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Virtual Consulting New York: Shell’s Scenario Planning 1998

Extract From: The Age of Heretics

Art Kleiner (1996)

It might seem surprising that the task was so difficult. By now, in mid-1972 everyone at Shell – and in the other oil companies – knew that the old oil game was falling apart. The OPEC governments, in the gentle voice of their new spokesman (the Cheshire Cat-like Saudi oil minister Sheikh Zhaki Ahmed Yamani), were asking for “participation.” They were no longer content to rent their land to oil companies; they wanted stock in the companies that drilled the wells. The major oil companies thus found themselves threatened with the possibility that they might lose their holdings. To the oil executives (and to most American citizens), it was as if a gang of belligerent street thugs had suddenly gained the power to dominate the world. (Of course, the Arabs, seeing the West through the light of their Islamic faith, felt the same way, except that in their Ottoman view the thugs had been in charge since the end of the Empire.)

The managing directors at Shell recognized the danger. If industrial growth depended on oil, then an oil crisis could soon lead to global shortages and even economic collapse. The chairman of the CMD, Sir David Barran – an erudite Cambridge alumnus who wore a monocle in public -began to say in speeches that the industrial world was “peering down the muzzle of a gun.” André Bénard visited his European contacts, including Henri Simonet, the Common Market energy commissioner in Brussels. He warned of the impending crisis, and explained some possible remedies, including setting up an oil reserves storage system for Europe. Simonet was a socialist, suspicious of multinational corporations in general and Shell in particular. “I’ll be damned,” he responded, “if I understand why a representative of one of the most capitalistic companies in the world should come and explain this to me.”

“Listen, it’s very simple,” Bénard replied. “Until now, I had this on my conscience. Now you have it

Yet Shell’s own policies had not changed. The organization, from managing directors on down, was still buying the same types of drilling equipment, refineries, and tankers, and making the same trading arrangements, as if nothing was going to happen. It’s not that the managing directors lacked capability. In fact, they were among the most sophisticated people alive, particularly in dealing with uncertainty. They had worked in the oil industry all their lives.

They had an innate gut feel, a tangible sense of judgment, for the geological realities and the markets of the oil business. They could easily handle a question of whether to invest $200 million in Green land looking for oil or to drill in offshore instead.

But when told, by these first scenarios, about a future potential oil market that might be either 56 or 87 million barrels per day, the managing directors seemed to become paralyzed. They lacked the necessary gut feel for the new world which Wack and Newland were trying to describe. They did not clearly see its geopolitics, changing markets, and inconstant cultures. And without that gut feel, they could not act. If the planners wanted the company to succeed, then they would have to make this new world tangible somehow. That, in turn, would mean somehow reaching the part of the managers’ minds that harbored their perceptions. In late 1971, after Wack was ensconced in
London, he, Newland, and the team of planners began to figure out how to design scenarios to accomplish this goal.

First, the planners focused on what Wack called “breathing in”- gathering intelligence from the outside world. With his background in magazine publishing, Wack knew the first rule of information gathering; you cannot take in without giving something back. Most corporations, including Shell, conducted their research in strict secrecy, which meant they could not share information. They had to buy it from consultants like Herman Kahn and McKinsey. But Wack hated to spend money on information. Moreover, the most successful oil industry consultants were constrained by conventional views.

Instead, Wack and the planners cultivated their own network of “remarkable people.” Wherever Wack traveled, making presentations to Shell offices, he sought out people, inside and outside the company, who had some depth of understanding. When other planners asked how he recognized remarkable people, he would say, “You know very well who they are when you meet them.” Sometimes, a remarkable person from outside Shell might stumble into a scenario presentation, as an Iranian physician did in the early 1970s, looking for stimulating conversation. (“You know,” Wack recalled, “it’s rather boring to be in a Middle Eastern country.”) The two men became close friends. Each year Pierre would visit and ask how his perception had changed.

Wack’s reliance on “remarkable people” was not universally popular at Shell. Some reasoned that if they weren’t chosen as “remarkable,” that must make them unremarkable. More significantly, the idea contradicted an unwritten axiom of postwar management: that any manager would be “remarkable” enough to step into any role. Wack, therefore, played down his research methods at Shell Centre, where he focused on the other half of the task. For following “breathing in,” an organism must “breathe out.”

