Uniqueness

Oil Prices High

General
Future oil prices will remain high buyers are leaving the
market
Ausick 2/17 Paul Ausick, Energy Editor at 24/7 Wall Street, 2-17-2014, The Oil
Futures Market: Prices Are High Because Nobody Wants to Play, 24/7 Wall Street,
http://247wallst.com/energy-business/2014/02/17/the-oil-futures-market-prices-arehigh-because-nobody-wants-to-play/
Gasoline prices in the United States have risen nearly six cents a gallon in
the past month, and the spot price for a barrel of West Texas Intermediate (WTI)
crude oil has risen from $97.63 at the end of December to $99.47 now,
after a brief sojourn last week above $100 a barrel. We noted Monday morning that
gasoline prices remain above $3 a gallon in every state, with a national average of
$3.34 a gallon, and we note some of the temporal reasons for the higher prices.
Pump prices are not likely to fall much in the next few months as refineries enter
the turnaround period when they stop producing cheaper winter gasoline and begin
making more expensive summer fuel. There may be a more fundamental
change also keeping crude oil prices high at a time when U.S. production
is at its highest level in more than a dozen years: the futures market is
being abandoned by non-commercial (i.e., speculative) participants. Even
commercial participants are looking to get out of the trading business.
Occidental Petroleum Corp. (NYSE: OXY) has said that it will reduce its proprietary
trading business and Hess Corp. (NYSE: HES) is trying to sell its Hetco trading
operation. As these market participants leave the market, fewer buyers
remain, which lowers the futures price that producers can get as a hedge
for future production. The result is an increase in price spreads between current
cash spot prices and futures prices cash prices rise and futures prices fall. That
leads to a market condition called backwardation. The following chart shows the
difference between the current WTI price per barrel and the price 12 months out.
As more players exit the futures market, there are fewer buyers willing to
take the long side of the bet on future crude prices. The result could well
be lower inventories, a result already noted by the International Energy Agency
(IEA) in its most recent report: At the end of December [global] commercial
inventories stood at 2,559 million barrels, their lowest absolute level since 2008.
Moreover, the stock deficit to five-year average levels widened slightly to 103
million barrels, the first time the 100 million barrel level has been exceeded since
mid-2004. There is evidence that as backwardation increases, stockpiles decrease.
Crude prices remain high and so do refined product prices. Energy
economist Philip Verleger notes in his latest weekly newsletter: Looking to the
future, we see no reason for commercial inventories to increase. The market offers
no incentive at the moment to build stocks. To the contrary, it is imposing growing
punishments on those who hold oil. For this reason, we agree with the IEA that the
glut will be more and more elusive. In other words, prices will remain high and
probably rise even higher as commercial inventories are drawn down. It
looks like summer driving is going to be expensive.

Oil Prices are high and stable

Al-Katteeb 3/19 Luay Al-Khatteeb, Brookings Institutions Fellow, executive
director of Iraq Energy Institute (nonprofit), 3-19-2014, Why the World Oil Prices
Should be High and Stable, Brookings Institution,
http://www.brookings.edu/research/opinions/2014/03/19-world-oil-price-alkhatteeb.
After a decade of volatile prices, the past three years saw an unusual
period of stability in the oil market, with a barrel of crude oil averaging
$110 each year. However, forecasts for 2014 predict a decline to an average of
$105, on the basis of expanding supply and a weaker-than-expected demand. A
combination of geopolitical events in Syria, Libya and Nigeria have prevented
oversupply despite the expanding entry of US shale oil into the market. The price
has remained high thus far, but how long can prices stay above $100? This
coming price drop arrives at a time when the worlds largest consumer is
nearing its long-held goal of energy self-sufficiency. The United States
embarked on this quest in the aftermath of the 1973 oil crisis, and in recent years
has seen the country develop a comprehensive nuclear program, develop biofuels
and seek oil from ever-more-expensive sources: the tar sands of Canada, the depths
of the Gulf of Mexico and even the wilds of Alaska. Further afield, it drew on oil from
Brazils deep-water wells and West Africas low-sulfur oil deposits, all of which
contributes to a reduced dependency on oil from the Middle East. More recently, the
development of unconventional sources of oil and gas back in the United States has
led to a revolution in energy flows and policies, as the country stands on the verge
of becoming a gas exporter. The rapid development of shale oil and gas fields
has seemed miraculous at times, but like many of the conventional
sources the US relies upon the production is more expensive (costing $6080 per barrel) and more risky, as output and depletion rates seem less predictable
than conventional sources. As a result US domestic and regional supply is quite
vulnerable to price fluctuations, as witnessed when work at the tar sands of Canada
came to a standstill in 2008 following a price drop. Analysts have claimed that
the age of easy oil is over, and we are entering a period of expensive
extraction and capital-intensive processing. With the shale oil and gas sector
currently requiring $1.5 in capital investment for $1 of revenue, several major oil
companies have turned their backs on shale in favor of expanding their operations
in the easy oil fields of the Middle East. Despite the risks involved, Iraqi oil
pumped up at $20 a barrel seems like an attractive prospect, as do sources in Libya
and Iran when politics and security permit. Still, will dumping more easy oil on the
market lower prices to the point where shale oil production grinds to a halt?

Oil prices will continue to spiral upward in the years ahead

Block 6/25 Ben Block, staff writer at Worldwatch Institute, 6-25-2014, Energy
Agency Predicts High Prices in Future, Worldwatch Institute,
http://www.worldwatch.org/node/5936.

The world can expect energy prices to continue their generally upward
spiral in the years ahead if global energy policies remain the same, the
International Energy Agency (IEA) reported this week. Rapid economic
development in China and India, coupled with relatively consistent energy use in
industrialized nations, will likely strain the world's ability to meet a projected rise in
energy demand of some 1.6 percent a year until 2030, the agency predicted
Wednesday in its annual World Energy Outlook report [PDF]. The IEA significantly
increased its projections of future oil costs in this year's report due to the
changing outlook for demand and production costs. It now expects crude
oil to average $100 per barrel over the next two decades and more than
$200 per barrel in 2030, in nominal terms. Last year's forecast estimated that a
2030 barrel would amount to only $108. "One thing is certain," said Nobuo
Tanaka, the IEA's executive director, in a prepared statement. "While market
imbalances will feed volatility, the era of cheap oil is over." Oil and
natural gas resources are expected to supply the world for more than 40
years at current consumption rates. But the report expressed concern that
rising world energy demands will outpace production. "There remains a
real risk that under-investment will cause an oil-supply crunch in that
timeframe," the report said. "The gap now evident between what is currently being
built and what will be needed to keep pace with demand is set to widen sharply
after 2010." The price of meeting the world's energy demands is estimated at $26.3
trillion through 2030-an average of more than $1 trillion a year, the IEA said. In
addition to higher prices, most new oil fields are offshore or smaller than
in years past, making oil extraction more difficult than ever. "Oil resources
might be plentiful, but there can be no guarantee that they will be
exploited quickly enough to meet the level of demand," the report said.
Demand for oil is predicted to rise from the current 85 million barrels per day to 106
million barrels per day in 2030, the report said. Due to this year's high oil prices, the
predictions are 10 million barrels per day less than what was projected last year.
Still, this represents an increase of 1 percent per year.

Low Supply
OPEC Oil prices will continue to rise low supply from Iraq
turmoil
McGovern 6/14 Bob McGovern, staff writer at Boston Herald, 6-14-14,
Experts: Gas prices will rise, Boston
Herald,http://bostonherald.com/business/business_markets/2014/06/experts_gas_pri
ces_will_rise.
Gas prices in the United States will continue to rise as OPECs secondlargest oil producer fends off total collapse at the hands of extremists,
experts say. The price of oil rose to $107 yesterday as the crisis in Iraq reached
a fever pitch. Oil prices rose more than 4 percent this week alone, and experts
are worried the continued violence could have an ongoing effect on prices at the
pump. The violence and turmoil in Iraq is already affecting oil prices and
have boosted the price to a 10-month high, said Mary McGuire, director of
public and legislative affairs at AAA Southern New England. Its likely that well
see an increase this week or the week after at the pump as the result of
our new oil prices. Fear in oil-producing countries can have a drastic
effect on the bottom dollar.

AT: Shale Boom Lowers Prices

Low prices from shale oil boom is only temporary. Long-term
prices are still on the upside.
Beschloss 6/17 Morris Beschloss, economist at the Desert Sun, 6-17-14, US
Shale Oil Boom Calms Global Oil Prices, Retains Availability, The Desert Sun,
http://www.desertsun.com/story/money/industries/morrisbeschlosseconomics/2014/
06/17/us-shale-oil-boom-calms-global-oil-prices-retains-availability/10694881/.
What the Obama Administration either fails to understand, or is oblivious to, is that
the world is increasingly dependent on Americas three year-old fracking
boom that has lifted U.S. oil production by about three million barrels per
day to more than eight million barrels currently. Simultaneously, Canada has
added another one million BPD, almost exclusively from the tar sands of Alberta
Provinces Athabasca region. Building the Trans-Canada XL oil pipeline would
obviously accelerate Canadian crude shipments to U.S. Gulf Coast refineries,
building Americas daily crude oil availability to over 10 million barrels per day,
likely topping todays leaders, Russia and Saudi Arabia. This is of particular
importance, as the Middle East and North African oil fields have retracted
by an estimated 3.5 million BPD, due to civil wars in Libya, disturbances in
Iraq, civil war in Syria, ideological tribal strife in Nigeria, and sanctions imposed
against Iran. Also, with Europe depending on Russias oil and natural gas pipelines
relying on 30% of their crude oil, sanctions or other economic punitive actions
against Russia, would wreak turmoil on the European economy, already teetering on
the edge of a new recession. According to reliable energy experts, the breakdown
in oil supplies previously indicated would rise from the current $106 per
barrel for West Texas Intermediate, and approximately $115 for Brent
crude to an estimated $150 to accommodate universal crude oil needs,
were it not for Americas fracking surge. While China continues to
represent the pivot point for the up/down direction of oil pricing, as the worlds
largest user, Beijings economic direction will magnify the price movements
forthcoming in this years second half. U.S. demand, which is hanging in at around
19 million barrels per day has already closed the import gap to 25% of its total
consumption from 60% as late as 2005. Although there are divergent schools of
thought regarding the direction of oil pricing in the next few years, there is
unanimity that the balance of pricing power has shifted from the turbulent Middle
East, North Africa and Russia to how quickly and voluminously the U.S. oil
production capability and refining potential can be brought to market. With U.S.
stockpiles mounting in the intermediate timeframe, a near-term price drop,
especially in light of a Southeast Asian demand cut, could find U.S. central
inventories in a temporary overstock mode. This could even become more severe if
Iran and Iraq, containing the second and third largest global oil reserves resolve the
geopolitical pressures that have reduced their exports . However, a realistic
longer term outlook, which envisions a worldwide demand growing from
current 90 million barrels per day now, to 120 million BPD within the next

decade, would indicate global prices sharply on the upside, with the U.S.
and Canadas maximum output becoming the global center of gravity in
the oil world. A faint thunderclap, already being heard is the cutback in
capital expenditures by oil giants Exxon Mobil, Chevron, and Royal Dutch
Shell, as exploration costs soar, awaiting the opportunities by these lead
corporations to be assured of expanding economic demand and the
acceptance of higher prices with it.

Oil prices will stay high, shale oil boom will not change prices
Badiali 3/31 Matt Badiali, editor of S&A Resource Report, 3-31-2014, Why
gasoline prices are so high in spite of the shale boom..., The Crux,
http://thecrux.com/shale-oil-is-booming-but-youre-still-paying-50-to-fill-up-your-gastank-this-is-why/.
I had just wrapped up my talk to a small group of private-equity folks when a hand
went up in the back of the room Will the shale oil boom drive the price of
gasoline down? I get this question all the time Its the first thing people ask
after I tell them how great and prolific shale oil is. But the answer is no. And the
reason is simple exports. We export a lot of petroleum out of the U.S.,
which takes the extra supply out of our market and keeps the price of the
stuff we want gasoline and diesel high. In December 2013, the U.S.
exported the most petroleum products in the 31 years that the U.S. government
tracked the data. I know, I know, you may have heard that its illegal to export
crude oil. While thats technically true we still exported 137.8 million barrels
of Not Oil in December. Not Oil is crude oil that was refined into gasoline,
jet fuel, or diesel. Some of the exports arent even useful products just partially
refined oil. Thats how refineries get around the export ban. In 2013, we sent 1.3
billion barrels of Not Oil abroad. Thats a 12% increase from 2012. The question
that I had was where did it all go? The answer to that question is in the table
below. I cobbled this together from data published by the U.S. Energy Information
Administration (EIA). I broke down the values to show the percent of U.S.
exports to various countries and regions. As you can see, it goes all over
the world So if you are looking for the reason it costs you $50 to fill up the gas
tank in your Camry blame those guys. They keep buying, so the refiners keep
selling. And with the latest developments in Russia, U.S. refiners may find new
markets in Europe too. You can read more about that here.

