Samuel Johnson once observed that nothing concentrates the mind like a hanging.  If Dr. Johnson were alive today he would undoubtedly add the corollary that nothing concentrates the mind on the tenuous nature of oil supplies like political turmoil in the Middle East.

It is still unclear how the events in Cairo and around the Arab world will resolve themselves.  But the uncertainty concerns when those repressive, proud and impoverished societies will explode, not whether an explosion will eventually occur.   When the explosion does come, in whatever form it takes, the steady supply of Mideast petroleum upon which so much of our economy depends will be in jeopardy.  Consumers and businesses will face shortage of critical petroleum-based fuels and those shortages will occur suddenly and unpredictably.  This is called an Oil Shock.  And sooner or later a new Oil Shock is almost certain to occur.

The situation is not unlike New Orleans before Hurricane Katrina.  That a major hurricane would eventually hit New Orleans was never in doubt.  Yet for decades investment in dikes and pumps was deferred in favor of other budgetary and political priorities.  Rather than investing to guard against a predictable catastrophic casualty event, the U.S. government chose to gamble—to gamble that the storm would not come this year.  That propensity to gamble—Katrina Syndrome—proved to be a poor investment decision.  In all about $1-2 billion of investments deferred contributed substantially to an $81.2 billion loss.

It is too soon to say whether the storm clouds gathering over Tahrir Square are headed this way or will veer to the left or to the right, as they have before.  But those storm clouds remind us of the urgent need to invest in modernizing our electric infrastructure and developing advanced battery technologies.  Those technologies are the dikes and the pumps that will do much to keep the American economy above water when the next Oil Shock hits.  We defer that investment at our peril.