The twenty-odd members of the scenario team spent much of 1972 plotting out the elements of six stories about the future, weighing them according to what would “really make a difference.” They overlaid these scenarios with a “triangle,” as they called it, of the most significant energy actors: the oil-producing countries of the Middle East, the oil-consuming countries of the West, and the oil companies. They picked the most promising combinations and then they role-played them – taking the part of every significant player on the scene. What would the Shah of Iran do? How would Richard Nixon react? How about Qaddafi? And Exxon? As they played out the results, sometimes shouting at each other in character across the conference room table, they listened for contradictions.

For their first great exhalation, scheduled for September 1972, Wack asked for an unprecedented half day to talk before the managing directors. “They can leave if they are not interested, he said. “But if they are interested, they must be able to stay the whole morning.” He had spoken to some of the managing directors ahead of time, dropping hints. He knew that they would stay.

Twenty years later, after they had retired, at least three of the managing directors would vividly remember the way Wack talked to them that September.27 With the directors seated at a semicircular table before him, and a screen for slides behind him, he began with a quiet, but still heretical, statement about forecasts. Trying to predict the future was not just impossible, he said, but dangerous. The most perilous forecasts to listen to are those, like the UPM, which have recently been correct, “because probably they have been right for the wrong reasons, and you are tempted to believe them. Sooner or later their forecasts will fail when you need them most.”

However, in some cases, he said, the forces that create the future have already shown themselves. He asked them to consider the Ganges River, which he knew well because his Indian teacher lived near its source. “From spring to mouth,” he said, “it is an extraordinary river, some fifteen hundred miles long. If you notice extraordinarily heavy monsoon rains at the upper part of the basin, you can anticipate with certainty that within two days something extraordinary is going to happen at Rishikesh, at the foothills of the Himalayas .” Three days later, there would be a flood at Allahabad, which is southeast of Delhi, and five days later in Benares. “Now the people down here in Benares don’t know that this flood is on its way,” he said, but I do. Because I’ve been at the spring where it comes from. I’ve seen it! This is not fortune telling. This is not crystalball gazing. This is merely describing future implications of something that has already happened.”

What predetermined events, then, were rolling down like monsoon water to flood the world? To start with, Wack said, Westerners had always thought of Arab countries as a common bloc. Shell, for example, had an expert whose function was to analyze OPEC, but his analyses always lumped all the Arab countries together. Henceforth, he would need to look at each of the Arab nations separately. For example, the Shah of Iran had been the West’s most eager and compliant oil supplier. But had only fifteen or twenty years’ worth of oil reserves left, and it desperately needed revenues. Its impoverished population was continuing to grow – a seedbed, though most of the world didn’t know it yet, of the most virulent Islamic fundamentalism. The Shell planners had role-played the Shah of Iran in a variety of situations. He was like a chess player with only one feasible move left on the board; no matter how he felt personally, he would push for higher oil prices and cut supplies. “If we were , we would do the same,” Wack said, on the other hand, was so sparsely populated and rich in oil that the ruling Saudi family members had more money than they could invest. They could open up more reserves, but that excess oil was worth more to them under the ground, without the expense of pulling it out. (Saudi officials had been saying as much for months.)29 If you looked at pressures like these, you could see that – after twenty years of enmity – the oil-producing countries would now find it irresistible to act in concert. They would unite against their former Western allies. If any oil-producing country had had large oil reserves, and the need for more investment capital, OPEC would have collapsed immediately. But there was no such country.

That was why, Wack said, the fears of the managing directors were correct. Instead of OPEC, the governing structure of international oil production would collapse. This would inevitably change the underlying balance of power in the industrial world. It would begin with an “energy crisis,” the break in the apparent availability of oil – certainly in the short-term availability of oil. This would probably happen before 1975, when the existing Teheran Agreement between OPEC and the oil companies was set to expire. The exact moment of collapse was unpredictable, but the collapse itself was unavoidable – and imminent.

So was another apparently “predetermined element,” the expanding need for oil in the West. At that time, energy profligacy in the was accelerating. People were driving more, air-conditioning their homes, embracing air travel. Europe and were rapidly building roads and electrifying (which would drive up fuel costs generally); and the nations of the “developing world,” the independent former colonies of the Far East, South America, and Africa, were all hungry for fuel. Oil exports would probably grow at a rate between 3.5 and 4 million barrels a day per year – four times the annual increase of the 1950s. Thus, a shortage seemed unavoidable. What he did not know, Wack said, was how each of these governments would react to the pressure of a shortage. The Americans would be angry, the Japanese anxious – but would they panic? Would they muddle their way into a depression? Was it possible to tell?