Aff Uniqueness Price Shocks Coming Now

Rising volatility inevitable Iraq production disruptions cause
price shocks
Bawden 6/16 Tom Bawden, Environmental Editor for The Independent
(London), 6/16/2014, Long years of oil price stability are at risk, BPs top economist
warns, The Independent, http://www.independent.co.uk/news/business/news/longyears-of-oil-price-stability-are-at-risk-bps-top-economist-warns-9540548.html
Escalating violence in Iraq threatens to unleash an oil price spike that
would put an end to the greatest period of price stability for nearly half a
century, BPs chief economist has warned.
The unusually high level of disruption to global oil production since the Arab Spring
began in 2011 has been matched by a sharp rise in US oil output as a result
of its fracking boom. This has kept supplies constant and prices stable, according to
BPs Christof Rhl.
US oil production soared by 1.1 billion barrels last year the biggest rise in the
countrys history as the fracking companies increasingly turned their technology
from gas to oil. This balanced out the disruption to supplies in the past three years
in Africa and the Middle East, where outages have been running at 3 million barrels
a day, compared with just 100,000 a day in the previous decade, BP figures show.
Without the disruptions, the oil prices would have tumbled, while without the
surge in US production they would have soared, says Mr Rhl.
This is the three-year period which has seen the least price volatility since oil
prices were no longer regulated in 1970. If the world had only had these disruptions
which we have seen in the last three years since the beginning of the Arab Spring
you would have seen oil prices spiking and a discussion about strategic reserve
release and damage to the economy and all the rest of it.
And at the other extreme, if we had only seen these massive US oil production
increases you would have seen prices coming under pressure and talk of Opec
cuts, Mr Rhl added.
But he warned that, sooner or later, the period of price stability would come
to an end with the problems in Iraq looking like a key contender to upset
the status quo.

Oil prices increasing, multiple reasons

LeVine 6/12 Steve LeVine, Washington Correspondent for Quartz, 6-12-14,
Oil prices arent coming down any time soon, and Iraq is just the latest reason,
Quartz, http://qz.com/220082/oil-prices-arent-coming-down-any-time-soon-and-iraqis-just-the-latest-reason/.
The upheaval in Iraq threatens to exacerbate a three-year-old trend in
which unusual geopolitical disruptions have become the new normal. A
key impacthigh oil prices when analysts say bulging new supplies should
be sending them far lower. That is because much of the geopolitical turmoil

has been in or involved oil-producing countries. We are witnessing the

failure of the petro-state, Citigroups head of commodity research,
Edward Morse, told Quartz. Up until 2011, an average of 500,000 barrels of oil a
day was off the market at any one time for maintenance and other reasons, a
volume that triggered no perceptible price volatility. Temporary aberrations like
Hurricane Katrina took 1.5 million barrels off the market in 2005, and the 2003
attack on Iraq removed 2.3 million barrels a day. But starting in 2011, the
disruptions often began to exceed 2 million barrels a day. Among the culprits were
the Arab Spring and follow-on uprisings, the chaos in Nigeria, Iran sanctions
and of course Russia president Vladimir Putins crypto-invasion of
Ukraine. Then last July, Libyan militants stormed oil export facilities and shut
them down. As of now, the country pumps just one-eighth of the 1.6 million barrels
of oil a day it produced before Muammar Qadhafis ouster in 2011. All in all,
about 3.5 million barrels of oil a day have been off the market around the
world since last fall. Those barrels have offset a 1.8 million-barrel-a-day
surge of supply from the US. As a consequence, oil prices have continued
to soar. And this increase has been exacerbated recently by Chinas
record-setting hoarding of oil.

Aff Uniqueness Oil Prices High and Bad

Oil prices may rise to as much as $120 per barrel Iraq
Kumar and Verma 6/18 Manoj Kumar, staff writer, and Nidhi Verma, staff
correspondent, 6-18-14, Iraq-driven oil spike threatens to blow hole in budget
sources, Reuters, http://in.reuters.com/article/2014/06/18/india-budget-iraqidINKBN0ET0IY20140618.
The government expects oil prices to rise as high as $120 per barrel for
several months because of fighting in Iraq, potentially driving a hole of at
least 200 billion rupees ($3.3 billion) in the budget, two government sources
told Reuters. Prime Minister Narendra Modi won last month's general election by a
landslide with promises of faster economic growth and new jobs, tapping into voter
anger over India's longest slowdown in a quarter of a century. Ahead of his maiden
budget next month, Finance Minister Arun Jaitley is grappling with a food inflation
scare, and now faces the risk that higher oil prices could swell the government's
subsidy bill. "If oil prices remain high even for three to four months around
$120 a barrel, it could have a significant impact on the fiscal deficit and
economic growth," a senior Finance Ministry official told Reuters on condition of
anonymity. The official added that this could increase subsidy costs by 200-225
billion rupees in the fiscal year to March 31, 2015. That would threaten the deficit
target of 4.1 percent of gross domestic product inherited from the last government.
"If oil prices remain high, it would not be easy to meet the fiscal deficit
target," the source added. India, the world's fourth-largest oil consumer, imports
around 4 million barrels a day of crude oil - costing $165 billion a year at current
prices, or more than a third of its total import bill. The last government based its
interim budget in February on an assumption that India's basket of oil imports would
cost around $105 per barrel on average in the current fiscal year. Prices for Brent
crude, an international oil benchmark, have risen by $3 to $113 over the
past week, during which Islamic militants have taken control over tracts of northern
Iraq and threatened the authority of the Baghdad government. For every dollar
that oil prices rise, the government incurs annual costs of 70-75 billion
rupees (around $1.2 billion) to compensate state oil firms for selling diesel,
kerosene and other fuels at below cost. Subsidies are assessed quarterly, based on
the average oil price in the preceding quarter. That means that the higher
expected oil price would feed through into subsidy costs in the second half
of the fiscal year.

Oil Prices Low

General
Low oil prices inevitable 9 reasons
Colombo 6/9 Jesse Colombo, Forbes economic analyst, 6-9-2014, 9 Reasons
Why Oil Prices May Be Headed For A Bust, Forbes,
http://www.forbes.com/sites/jessecolombo/2014/06/09/9-reasons-why-oil-pricesmay-be-headed-for-a-bust/.
Though the U.S. shale oil boom of the past several years has led to a
renewed surge of domestic oil production as well as an oil glut, crude oil
prices have remained stubbornly high. There are a growing number of reasons,
however, why crude oil prices are likely to finally experience a bust in the
not-too-distant future. I avoid making firm predictions about the oil market
because there are so many conflicting variables that affect oil prices, from supply
and demand, geopolitics (which is inherently unpredictable), and the global
monetary environment, but it is important to be aware of several factors that
have a high probability of pushing crude oil prices lower in the next couple
of years. 1) The unwinding of record speculative bullish bets To prop up
the global economy after the 2008 financial crisis, global central banks dramatically
cut interest rates and printed trillions of dollars worth of new currency via
quantitative easing programs. Extremely stimulative monetary environments
increase the desirability of hard assets such as oil and other commodities
because they are a hedge against currency debasement and the
associated risk of inflation. For the past half-decade, institutional investors
have clamored into the crude oil market, causing prices to soar 140 percent from
their post-financial crisis lows. The chart below shows that large crude oil futures
speculators (green line under chart) are currently making a record bet of 423,136
net contracts on the continued appreciation of oil prices: The data that I am citing
comes from the U.S. Commodity Futures Trading Commissions weekly
Commitments of Traders (COT) report that shows the aggregate number of futures
and options contracts that are held by three different categories of futures market
participants: large speculators, small speculators, and commercial hedgers. Large
speculators the group that is placing the record bullish crude oil bet are typically
investment funds that trade in a trend-following manner, which means that they
tend to capture the middle part of market moves, but are often wrong at important
market turning points. The nature of the large speculators trend following trading
systems cause them, as a group, to bet most aggressively right before the trend
reverses. As the old Wall Street adage goes, when everybody gets to one side of
the boat, it usually tips over. For this reason, large speculators become an effective
contrary indicator when their aggregate trading positions reach extreme levels,
either on the upside or the downside. While extreme aggregate trading positions
can persist for quite a while, as is the case in the crude oil market for the past few
years, they are still a reliable indication that a powerful market reversal is likely to
occur when the proper catalyst eventually appears and sends speculators heading
for the exits. So far, no bearish catalyst has presented itself in the crude oil market,
but the other points that Ive listed in this piece may combine to form a perfect

storm that finally causes the oil market to crack. 2) The smart money is
growing increasingly bearish In the futures market, there is a buyer for
every seller, and a bull for every bear (on a contract-by-contract basis). For
every futures contract currently being held by bullish large speculators in the oil
market, there is someone on the opposite side of the trade. In the current crude oil
market, it is the commercial hedgers that are taking the exact opposite position as
the large speculators: Commercial hedgers are the actual producers and users of
crude oil (the Exxons and BPs) who utilize the futures market as a form of insurance
against adverse price moves. Commercial hedgers are considered to be the smart
money because, after all, they are the physical crude oil market and have firsthand
information about future supply and demand trends. Commercial hedgers now
have a record 445,492 net contract short position in the crude oil futures market,
which indicates that their greatest concern is not an increase in crude oil prices, but
a sharp decline. Commercial crude oil hedgers are aware of many of the bearish
points that I am discussing in this article, which likely explains why they are heavily
hedging against a coming crude oil bust. 3) The global monetary environment
is tightening As discussed in point #1, the crude oil price boom of the past halfdecade is due in large part to the incredibly stimulative monetary environment that
has been created by central banks in a desperate attempt to prop up global
economy after the financial crisis. Now that unemployment is falling and the risk of
an imminent deflationary crisis has been reduced in the U.S. and U.K. (two major
countries that are running QE money printing programs), the current global
economic cycle is moving into a phase in which stimulative central bank policies will
be gradually pared back and eventually reversed. The U.S. Federal Reserve is
expected to complete the tapering or ending of its QE3 program by the end of 2014,
while the Fed Funds Rate is expected to start rising as early as 2015. Similarly, Bank
of Japan is now preparing for the eventual ending of its Abenomics monetary policy
now that it is much closer to achieving its 2 percent inflation target. Bank of
England is considering plans to start raising interest rates in the coming years as
well, which is a precursor to the tapering of its QE policy. The European Central
Bank, however, is bucking the monetary tightening trend after cutting its
benchmark interest rate last week by 10 basis points to 0.15 percent and
introducing a deposit interest rate of negative 0.10 percent. The ECB is also
considering launching its own quantitative easing program in the future. Unlike the
U.S. Federal Reserves QE programs, a European QE is not likely to be as supportive
for crude oil prices because even mere rumors regarding it have weakened the euro
and boosted the U.S. dollar in the past month, which has put downward pressure on
commodities prices. Many commodities, including oil, are priced in U.S. dollars, so
central bank policies that are bullish for the dollar are typically bearish for
commodities prices. The simultaneous tightening of U.S. monetary policy and the
loosening of European monetary policy could set the stage for a powerful bull
market in the U.S. dollar. The U.S. Federal Reserves policies are by far the
most important monetary variable for crude oil prices, so its tightening
over the next few years represents the ending of one of the key driving
forces behind crude oils bull market of the past half-decade. In addition,
the massive inflation and imminent currency devaluation that many
commodities traders had expected to occur as a result of quantitative

