions would surely require a team with extraordinary expertise in a wide range of disciplines.

f. Disruptive domestic shock

Freier lists numerous examples of occurrences which could lead to “disruptive domestic shock [during which] DoD might be forced by circumstances to put its broad resources at the disposal of civil authorities...” (p. 32).

Freier did not include fuel emergencies among these top-level threats, but his list was not meant to be exhaustive. On the other hand, the issue of “the demise of cheap oil” would have provided a perfect illustration of every key point in Freier’s paradigm, and it is hoped that he may yet choose to explore this connection.

One need only consider the ten oil trends (above), the history of fuel shortages and the stark conclusions of the top-level Oil Shockwave exercise to view fuel emergencies as worthy of inclusion to any list of likely top-level threats.

The fact that the issue of fuel supply emergencies is routinely absent from such lists is puzzling, especially in light of Shockwave participant Robert Gates’ conclusion that “The threat is real and urgent, requiring immediate and sustained attention at the highest levels of government.”

The apparent lack of attention from the military/security research community also remains a concern, and one can only hope that some serious analysis is occurring behind the scenes.

Meanwhile, fuel emergencies appear to be barely on the radar for civilian emergency planners in North America. Since 9-11 there has been an extensive focus on protection of critical infrastructure such as oil pipelines and refineries, but little apparent research on how our society might function should something impede the oil supply itself (without which the infrastructure is useless).

The numerous enquiries by this author have invariably indicated that there is uncertainty among federal agencies as to whether a national fuel emergency plan even exists.

Some state/provincial and municipal officials have indicated that they are not aware of a fuel emergency plan at their level or any other level. They also expressed their considerable surprise that anyone would be making enquiries on this issue.

Most significantly, every municipal emergency planner contacted by this author has indicated that he is not aware of any plan which authorizes his municipal officials to ration fuel to the public during an emergency (this despite recent research which stresses the importance of having a detailed local plan and the legal authority to manage fuel emergencies at the local level). [5]

(Please advise Energy Bulletin if anyone has information to the contrary re. any municipality which has such a plan for fuel emergencies.)

Here is the link to Nathan Freier’s SSI study, “Known Unknowns” (Nov. 2008):

References

1. Oil Shockwave: Oil Crisis Executive Simulation (June 2005), organized by the National Commission on Energy Policy and by Securing America’s Future Energy. This top-level Washington exercise examined the potential effects of the sudden loss of 4% of global oil production. Participants included Robert Gates, James Woolsey and Gen. P.X. Kelley (USMC, Ret’d).
http://www.secureenergy.org/reports/oil_shock_report_master.pdf

2. Crane, Kevin et al, Imported Oil and U.S. National Security, RAND Corporation,
May 2009, p. 89.
http://www.rand.org/pubs/monographs/MG838/

3. Partly as a result of the fuel disruption in 2000, the UK enacted its Civil Contingencies Act which empowers local authorities to address a range of emergencies, including fuel supply problems. This article provides background and various links:
http://en.wikipedia.org/wiki/Civil_Contingencies_Act_2004

4. CNA Report: Powering America’s Defense: Energy and the Risks to National Security, May 2009, p. 41.
http://www.cna.org/documents/poweringamericasdefense.pdf

5. The following three studies of fuel emergencies are exceptional in their thorough attention to detail and practical-minded approach:

a. ACIL Tasman’s analysis for the Government of Australia (2004) Alan Smart and his team did a very thorough review of Australia’s Liquid Fuel Emergency Act, with the entire set of documents totaling almost 400 pages.
Here is the link to their final report (Dec. 04, 88 pgs):
http://www.aciltasman.com.au/images/pdf/Final_report_16_December_2004.pd...

b. Helen Peck’s analysis of food supply chain vulnerabilities (UK, 2006)
Dr. Peck’s analysis is very thorough (171 pages) and although her primary focus is on food supply, there is much that is relevant. The information which is most relevant to fuel emergencies may be located fairly readily by scanning her detailed List of Contents:
http://www.cranfield.ac.uk/cds/departments/dassr/pdfs/defra%20final%20re...

c. Kathy Leotta’s analysis of Transportation Demand Management (USA, 2007)
The complete title of Kathy Leotta’s study is “Implementing the Most Effective Transportation Demand Management (TDM) Strategies to Quickly Reduce Oil Consumption” (Jan. 2007, 118 pgs).
This link introduces Ms. Leotta’s insightful study and provides a link to the complete report:
http://postcarboncities.net/node/97

Editorial Notes: Rick Munroe is a regular EB contributor around energy security issues. He works with the National Farmers Union of Canada.

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