At this point, if not sooner, members of the CMD interrupted with questions. Wack handled them as he always would: “I’m coming to that!” he said, and then hurried on (“very politely,” Gerrit Wagner remembered). He now projected a chart on the screen behind him. The planning people who had prepared it called it the “delta” chart, because it looked like a river delta, with the flow of time split into six separate forks, each one a different scenario describing an alternative future. In the bottom three tributaries, the crisis was averted somehow, and oil remained plentiful throughout the world. In the top three, an oil shortage took place, but with different types of political response.

Only one of the forks, A2, led to crisis. The other five represented the hidden hopes of the people in the room. Thus, there was a moment of relief, until Wack began to describe each of the alternatives and the CMD members could hear how absurd they sounded.

The Private Enterprise Solution (A1) suggested that free-market forces would solve the problem in the form of higher prices charged by oil companies. This future, however, depended on governments recognizing the crisis before it happened – in time to undo their oil company regulations in advance. Shell’s managers knew they could not count on this future.

In the Dirgiste scenario (A3), the industrial governments would similarly anticipate the crisis. This time, they would take the role of strategists. They would act together ahead of time: collaborating on policies to control prices, allocate the flow of oil among themselves, and negotiate as a bloc with the Arab world. This future, to anyone who knew the governments, was even more unlikely.

The Successful Muddling Through scenario (B2) was Wack’s response to a comment from one of the British planners: “Look, you are French. You guillotine your kings. But here in , we tend to muddle through these crises and come out the other end. Why couldn’t that happen with the oil crisis?” A muddling-through scenario was reasonable, Wack said, “as long as we do not probe too deeply into current forces.” In order to successfully muddle through, the West would have to encourage energy saving ahead of time (reducing the demand for oil) and find some leverage with which to get the OPEC countries to back down. (In some respects the events Wack described for this scenario did take place – but it required twenty years.)

A Low Demand scenario (BI) posited that new countercultural values (or, as the planning people called them, “the change in social attitudes toward work and achievement”30) would abort the rat race of industrial expansion. People would voluntarily consume less, corporations would produce less, governments would promote energy efficiency, and the need for oil would decrease. The idea had seemed plausible during the European recession of 1971, but the recession had ended. The stoutly successful businessmen of the CMD had little trouble dismissing this scenario.

Finally, that left what Wack called the “Three Miracles” scenario – the image of the future that some of the CMD men still held dear. On the chart, it was labeled High Supply (B3): it said that through the heroic efforts of oil companies, the West would develop enough new oil to keep on top of the world’s demand. Mild shortages might take place temporarily, but they would simply reinforce the instincts of most oil executives – to explore, drill, refine, ship, and market oil even more aggressively than they had in the past. In this scenario, the crisis would be merely an opportunity to show what they could do.31

“But let us see,” Wack said dryly, “what would have to come to pass.” This future would require not just one, but three simultaneous miraculous events. First, oil companies would have to find and retrieve new reserves incredibly quickly – including 13 million barrels from Africa, and 6 million from Alaska and Canada.32 These regions were all unprepared for new drilling, and, in some cases, closed to it. Second, the OPEC countries would have to undergo a change of heart and become willing to sell as much oil as they could produce, happier with massive amounts of money in the bank (“exposed to erosion by inflation”) than with oil in the ground. And, finally, there would have to be no extra strain on oil production capabilities – no wars, no extra-cold winters or sudden demand for off-road vehicles, and no natural disasters. Most daunting of all, there could be no more oil spills or refinery fires that would waste oil. “Any single small accident could upset the whole system. Again,” continued Wack, brandishing a pointer at the screen, “nothing short of miraculous.”

Most of the managing directors could see that now. The mood of the room rapidly deflated. They already knew that the easy years were over, that they could no longer count on the financial cushion of a steady, unwavering stream of oil supply money. (“We sensed it more than we knew it,” Gerrit Wagner would later recall.) They could no longer build unneeded refineries, just to preempt a competitor in some region; they could no longer buy unneeded tankers.

For the first time, they had a visceral sense of what type of age was coming. It was represented by the only scenario left on the chart: the Energy Crisis (A2). The price of oil might jump fivefold within a few years: from $1.90 per barrel, where it was now, to $10. Shell would now have to work much harder at weighing its investments, and every other major oil company would be in the same position.