easing programs has not materialized and is unlikely to in the near future.
4) The shale oil boom is increasing supply Surging North American oil
production, courtesy of the recent U.S. shale and Canadian oil sand booms, is
dramatically reducing U.S. oil imports and has even led to a glut of light, sweet
crude oil in the United States. In the past five years, U.S. oil production
experienced a sharp reversal of its long-term downtrend and recently hit a
twenty-five year high: Net U.S. oil imports fell to a 28-year low in 2013 as a
result of the shale oil boom: U.S. oil production is expected to grow to 9.2 million
barrels a day in 2015 and 9.6 million by 2016, which would make the U.S. the
worlds largest oil producer, ahead of even Saudi Arabia and Russia. Canadas oil
sand boom is expected to boost the countrys oil production by 500,000 barrels per
day to achieve a total production of 3.9 million barrels per day in 2015, much of
which will be exported to the United States. As the world largest oil consumer, the
United States oil boom has significantly decreased the countrys reliance on foreign
sources of oil, particularly from the volatile Middle East. This is one of the main
reasons why global oil prices have remained relatively flat for the past several years
despite the Arab Spring revolutions that led to an 80 percent decrease of Libyan oil
production and other disruptions, as well Russias recent invasion of eastern
Ukraine. According to oil analyst Lysle Brinker, oil prices may have soared to as high
as $150 a barrel without the increase of U.S. oil production. A glut of light, sweet
crude oil is even forming in the United States as a result of rising domestic oil
production as well as the U.S. crude oil export ban that dates back to 1975. Oil
companies and oil-producing states such as Texas and North Dakota are pushing to
have the export ban lifted so that the U.S. can export some of its newfound energy
bounty to the global oil market. While shale oil deposits are found throughout the
world, other countries face greater difficulties in their attempts to replicate the U.S.
oil shale boom. The same technologies that have enabled the oil shale boom
fracking and horizontal drilling have also led to a nearly 40 percent increase in
U.S. natural gas production since 2007. Now one of the lowest cost fuels, natural
gas is expected to further reduce the United States reliance on oil, particularly for
electricity generation, heating, chemical manufacturing, and even transportation.
The high price of oil in the past decade has been a major driving force behind the
U.S. shale energy boom because it enabled the use of new drilling technologies that
would not have been economically viable at lower prices. The continuation of the
U.S. shale energy boom in the next few years is likely to put pressure on
crude oil prices in accordance with the principle, the only cure for high
prices is high prices. 5) Production is starting up again in many
countries Oil production and exports are poised to begin again in many
countries that experienced severe disruptions in recent years: Iran: After
Western economic sanctions were placed on Iran due to its nuclear program caused
a near-collapse of its economy and currency in 2012, the nation appears ready to
strike a deal so that it can export its oil to the West again. Oppenheimer oil analyst
Fadel Gheit claims that the Iran-related supply risk premium accounts for 20-30
percent of the price of oil, which would disappear and send prices to the $75-$85
range once a deal is finally struck with the West. 1 million more barrels of oil per
day could enter the market when Irans nuclear issue is resolved. Iraq: Iraqs oil
production recently hit a 30-year high as its oil industry rebuilds after the war and

decades of underinvestment. Iraq has the worlds fifth-largest proven oil reserves,
and several hundred thousand more barrels of oil per day are expected to come
online this year alone. Libya: Libyas oil production plunged by over 80 percent
from 1.6 million barrels a day to just 237,000 barrels a day after the countrys
revolution in 2011. While Libyas oil situation remains volatile due to protests that
have shut down pipelines and ports, an eventual resolution could double production
to 500,000 barrels a day. Venezuela: Despite numerous political challenges that
have reduced Venezuelas oil production in the past decade, Leo Drollas, the head of
the Centre for Global Energy Studies, expects 250,000 more barrels of oil per day to
come online this year. European energy companies Eni SpA and Repsol SA have
signed deals last week to invest up to $500 million each to develop Venezuelas
Perla oil field, which is considered to be one of the most important discoveries of the
past decade. 6) OPECs limited ability to boost prices by cutting
production When oil prices dropped significantly in the past, OPEC countries
would cut their oil production to bolster the price of oil. Growing fiscal deficits in
many OPEC nations in recent years, however, make it far more difficult to
cut oil production because these countries can no longer afford the loss of
oil revenues. 7) Global oil demand is slowing Led by China and other
emerging nations, global oil demand spiked in the years following the 2008 financial
crisis, which contributed to oils bull market. Since 2011, oil demand growth has
slowed significantly to a half-decade low largely due to the ongoing
economic slowdown in China and emerging economies: 8) The global
economic recovery is actually another bubble As discussed in the last
point, oil demand and prices are highly dependent on global economic
growth. The financial crisis and subsequent Great Recession was what popped the
2008 oil bubble after prices reached nearly $150 per barrel. After the price of oil
sank in late-2008, the post-2009 economic recovery helped oil prices to rise 140
percent from their financial crisis low. Unfortunately, my extensive research has
found that the global economic recovery that has driven oil prices higher is actually
an artificial, bubble-driven recovery that I call a Bubblecovery. In a desperate
attempt to prevent a deflationary depression, central banks pumped trillions of
dollars worth of liquidity into the global financial system and cut interest rates to
virtually zero percent. In short order, new economic bubbles started ballooning in
China, emerging markets, Canada, Australia, Nordic countries, commodities, tech
startups, and U.S. equities and housing prices, to name a few (read my
Bubblecovery article for more information). Property and credit bubbles are inflating
once again all around the world in a pattern that is very similar to the last decades
bubble that caused the financial crisis in the first place. This chart shows that
Canadas housing and household debt bubble is even worse than the U.S. bubble
last decade: These days, it makes no difference whether you look at the charts of
property prices and debt in Canada, or in Australia, Norway, Hong Kong, China, or
Singapore; the charts all look the same and show the same classic bubble pattern.
The world is caught up in an epidemic of post-2009 bubbles, but the vast majority of
people are completely unaware and in denial. Here are a few terrifying statistics
that show how dangerous Chinas economic bubble is: Chinas total domestic
credit more than doubled to $23 trillion from $9 trillion in 2008, which is equivalent
to adding the entire U.S. commercial banking sector. Borrowing has risen as a

share of Chinas national income to more than 200 percent, from 135 percent in
2008. Chinas credit growth rate is now faster than Japans before its 1990 bust
and Americas before 2008, with half of that growth in the shadow-banking sector.
The post-2009 economic bubbles are the primary reason why the global economy
started growing again because bubbles create temporary growth booms before
ending in crises. When the post-2009 bubbles pop, global economic growth
is going to sink (and there will not be a quick recovery like last time),
which will reduce demand for oil. 9) The ending of the commodities
supercycle As I mentioned in the last point, commodities are one of the key
bubbles that I have identified. Artificial, debt-driven economic growth in China and
other emerging market nations combined with the unprecedented ocean of central
bank liquidity caused commodities prices to triple since 2002: Hundreds of billions
of dollars worth of investment capital clamored into commodities as investors began
to treat commodities as a new long-term asset class, similar to equities and bonds.
Many of these investors also viewed commodities as a way to play the China and
emerging markets boom. Record high commodities prices spurred a massive global
exploration and extraction boom that is now leading to growing gluts in numerous
commodities, particularly growth-sensitive commodities like copper and iron ore, as
rising supply is met with slowing demand from China and emerging markets. As
stated earlier, the only cure for high prices is high prices. When the post-2009
global economic bubble pops, I believe that commodities prices will finally
experience a true bust.

Long-term oil prices are slumping dramatically

Prezioso 2/3 Jeanine Prezioso, Deputy Editor at Reuters, energy
correspondent, 2013 Gerald Loeb Award Winner, 2-3-14, Analysis: As U.S. debates
oil exports, long-term prices slump below $80, Reuters,
http://www.reuters.com/article/2014/02/03/us-oil-prices-slump-analysisidUSBREA120G020140203.
Long-term U.S. oil prices have slumped to record discounts versus Europe's
benchmark Brent, with some contracts dropping below $80 in a dramatic
downturn that may intensify producers' calls to ease a crude export ban. Oil for
delivery in December 2016 has tumbled $3.50 a barrel in the first two weeks
of the year, trading at just $79.45 on Friday afternoon, its lowest price since
2009. That is an unusually abrupt move for longer-dated contracts that are
typically much less volatile than prompt crude. For most of last year, the contract
traded in a narrow range on either side of $84 a barrel. The shift in prices on
either side of the Atlantic is even more dramatic further down the curve,
with December 2019 U.S. crude now trading at a record discount versus the
equivalent European Brent contract. The spread has doubled this month to nearly
$15 a barrel, data show. The drop in so-called "long-dated" U.S. oil futures
extends a broad decline that has pushed prices as much as $15 lower in
two years. It also coincided with an abrupt drop in near-term futures,
which fell by nearly $9 a barrel in the opening weeks of 2014 amid signs of
improving supply from Libya.]

The long-term outlook for global oil prices is decreasing $75

a barrel
Epstein 3/29 Gene Epstein, American economics editor at Barrons Magazine,
3-29-14, Here Comes $75 Oil, Barrons,
http://online.barrons.com/news/articles/SB500014240531119035360045794593232
09921860.
The long-term outlook for global oil prices is lower, perhaps much lower,
giving a strong boost to the U.S. economy while potentially crippling the economy of
Vladimir Putin's Russia. Vast new discoveries of oil and natural gas in the U.S.
and around the globe could drive the oil price to as low as $75 a barrel
over the next five years from a current $100. The demand side, too, will
put pressure on the supremacy of petroleum. For the first time in its 150-year
history, the internal combustion engine can be run efficiently on alternative fuels
from a number of sources, including natural gas. As these alternatives are
increasingly introduced, global consumption of oil will slow its growth and flatten
out. Citigroup's head of global commodity research, Edward Morse,
believes the combination of flattening consumption and rising production
should mean that "the $90-a-barrel floor on the world oil price over the
past few years will become a $90 ceiling." Within a new trading range with
a $90 ceiling, Morse sees an average of $75 as plausible. That's a far cry
from the old paradigm, promoted in the past 40 years, which posited ever-greater
demand for petroleum as developing economies grew, and a slowdown on the
supply side -- the looming prospect of "peak oil," whereby global production maxes
out and falls into decline. To the contrary, unconventional sources of crude oil
totaling more than a trillion barrels -- the equivalent of more than 30 years of extra
supply -- have been discovered in the past five years. The majority is
recoverable at $75 or less, and much is now being tapped.

Oil prices are heading down for the next few years
Conerly 13 Bill Conerly, economic and business analyst, 5-1-13, Oil Price
Forecast for 2013-2014: Falling Prices, Forbes,
http://www.forbes.com/sites/billconerly/2013/05/01/oil-price-forecast-for-2013-2014falling-prices/.
Oil prices are headed down, and I mean down at least $20 a barrel. The
key reason is that prices have been high. Its not a paradox, but a result of
the long time lags in oil production. Oil prices were fairly stable from 1986
through 2001, averaging just $20 per barrel. Then prices started rising, spiking to
$134 just as the recession began. The price of oil has been above $80 for the
past two and a half years. With rising prices has come a dramatic increase
in exploration activity. During the era of low prices, the number of drilling rigs in
operation around the world was 1,900 on average; now we are at nearly double that
pace, and we have been for nearly three years. Drilling activity results in oil
production, lasting for many years after the drilling is over. Take a look at the

accompanying chart of drilling rigs and total production. Drilling jumped up after the
oil price hikes of 1973 and 1979. By 1986, increased oil production brought prices
crashing down. Oil exploration quickly followed suit. Production, however, continued
to grow long after new drilling declined. When drilling was high, much of the activity
was exploratorytrying to find the oil. When prices fell, the riskiest drilling made no
sense. What was left was in-fill. The oil field had been identified, and further wells
were needed to best utilize the resource. These wells are fairly low risk, with high
rewards compared to the cost of the drilling rig. As a result, even low levels of
drilling activity led to substantial increases in global production. Today
weve had moderately strong drilling activity for several years. New fields
have been identified and delineated. Now well see fairly mild drilling
activity but continually increasing production. In the past year
production has been soft, barely growing, but thats a reflection of weak
demand. In the short run, production can be dialed back to save more oil
for the future. In the long run, though, production capacity rules the
roost. What of demand? Demand should grow a little slower than the global
economy. Unless the world starts to booman unlikely scenario, given problems in
Europe and the United Statesproduction capacity will grow faster than
demand, pulling prices down. What of peak oil worries? The concept is often
sound when looking at one wellbut even a single well will sometimes be re-worked
to increase its output. For the world as a whole, the peak oil theory fails to
consider that higher prices lead to greater exploration for new oil fields,
greater in-fill drilling of established fields, better care of older wells, and
development of new technology for all of these functions. The worlds oil
production will peak when the cost of finding new oil rises and the
development of alternative energy makes the value of oil decline. Over
the coming few years, look for oil prices to decline at least below $80 a
barrel and quite possibly more.

