Clearly, a plan should exist specifying the proposed utilization of the Reserve under simulated emergency conditions, to ensure that available transportation systems will be able to distribute the crude oil rapidly to refineries in all parts of the country on the basis of need, so that no region will be left with inadequate supplies.

Yet we are told by the Administration that detailed contingency plans do not exist. This is indeed a sobering disclosure after experiencing two oil shocks in the last nine years and with another one lurking on the horizon. Ideological incantations about the role of the free market, which continue to pervade Administration statements about emergency preparedness, are no substitute for the design of a system and procedures for its activation and use. Emergency preparedness, like national defense, is a government responsibility.

By requiring the Administration to deliver a contingency plan based on an assessment of impact and need, the amendment to S. 2332 proposed by Senator Jackson addresses this critical need.

Mr. Chairman, the bill before you enables continuing participation of U.S. firms in the International Energy Agency arrangements. I would like to take this opportunity to submit for the record an op-ed piece on this subject written by my colleague, Thomas Stern, and published in the Christian Science Monitor on January 15, 1982. This statement expresses our view that although international cooperation in the energy area, and particularly in an emergency situation, is absolutely essential, the underlying data and assumptions in the IEA have been altered sufficiently since 1974 to warrant a thorough review of the present arrangements to ensure that equity is achieved. If the United States is to assume burdens as the result of Persian Gulf instabilities, then the other IEA signatories, particularly our NATO allies, should share in these burdens. The equity objective is as important in the international arena as it is in the domestic one.

I thank you, Mr. Chairman and members of this Committee, for hearing from us on this important subject.

Would the US help'its allies in the event of another oil embargo?

By Thomas Stern

The time: 1974. The free industrialized na-
tions have just experienced a severe eco-
nomic jolt created by an oil embargo. OPEC,
the prime culprit, can hardly contain itself for
joy at an unexpected triumph. The United
States, Canada, the Western European na-
tions, and Japan react in a panic. Among
their first responses to the crisis, true to form,
is the establishment of a new organization. It
is the International Energy Agency (IEA), an
oil consumers' coalition designed to provide
protection against the next embargo through
a mechanism for sharing the shortage cre-
ated by a supply cutoff.

The time: 1984, 10 years later. Oll from the
Middle East is abruptly cut off. The United
Kingdom and Canada react indifferently be
cause, thanks to their own domestic produc-
tion, they are now essentially independent of
imported oil. US dependence on Middle East
oil imports has been substantially reduced,
representing only 4 percent of its energy con-
sumption. As the result of conservation, con-
version to alternative energy sources, and the
availability of a strategic petroleum reserve,
the US can absorb the temporary loss of Mid-
dle East oil imports with tolerable economic
effect.

The other IEA signatories are in bad
shape, and under the IEA mechanism the US
is committed to help them. Japan, West Ger-
many, and Italy, still heavily dependent on
Middle East Imports, are exposed to immedi-
ate economic shock waves. They expect that

all IEA members, notably the US, will honor
the commitment to share the oil deficit equi-
tably. Beyond helping them ride out the emer-
gency, they expect the US to play a major role
in restoring the interrupted oil supplies by ap-
plying the required military muscle to restore
order in the Middle East.

It is clear that, in the event of such a sce-
nario, the US economy would be exposed to
serious consequences. Shortage sharing with
allies would require an immediate curtall-
ment of US oll supplies. The sudden domestic
shortages would increase inflation and unem-
ployment and decrease the rate of economic
growth. The Congressional Budget Office has
estimated that a 25 percent curtailment of
normal US imports would result in the follow-
Ing: a 25 percent rise in inflation; a 2.2
percent Increase in unemployment, and a 7.5
percent decline in the rate of GNP.

