white and the seven dwarfs at 2:00. the chairman thought that was rather humorous. with the commander officer actually historically full commander of royal marine company in a unit that was stationed in aidan. you probably know where aidan is but it is a center or was a center element to middle east oil. and the facility in aiden was actually a royal marine facility and i was the assist aant operations officer of the royal marines and our job was to protect the oil that was in ayden which was considerable and also one of the main arteries of the u.s. or world navy operations in the middle east.

going back to central command, that started out really as a worldwide command and the first thing that struck me was the fact that there was no central facility, no focus on middle east. it was worldwide, but it wasn't in the middle east and that was at the time when the middle east was really starting to flare up as you may recall. with that said, when we started to do our planning for the middle east, we realized that we're talking about an 8,000 mile zone between u.s. facilities and the middle east, 8,000 miles where the airplanes had to go and ships had to go and this was a tremendous demand on oil. because that was the only option we, in fact, did have. when we started to do our planning, we realized that this was a bigger problem that just

having a small litter force for the middle east. so, that's when we started the wheels were in motion for the european commander rather than central command and that's what started the history of central command. was the fact that we had no unified commander actually in response, who was responsible for the middle east. in fact, the people who were in the middle east who were reporting through -- through the senior commander in europe, which was a totally unworkable situation. that was the birth of central command as you know today is the command that's in the middle east and reasonable for the middle east. >> thank you. we're going to shift gears now and i'm going to turn it over to ask questions about the focus on this issue of electrification, which is one of the five policy aims of the energy leadership council.

let me ask you, talk a little about why you and gm chose to build the volt? what the future looks for cars like these, obviously, this is the vehicle that we see significant amount of criticism. especially from political conservatives. as we noted today in our discussion. many say the government shouldn't be involved in this kind of technology. many question the readiness of this technology. what's your message to skeptics like this? >> let me start with the popular misconceptions about the chevy volt. those of you who listen to fox news or listen to o'reilly or neil cavuto would believe that the chevrolet volt catches fire a lot. consumed $53 billion for only 6,000 built, was a product of the obama administration when,

in fact, it is thon of those things. the chevrolet volt was conceived largely by very self-serving comment, largely by me because it was very promising technology which would link all of the advantages of the electric vehicle, which was 40 miles with no fuel consumption whatsoever with all the range of a conventional car beyond the depletion range of the battery and internal, small internal combustion action would provide electricity to the battery for about another 300 miles. seemed like the ideal solution for most daily trips, it would be electrical, but if you have to go long distances, you're not limited by range. we had a concept car at the detroit auto show in january 2007, and history will show that obama was elected in november of 2008.

so, in fact, an interesting fact when in the post subprime meltdown and $4.50 gasoline environment in the latter part of 2008 when the american automobile market went from a going rate of 16 million a year down to 8 million a year and general motors and chrysler both had to go chapter 11, at that point, when the obama task force came in for the restructuring in early 2009, the obama task force in fact recommended that the chevy volt program be dropped as somewhat too capital intensive, not a good enough payback on invested capital, and it was a marginal business

proposition. there was in fact those of us at general motors who argued no, this is the vehicle of the future. this is the vehicle that can technologically leapfrog the toyota prius and pavin the way to the future. those of you interested in this stuff, we are probably a couple months away from bmw announcing the i3 which is volt technology. they actually hired most of the volt team to do it. audi is going to introduce the audi e-tronic. mobile's going to have one. mercedes is going to have one. in other words, this technology is going to be become generalized. to me, the unfortunate thing is that because electric cars are very closely associated with the left wing environmental green movement and to combat global

warming and reduce co2, the idea of vehicle, triggers this visceral reaction on the parts of conservatives, which is if it's electric, it must be a product of the democratic left wing enviro political machine, therefore, we hate it. this is an unfortunate knee jerk reaction because what the volt and other vehicles like it are about is and this is the first generation. we're in a period of transition, but what these vehicles are about is shifting portions of the american mobile sector on to a more efficient and domestically produce d power source. and in conjunction with a lot of other measures and fred smith likes to say, we're for everything. we're for more drilling. we're for use of coal.

