Wednesday, January 26, 2011

The Coming Cold War: Musings on the News and Strategic Planning

Recently Time Magazine showed a chart indicating that the US and China had nearly the same number of submarines. Thirty years ago, during the last Cold War with Russia (USSR at the time), MIT had published a study regarding the impact to our economy if just a few submarine-based missiles launched at coastal oil refineries. There is almost no defense against such a quick attack.

These two facts led me to think about oil. Two-thirds of the oil in the US is used for transportation. If we lost 25% of our refining capacity, that would cut the fuel availability by one-third. What would be the priorities for petroleum usage? Would gasoline and other fuels be transported long distances to the US, because our refining capacity was reduced? How quickly could moth-balled refineries, those that were shut down in the 1980's and 1990's, be brought back on line? How quickly could transportation--military and commercial--convert to natural gas?

For quite awhile, individuals would be limited, maybe rationed ala WWII, to how much gasoline they could purchase for their individual use. Commuting to work would become more difficult. If you live a distance from a grocery store, it would be harder to shop. Would commercial production be limited? Would people be reassigned to critical industries? What if the refineries were destroyed in the winter? The Upper Midwest, in particular, would be critically affected when it would be harder to bike to work.

Without a "commuter society", many retail businesses would suffer. Starbucks, Barnes & Noble, etc would be greatly impacted. "Discretionary" shipments from online retailers could be curtailed.

What would provoke such a scenario into existence? A conflict in Iran? China imports just over half of the oil it consumes now so it has a vested interest in the Mid-East region.

China is also the main source for rare earth metals used in a lot of high-efficiency motors and generators. Over the past few years, there have been price concerns as China's economy has grown substantially. In the past year, there have been hints that they could restrict exports. If they did, this would crimp aerospace, electrical power generation and medical device industries, who rely on the lightweight, compactness of permanent magnet motors/generators that use rare earth metals.

Military conflict is not a good way to maintain economies. However, if economic incentives for strong, mutually beneficial relationship between the US and China fail, then who knows?

I'm not recommending that this scenario be part of your strategic planning. But can your business survive an apocalypse?

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