The following is a partial transcript of the Dec. 17, 2006, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: Energy independence is sort of like the weather. Everyone talks about it, but no one ever does anything about it. But now some of the country's top business and former military leaders have formed the Energy Security Leadership Council to do just that.

We're joined by the two co-chairs: from Memphis, Frederick Smith, chairman of FedEx, and here in studio, retired General P.X. Kelley, former commandant of the Marines.

Well, Mr. Smith, you compare the threat from our dependence on foreign oil to terrorists and weapons of mass destruction. Is it really that serious?

FEDEX CHAIRMAN FREDERICK SMITH: Well, Chris, we today are importing over 60 percent of our petroleum needs from abroad. Ninety percent of the world's proven oil reserves are owned by national oil companies, and many of those national oil companies are owned by countries who wish the United States ill.

Terrorists have repeatedly tried to attack the oil infrastructure. There's no question oil is being used as a strategic weapon. And we simply have to reduce the amount of imported petroleum that this country consumes.

WALLACE: General Kelley, you say that a 4 percent shortfall of daily oil supply could double the price of oil to more than $120 a barrel of oil within a few days were that to happen.

Is our economy, the world economy, in effect, sort of walking a tightrope here?

FORMER MARINES COMMANDANT GEN. P.X. KELLEY, RET.: Well, you've got to understand, I think, Chris, exactly what the price of oil means. Oil is a fungible item, which means that a price any place is a price every place. So we don't control the price of oil.

But when you have that 4 percent shortfall — and we did this with a very, very careful program that we had last year — that we concluded that 4 percent would bring it up to something over $100.

WALLACE: And if you got $100-a-barrel oil, what would that do to the world economy, General Kelley?

KELLEY: The world economy, it wouldn't paralyze it, but let me say, there would be dire consequences.

But that's not where it would stop, we don't think, because the terrorists — Chris, there have been 5,000 terrorist activities in 2005. Over 7,000 people were killed. Usama bin Laden said that the best way to bring us to our knees is to deny us the oil. If we continue on the road that we're on right now, we'll be in a catastrophic oil shortage in a very short period of time.

WALLACE: In this year's State of the Union speech, President Bush raised the issue. Let's watch.

(BEGIN VIDEO CLIP)

PRESIDENT GEORGE W. BUSH: Here we have a serious problem. America is addicted to oil, which is often imported from unstable parts of the world.

(END VIDEO CLIP)

WALLACE: But since then, not much has been done. Let's take a look at the record.

During the oil embargo in 1973, we got only 35 percent of our oil from foreign sources. By 1995, we were up to 45 percent. And so far this year, we are getting 61 percent of our oil from foreign sources.

Mr. Smith, why have both Republicans and Democrats, in the White House, on Capitol Hill, over the last quarter century, been unable to break what you call this cycle of failure?

SMITH: Well, I think we've been lulled into a sense of complacency in recent years. The country became much more energy-efficient from '75 through '95 because of vehicular efficiency standards that were put in place under the Ford administration. And after '95, that has plateaued.

I think it's been sticking our head in the sand. On the right, you've had people that say production only. On the left, you had conservation only. And what needs to happen is a grand compromise along the lines that we've suggested in the program.

WALLACE: All right. Let's get to that.

General Kelley, let's talk about your plan, which you say would cut imports of foreign oil in half by the year 2030 and which, it's clear to see, as we'll tick it off, would upset people on both sides of this issue.

First of all, you want to order a steady increase in the fuel efficiency of cars and light trucks. But several industry groups have already said that this will only increase the cost of doing business and be passed on to the consumer.

KELLEY: Well, what's amazing, I think, as you look at the market today, particularly on a motor market, I see more and more people who are buying Japanese nameplates on their cars. They seem to be able to do it.

And the question is, we're not asking the impossible. We're saying a 4 percent raise in efficiency over the years, with ramps. If we find the technology is not worthwhile, they can fall off.

The beauty of this plan, Chris, is we see it — I'm not saying it's the only plan, but we think it's the best plan because we did it. But the beauty of the plan is that both sides of the aisle seem to have embraced it. The White House, we have briefed them on it. This may be the golden opportunity to bring this country together, because it's the most serious problem I see facing us in the future.

WALLACE: All right. I want to talk about the political reception in a moment. But, Mr. Smith, let me ask you about the other side of your plan, which is that you would like big incentives for alternative fuels, which the environmentalists would like. You also want more drilling on the Outer Continental Shelf as well as in ANWR, in the Alaska Wildlife Reserve, which the environmentalists just hate.

Talk about that, sir.

SMITH: Well, as General Kelley mentioned a moment ago, oil is a fungible commodity. Many people think it doesn't make any difference if we don't have that production from the Outer Continental Shelf or Alaska. And, in fact, it does, because every barrel of oil produced domestically displaces a barrel of oil that is imported that comes from unstable parts of the world.

I think the oil industry has shown — and Katrina was a good example of this — that they can safely drill in the Outer Continental Shelf and in Alaska. And that production would be extremely important in reducing our dependence on foreign, imported petroleum.

WALLACE: General Kelley, as you say that you have been meeting with people in the White House, you have been meeting with the new Democratic leadership up on Capitol Hill, what's the reaction been so far?

KELLEY: The reaction has been absolutely positive. In fact, they have asked us to stay engaged because they see it as a blueprint for success.

Never before, I don't think, have we ever brought together the kinds of people that we have, particularly in our council. And I want to comment on Fred. Without Fred, I don't think we'd be where we are today.

On the other hand, we have senior leadership, retired leadership from the military services, senior CEOs. And all of them support this plan. Everybody we have talked to on the Hill in the leadership positions support the plan.

We know it's going to go through hearings. We know it's going to be debated. We know it's going to be argued. On the other hand, we feel that we're going to persevere. And until such time as something like this is passed, we owe it to the country to do exactly this.

WALLACE: But, Mr. Smith, as I've pointed out, that when you proposed your plan, the automotive industry already came out against increasing these fuel economy standards; some of the environmental lobbyists have already come out against increased drilling on the Outer Continental Shelf and ANWR.

What makes you think that these lobbyists, which have blocked action for decades now, are going to budge?

SMITH: Well, I think with the opposition that you just chronicled there, we've got it just about right. The country is going to have to have a grand political compromise. Neither the right nor the left is going to get everything that it wants.

But there has to be a national will to reduce this dependence on imported petroleum, which, again, is coming oftentimes from countries which wish the United States ill. And there's no question, at some point, oil will again be used as a strategic weapon against us if we don't reduce our dependence on foreign, imported petroleum.

WALLACE: All right. We're going to have to leave it there. Mr. Smith, General Kelley, we want to thank you both for coming in and discussing your plan with us. Thank you, both.

SMITH: Thank you, Chris.