Oil shocks expose structural vulnerabilities, reinforcing that long-term energy security requires diversified supply, reduced dependence, and sustained investment. 

“The real lesson here is that it only requires a relatively small amount of oil to be taken out of the system to have huge economic and security implications.” Former Secretary of Defense Robert M. Gates made this observation during Oil Shockwave, a 2005 oil crisis simulation produced by the oil security nonprofit I founded in 2004, SAFE (formerly Securing America’s Future Energy). Since then, we have conducted similar simulations to give current and former government officials the opportunity to experience and prepare for the kinds of real-world challenges that the Trump administration is confronting today.  

Oil ShockWave placed a simulated Cabinet, typically composed of former Cabinet officials, into a rapidly evolving energy crisis, requiring them to make decisions and present recommendations to a fictional president. We developed scenarios ranging from terrorist attacks on tankers in the Bosphorus Strait to instability in Nigeria and Saudi Arabia, and to disruptions in the Strait of Hormuz, similar to what we are seeing today. Across all these exercises, we gained valuable insight as to how the United States might respond to the current situation and what America can do going forward. 

Oil Market Volatility and Global Price Interdependence 

Compared to 2005 and even 1973, the United States is in a far stronger position to weather the current situation. But no matter how energy “independent” or “dominant” we become, one fact remains unavoidable. Disruptions in the oil market anywhere affect the price of oil everywhere. The price of crude oil, even when produced domestically, is determined in a global market. Moreover, oil remains the lifeblood of a global mobile economy, so every country and its economy will feel the impact—some in terms of physical supply and everyone in terms of price.

The volatility of oil prices, unlike that of almost any other commodity or product, makes it unique and particularly challenging. Oil prices can swing sharply due to geopolitics, weather, or the coordinated efforts of the Organization of the Petroleum Exporting Countries (OPEC), which operates as an illegal cartel according to US law. Companies that make long-term investment decisions, from automakers shaping the character of their fleet, to airlines deciding which routes to fly or which planes to use, or industries that consume petrochemicals for plastics, fibers, solvents, and more, can operate with $50 or $130 oil. But the decisions they would make, and the companies they would build, would look quite different under different price scenarios. The volatility of oil prices complicates business planning in a way that few other things do.  

Oil Shockwave revealed another important lesson: once a crisis begins, it is too late to meaningfully address oil dependence. Participants consistently concluded that earlier action by policymakers would have made the greatest difference, and that it was unfortunate that Congress and previous presidents had not acted before crises occurred.   In the short term, governments cannot quickly increase global supply or significantly reduce demand. Real solutions must be built over years, not weeks.

The Rise of Energy as a Core National Security Strategy 

SAFE was founded at a time when the United States was fighting wars in Iraq and Afghanistan, and there was a Global War on Terror, with oil as the proximate cause. Despite oil being important at the time, energy is now central to the war strategy itself, making this, quite possibly, the first Energy War. At that time and still today, Democrats argued that we could conserve our way out of the problem while Republicans claimed we could drill our way to independence. The reality was that we need, and have always needed, an All of the Above Strategy to be oil-secure and dominant, enabling us to choose the time and place of our military and foreign policy interventions and to ensure that dependence does not impact how we respond or undermine public support over time, as we see with the current situation with Iran. 

The solutions continue to be threefold: 

1. Maximize domestic production with America’s high safety and environmental standards. 
2. Reduce the oil intensity of the US economy to get more economic output per molecule of oil or natural gas so that price fluctuations have less impact on the economy and GDP.
3. Find alternatives for a portion of our transportation sector, so it is no longer 92 percent dependent on oil, leaving transportation hostage to the global price. 

The solutions are not inherently ideological—although politics has increasingly taken over—but rather reflect the basic economics of supply, demand, elasticity, and substitution. The good news is we have come a long way since 2005 and that initial simulation. 

US Energy Dominance and Structural Shifts Since 2005 

First, the United States is now the world’s largest oil producer and a net exporter, producing more than 21 million barrels per day, roughly equivalent to the volume that moves through the Strait of Hormuz. In 2005, by contrast, the United States produced around only five million barrels per day and imported more than 12 million, with both numbers moving in the wrong direction. This transformation, driven by oil and natural gas from shale, was driven not only by American free-market capitalism and technological innovation—hydraulic fracking and horizontal drilling—but also by a uniquely American system of private mineral ownership, which incentivizes production. Today, our domestic production largely insulates us from a physical supply shortage and improves the US balance of payments. Although we are a net exporter now, Americans remain concerned about the current crisis because it costs them more at the pump. 

It is, however, clear that continuing to increase oil production in stable democratic countries increases global supply, reducing the risk of unexpected shortages due to conflict, expropriation, or political instability. Democracies with strong environmental standards should support their own domestic production to enhance security of supply, generate national income, and act as the most environmentally responsible sources of oil and natural gas on the market. Yet, many such countries have turned sharply away from increasing their own domestic supply for environmental reasons. “Drill, baby, drill” might sound cavalier, but it has not just helped address Americans’ energy security—it has helped improve the world’s energy security. 

Second, the US economy is far less oil-intensive than in the past. Between 1973 and 2005, the United States cut the oil intensity of its economy by half, allowing it to generate twice the output per barrel of oil consumed. This was achieved by removing oil from electric power generation, shifting toward a more service-oriented economy, and by policies that improved vehicle efficiency, which required auto companies to channel some of the improvements in engine technology toward efficiency rather than just power. 