we're for use of much more use of natural gas. we're for all of the things that can be, that are domestic resource and can reduce america's dependence on imported petroleum products. one of those components is the electrification of the automobile, which makes all kinds of sense and will make increasing sense in another five years when the cost of batteries and the technology will come way down. so it's part of, it's an important part of the overall mosaic of energy efficiency and by the way, reduce cost of driving because driving an electric vehicle costs the fraction of petroleum powered vehicle. so, my plea to the right and i have written e-mails to rush limbaugh, who likes to describe me as my good friend, bob lutz, whom i never get an e-mail response from.

billow r bill o'reilly who wanted me on the show but i couldn't go on because i'm a cnbc contributor. all these people i find frustrate me in the unwillingness to accept that electrification of the mobile sector is a good thing to do and in the national interest whether you're a conservative or a liberal. one final thing on the volt. many of you have heard that they catch fire. my intellectual idol charles krauthammer, whom we will be seeing later, has described the chevy volt as the flammable chevrolet volt, thus perpetuating the fiction that electric vehicles in general and the chevy volt catch fire. in fact, one chevrolet volt caught fire in a government crash test which totally

destroyed the vehicle. the vehicle caught fire three weeks after the test and i would say three weeks allows adequate time for survivors to exit the vehicle. other than that, no chevrolet volt has ever caught fire, but as we speak, there are three vehicle brands that have issued recall notices or asked the manufacturers to issue notices or they're under investigation, where meanwhile, the customers are asked to park the vehicles outside. do not place vehicle in your garage, close to other vehicles. one is german. one is a jeep and one, i'm sad to say, is a chevrolet, but they're all internal combustion, conventional cars. one of which catches fire every 120,000s. 275,000 a year.

so where is the outrage? no electric vehicle has ever caught fire, yet the political right is talking about the flammability, overheating, fire hazard and so forth of electric vehicle, and it's a -- folks, it's a pure fiction. please get it out of your heads. thank you. >> thank you. let me turn you back to fred smith. in outlining the energy and leadership council's policy agenda, you're known as a champion of deregulation of free markets mentioned you're a trustee of the cato institute. what government actions do you think are justified in this area and how do you justify the cost? >> i'm an erstwhile member of the cato board, which you're exactly right. i'm a conservative and i believe in the main and free market solutions. the problem with the oil market is that it's not a free market.

the oil market is controlled by opec. opec is a cartel which owns some place close to 90% of the proven oil reserves in the world. it meets a couple of times a year to set the price of oil even though they own this tremendous amount of the world's proven resources, although we're starting to find significant additional reserves because of this new exploration technology being developed here. but the opec nations produce about 42% of the oil used by the world each year. so think about that. they own 80% to 90% of the reserves and produce 42%. that's not classical economics. they're not maximizing their economic return. in fact, if there's an

intellectual fight between the saudi arabians who want to keep the price of oil at a level which doesn't incent people to develop alternatives but maximizes their income, they need about $94, $95 a barrel in saudi arabia to make their social payments these days. that's not my figures. that's the saudi government's figures. the iranians would like to run the price up as high as possible in order to hurt the west. particularly during this period of time when the west has put sanctions on the iranian regime. and in 2001, the average american family spent about $1,700 on fuel. last year, that figure was about $4,000 per family. a huge fight took place as we

all watched in congress over whether the payroll tax would be reduced in 2011 and then continued into 2012. the value that have reduction to the american public in 2011 was about $110 billion. the cost of the american public of the increase price in fuel in 2011 was about $110 billion. so, the increase price of fuel served as a tax that took the increased economic activity, our increase in gnp and put at least half of it into the hands of people who supply us, supply us oil. the geopolitical issues surrounding oil have been going on for a long time. we talked earlier in the day but people forget it. between japan and the united states when we embargoed their

