The scenarioIn 1971, Royal Dutch Shell was the seventh-largest oil company in the world, operating in an industry that had enjoyed two decades of cheap, abundant crude. Every major oil company's planning function assumed this would continue. The question wasn't whether oil would stay cheap — that was treated as a given — but how fast demand would grow and where to build the next refinery. Pierre Wack, a planner in Shell's London headquarters, thought the assumption itself was the vulnerability.
How the tool appliedWack and his colleague Ted Newland identified two critical uncertainties that the industry was ignoring. First: the political stability of the OPEC cartel and the willingness of Arab oil-producing states to use supply as a geopolitical weapon. Second: the response of Western governments to a supply shock — would they coordinate or fragment? Wack constructed scenarios that included a world where OPEC restricted supply and oil prices rose dramatically. He didn't predict the 1973 embargo specifically. He constructed a plausible future in which something like it happened and asked: "If this world materialises, what should Shell have done differently starting now?"
The scenarios were presented to Shell's managing directors — the Committee of Managing Directors, Shell's top decision-making body — in a series of sessions through 1972 and early 1973. Wack's genius was not the scenarios themselves but how he presented them. He didn't ask the directors to believe the oil shock would happen. He asked them to mentally inhabit a world where it had happened and notice what they wished they'd done. This reframing — from prediction to preparation — was what made the exercise actionable.
What it surfacedThe scenario exercise revealed that Shell's entire downstream strategy (refining, distribution, retail) was optimised for a world of cheap crude and growing demand. In a supply-constrained world, the strategic priorities inverted: refining flexibility mattered more than refining capacity; diversification of crude sources mattered more than volume contracts with the cheapest supplier; and the ability to rapidly adjust product mix (heating oil vs. gasoline vs. petrochemicals) became a decisive competitive advantage. Shell began making operational changes — diversifying supply sources, investing in refining flexibility, building crude oil inventory — months before the October 1973 embargo.