High Supply/Shale Boom

Future oil prices falling due to high supplies
Friedman and Berthelsen 14 Nicole Friedman, energy markets reporter
at WSJ, and Christian Berthelsen, staff writer at WSJ, 2-11-14, U.S. Lowers Crude-Oil
Output Outlook for 2014, 2015, Wall Street Journal,
http://online.wsj.com/news/articles/SB100014240527023036502045793770818983
96074.
The U.S. will face a tighter supply-and-demand picture for crude oil and
petroleum products this year and next than previously expected,
government forecasters said Tuesday. The U.S. Energy Information
Administration lowered its forecasts for U.S. oil-production growth in 2014
and 2015 in its short-term energy outlook, and raised its expectations for the
country's consumption of oil products. The U.S. is likely to produce 8.42 million
barrels a day of crude oil this year, down from 8.54 million barrels a day in the EIA's
previous forecast but still up from 7.44 million barrels a day in 2013. For 2015, the
EIA forecasts production of 9.19 million barrels a day of oil, down from 9.29 million
barrels a day previously. The output forecasts were adjusted because of
"indications that severe weather this winter has caused temporary
slowdowns in completing new wells," according to the EIA. The EIA expects
consumption of oil products to reach 18.91 million barrels a day in 2014 and 18.97
million barrels a day in 2015, up from prior forecasts for 18.88 million barrels a day
this year and 18.96 million barrels a day next year. To help fill the gap, the U.S. may
need to import more oil than expected. The EIA forecasts net imports of oil and oil
products at 25% of U.S. oil demand by 2015, a higher share than previously forecast
but still the lowest level since 1971. U.S. reliance on foreign oil peaked at more than
60% of domestic demand in 2005. The EIA expects net imports to decline
from 6.2 million barrels a day last year to 5.49 million barrels a day this
year and 4.65 million barrels a day in 2015. U.S. oil production has been
robust because of hydraulic fracturing and horizontal drilling techniques
that have enabled energy producers to tap into supplies trapped in shaleoil fields. U.S. production peaked in 1970, when it reached an annual average of
9.6 million barrels a day, the EIA said. The agency raised its expectations for global
oil consumption to 91.62 million barrels a day this year and 92.99 million barrels a
day next year, up from 90.36 million barrels a day in 2013. Most of the growth will
come from developing nations, especially China. Consumption among the
industrialized nations that comprise the Organization for Economic Cooperation and
Development is expected to stay relatively flat, while emerging-market economies
such as China will account for "almost all" consumption growth, the EIA said. In
2015, non-OECD demand will overtake flat OECD demand for the first time,
exceeding it by nearly 1 million barrels a day. The EIA said it expects world
supplies to increase by 1.7 million barrels a day in 2014 and 1.4 million
barrels a day in 2015, with most of the growth coming from countries outside the
Organization of the Petroleum Exporting Countriesespecially the U.S., Canada and
Brazil. U.S. energy officials expect global and domestic crude prices to

moderate this year as the world's supplies outpace consumption.

Domestic benchmark crude prices are likely to average $93 a barrel in
2014 and $90 a barrel during 2015, the EIA said in its February short-term
energy outlook. Prices for U.S. retail gasoline, which fell on average from 2012
to 2013, are expected to fall again in 2014 to $3.44 a gallon, and in 2015 to $3.37 a
gallon. Globally, the EIA said it expects Brent crude prices to weaken as a
supply boom from the U.S. and other countries outstrips world
consumption. The agency said it expects Brent to average $105 a barrel in 2014
and $101 a barrel in 2015, below the current level of $108.90. OPEC is expected
to reduce crude production to offset the growth in supply, the EIA said.
OPEC is likely to produce 29.6 million barrels per day in 2014 and 29.3 million in
2015. The forecasts were slightly higher from the EIA's January report.

Increasing oil supply will continue to drive down oil prices, EIA
proves
Eaton 14 Collin Eaton, staff writer at the Houston Chronicle, 1-8-2014, US oil
boom will slow in 2015, feds forecast, Fuel Fix,
http://fuelfix.com/blog/2014/01/08/us-oil-boom-could-ease-in-2015-eia-says/.
Increasing oil supply from the U.S. and other non-OPEC countries is
expected to drive down prices for Brent, the international benchmark crude, to
an average $102 per barrel in 2015 from an average $109 per barrel last
year. Meanwhile, U.S. benchmark crude West Texas Intermediate will likely trail
Brent by a $12 per barrel discount next year 2015, the EIA reported. WTI
fell further behind Brent last year after pipeline companies untangled a bottleneck
of crude in Cushing, Okla., stranded at storage facilities on the way to Gulf Coast
refineries. That had kept U.S. oil prices elevated for several years. International
crude prices, especially in North America, may also face pressure this year
from rising oil output from the Middle East and slowing economic growth and
oil demand in China, Moodys Investors Service reported this week. Crude
supplies from non-OPEC companies are expected to reach a record
increase of 1.9 million barrels per day this year. Prices at the pump are
also expected to fall next year on the surge in crude: Drivers could pay an
average $3.39 for a gallon of regular in 2015, down from a projected $3.46 this
year, according to EIA estimates.

Oil prices are lowering significantly due to higher supplies

Rocco 14 Matthew Rocco, staff writer, 1-9-14, U.S. Shale Boom Drives Record
Oil-Related Exports, Fox Business,
http://www.foxbusiness.com/industries/2014/01/09/us-shale-boom-drives-refinedproduct-exports/.
Exports of refined products from the U.S. have risen sharply in recent
years, another byproduct of the shale boom that has reshaped energy
markets. Access to lower-cost crude from shale plays like Eagle Ford in Texas
and North Dakotas Bakken have given domestic refiners a an edge over

international competitors, Standard & Poors said in a report this week.

Meanwhile, several nations have yet to unleash their own vast shale
reserves, potentially throwing another wrench into energy prices. The U.S.
is the only country so far to see a high level of shale oil and gas
production. The shale boom has proven to be a positive development for refiners
looking overseas to Europe, Japan, China, Latin America and other regions.
According to S&P, exports of refined products have surged by more than
60% to about 1.7 million barrels a day since 2010. S&P added that while not
as significant, more fuel-efficient automobiles are pushing domestic fuel demand
lower and thus freeing up oil to be refined into products for export. Revenues,
operating expenses and credit metrics of certain U.S. refiners have strengthened,
S&P explained, especially for refiners located close to shale plays. The report also
said the rising tide of U.S. exports is putting pressure on various
Caribbean refiners to cut back or close operations. In some markets, like lowsulfur diesel, gasoline and jet fuel, American refiners are taking market share from
some European competitors. Before the rapid increase in U.S. oil output, America
was a major destination for European gasoline. The countrys need for imported
gasoline has decreased significantly, hurting refiners in Europe and
transatlantic shippers that would normally bring gasoline to the U.S. and low-sulfur
diesel back to Europe. S&P noted how some of the more sophisticated U.S. refiners
were put at a disadvantage once the shale boom kicked off. Many refiners modified
facilities to process heavier crude, not the light, sweet crude being produced at
shale plays. The move was intended to prepare refineries for an expected
supply increase and price drop for heavier crude. Light, sweet WTI crude used
to trade at a premium to Brent and heavier grades like Maya, but the rapid
increase in U.S. shale production has reversed that relationship. Laws
largely prohibiting U.S. crude oil exports have also kept the price of WTI
and other domestic crude slates relatively low, S&P said. Some lawmakers in
Washington, including Republican Sen. Lisa Murkowski of Alaska, have called for the
U.S. to lift the export ban that began in the 1970s. Oil giant Exxon Mobil (XOM)
has also voiced support for such a move, citing a projected 40% jump in U.S.
liquid supplies by 2040. Overseas Shale Potential Global energy producers
have yet to embark on their own shale boom, even as countries like
Russia, China and Argentina sit on large amounts of technically
recoverable shale oil and gas. However, it remains to be seen what portion of
those reserves are economically recoverable. Although great potential exists for
future shale-derived hydrocarbon production, it remains to be seen what percentage
of non-U.S. shale resources can be extracted at a profit, S&P explained in a
separate report. Russia is estimated to have the largest shale oil reserves of 75
billion barrels, according to the Energy Information Administration. The U.S. is No. 2
with 58 billion barrels, followed at a distance by China, Argentina and Libya. China
is believed to have 1,115 trillion cubic feet of recoverable shale gas. The EIA
estimates that Argentina has 802 trillion cubic feet, while the U.S. is fourth at 665
trillion. Algeria likely has the third-largest shale gas reserves. While the U.S. energy
industry has roared ahead, shale reserves overseas face several development
hurdles such as a lack of drilling resources, land ownership issues and government
regulations. Also, the characteristics of shale can vary from country to country, so

techniques that work in the U.S. may not be directly applicable to other nations.
Although these hurdles will slow shale reserve development outside North
America--and in some instances may make production unfeasible--we expect that
global shale production will become increasingly significant beyond 2020,
S&P said.

Oil prices decreasing and stabilizing as a result of US energy

independence
Hill 6/19 Patrice Hill, staff writer, 6-19-14, U.S. oil flow helps keep prices in
check as threats rise overseas, The Washington Times,
http://www.washingtontimes.com/news/2014/jun/19/us-oil-flow-helps-keep-prices-incheck-as-threats-/?page=all.
Americas growing energy independence is paying major dividends this
spring, helping to keep a lid on fuel prices despite sudden threats to major
global oil supplies in Iraq and Russia that in the past would have sent
prices soaring. Sunni Muslim extremists who have taken over large portions of
northern Iraq have shown their willingness to use oil supplies as a weapon, taking
control over the nations biggest refinery in Baiji temporarily Wednesday after
having sabotaged a major pipeline funneling oil through Turkey for export. Their
advance on Baghdad and regions farther south threatens to cripple Iraqs ability to
expand output at its most prolific and important southern oil fields as well,
potentially dealing a blow to China and other oil-thirsty Asian nations that were
looking to Iraq for supplies in the future. The Iraq crisis follows Russias takeover of
Crimea and its backing of rebels fighting the Kiev government in eastern Ukraine,
prompting the U.S. and Europe to threaten broad sanctions on Russias economy,
including its vital oil sector. Such sanctions have the potential to throttle oil exports
from the worlds top producer and deprive much of Europe of a critical source of
oil. In the past, either of these two major threats to oil supplies and
certainly both of them together would have sent world oil prices soaring
and pushed prices at U.S. gas pumps to uncomfortable and possibly
unprecedented levels. But that is not happening, and analysts are attributing
the relative calm, with premium crude prices having risen moderately to a range
around $106 a barrel in New York so far this week, to the gusher of oil coming
out of Americas heartland, which is holding down prices. Ben Montalbano,
research director for the Energy Policy Research Foundation Inc., said the surge in
U.S. oil output from the Bakken, Eagles Ford and other big shale formations in
the nations midsection not only has created an embarrassment of oil
riches that is moderating energy prices in the U.S., but it is also giving the
world a substantial margin of excess production capacity that is
preventing the kind of astronomical spike in global oil prices seen during
comparable oil crises in the past. Oil prices would likely be $20 to $40
dollars per barrel higher than they are now, in the $125 to $150 range, and
the OPEC oil cartel would be struggling to address shortages, Mr. Montalbano told
the website Real Clear Energy. Without the increase in U.S. oil production
over the past few years, OPECs excess capacity would be at or near

zero. Pump prices rose modestly to around $3.67 a gallon on average this week
for regular gasoline in the wake of last weeks extremist takeover of northern Iraq,
according to Gasbuddy.com. They remain just slightly above the $3.63 average level
this spring and the $3.61 level posted a year ago, and far below the levels over $4
where gas prices regularly landed before the shale oil boom. The restraint in fuel
prices is not entirely new, though it has been noticeable this week. Mr. Montalbano
said the glut of oil coming out of the Midwest has had the beneficial effect of
holding down oil prices for several years. It enabled the world to easily absorb
the loss of 1 million barrels a day of premium crude production caused by
the collapse of Libyas oil industry several years ago, as well as the subsequent loss
of 1 million to 1.5 million barrels a day of Iranian crude exports because of a U.S.led sanctions regime since 2012. Neither of those events had much impact on world
oil prices in a departure from the past. Sanctions against Iran, civil war in Libya,
and general unrest in the Middle East have all had minimal effects on price volatility
thanks to the U.S. energy renaissance, said Jared Meyer, a policy analyst at the
Manhattan Institute for Policy Research. The most important contribution to
oils price stability has been the substantial increase in U.S. production.