Toward the end of the session, one of the managing directors asked Pierre Wack a question that scenario presenters are always asked. Which scenario was most probable? Which should they choose to prepare for? Wack refused to answer directly. “Look,” he said. “Each of these scenarios is serious. You should weigh the probability against the seriousness of the consequence – if it happens and you are not prepared for it.” Probabilities, he said, were subjective. People tended, despite themselves, to assume that the scenario which felt most familiar was the most probable. “These scenarios,” he said, “help you not to prepare for the last war. Sometimes you have to prepare for a nuclear war and a guerrilla war, two wars that are completely different, and you have to do it at the same time because both may come.”

At this point, we may imagine, he clicked off the projector and stood impassively for a moment. And then discussion began.

When Pierre Wack and Jimmy Davidson walked out of the room a couple of hours later, they had two new assignments. First, they must present the scenarios to Shell managers around the world; henceforth, Shell managers would have to justify their decisions in light of the scenarios. Second, Shell would make a concerted effort to describe the forthcoming world to government officials and try to persuade them to act. There was one sticking point: even the worst “energy crisis” scenario, said the managing directors, should only predict a price of $6 per barrel, in constant dollars. Ten dollars was too outrageous; no one would accept it. (Within a year, the real price would rise above $I3, and by 1979, after another oil price shock, it would soar to $40.)

A sense of urgency overtook the scenario team. Late in 1972, they produced a small “white book,” with their estimates of every Middle Eastern country’s oil reserves. In January, the “eggshell-blue book” appeared. This one, for Shell eyes only, laid out the six scenarios that Pierre Wack had shown the managing directors three months before. Meanwhile, Wack and Newland found themselves on tour. Wack made more than fifty presentations that year. First, he laid out the scenarios before the “coordinators” of functions and regions. They were a blunter, more skeptical group than the managing directors, and they walked into the room without preparation, expecting a barrage of standard UPM-style projections and figures. When Wack finished, they applauded him – a gesture they had never made for any speaker before.

The operating company managers were far less receptive – but, of course, the message for them was more difficult. In Shell, as in nearly all major oil companies, there are two separate cultures: upstream (exploration and production) and downstream (refining and marketing). To upstream managers, Wack and Newland offered a new “unthinkable” to think about: “You are going to lose your mining rents.” In the oil industry, “mining rents” – an economic term for the revenues from low-cost oil fields – represented the most lucrative aspect of the upstream business. Now Wack said, “They’re finished. You had better find new sources of profitability.”

To the downstream people, there was the equally frightening warning that they would now become a low-growth company. “‘No longer,” Wack told them, “will the normal growth of the market make [a poor investment] all better in a year or two. You’re going to have to be fully responsible for what you do. You cannot trust your normal reflexes.”
Many Shell managers walked away from the presentations angry. “Just give me a number,” they pleaded. Capital-intensive businesses like Shell Marine, with its need to plan for buying tanker ships, could not move forward without a number to plug into their calculations. But the scenarios offered no single number, so the managers chose one. Many of them took the projections from the “Three Miracles” future, which felt the most reasonable, and plugged that into their formulas. Never mind that the results were a recommendation to buy more tankers than a crisis would support.

“We were in a new dimension,” one of the staff members, Napier Collyns, would later recall. “We were imagining things which were unimaginable – chief among them this impending shortage. And I think we all knew that it would be rejected by the rest of the Group. Ted and Pierre weren’t too involved with our colleagues in operations, but I was much closer to some of them; I counted them among my close friends. And now I had to put up with them regarding our ideas as mad. I was reminded of the myth of Cassandra – you tell the truth about the future but no one believes you – over and over and over and over again.”

Government officials were even less receptive. Wack flew around Europe and North America handing out what the scenario planners called the “pink book” – the scenarios, edited for non-Shell eyes. Like many documents that must navigate a balance between two sets of constituents, it was extraordinarily difficult to produce; but even Frank McFadzean, the UPM promoter, praised it as one of Shell’s most effective publications. But at best government officials listened politely without paying attention. The Americans refused to make time for Wack, whom they perceived as a middle-level Shell planner – a particular disappointment because the was the world’s greatest waster of energy and could have done the most to avert the crisis in advance. At that time, the Americans were doing exactly the opposite of what was prudent: depleting their reserves of oil, instead of building them up. There was no political support for petroleum taxes, or even for encouraging energy efficiency. The American government was like a man who, hearing a warning that he may lose his job, goes on a spending spree; and the American oil companies were like an investment counselor who advises him to do exactly that.