The US government would be faced with a
serious dilemma. On the one hand, the IEA
agreement requires each member in an
emergency situation to reduce domestic con-
sumption by 7 percent and, if that is not
enough to compensate for the shortfall, to
participate in a mandatory allocation system
to restore the supply equilibrium. On the
other hand, the administration would under-
stand that, once an allocation system was in
effect, the American public would likely ex-
perience rising prices and long gasoline lines,
as it did in 1979.

Would the public accept the deprivation created by the additional losses required by

the IEA agreement? In 1984, would it forget
the damage done in the 1980s to American in-
dustry and labor by Japanese imports? Would
It forget the indifference of European allies to
American foreign policy and national secu-
rity Initiatives designed to safeguard Middle
East oil? Would it be willing to expend its fi-
nancial and human resources by sending a
rapid deployment force into the Middle East
to protect oll supplies primarily required by
the allies?

We cannot today accurately forecast the
public response to IEA commitments, but
public resistance would probably be severe.
The prudent policymaker had best base his
plans on a worse case scenario of public tol-
eration. And as for our IEA partners, they
should recognize now the likely American
public reaction to oil-sharing schemes that
might be invoked in the future and adjust
their behavior accordingly.

IEA members must recognize that the IEA
charter is based on an anachronistic situa-
tion. The burdens and consequences of oil
dependence are now distributed differently
among various IEA members and therefore
the application of a uniform formula to cor-
rect the burdens could create domestic reac-
tions that would rupture the alliance.

If IEA is to continue on the basis of shared
obligation, the whole concept of mandatory
allocations should be scrapped. A rigid for-
mula for sharing cannot be responsive to a
future crisis because we cannot foresee the
nature or impact of the crisis. As a workable
alternative, IEA should develop a statement

of general principles that would suggest a
range of acceptable responses to an emer-
gency. With an ever-increasing oil stockpile
available as a temporary buffer, we need not
now prescribe the appropriate response to the
next crisis, but can mount a response to the
emergency when it arises.

Most important, the member governments
need to adjust to the realities that exist today.
They must accelerate efforts to reduce oil
consumption and expedite the transition to
other energy fuels. They must examine the
IEA charter in light of developments of the
last 10 years. And they must acknowledge a
joint responsibility and financial commit-
ment to safeguard Middle East oil supplies
for as long as the Western alliance requires
them. They should not expect others to do

The CHAIRMAN. Thank you very much for your statement. I appreciate it. And I had noted the attachment to your statement, the article to which you referred, authored by Mr. Stern.

I think there is a sobering challenge stated in that article, and one we better pay attention to. I will quote just this much from his statement, "The prudent policymaker had best base his plans on a worse case scenario of public toleration." I think we had better do that. And I think that is part of what we are talking about with respect to energy preparedness generally.

There is another point that I think needs to be made, and I would ask if you share that, and that is that you don't make emergency policy or emergency plans based upon median scenarios. You make emergency plans to deal with emergencies. A little like trying to determine from some fire rating bureau what is the average damage to a home by fire during the year and then insuring only to that level of fire damage. Is that a fair comparison?

Dr. BERGMAN. Well, I think we would certainly agree with you, Mr. Chairman.

The CHAIRMAN. And I think that rather familiar dilemma that every household has, when they pay their fire insurance premium, they probably have never had a fire. Most have not, but they pay the premium. And most are now buying insurance, replacement value insurance, not just depreciated value, because they know in the event of total loss they wouldn't have a house.

So we don't insure to median levels of risk. We insure to the upper level of risk. I don't know why our nation should do less than that with respect to national security. We are spending some $200 billion a year for military preparedness, again, certainly not preparing for all-out war by way of mobilization, nor for some median case level, but for some upper level of risk.

And, yet, in energy policy we approach it as though we had a greater luxury of more tolerance for the risk. That has perplexed me for a long while.

I appreciate your statements here this morning and the work that you have done.

Dr. BERGMAN. Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you.

Thank you very much. That concludes the hearing this morning. Thank you.

[Whereupon, at 12:53 p.m., the hearing was adjourned.]