US shale boom lowering prices, especially light oil in Canada

Lewis 2/5 Jeff Lewis, energy reporter, 2-5-14, How the U.S. shale boom is
putting pressure on Albertas light oil, The Financial Post,
http://business.financialpost.com/2014/02/05/how-the-u-s-shale-boom-is-puttingpressure-on-albertas-light-oil/?__lsa=b12f-50fd.
The U.S. shale boom is poised to cut demand for Albertas light oil, amid
mounting fears of a glut and calls from energy companies to ease restrictions on
exporting crude from U.S. shores. Steady production gains from the U.S.
Bakken and the Eagle Ford shale play in Texas could overwhelm U.S.
refineries by mid-2016 and drive down prices unless legislators in Washington
ease restrictions on exports, analysts at RBC Capital Markets said in a report
Wednesday. Save for shipments to Canada, the U.S. prohibits exports of crude oil
under a ban that dates to the 1970s. Youre going to come to a wall at some point
where theres too much oil and nowhere to put it in the U.S. without oil exports
being allowed, said Leo Mariani, senior U.S. analyst with RBC in Austin, Tex. At
that point we certainly would suspect that if we dont have exports then youre
going to start to see pretty dramatic oil-on-oil competition, where guys are trying to
compete for sales with the same refiners and end users. Whether the U.S. allows
exports could have significant ramifications for Alberta. Deep discounts on
Western Canada Select, the key heavy oil marker, have narrowed
substantially against the West Texas intermediate benchmark from a year
ago. But light oil is under increasing pressure. Edmonton Par, a light oil
blend, plunged more than US$20 below WTI in December, according to Scotiabank.
Prices have snapped back, but I think that there is a risk because of the huge
and quite remarkable development of light, tight oil, said Patricia Mohr, vicepresident and commodity markets specialist at the bank in Toronto. Canadian Oil
Sands Ltd., which owns the largest share of the Syncrude Canada Ltd. project, said

Jan. 30 sales of its synthetic crude oil sold for $10.84 under WTI in the fourth
quarter. The oil fetched a $2.52 premium in the same period a year ago. The
company warned investors that rising U.S. production could push sales to more
distant refineries, leading to higher transportation costs. Volatile prices will
persist for several years until additional pipeline or other delivery capacity is
available to deliver crude oil from Western Canada to new markets, the company
told investors. The prospect of a U.S. oil glut is a risk and the key reason why
Suncor and Total decided not to go ahead with another upgrader in Alberta, Ms.
Mohr said. The hugely expensive plants convert raw bitumen into refinery-ready oil.
The two companies last year scrapped plans to build the $11.6-billion Voyageur
mega-plant, fearing the project wouldnt be competitive with lower-cost shale oil.
Thats starting very much to play out as we expected, Suncor chief executive
Steve Williams said this week. What were seeing now is the Voyageur-type
investment, its very difficult to justify doing that. RBC estimates the U.S. can
accommodate another two million barrels a day of production growth before testing
refinery and storage limits. Output could slow without exports if WTI prices
drop below US$80, Mr. Mariani said. We dont foresee the same problem
happening for heavy oil, he added. The real issue in the U.S. is light oil.

AT: Iraq Conflict Increases Prices

Oil prices are decreasing, Iraq conflict only has temporary
effect, and US output rising
Shenk 6/26 Mark Shenk, staff writer for Bloomberg News, 6-26-14, WTI Oil
Slips to Two-Week Low as Iraq Output Seen Rising, Bloomberg,
http://www.bloomberg.com/news/2014-06-26/brent-falls-for-second-day-as-iraqoutput-seen-rising.html.
West Texas Intermediate oil dropped to a two-week low and Brent fell on
signs that the insurgency in Iraq wont curb output and as U.S. stockpiles
climbed. Iraqs crude exports will increase next month, Oil Minister Abdul
Kareem al-Luaibi said yesterday. Government forces repelled an attack by
the Sunni Islamic State in Iraq and the Levant on the Baiji refinery north of
Baghdad. U.S. crude stockpiles rose by 1.74 million barrels to 388.1 million
last week, the Energy Information Administration said yesterday. Prices are
retreating because the insurgency hasnt had a material impact on the
Iraqi production and we might be looking at a gain in exports, said Gene
McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
Prices are consolidating here just below the nine-month highs. WTI for August
delivery slipped 66 cents, or 0.6 percent, to $105.84 a barrel on the New York
Mercantile Exchange. It was the lowest settlement since June 11. Futures are
up 7.5 percent this year. Brent for August settlement fell 79 cents, or 0.7
percent, to end the session at $113.21 a barrel on the London-based ICE Futures
Europe exchange. It was the lowest close since June 16. Prices have increased
2.2 percent this year. The European benchmark crudes premium to WTI narrowed
to $7.37 from $7.50 yesterday.

Oil prices are slipping again, Iraq conflict is receding

Johnson 6/25 Christopher Johnson, Energy Correspondent for Reuters, 6-2514, Oil falls below $114 but Iraq conflict curbs losses, Reuters,
http://in.reuters.com/article/2014/06/25/markets-oil-idINKBN0F00QR20140625.
Brent crude slipped below $114 a barrel on Wednesday as the risk of
supply disruption in Iraq appeared to recede and after a rise in U.S.
inventories pointed to ample stockpiles for the world's biggest oil
consumer. Oil has made sharp gains in the past two weeks as concerns over
fighting in Iraq, OPEC's second-largest producer and exporter, pushed the North Sea
benchmark above $115, its highest since September. But with exports from
Iraq's southern terminals running near record levels and most of the
country's oilfields in the peaceful south, far away from the Sunni
insurgency, worries about supply have been easing. Brent LCOc1 dropped 60
cents to $113.86 a barrel by 0755 GMT, after gaining 34 cents on Tuesday. Prices,
up almost 6 percent over the past two weeks, have receded from a nine-month
top of $115.71 reached on June 19. "The risk of losing some Iraqi oil
production is not zero, but it is very low, 5-10 percent, I think," said Carsten

Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt. "But the
tail risk will keep oil prices elevated for now. Hence, I expect Brent to stay above
$110 for the time being." Sunni insurgents are battling government forces for
control of Iraq's biggest refinery - the 300,000-barrels-per-day Baiji complex - that
has been under threat for nearly two weeks since militants overran northern cities.
[ID:nL6N0P51PO] "Markets have already factored in the Iraq situation unless something more chaotic happens. The threat of supply disruptions
is receding," said Avtar Sandu, senior commodities manager at Phillip Futures.
U.S. crude CLc1 climbed 20 cents to $106.23 a barrel. It hit $107.50 in early Asian
trade after federal officials approved exports of condensate, an ultra-light oil, in a
marginal relaxation of a 40-year ban on U.S. oil exports. U.S. crude closed down 14
cents in the previous session. Analysts say allowing more U.S. oil to be exported
could help tighten the domestic market, pushing up prices. U.S. officials have told
energy companies they can export a variety of condensate if it has been minimally
refined, a U.S. Commerce Department spokesman confirmed to Reuters, although
he said there had been "no change in policy" towards crude exports. News of a
rise in U.S. crude oil and gasoline stocks helped drag oil prices lower. U.S.
crude inventories rose by 4 million barrels in the week to June 20, to 382.6
million barrels, compared with analysts' expectations for a decrease of 1.6
million barrels, data from the American Petroleum Institute showed on Tuesday.
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 424,000 barrels, the
API said. [ID:nZXN047B00] [ID:nL2N0P51HN] The U.S. government's Energy
Information Administration (EIA) releases its data for the week ended June 20 later
on Wednesday. [EIA/S]

Oil prices will decrease in the long run despite Iraq fighting
Deshpande 6/22 Abhishek Deshpande, commodities analyst at Londonbased Natixis, 6-22-14, Crude oil outlook: Crude oil prices can rise above $120 if
Iraq crisis escalates, Business Standard, http://www.businessstandard.com/article/markets/crude-oil-outlook-crude-oil-prices-can-rise-above-120if-iraq-crisis-escalates-114062200772_1.html.
Over the past week, Brent crude prices have increased by close to $5 a
barrel ($2.5 a barrel for WTI), introducing a clear Iraq risk premium. The oneyear high in oil prices was triggered by the sudden eruption of an Al
Qaeda-linked militant insurgency in northern Iraq last week, raising fears of
supply shortages and a civil war that might also draw in oil-rich neighbours. Iraq is
the second largest producer of crude oil in the Organization of The Petroleum
Exporting Countries (Opec). The successs in northern Iraq of the Islamic State in
Iraq and al-Sham (ISIS) clearly demonstrates the extent to which the country is at
risk of fracturing along religious and ethnic fault lines. ISIS poses a threat not only to
Iraq's stability but also to Iraq's oil supplies and energy infrastructure. The refinery
at Baiji, near Mosul, is now under ISIS control. With a capacity of 310,000 barrels a
day, it is the country's biggest. It supplies oil products to Baghdad and most of the
northern provinces. Baiji is also a major provider of power to Baghdad. By targeting
Iraq's oil facilities, as it did with the Kirkuk-Ceyhan pipeline in the past and Baiji

now, ISIS is undermining both government revenue and essential energy supplies
(fuel and power). Nevertheless, with the majority of Iraq's operational oil
infrastructure located either in the Shia-dominated far south or the northeastern
Kurdish autonomous region (guarded by 190,000 troops), it is unlikely that Iraq's oil
supply will be materially affected, unless the conflict escalates substantially. What is
more worrying is the risk that ISIS might advance into Baghdad, threatening the
potential breakdown of Iraq as a sovereign entity. We expect strong support for
Brent prices over the next few weeks, due to the Iraq-related risk premium. Were
there to be a withdrawal of a substantial portion of Iraq's 3.3 million barrels
a day crude oil supply from the market, this could take global spare
capacity dangerously close to zero, suggesting an increase in crude oil
prices well above $120 a barrel. Events in 2007-08 (see chart) are clearly our
closest guide to how high prices could go in such a scenario. In the summer months,
Opec's remaining spare capacity would be insufficient to meet peak
demand. Saudi Arabia is currently producing close to 9.75 mn barrels a day, with
spare capacity of only 2.5 mn barrels a day. High oil prices pose a significant
threat to the Indian economy. Being heavily dependent on imported crude oil,
a rise in oil prices would damage the government's fiscal balance and
widen its current account deficit. The rupee would then weaken and the
combination would result in higher inflationary pressure. Over the longer term,
once the Iraqi crisis is resolved, there are good reasons why oil prices
should fall. The need for Western powers to work closely with Iran could
lead to a swifter resolution of the latter's nuclear ambitions, thereby
releasing additional Iranian oil on global markets once the US and
European Union embargoes are lifted. There is also the prospect of
greater autonomy for the Kurdish regional government in Iraq, whose
attempts to export crude via Turkey have so far been thwarted by
Baghdad.

Links

Negative

2NC Link Boosters

Oil prices are on the brink production increases and Iraq
disruptions are balanced, but small changes in production
cause major price swings
Bawden 6/16 Tom Bawden, Environmental Editor for The Independent
(London), 6/16/2014, Long years of oil price stability are at risk, BPs top economist
warns, The Independent, http://www.independent.co.uk/news/business/news/longyears-of-oil-price-stability-are-at-risk-bps-top-economist-warns-9540548.html,
[Cristof Rhl is BPs top economist]
This is an eerie quiet. This is a market on edge and it will remain eerily
quiet until it becomes clear who gets the upper hand in these things that are
completely unrelated the disruptions or steady production growth in the US,
said Mr Rhl, pointing out that so far this year we have seen both elements
continuing to increase. This is a sheer coincidence: they have nothing to do with
each other. There is no conspiracy theory. And that means it wont last forever
it will fall off a cliff either side.
Asked whether problems in Iraq would end the price stability, Mr Rhl said: Its
another piece in the picture which I outlined. You have this tension between
rising disruption and rising new production. What eventually will happen is
that we will see these disruptions get out of hand or we will see the
picture dominated by increases in production. Every kind of disruption
which becomes bigger can tilt the balance in a certain way and Iraq is no
exception to that.

Future expectation makes the link immediate

Feldstein 8 Martin Feldstein, Professor of Econ at Harvard, president emeritus
of the National Bureau of Economic Research, chairman of the Council of Economic
Advisers under President Reagan, We Can Lower Oil Prices Now, The Wall Street
Journal, 7/1/2008, http://online.wsj.com/news/articles/SB121486800837317581
Unlike perishable agricultural products, oil can be stored in the ground. So when will an owner of oil reduce
production or increase inventories instead of selling his oil and converting the proceeds into investible cash? A
simplified answer is that he will keep the oil in the ground if its price is expected to rise faster than the interest rate
that could be earned on the money obtained from selling the oil. The actual price of oil may rise faster or slower
than is expected, but the decision to sell (or hold) the oil depends on the expected price rise. There are of course
considerations of risk, and of the impact of price changes on long-term consumer behavior, that complicate the oil
owner's decision and therefore the behavior of prices. The Organization of Petroleum Exporting Countries (the

owners of oil
will adjust their production and inventories until the price of oil is
expected to rise at the rate of interest, appropriately adjusted for risk . If the
OPEC cartel), with its strong pricing power, still plays a role. But the fundamental insight is that

price of oil is expected to rise faster, they'll keep the oil in the ground. In contrast, if the price of oil is not expected

The
relationship between future and current oil prices implies that an
expected change in the future price of oil will have an immediate impact
on the current price of oil. Thus, when oil producers concluded that the demand for oil in China and
to rise as fast as the rate of interest, the owners will extract more and invest the proceeds.

some other countries will grow more rapidly in future years than they had previously expected, they inferred that

the future price of oil would be higher than they had previously believed. They responded by reducing supply and
raising the spot price enough to bring the expected price rise back to its initial rate. Hence, with no change in the
current demand for oil, the expectation of a greater future demand and a higher future price caused the current
price to rise. Similarly,

credible reports about the future decline of oil production in

Russia and in Mexico implied a higher future global price of oil and that also required an
increase in the current oil price to maintain the initial expected rate of increase in the price of oil. Once this relation
is understood, it is easy to see how news stories, rumors and industry reports can cause substantial fluctuations in

a rise in the spot

price of oil triggered by a change in expectations about future prices will
cause a decline in the current quantity of oil that consumers demand. If
current prices all without anything happening to current demand or supply. Of course,

current supply and demand were initially in balance, the OPEC countries and other oil producers would respond by
reducing sales to bring supply into line with the temporary reduction in demand. A rise in the expected future
demand for oil thus causes a current decline in the amount of oil being supplied. This is what happened as the

Any policy that causes the

expected future oil price to fall can cause the current price to fall , or to rise less
than it would otherwise do. In other words, it is possible to bring down today's price of oil
with policies that will have their physical impact on oil demand or supply
only in the future. For example, increases in government subsidies to develop
technology that will make future cars more efficient, or tighter standards
that gradually improve the gas mileage of the stock of cars, would lower
the future demand for oil and therefore the price of oil today. Similarly, increasing
Saudis and others cut supply in 2007. Now here is the good news.

the expected future supply of oil would also reduce today's price. That fall in the current price would induce an
immediate rise in oil consumption that would be matched by an increase in supply from the OPEC producers and
others with some current excess capacity or available inventories. Any steps that can be taken now to increase the
future supply of oil, or reduce the future demand for oil in the U.S. or elsewhere, can therefore lead both to lower
prices and increased consumption today.