Since 2007, when the new, strengthened, and reformed fuel efficiency standards were signed and implemented, which SAFE’s Energy Security Leadership Council of military and business leaders played a large role in promoting, the fleetwide fuel economy for new passenger vehicles has become an additional 30 percent more efficient. Those fuel economy standards, however, were recently eliminated. The country should use new technologies and systems, including data, sensors, crash avoidance, autonomous vehicles, and ride-sharing, to seek additional gains, giving consumers and automakers better choices to keep money in our pockets and make us more secure on our roads, while keeping American troops off Middle East battlefields.  

Third, in 2005, electric vehicles (EVs) were absent from the road. Today, there are more than 4.5 million on US roads, and more across the globe. EVs, which can be manufactured in the United States using allied minerals and supply chains, enhance national security because they run on domestically generated electricity from diverse sources such as coal, nuclear, natural gas, hydro, or renewables, which are generally not priced on global markets. EVs also create demand for the minerals we desperately need for our defense systems. 

Plug-in hybrids, in particular, offer important flexibility by allowing the use of electricity for daily driving while retaining the option to use gasoline for longer trips. This opportunity does not require universal adoption. For many households, simply replacing one vehicle with an EV or a plug-in hybrid can meaningfully reduce oil consumption. Moreover, it would help ensure China does not continue to dominate a technology (i.e., batteries) that is increasingly important to defense. 

There is a legitimate concern that shifting from oil dependence to EVs could trade one vulnerability for another—moving from the oil frying pan into the “Beijing battery fire.” But this is not a reason to slow the transition. It is a reason to manage it strategically. The United States and its allies must strengthen the domestic auto sector, the allied battery supply chain, and industrial capacity. It must also keep Chinese cars out of America, and encourage allies to do the same, to prevent the undermining of domestic industries and address the security risks associated with connected vehicle technologies that incorporate Chinese technology and software. China’s approach of building state-supported overcapacity and vertically integrated supply chains is a well-worn Chinese playbook, used to overwhelm and undermine Western competitors. This is not a bug in the operating system of the Chinese economy—it is a feature.

The Iran Conflict and the Strategic Imperative of Energy Resilience

Iran has been in conflict with the United States for 47 years. President Donald Trump initiated this action when Iran was arguably at its weakest—having recently suffered a humiliating military defeat—and the United States is relatively strong in energy terms and global supplies, principally driven by high US production. In Oil ShockWave 2005, the price of oil rose to $161—unheard of at the time. Surprisingly, just two years later, it actually hit $147 in real life, driven by a demand shock from China that had nothing to do with a crisis in the Strait of Hormuz. It has consistently been between $100 and $125 in 2008, 2011, 2012, 2014, and 2022.  

Oil prices today, about $113 per barrel, pose real economic risks, but they are not unprecedented. Prices have reached similar levels many times over the past 15 years, including supply interruptions and demand shocks. Still, substantial risk remains. If Iran can cause price spikes in its weakened state, one can only imagine how much greater its potential leverage might have been with rebuilt stocks of drones and ballistic missiles, or even nuclear weapons.  

Ensuring the free flow of oil through the Persian Gulf has been a core US interest since President Jimmy Carter—no warmonger—first confronted the fundamentalism of this Iranian regime and established the Carter Doctrine. Now, President Donald Trump and our allies, who are dependent on this oil, need to resolve the current threat by reopening the Strait. But to address this threat over time, resilience must be carefully built, not improvised. 

The United States and its allies should pursue a balanced energy policy. There are four actions to take. 

1. Produce domestic energy subject to strong environmental standards (particularly in democracies with strong regulatory oversight).
2. Strengthen energy supply chains with allies and reduce chokepoints by constructing alternative pipelines or other means, where possible. 
3. Innovate and adopt new technology to reduce the oil intensity of the economy.
4. Increase diversity of transportation energy sources by deploying advanced transportation technologies, such as electric and automated vehicles, at a pace consistent with the market but sufficient to avoid ceding the industry to China. 

These should not be viewed as ideological choices. They reflect basic economic principles of supply and demand, and of elasticity and substitution. 

This is not a moment for panic, but it is a moment for discipline. In 2004, when I founded SAFE, the United States lacked many of the tools that it has available today. There was no shale revolution in the oil patch and no EVs on our roads—both, incidentally, American innovations. We are energy-dominant today.

America’s new energy strength reflects a richness of innovation, resources, capital markets, and strategic diversification. Energy security is not a destination; it is an ongoing process. It requires sustained investment, technical progress, and strategic thinking—on our oil fields, in our laboratories, in our factories, and on our roads. And it requires national fortitude, patience, and determination in the face of the current conflict. Together, we can build a future where we no longer have to choose between our energy needs, economic strength, national security, freedom, and core values.

That is the real lesson of Oil Shockwave, and it is one that we cannot afford to forget.     

About the Author: Robbie Diamond

Robbie Diamond is the founder and executive chairman of SAFE, having recently stepped down as CEO after 20 years. He is also the executive chairman of Glomar Minerals, an undersea minerals company with licenses in the Pacific Ocean. Diamond earned a BA from the University of Toronto in Peace and Conflict Studies and Political Science and an MA in Law and Diplomacy from The Fletcher School. 

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