“We thought naively at the time,” Wack recalled, “that governments would be wise enough to see what we told them, and act immediately on it. Instead, everybody thought we exaggerated. There was the same first reaction everywhere: “Why does Shell tell us these horrible stories?’ They tried to find out what interest we had. And obviously we had no interest; after all, we were predicting that our property would be nationalized. Second, they said, ‘Oh, you exaggerate. It will not come in 1975. It may come in 1980.’ Finally, the government officials would ask, “How can I take advantage of this?’ ” One high-level politician from Alaska, for instance, wondered out loud whether an impending oil crisis meant they would be in a much better bargaining position for putting through the Alaska pipeline. No one ever seemed to hear Wack’s main point: that by acting wisely, in concert, the developed nations could anticipate the crisis and stop it.

As bleak as things seemed, change did begin at the Royal Dutch/Shell Group – lurchingly, arbitrarily, and almost unconsciously. In some operating companies, managers began to alter their land purchases; parcels slated for refineries were also designed to be suitable for chemical plants, in case the refineries became impractical. A few Shell engineers began designing refineries that could switch from crude to Saudi or Iranian (all of which had different technical requirements), depending on what was available. In refining, they increasingly used a technique called “cracking” to upgrade more of the less valuable “heavy oil” and convert it into lighter, more valuable gasoline. The worldwide manufacturing coordinator, Jan Choufoer, had proposed these improvements in the past, but they had been considered too expensive under the old planning requirements. Now scenarios gave them a broader base of support and Shell moved, in oil company parlance, to the “highest-technology barrel.” (Later, Choufoer would advance to managing director.)

Bit by bit, Shell executives began to put in place many of the commonsense, mundane frugalities which had been lost amid the frenetic growth of the 1950s and 1960s, but which all oil companies would have to learn to practice during the following years. The managers who made these decisions were, in effect, trapped by the scenarios; if they continued the old profligate policies, and the crisis indeed came to pass, they would not be able to claim now that they hadn’t seen it coming.

“We had too long acted,” Gerrit Wagner later wrote to Wack, “on the implicit assumption that the energy world revolved around Shell together with some other companies, without realizing that we were approaching the end of the oil era. We now had to observe a much larger scene and also consider a wider time horizon.” 38

By the following summer, Group Planning had begun to prepare the final version of a new, crisper set of three scenarios, designed to give managers a more intuitive, almost visceral understanding of their choices in the new world. These were scheduled to be presented to Wack’s most cherished audience, the CMD, in October 1973. But there was never a chance to learn what the new approach might achieve. By the date of the presentation, the crisis had arrived, three years ahead of schedule, with its own existential imperative.

Through the summer of 1973 and into September, ‘s King Faisal gave a series of interviews on American and British television. He wanted to cut off all its aid to . “It makes it extremely difficult,” he said, “for us to continue to supply the with oil.” He hinted that, if Arab nations got into a war with , the Saudis would be tempted to wield their “oil weapon” and cut off supplies.

The Saudis modeled their oil weapon wielding after the ‘ own use of economic sanctions. The next step, for instance, was to brandish the weapon by bringing it out into the open. Thus, in mid-September, OPEC’s ministers told the oil companies that their current contracts, which were supposedly valid for another three years, were no good. They agreed to meet in Vienna on October 6 to negotiate new contracts. This happened to be set on Yom Kippur, the Jewish Day of Atonement, as well as during the Muslim feast of Ramadan.

The night before the Vienna conference was to begin, warplanes left Cairo and Damascus-bound, respectively, for the Sinai Peninsula and the Golan Heights. The first reports about the attacks implied that ‘s military had been devastated. It was a shocking moment for the West, and it startled the oilmen who represented the industry at the conference. Gradually over the next six days, the advantage shifted back to ‘s armies. The war added stress and agitation to both sides in the negotiations, and on October 12 the Vienna talks broke down completely. OPEC and the oil companies could not agree on a price.

That night, Gerrit Wagner was having dinner with his daughter, a college student who lived in a houseboat on a canal in The Hague. Midway through the meal, the phone rang; when his daughter handed him the receiver, he heard André Bénard’s voice. Bénard was the Shell representative on the oil industry’s negotiating team. “These guys are crazy,” he said. The OPEC leaders were demanding a doubling in the price of oil – to the outlandish sum of $5 per barrel.