Even small changes in the oil market have large price effects
Nerurkar 11 Neelesh Nerurkar, 4-1-2011, specialist in energy policy, U.S. Oil
Imports: Context and Considerations CRS,
http://www.fas.org/sgp/crs/misc/R41765.pdf
Domestic supply disruptions can also shift trade flows. After hurricanes
Katrina and Rita shut in oil production in the U.S. Gulf of Mexico, U.S. imports
increased by around 0.7 Mb/d between July and October 2005. The increase was in
refined products; hurricanes shut down more refining capacity than crude oil
production. Crude imports fell. Supply disruption in countries that are not
traditionally major sources of U.S. imports may still have significant implications for
the United States because they raise the price of oil worldwide. The oil market is
globally integrated, refiners can shift the crude they use, and refined products
are interchangeable commodities; so a disruption anywhere can affect oil
prices everywhere. For instance, the United States imported only around 0.1 Mb/d
of oil from Libya in 2010. (For context, the U.S. consumed about 19.2 Mb/d in 2010.)
Most of Libyas crude supply went to Europe. But when unrest shut down Libyas
exports in February 2011, global prices rose, including prices for oil imported into
the United States from elsewhere and oil produced domestically. Global supply was
reduced and European refiners had to look to other oil sources, bidding up those oil
prices to secure substitute supplies. 10 The price of oil may rise until it makes
up for the amount of supply no longer available due to the disruption. This
can occur by price rising enough that some consumers no longer demand

oil and/or suppliers bring additional production to market. 11 Many oil

producers and consumers are inelastic to price changes when considering
how much to supply or consume, especially in the short run, so seemingly small
disruptions can lead to more significant percent changes in the price of
oil. Even anticipation of disruptions can contribute to higher oil prices.
Buyers and sellers of oil make risk-weighted decisions now about future commercial
and financial needs. Anticipated disruption risks affect the price at which
they are willing to buy and sell oil. Arguably, a significant portion of the
increase in oil prices from unrest in Libya, Egypt, Bahrain, and elsewhere is
attributable to concerns that unrest could spread to other oil exporters in the Middle
East and North Africa. For more on this, see CRS Report R41683, Middle East and
North Africa Unrest: Implications for Oil and Natural Gas Markets, by Michael Ratner
and Neelesh Nerurkar. Disruptions to oil production reduced supply, slowed supply
growth in recent years, and created concerns about future supply. This combined
with rising oil demand, resulting from rapid economic growth in several countries, as
well as other financial, geologic, commercial, and political factors, contributed to the
rise in oil prices during the 2000s. Some selected events that played a role in recent
price developments are presented in Figure 4

Perception of future declines in demand cause immediate

selloffs drives process even lower
Shiller 4 Robert Shiller, Professor of Econ at Yale, Are we running out of oil
(Again)? Project Syndicate, 10/26/2004, http://www.projectsyndicate.org/commentary/are-we-running-out-of-oil--again--)
But what matters for oil prices now and in the foreseeable future is the perception of
the story, not the ambiguities behind it. If there is a perception that prices will be
higher in the future, then prices will tend to be higher today. That is how markets
work. If it is generally thought that oil prices will be higher in the future, owners of oil reserves will tend to
postpone costly investments in exploration and expansion of production capacity, and they may pump oil at below
capacity. They would rather sell their oil and invest later, when prices are higher, so they restrain increases in

Expectations become self-fulfilling, oil prices rise and a speculative

bubble is born. But if owners of oil reserves think that prices will fall in the
long run, they gain an incentive to explore for oil and expand production
now in order to sell as much oil as possible before the fall . The resulting
supply surge drives down prices, reinforces expectations of further
declines, and produces the inverse of a speculative bubble: a collapse in prices.
supply.

Oil Exploration U.S. Drilling

U.S. Oil exploration raises global prices
Strauch 13 Nick Strauch, 11/15/2013, Studied engineering at the University of
Pittsburgh, Economics of Offshore Oil http://www.pitt.edu/~nps19/trends.html
Fuel prices can be greatly reduced by offshore oil drilling. If oil production
increases, total supply increases. However demand does not change. One of
the most basic theories of economics states that the more supply, the lower the
price, and the more demand, the higher the price. If we drill more, only supply
changes so prices decrease. Also, we are producing this oil domestically.
Naturally, when selling anything a smart businessman wants to make money from
the transaction just like foreign nations do when they sell us their oil. If we produce
more of our own oil we can sell to ourselves at a rate where the producer is profiting
but not at the same high expense to the purchaser. If we produce oil, we create
competition for other nations. When our foreign demand for oil decreases,
foreign providers will have a surplus of oil. To be able to sell it, they will
have to decrease their prices [3]. Fuel prices themselves will decrease, but what
implications does this have for the American people and for me as an engineer?
Personal transportation will be cheaper. Gasoline will decrease from its current 3.50
to $4.00 per gallon prices. This means we will be spending less of our money on just
trying to get to work to make money. My father works an hour from our house.
Every week he spends about two percent of earnings on driving. This does not
sound like much, but when all other cost and taxes are accounted for two percent is
a large amount of money. If he only had to pay $2.00 per gallon of gasoline, our
family could have thousands of dollars more. The same goes for many Americans,
and for companies. Lowering fuel costs means shipping costs less. Food prices
would drop. This could decrease poverty in America. Cost of living would go down
greatly. On a larger scale it will lessen the rate that America is deepening in debt. It
could help us to become a fiscally responsible nation once again. The stability of the
American economy will be improved if we expand offshore drilling. Oil prices have
an enormous impact on the economy. Offshore oil drilling can lessen our
dependence on foreign oil and improve Americas financial situation.

Increased US production lowers the global price of oil

Blackwill and OSullivan 14 Robert Blackwill, Senior Fellow at the Council
of Foreign Relations, and Meghan OSullivan, Professor of the Practice of
International Affairs and Director of the Geopolitics of Energy Project at Harvard,
2/12/2014, America's Energy Edge: The Geopolitical Consequences of the Shale
Revolution Foreign Affairs, http://www.foreignaffairs.com/articles/140750/robert-dblackwill-and-meghan-l-osullivan/americas-energy-edge
The most dramatic possible geopolitical consequence of the North
American energy boom is that the increase in U.S. and Canadian oil
production could disrupt the global price of oil -- which could fall by 20
percent or m ore. Today, the price of oil is determined largely by the

Organization of the Petroleum Exporting Countries, which regulates

production levels among its member states. When there are unexpected production
disruptions, OPEC countries (primarily Saudi Arabia) try to stabilize prices by
ramping up their production, which reduces the global amount of spare production
capacity. When spare capacity falls below two million barrels per day, the market
gets jittery, and oil prices tend to spike upward. When the market sees spare
capacity rise above roughly six million barrels a day, prices tend to fall. For the past
five years or so, OPECs members have attempted to balance the need to fill t heir
public coffers with the need to supply enough oil to keep the global economy
humming, and they have managed to keep the price of oil at around $90 to $1 10
per barrel. As additional North American oil floods the market, OPECs
ability to control prices will be challenged. According to projections from the
U.S. Energy Information Administration, between 2012 and 2020, the United States
is expected to produce more than three million barrels of new petroleum and other
liquid fuels each day, mainly from light tight oil. These new volumes, plus new
supplies coming on line from Iraq and elsewhere, could cause a glut in supply,
which would push prices down -- especially as global oil demand shrink s
due to improved efficiency or slower economic growth. In that event, OPEC
could have a hard time maintaining discipline among its members, few of which are
willing to curb their oil production in the face of burgeoning social demands and
political uncertainty. Persistently lower prices would create short falls in the
revenues they need to fund their expenditures.

Increase in U.S. Crude Oil exports would drive down the global
market price
Bastasch 14 Michael Bastasch, Reporter at The Daily Caller News Foundation,
04/04/2014, The Daily Caller Exporting US crude oil could LOWER gas prices
http://dailycaller.com/2014/04/04/report-exporting-u-s-crude-oil-could-lower-gasprices/
The ICF study was done on behalf of the American Petroleum Institute, the main U.S.
oil lobby, which is pushing for the federal government to lift its ban on crude oil
exports in the midst of a major oil and natural gas boom. API and some
lawmakers argue that allowing oil exports would boost economic growth and
lower oil prices because U.S. crude would increase the global supply,
driving prices downwards. Gasoline costs are tied to global markets and
increasing supplies would save consumers at the pump. Consumers are
among the first to benefit from free trade, and crude oil is no exception, said Kyle
Isakower, vice president for regulatory and economic policy at the American
Petroleum Institute. Gasoline costs are tied to a global market, and this
study shows that additional exports could help increase supplies, put
downward pressure on the prices at the pump, and bring more jobs to America,
Isakower added. The push on Capitol Hill for free trade in U.S. crude oil has been
Alaska Republican Sen. Lisa Murkowski. Alaska is the countrys fourth largest oil
producing state, according to government data. Right now, U.S. oil can only be
exported if its refined first, this gives refiners access to crude oil that is

discounted because the export ban holds down domestic prices. This
means refiners enjoy a nice profit margin because they pay lower prices
for crude than on international markets while selling gasoline and other
products at global market rates. Only a handful of major refiners have opposed
allowing crude oil exports. Led by major U.S. refiner Valero Energy, the opposition
has said that keeping crude oil in the U.S. would enhance energy independence and
give the country an economic advantage. It makes more sense to keep crude oil
here in the U.S., said Valero spokesman Bill Day. It has significantly reduced
American dependence on foreign oil, kept U.S. refining utilization high, and
insulated American consumers from geopolitical shocks. But the recent U.S. oil
boom has led to huge production increases, mainly of light crude oil and lease
condensate. But U.S. refineries are largely equipped to handle heavier crude coming
from Saudi Arabia and Canada. This means that there is a mismatch between U.S.
refinery capabilities and the countrys newfound supply, according to ICF. So there
is a mismatch between what refineries can process and the type of oil coming out of
the ground in the U.S. This, along with lagging energy infrastructure development,
means that there is a growing glut of U.S. crude, which is driving down prices for
refiners, but doing little to help consumers of petroleum products. U.S.
international trade in petroleum products is not subject to volume
restriction for imports or exports and so U.S. product prices are set by
international markets,ICF noted. Allowing U.S. crude exports reduces U.S.
and world petroleum product prices by moderating world crude oil prices
and allowing for more efficient refinery operations.