oil supplies from indonesia. the famous battle of the germans versus the russians in stalin grad was oil. germans had gone to stahlengrad and going up the river which supplied the army. the biggest air raid that the united states ever conducted up to that time. certainly the most heroic was to try to knock out the oil refineries. the 1990 war in iraq was clearly about oil. osama bin laden declared war on the united states. nobody paid much attention when he did it and i think 1998, because of the presence of american troops in saudi arabia, then left there after the first gulf war. so the united states has gotten ourselves into a position where importing now a little bit less

thank goodness because of these improved technologies. we are still dependent for half of our oil from foreign sources, so the only way that we can prevent the united states from being taxed if you will, every time we have any type of economic growth by increased oil prices that are set by cartel that would not be legally possible if it were operating inside the united states is to diversify our fuel supply along the lines that we mentioned. so even though i'm a conservative and i support free market principles, this is not a free market problem. it is a military and national security problem and it should be looked at in the same vein as if we're buying another couple of squadrons of f-35s or another aircraft carrier and the technology that bob had talked

about, this lithium ion battery technology, which is on a very good clip to become self-sustaining on its own, it is in our best interests as a nation to do all those things that the leadership has counseled lest we move into another military conflagration over this issue. >> let me ask you a follow up in this area about new alternative energy sources or new energy sources. given the recent boom in oil and natural gas production, is it simply not possible for natural gas to meet the growing needs we see to improve our energy security sufficiently? do you think the -- why is electrification so critical? >> it's not just electrification.

maximize oil and gas production in every possible way. in alaska, on the gulf, on federal land. we need to maximize indigenous u.s. gas and oil production. then i also mentioned electrification for light duty, personal and commercial vehicle. the use of natural gas for heavy over the road and centrally fuel vehicles renewed standards. and continued research on biofuels. so you need to do all five of those. in the case of natural gas and electrification, they both get at the fundamental problem about our oil use. and our consumption of oil. by the way, president eisenhower, when he was in office and he knew a thing or two about national security, said it would be a national security emergency if we imported over 15% of our oil needs. and at one point as i mentioned

we were up to 60%. but here's the issue in a nutshell. oil is basically transportation. of the slightly now under $19 until barrels a day that we burn per day, about 20% of world demand, 70% of it's transportation and of the 70% of oil used in transportation, you have to recognize that somewhere around 97% is powered by oil. the light duty sector is by far the biggest single user of petroleum. it represents somewhere around 10 million of our daily consumption. the heavy, over the road vehicles represent around 3 million barrels a day. let me give you some gee whiz numbers here.

we have 250 million light duty vehicles in the united states. that's personal automobiles and small trucks, coca-cola, verizon, at&t might use. if you could wave a magic wand and convert all of them to battery powered and recharge those every night, there is enough energy capability, productive capability in 0 our he cannisting power plant system, to refuel every one of those vehicles every night. and they can be done in an off peak time. now, there are lot of details here. transformers in the right neighborhood and having the 220 like you have for your washing machine in the right place to power your vehicle. but the trajectory that bob lutz knows a lot better than i do of

these batteries is going to give us the potential over the next 10 to 15 years along with fuel efficiency standards that we could take 10 million barrels a day that we use for light duty trucks and personal automobiles and cut it at least in half to 5 million barrels a day or less. of the 4 million barrels a day used in the heavy truck sector, conversion of a great percentage to natural gas, which is now possible because the engine manufacturers are beginning to come out with 12 liter and 15 liter engines which are economical. we could potentially cut that in half and the equivalent price of a diesel dwal represented by liquid natural gas is almost $2 per gallon less. so it isn't just the one thing. it's doing all of these in order to eliminate the national

security and economic risks the country faces. i'll just close with this. we're seeing in the headlines every day about the deliberations of the israelis and our government and europeans and what to do with the iranian nuclear situation. if the strait of hormuz was shut, through which 17 million barrels of oil go through per day -- i don't think they can do it. let's just say somehow that happened. there is no question that the price of oil in the united states would go well above $200 per barrel. the price of fuel at the pump would go from $3.75 to $4 to $7, $7.50. the 7% of our gdp we spend for petroleum would shoot up to 10% or 12% and i can assure you, we would have an economic contraction that would make the