Wagner told him what all the oilmen already knew: the stakes were too great for the companies to negotiate on their own. They would have to check with the governments of Western nations, which would take at least two weeks. But Sheikh Yamani had no time for that. He would have to set a new price immediately, or else the Arab leaders would break off their deals entirely. They were too enraged by the war to wait. The Iraqis, in particular, were pressing to nationalize all the oil fields and cut off all shipments to Yamani himself did not want this to happen. He believed that the retaliatory climate from the West would be awful for , which depended on military protection. He wanted the Arabs to raise the price incrementally. That night, after midnight, he received Bénard in his suite, along with George Piercy from Exxon and two other oilmen. They asked once again for two weeks so they could get approval from their governments. He again insisted that a deal was necessary that night. He kept stalling them, doing anything possible to get them to agree before leaving the room. He offered them soft drinks, and when Piercy accepted a Coke, Yamani cut open a lime to squeeze into it. He passed around a plate of dates. “I always bring my own dates from ,” he said. “They’re the best in the world.” As evidence of good faith, he called another negotiator at the hotel, a delegate from , who arrived in his pajamas. He called Baghdad, talking vigorously in Arabic, and then, when he got off the phone, he told the oilmen, “They’re mad at you.” He scrambled around looking for airline timetables, hoping to find the oilmen later flights. But finally, in the very early morning, he let them leave with no deal struck. “If you want to know what happens next,” Yamani said, “listen to the radio.”

During the next few days, government officials crowded into the offices of oil company officials. Everyone wanted to make sure their country would not be shortchanged in relation to the others. Each country put pressure where it could; while the British enlisted Lord Rothschild to lobby Royal Dutch/Shell, the French threatened to tax or seize Shell’s assets in. “All right,” said Wagner to each of them, “we’ll do as you wish, provided you go and explain why they will get so much less oil in Bonn or Zurich or Barcelona.” In the end, he felt that none of the countries had been prepared. “Nobody was ready. The whole thing was put back into our lap and we had to just make the best of it.” The “best” of it was a provisional agreement, between the oil companies, to meet the Arabs’ terms.

Meanwhile, the radio carried news of war. pressed its military advantage against and . The sent contradictory signals about whether it would join in. Arab leaders teetered between their fear of reprisal and their fear of Islamic popular rage. Then, on October 16, they finally struck with the oil weapon they had been brandishing. The OPEC leaders announced that, hereafter, they would set the price of crude oil themselves. The oil companies could take the arrangement . . . or leave it, and the Arabs would find other commercial partners. At this moment, the oil companies finally lost their domination of the international labyrinth of pipes and pumps, or so it seemed. Ironically, lack of control would make them richer, but they didn’t see that yet.

A second blow to the West came on October 20, when the Arab oil ministers announced that they would punish “Western supporters of Israel” with an embargo. Only a limited number of barrels would flow to consuming countries. They would deal particularly harshly with the United States. This happened to come during the same week as Richard Nixon’s “Saturday Night Massacre” – the firing of Archibald Cox, the prosecutor who had subpoenaed his Watergate tapes. If Nixon was distracted by Watergate, so was the rest of the nation; the embargo was thoroughly unexpected, not just by the government and public but even by many of the executives of American oil companies. They had assumed that the Arab nations would nationalize their oil production companies; an embargo had not occurred to them.

The embargo decision and the price decision had been made independently, by two separate bodies of OPEC ministers. Nonetheless, together the two had a devastating impact. The oil company representatives heard about the details of the embargo at another meeting with Sheikh Yamani, this one in early November. “Forget for a moment that you are representatives of oil companies,” Yamani said, “and just put yourselves in our shoes.”

Bénard, on behalf of the oil companies, found himself making a speech in reply. “I can very well understand that the temptation of increasing prices is irresistible for you,” he said. “But if you act in a totally irrational way, you will have killed your clients. They will find a way to no longer need what you supply. So you have to think a little bit about how you treat them.” It was a lecture that every leader in the industrialized world, corporate or government, could have benefited from hearing; the nuclear industry, the oil industry, the chemical industry, the automobile industry, the food industry – and the Arabs – would all fall prey to hubris during the following fifteen years.