Oil Exploration General

Increasing global oil supply would reduce prices
Moors 12 Dr. Kent F. Moors, 12/14/2012, expert in global risk management,
oil/natural gas policy and finance, cross-border capital flows, emerging market
economic and fiscal development, political, financial and market risk assessment.
Professor in the Graduate Center for Social and Public Policy at Duquesne University.
http://moneymorning.com/2012/12/14/2013-natural-gas-forecast-six-bullishreasons-why-now-is-the-time-to-buy\, December 14, 2012
A rise on the supply side would generally reduce prices , especially if the
number of operators continues to increase. More gas moving on the
market from more suppliers results in a downward pressure on prices . The
second dynamic, however, is moving in the other direction, enticing the increase in
drilling and expansion of infrastructure. This factor considers the demand side, and
there are at least six major trends colliding to increase the prospects for gas
usage as we move through 2013. As a result, I expect natural gas prices to
see a 25% increase from current levels... here's why. 2013 Natural Gas Forecast
1) Winter Chill Increases Natural Gas Demand The first factor driving price
increases will come from a colder winter throughout the United States.
Traditionally, gas prices have been quite sensitive to seasonal shifts. The overly mild
winter in the East last winter was enough to depress gas prices across the board. In
2011, NYMEX futures contracts declined to less than $2 per 1,000 cubic feet (or
million BTUs). The price has recovered to as much as $3.90 recently, although it is
currently down to about $3.50. Nonetheless, the recovery (largely a result of
companies pulling drilling rigs out of service and reducing the number of new wells)
combined with a colder winter, will provide a base pushing the price to $4 as we
start the new year. The other five elements are more directly affecting demand
increases moving forward. These will have primary effects on the gas balance
between anticipated needs and drilling volume. 2/3) Industrial and Petrochemical
Usage on the Rise The second and third elements are increasing industrial
and petrochemical uses for gas. Industrial use has been building for a while, but
it is one of the last demand factors to emerge during an economic recovery. That is
now beginning to kick in. However, petrochemical usage is resulting in an
appreciating demand situation. Gas, natural gas liquids, and byproducts are
replacing crude oil and oil products as feeder stock for an entire range of
petrochemicals - from solvents and polymers, to plastics and fibers. The intense
competition over where the next "crackers" will be located in the U.S. is clear
testimony to the added demand coming from petrochemicals. These facilities will
break down gas flows, making the feeder stock ingredients more accessible. This
development is also putting some additional weight on the processing of "wet" gas,
raw material containing value-added byproducts. 4) Natural Gas Fleets Expand
Across the U.S. The fourth demand factor is the increasing use of natural gas as a
vehicle fuel. We have been witnessing a rise in interest here for several years, but
the move to using liquefied natural gas (LNG) and compressed natural gas (CNG)
to replace gasoline and diesel has been gaining strength. Entire fleets of heavy-

duty trucks have been retrofitted across Canada, while refueling terminals have
been popping up near interstates in the U.S. to service company-designated
vehicles. The cost savings in fuel is significant, usually representing more than two
dollars per gallon. The downside is on the infrastructure side. It will take several
years of heavy capital investment to provide the network of transport pipelines,
storage and terminal facilities, filling stations, and related requirements. And we
must consider the cost of retrofitting engines. At an average of $35,000 per vehicle,
it will remain an obstruction for some. I expect to see an increase in natural gas-asfuel usage continuing, but remaining on the truck side for 2013. Personal autos will
stay a niche market in the near-term. Still, this will comprise an improving demand
area for natural gas. 5) Electricity Consumption from Gas Set to Spike Fifth is the
massive transfer underway from coal to gas as the preferred fuel for generating
electricity. Coal will remain a fuel of choice in several sectors of the world and will
still be cost effective in certain regions in the U.S. But the days of "King Coal" in the
generation of electricity are drawing to a close. The figures here are massive. The
American market is replacing more than 90 gigawatts (GW) of generating capacity
by 2020, virtually all of this coal-fired. In addition, the phasing in of non-carbon
regulations (cutting mercury, sulfurous, and nitrous oxide emissions) will add
another 20 GW to the retirement agenda, once again coming almost exclusively
from coal. Each 10 GW transferred to natural gas will require an additional 1.2
billion cubic feet of gas per day. If only 50% of the expected transition from coal to
gas occurs, the added demand will eliminate three times the current total gas in
storage nationwide.

OCS
Drilling in the OCS lowers prices
Medlock 8 Kenneth B. Medlock III, 7/8/08, Fellow in Energy Studies at Rice
University's James A Baker III Institute for Public Policy and an adjunct assistant
professor in the Economics Department at Rice, Open outer continental shelf,
http://www.chron.com/opinion/outlook/article/Open-outer-continental-shelf1597898.php
A confluence of factors is responsible for the recent price run-up at the pump.
One important factor behind the strength of oil prices is the expectation of
inadequate oil supply in the future. This has led to a debate regarding the
removal of drilling access restrictions in the U.S. Outer Continental Shelf
(OCS). According to the Department of Interior's Minerals Management Service
(MMS), the OCS in the Lower 48 states currently under moratorium holds 19 billion
barrels of technically recoverable oil. Some analysts claim that opening the OCS will
not matter that much, as the quantity of oil is only about two years of U.S.
consumption. But a more appropriate way to look at the issue is this: If the OCS
could provide additional production of 1 million barrels per day of oil, our import
dependence on Persian Gulf crude oil would be reduced by about 40 percent.
Moreover, at 1 million barrels per day, the currently blocked OCS resource would
last about 50 years. Of course, opening the OCS will not bring immediate supplies
because it would take time to organize the lease sales and then develop the supply
delivery infrastructure. However, as development progressed, the expected
growth in supply would have an effect on market sentiment and eventually
prices. Thus, opening the OCS should be viewed as a relevant part of a
larger strategy to help ease prices over time because an increase in activity
in the OCS would generally improve expectations about future oil supplies.
Lifting the current moratorium in the OCS would also provide almost 80
trillion cubic feet of technically recoverable natural gas that is currently offlimits. A recent study by the Baker Institute indicates that removing current
restrictions on resource development in the OCS would reduce future
liquefied natural gas import dependence of the United States and lessen the
influence of any future gas producers' cartel.

OCS drilling causes a price drop

Hastings 12 Doc Hastings, 7/23/12, Republican representative, chairman of
the House Natural Resources Committee President Obama's offshore drilling plan
must be replaced, http://thehill.com/blogs/congress-blog/energy-aenvironment/239529-president-obamas-offshore-drilling-plan-must-be-replaced
Though President Obama uses lofty rhetoric to claim support for American oil
and natural gas production, the administration chose to bury the
announcement of this plan under mountains of news coverage. Its no surprise
that during an election year the president doesnt want to hype a plan that
represents a giant step backwards for American energy production and

keeps 85 percent of our offshore areas off-limits. Fortunately, Congress now

has the responsibility to act and make clear that the presidents plan is
inadequate to meet the United States energy needs. Under current law, the
president must submit the five-year plan to Congress for a mandatory 60-day
review before it goes into effect. While in the past, this 60-day review has been
treated as just a formality, it is an opportunity to reject the presidents plan and
offer a better alternative for job creation and energy production. H.R. 6082, the
Congressional Replacement of President Obamas Energy-Restricting and JobLimiting Offshore Drilling Plan, would replace President Obamas plan with an
environmentally responsible, robust plan that supports new offshore drilling. This
plan passed out of the House Natural Resources Committee with bipartisan support
and will be considered by the full House this week. It sets up a clear choice between
the presidents drill-nowhere-new plan and the Congressional replacement plan to
responsibly expand offshore American energy production. President Obamas plan
doesnt open one new area for leasing and energy production . The Atlantic
Coast, the Pacific Coast and most of the water off Alaska are all placed
off-limits. This is especially frustrating for Virginians who had a lease sale
scheduled for 2011, only to have it canceled by President Obama. The president
added further insult to injury by not including the Virginia lease sale in his final plan,
meaning the earliest it could happen is late 2017. The presidents plan only offers
15 lease sales limited to the Gulf of Mexico and, very late in the plan, small parts of
Alaska. It doesnt open one new area for leasing and energy production. According
to the non-partisan Congressional Research Service, President Obamas 15 lease
sales represent the lowest number ever included in an offshore leasing plan.
President Obama rates worse than even Jimmy Carter. Thanks to President Obama,
its as if the bipartisan steps to lift the drilling moratoria in 2008 never happened.
Crippling $4 gasoline prices sparked Americans outrage and pressured the
Democrat-controlled Congress to allow legislation to pass opening up new offshore
areas to drilling. Unfortunately, four years later, American families and small
businesses are experiencing the pain of higher gasoline prices and yet no progress
has been made to expand production of our offshore resources. The Congressional
moratorium on drilling has simply been replaced by the Obama moratorium on
drilling. Gasoline prices were $1.89 when President Obama took office, and prices
today are nearly double. Americans will continue to face volatile price spikes as long
as we continue to keep the United States energy resources under lock-and-key. In
stark contrast to the president, the Congressional replacement plan includes 29
lease sales and opens new areas previously under moratoria. Its a targeted
effort towards those areas where we know we have the most oil and
natural gas resources like the mid-Atlantic, the Southern California Coast and
Alaska. This is a drill smart plan that would create thousands of new American
jobs, help lower prices at the pump and strengthen our national and
economic security. Congress has a choice to either support the presidents plan
that re-imposes the drilling moratorium and places the vast majority of offshore
areas off-limits, or support using American energy to create American jobs and
strengthen Americas economy.

Decline in Oil Consumption

** You can read this vs. affs that claim increased efficiency OR a switch to
renewables.

Reductions in US oil consumption cause speculators to value

oil lower. This drastically cuts global prices.
Yetiv and Feld 07 (Steve and Lowell, Professor of political science at Old
Dominion University and senior international oil markets analyst at the U.S. Energy
Information Administration until March 2006, America's Oil Market Power: The
Unused Weapon Against Iran, World Policy Journal, p. proquest)
As is typical of world oil markets, this situation soon changed. Low oil prices and resurgent economic growth spurred
rapid oil demand growth in Asia and elsewhere. But supply couldn't keep up with demand .

Oil companies'
under-investment in world capacity and a series of oil crises in Venezuela,
Nigeria, and Iraq led to a reversal of the spare capacity situation by 2003.
Predictably, oil prices rose sharply, approaching $40 per barrel by the end of 2004, $60 per
barrel by late 2005-when spare capacity bottomed out at 1-1.5 MMBD, the lowest it had ever been relative to total
world oil supply-and close to $80 per barrel by the fall of 2007 .

If oil prices rise when spare

capacity falls, what about the opposite? In fact, history shows that when
spare capacity increases, as it did in the mid-1980s and in the late 1990s,
oil prices fall. When spare capacity spikes, oil prices can even collapse, as
occurred after-appropriately enough-the revolution in Iran during 1978 and 1979. The oil price collapse of 1985-86
resulted from the major oil price shock of the late 1970s, combined with a severe recession in the early 1980s. This
concurrence slashed U.S. oil consumption by 3.6 mmbd in just five years, from 18.8 MMBD in 1978 to 15.2 mmbd in
1983. As a result, world spare oil production capacity surged, eventually leading to the collapse in oil prices-from

there is strong reason to

believe that an increase in world spare oil production capacity would
cause oil prices to decline once again (if not to the same dramatic degree). Imagine
that the U nited S tates cut its oil consumption from currently projected levels of 24 MMBD by
2020 by 3 MMBD over the next decade.1 Eventually, the American cut in consumption would
increase world spare capacity from its current level of around 2 MMBD (almost all of which is in Saudi
Arabia and Kuwait) to more than 5 MMBD. This would return world spare oil
production capacity to levels not seen since late 1998 and early 1999,
when oil prices plummeted to $10 per barrel. True, it is unlikely that we will see $ 10 per
barrel again, but with a major reduction in the trajectory of U.S. oil demand and
a concomitant increase in world spare capacity, we would likely see a
sharp decrease from the $80-100 per barrel prices we are currently
experiencing .2 How could the United States develop its latent oil market power? First and foremost,
achieving this goal would require a serious shift in U.S. energy policy.
Such a shift is achievable and could sharply decrease U.S. (and world) oil
consumption, dramatically altering oil market psychology. Oil futures
traders who largely set the price of oil would have to consider that
demand for oil would drop from current expectations. As a result, they would
likely decrease the purchase of oil futures, thus causing a drop in the price
of oil. Even before the impact of America's new energy policies would be
felt, oil prices would almost certainly fall on the expectation by oil traders
nearly $40 per barrel in 1980 to just $10 per barrel by early 1986. Today,

of declining future U.S. oil demand. A major policy shift by the United States could
also move world oil markets out of the high anxiety state they have been
operating in for several years now: increase spare capacity and market anxiety almost inevitably
will subside, because of the creation of a margin of error in the event of perceived threats to supply or actual
disruptions.

Natural Gas
Increase in natural gas exports lowers global oil prices
Deutch 11 John Deutch, January/February 2011, Foreign Affairs, Former
Director of Central Intelligence and Former Undersecretary of Energy, The Good
News About Gas, The Natural Gas Revolution and Its Consequences,
http://www.web.mit.edu/~chemistry/deutch/policy/2011-TheGoodNewsAboutGas.pdf
Countries that import natural gas should anticipate more competing sources of it,
which will lower prices and reduce concerns about the security of the gas supply.
No longer, it seems, will the world be dependent on a few nationsIran,
Qatar, Russia, Saudi Arabia, and Turkmenistanthat control the bulk of
conventional natural gas reserves. Countries that produce natural gas will need
to adjust to lower revenues from natural gas exports; for some of them, the
adjustment may be quite severe and potentially destabilizing. As gas acts as a
substitute for oil, demand for oil will fall, putting downward pressure on
oil prices. This will lessen, but certainly not eliminate, the geopolitical influence
that major oil-exporting countries enjoy today. It is perhaps a permissible
exaggeration to claim a natural gas revolution. But like all revolutions, whether and
to what extent the benefits are realized will depend on how rapidly the economic
and political systems adapt to the change.