one we just went through, the twin sister or brother. so we have to deal with this issue as a strategic military and geo political issue that cannot be solved in the short run just by domestic production. it has to be a part of the equation and we support all of it. but it's going to take us doing all of those things and not be on the right or the left about that, but to be an american about the problem. >> let me turn to general conway for a second to comment on your remarks about iran and future of u.s. energy security. >> yeah, well, fred's exactly right. the figures scare us all. that 17 million a day constitutes 20% of the world's oil supply and, you know, i honestly think that the situation with iran is the wolf closest to our sled. happily, there are negotiations taking place right now. i'm pessimistic about their outcome, quite frankly, because i think we'll see delay and

little tangible result. iran has said they want to develop a nuclear capability so that they have sustained energy over time. that's like saying eskimos need freezers because they've got more energy right now than they know what to do with and they will for generations to come. we have said that position's unacceptable for them to have nuclear weapons because terrorism is recognized as an element of national power, from an iranian perspective and 33 other nations of the world agree with us on that. so i'm afraid we're headed towards confrontation. and i think there is a window of time here for negotiation but it's a window that's closing rapidly because the israelis, we see the issue as a problem. israelis see it as existential to the survival of their nation. and you know, the unfortunate part is if they do attack, it will be with american made

planes dropping american made bombs and they'll defend israel with american made systems. so whether or not we attack will be perceived as being a vital part of all that takes place. we don't need another war, but could be pulled into one through the actions of another nation. options available to us in the near term limited attack? we'll delay, but it will not stop an iranian program. in the process, we poke the tiger. a full scale attack is regime change i guess is always an option, but there aren't any beaches close to tehran and so it would be long, bloody. tens of thousands of iranian would die. oths who would join us would find that a very difficult task. there's a third option, i guess, and that's change from within. i think the window for that opened and closed a couple of years ago.

we did not take advantage of unrest inside the country to help off set the problem. if iran -- let me put it like this. if i were an iranian general giving my best advice to the ayatollah or ahmadinejad it would be don't close the straits because the american navy will kill us, but if we simply drift off every once in a while on undisclosed attack that sinks tanker or two in the gulf which is in our backyard, the insurance companies will do the rest and we will start this effort of bringing the west to its knees through gas prices in our country probably in he can ses of $10 a gallon. so, there are a lot of tools they have that can be used to manipulate us. in ways that's pretty challenging just to think about. >> on that ominous note, let's

open it to the audience with questions and we'll begin with my colleague, director of economic studies here at hudson. >> do i need a mike? >> yes, sir. please speak into the microphone and identify yourself. >> you just did. >> i did. like everybody else. >> is that work iing? >> yes. >> i've been jousting with conservatives on this question of security. and not just having knee jerk reaction to the fact environmentalists want to get us off fossil fuels. i might say mr. lutz that you were as unkindly treated by cnbc this morning as anything fox might have arranged. so you apparently do have a problem selling this to conservatives. and i agree. here's the problem.

and perhaps you can help me. what fred is suggesting is that somebody's going to have to pick a winning technology. and somehow make it happen. that because oil markets are distorted, we can't rely only on the private sector to do that. >> right. >> so, now we're into government subsidizing when it perceives to be winners. that's a conservative difficulty. second, when we call for an energy policy, that's an actual plan. now, from what i've heard today, is this problem solved since this is a security problem, by having general conway and general kelley suggest that the funding for these technologies come out of the military budget?

>> who are you directing the question to? >> well, first of all, fred, i wonder how you get over this question of picking of winners and, second of all, i wonder if our military friends would accept the burden of funding these received winners from the military budget since this is a security problem and markets can't seem to handle it. >> well, first of all, everybody in this room that has a, on your person at the moment, a cell phone, raise your hand. are you telling me there are a large group of people back there that don't have a cell phone? everybody that owns one, raise your hand. everybody in the room, isn't it? if you don't, you're one of the tiny minorities. that issue has been decided. every cell phone regardless of whether you have an android or iphone or whatever the case may