Shell, as it happened, was the only major oil company that had taken measures before the shock. It would never again be thought of as the “ugly sister”; indeed, it would become Exxon’s greatest rival. That was far in the future, but even in the short run, the October War and its catastrophic aftermath provided an enormous boost to the morale of scenario planners at Royal Dutch/Shell. “Having told everybody that the unthinkable would happen,” Napier Collyns later remembered, “and then having it confirmed so incredibly quickly, gave us unbelievable self-confidence.” Hardboiled managers from Shell U.K. or Shell Malaysia could actually be observed wandering through the corridors at Shell Centre, saying, “Perhaps we should have listened to these guys.”

Within ten days after the war started, the planners had put out a written scenario package that explained what was happening. Their speed was particularly impressive because they were also busy making presentations. Managers from most of the 170 operating companies were called in to hear Pierre Wack and Ted Newland. Then, while the planners took notes, each of the major operating companies – Shell Japan, Shell Oil/U.S., Shell Française, Deutsche Shell, and others – described how the supply system looked from their end. This meeting was a crucial strategic move, because Shell, like all the oil companies, was about to be placed in the uncomfortable position of allocating oil among all of its consumer countries, and at times there would not be enough to go around.

But the morale boost was short-lived. The operating companies and the departments of Shell Centre were still slow to change their behavior. They could intellectually see the forces at play, but they still felt committed to old habits. Wack began to think of his scenario method as a loud and ineffective machine, like a vacuum cleaner – wasting 40 percent of its energy in producing heat and noise. What was missing, he would later say, was “existential effectiveness”, which he defined by quoting a Japanese proverb: “When there is no break, not even the thickness of a hair, between a man’s vision and his action.”

Despite all their unheeded warnings to public officials, the Shell managers still had their own “microcosms” – Wack’s term for the inner views of the world that, contrary to whatever they espoused, would govern their actions. As long as they felt in their hearts, for instance, that the best policies were to “explore and drill, build refineries, order tankers, and expand markets,” then they could not help perceiving evidence in support of those policies wherever they looked. Wack remembered visiting Nippon Steel in Japan. They had a completely different investment strategy than their French counterpart, the Usinor steel company. This was not a matter of one company being more rational or intelligent than the other; both acted rationally, according to their “mental maps” of the steel market. Those different perceptions, in turn, governed their actions and their justifications for those actions. To affect behavior in a useful way, he decided, the task was not just to argue with managers, or to lay out facts before them, but to change the “mental maps” they held of their world.

More than one planning staffer, for instance, vividly remembers his visits with Pierre Wack to Shell Marine, the international company that bought and managed Shell oil tankers and sea transport. Wack would conclude his presentation by saying, “Look, under every scenario we will need fewer tankers.” There was, after all, no oil to carry in them. He would ask them to reconsider their current purchasing plans. In reply, some Marine people would tell him to come back in three months: “The boss is away in Japan, ordering ships, and the number two man is ordering some ships in Finland.” Others would burst out in frustration: “I don’t know whether to hire or build more tankers, or get rid of the whole fleet! I thought your job as planners was to tell me what the future would be.” And yet others would say, “Well, we’ve looked at all these scenarios, and even if we believe them, we have such marvelous advantages with our superior ship designs that we don’t need to stop ordering.” Wack began to grumble that the scenarios had been like “water on a stone”; nothing was more difficult, he said, than changing the mind of a Dutch engineer.

In the meantime, the scenario writers had to start thinking about what to say next. The oil price crisis, they suspected, would open the world up to far more turbulent changes. Companies like Shell would have to pay attention to many things that had never concerned them before. There were obvious concerns, like environmentalism – which one of the planners, a Dutch enthusiast named Hans Dumoulin, had suggested they look into – or energy efficiency, which another planner, Gareth Price, was beginning to champion. And there were less obvious concerns, like the legal and public relations barriers that would keep Shell (and other companies) from being trusted in the future. Shell’s policy in South Africa, for instance, would become a source of great controversy a decade later.

The planners didn’t know most of the details yet, but they knew (along with a growing number of people) that relationships between corporations, governments, and the rest of society were about to change fundamentally. A time of shaking-up was coming, a bottleneck of trends in which all assumptions would be up for grabs. This period would last for years before things settled into a new equilibrium. Gareth Price had given the period to come the name “The Rapids,” and Pierre Wack began incorporating the image in his talks. The Royal Dutch/Shell group of companies, and implicitly society as a whole, were like white-water rafters who hear the sound of the rapids they are approaching, just around the bend.¨ and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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