Increasing LNG exports tanks oil prices

Ratner, Parfomak and Luther 11 Michael Ratner, Analyst in Energy
Policy, Paul W. Parfomak, Specialist in Energy and Infrastructure Policy, and Linda
Luther, Analyst in Environmental Policy, 11/4/11, U.S. Natural Gas Exports: New
Opportunities, Uncertain Outcomes, CRS Service,
http://assets.opencrs.com/rpts/R42074_20111104.pdf
If all the proposed U.S. LNG export projects were operational today, the United
States would rank second behind Qatar in global export capacity. However, U.S. LNG
exports will face competition in the global LNG market. Global liquefaction capacity
is projected to almost double by 2020 (see Figure 7), with many projects much
further along than the U.S. projects. 16 LNG trade was up over 20% year-on-year in
2010, accounting for 30% of all natural gas traded internationally. 17 Most LNG sold
in the world is under long-term contracts, indexed to oil prices. The long-term
contracts are needed to finance the liquefaction facilities, usually the most
expensive part of the LNG supply chain, which includes LNG tankers, storage, and
LNG import terminals. U.S. natural gas prices are market-based, which
should give U.S. LNG export projects an advantage as the differential with
oil-indexed priced natural gas can be more than double the U.S. price (see
Figure 2). U.S. LNG exports could add to the pressure for other countries to
delink their natural gas exportseither as LNG or by pipelinefrom oil-indexed
prices. However, U.S. LNG export projects will still need to enter into long-term
supply contracts, usually 20 to 30 years, to obtain financing, which may be a
difficult hurdle to get over given existing market and financial conditions. Providing

LNG to countries that use oil for heating or industrial processes could also
decrease demand for petroleum products, putting downward pressure on
oil prices .

Renewables
US investments in alternative energy cause speculators to
value oil lowersharply tanks prices globally immediately
Yetiv and Feld 7 Steve and Lowell, Professor of political science at Old
Dominion University and senior international oil markets analyst at the U.S. Energy
Information Administration until March 2006, America's Oil Market Power: The
Unused Weapon Against Iran, World Policy Journal, p. proquest
As is typical of world oil markets, this situation soon changed. Low oil prices and resurgent economic growth spurred
rapid oil demand growth in Asia and elsewhere. But supply couldn't keep up with demand .

Oil companies'
under-investment in world capacity and a series of oil crises in Venezuela,
Nigeria, and Iraq led to a reversal of the spare capacity situation by 2003.
Predictably, oil prices rose sharply, approaching $40 per barrel by the end of 2004, $60 per
barrel by late 2005-when spare capacity bottomed out at 1-1.5 MMBD, the lowest it had ever been relative to total
world oil supply-and close to $80 per barrel by the fall of 2007 .

If oil prices rise when spare

capacity falls, what about the opposite? In fact, history shows that when
spare capacity increases, as it did in the mid-1980s and in the late 1990s,
oil prices fall. When spare capacity spikes, oil prices can even collapse, as occurred after-appropriately
enough-the revolution in Iran during 1978 and 1979. The oil price collapse of 1985-86 resulted from the major oil
price shock of the late 1970s, combined with a severe recession in the early 1980s. This concurrence slashed U.S.
oil consumption by 3.6 mmbd in just five years, from 18.8 MMBD in 1978 to 15.2 mmbd in 1983. As a result, world
spare oil production capacity surged, eventually leading to the collapse in oil prices-from nearly $40 per barrel in

there is strong reason to believe that an

increase in world spare oil production capacity would cause oil prices to
decline once again (if not to the same dramatic degree). Imagine that the United States
cut its oil consumption from currently projected levels of 24 MMBD by 2020 by 3 MMBD over
the next decade.1 Eventually, the American cut in consumption would increase world
spare capacity from its current level of around 2 MMBD (almost all of which is in Saudi Arabia and Kuwait)
to more than 5 MMBD. This would return world spare oil production capacity
to levels not seen since late 1998 and early 1999, when oil prices
plummeted to $10 per barrel. True, it is unlikely that we will see $ 10 per barrel again, but with a
major reduction in the trajectory of U.S. oil demand and a concomitant increase in world spare capacity , we
would likely see a sharp decrease from the $80-100 per barrel prices we
are currently experiencing.2 How could the United States develop its latent oil market power? First
and foremost, achieving this goal would require a serious shift in U.S. energy
policy. Such a shift is achievable and could sharply decrease U.S. (and world) oil
consumption, dramatically altering oil market psychology . Oil futures
traders who largely set the price of oil would have to consider that
demand for oil would drop from current expectations. As a result, they would
likely decrease the purchase of oil futures, thus causing a drop in the
price of oil . Even before the impact of America's new energy policies
would be felt, oil prices would almost certainly fall on the expectation by
oil traders of declining future U.S. oil demand. A major policy shift by the
United States could also move world oil markets out of the high anxiety state
they have been operating in for several years now: increase spare capacity and market
1980 to just $10 per barrel by early 1986. Today,

anxiety almost inevitably will subside, because of the creation of a margin of error in the event of perceived threats
to supply or actual disruptions.

A shift towards alternative energy causes a drop in Oil prices

DeCiantis 8 Devin DeCiantis, Masters candidate in Public Policy at Harvards
JFK School of Government, specializing in development economics and international
trade, March, Speculations on an Oil Tariff
http://www.freedom24.org/rationalpost/2008/03/25/speculations-on-a-25-oil-tariff/
In the mid-term, as industries and generators begin to shift away from highercost imported oil, domestic oil producers might begin building out untapped
Arctic capacity and utilities might begin diversifying their energy portfolios into
lower-cost fossil fuels and alternative energy technologies. Together, these
processes should cause a more substantial decline in import volumes. In
the long-run, a more fundamental shift away from a high-carbon, high-cost, oildependent economy is likely to unfold, at which point oil imports would
begin to decline more precipitously as demand for energy is almost completely
replaced with lower-cost substitutes. This progression is an example of a
typical adjustment lag. b. The world price of oil? Again, in the very short-term
we might expect a modest decline, partially offsetting the cost of the tariff. Given
that America is one of the worlds largest energy importers (importing
roughly 2/3rds of its annual consumption), it would still need to source oil externally
or risk seizing up its industrial capacity. Thus, aggregate import demand would
remain relatively stable and prices would likely settle somewhere between $75 and
$100. Over the mid-to-long-term, major OPEC suppliers would have room to lower prices
given their lower relative cost of production, while growing demand from China and
India would partially offset declining American demand. Finally, as the U.S. begins
to substitute away from oil as a key energy input in the long-run, global
aggregate demand for oil will inevitably decrease, assuming that emerging
market demand doesnt continue to grow at its current pace in perpetuity. This will
put considerable downward pressure on prices over time as oil exporters
adjust to a situation of extended excess supply-at least while total global oil
reserves remain relatively plentiful.

Small shifts matter oil prices are determined at the margin

Isidore 8 Chris Isidore, Senior Writer at CNN Money, "Is OPEC becoming
irrelevant?
http://money.cnn.com/2005/09/19/news/economy/opec_future/index.htm
The current oil prices are enough to cause some nations, particularly in Europe, to be looking
at oil price regulation and other controls, as well as more significant government investment
in alternative energy, said Fadel Gheit, oil analyst at Oppenheimer. That's got the potential
to hurt some OPEC countries more than the current prices are helping, he
said. "They don't want to trigger projects that take even 1 or 2 percent off of
demand," he said. He and Alhajji said even that small percentage of current oil

usage being by alternative energy can have a serious effect on long-term

oil prices. "Prices are determined at the margin. We don't need a lot of
alternative energy to depress prices," he said. While some economists and traders now
believe that $40 a barrel is the new floor for oil prices, Gheit said prices still have the potential
to fall below those levels, and that could cause some regimes to fall. "These
governments are totally unpopular and repressive. The only thing they have going for them
is buying stability, throwing money at their friends and enemies ," said Gheit.

Renewable Energy would cause a decrease in Oil Prices by

creating competition
UCS 5 UCS, Union of Concerned Scientists, Citizens and Scientists for
Environmental Solutions," 2005, www.ucsusa.org/clean_energy/our-energychoices/renewable-energy/public-benefits-of-renewable.html
Renewables offer benefits not only because they can reduce pollution, but because
they add an economically stable source of energy to the mix of US generation
technologies. Depending on only a few energy resources makes the country
vulnerable to volatile prices and interruptions to the fuel supply. As the figure
shows, the United States relies heavily on coal, with nuclear power and natural gas
supplying most of the rest. Natural gas is generally considered the fuel of choice for
new power generation, because it is cleaner than coal and sometimes less
expensive. But overreliance on natural gas could also create problems. Fossil fuels
are susceptible to supply shortages and price spikes.[29] Since most
renewables do not depend on fuel markets, they are not subject to price fluctuations
resulting from increased demand, decreased supply, or manipulation of the market.
And since fuel supplies are local, renewable resources are not subject to control or
supply interruptions from outside the region or country. Some industrial customer
trade groups have supported new renewable energy development primarily for their
diversity benefits. For example, Associated Industries of Massachusetts, a trade
group of manufacturers, testified in support of a utility restructuring settlement
including a renewables fund, stating: "Fuel diversity is important to the
Commonwealth's future. It would not be advisable to place all our eggs in the
natural gas basket."[30] An additional benefit of increased competition from
renewables-and thus reduced demand for fossil fuels-could be lower prices
for electricity generated from fossil fuels. Several analyses reviewed in Chapter 2
show that competition from increasing renewables could reduce natural gas
prices. A comprehensive modeling project of the New England Governors'
Conference found that an aggressive renewables scenario, in which
renewables made up half of all new generation, would depress natural gas
prices enough to lead to a slight overall reduction in regional electricity prices
compared with what prices would be if new generation came primarily from fossil
fuels.[31] The nation's fossil fuel dependence also has serious implications for
national security, since the United States could again be forced to protect foreign
sources of oil to meet our energy needs. During the Persian Gulf War in 1991, US
troops were sent in partly to guard against a possible cutoff of the US oil supply. The
public continues to pay taxes to support the protection of overseas oil supplies by

US armed forces. Reliance on foreign oil also makes the United States vulnerable to
fuel price shocks or shortages if supply is disrupted. In 1997, about a third of US oil
came from the Middle East. By 2030, if energy policy does not change, the country
may be relying on Middle Eastern, and possibly Central Asian, oil for two-thirds of its
supply. Some analysts believe that oil discovery peaked in the early 1960s and that
a decline in global oil production, and the beginning of increasingly high prices, will
occur within 10 to 12 years.[32] Some regions, especially New England, still use
significant amounts of oil for electricity generation even though nationwide most oil
is used for transportation. Electric vehicles, especially if powered from
renewable sources, could also play an increasingly important role in
reducing oil use and emissions from the transportation sector. And higher oil
prices, absent sufficient fuel competition, could lead to higher prices for other fossil
fuels.

Alternative energy lowers oil prices

Strand 7 Jon Strand, 8/1/07, Senior economist, expert in environmental energy
policy, The Energy Journal, Technology treaties and fossil-fuels extraction
http://goliath.ecnext.com/coms2/gi_0199-7309937/Technology-treaties-and-fossilfuels.html
Assume that a treaty will lead to increased international funding of technology
developments, which in turn implies a likelihood that a new energy technology will
be developed. Assume that the alternative technology, once developed,
implies a constant marginal energy cost, lower than the (assumed
constant) cost of extracting fossil fuels. (3) Fossil fuels will then become
redundant once the new technology is adopted, and no more fossil fuels
will be extracted from then on. (4) We assume that the time it takes to develop
such a technology is stochastic, modeled in a very simple way, as exponentially
distributed with constant parameter [lambda](with expected period until
development equal to 1/[lambda]). One so far overlooked implication of such a
scenario is that the prospect of developing a new and more efficient energy
technology will affect incentives of fossil-fuel producers to extract and market the
resource, in both the short and the longer run. In the model, dealt with in Sections
2-3 below, we assume that the fossil-fuel market is competitive on a global scale,
there is no market uncertainty, and there is initially a zero probability of developing
an alternative technology replacing fossil fuels. The initial resource price (prior
to any technology treaty) can then be shown to evolve according to the
so-called Hotelling rule, whereby the growth rate for the real resource
price (net of extraction cost) equals the real rate of interest, r, in the
economy. (5) In Section 2 below we first show that, when the technology treaty
is in place, the equilibrium price and extraction path for the resource will
both shift as a result. Along the new price path, the net resource price will
grow at the higher rate r+[lambda]. The entire resource price path shifts
down, resulting in a higher volume of extraction at any given date until
the resource is fully extracted, or until the new technology is developed.
Intuitively, when fossil-fuel producers are made aware of an increased

likelihood that their resource may become redundant within a limited

future time period, the incentive will be to extract it more quickly. For a
given demand function directed toward fossil fuels, with global fossil-fuel demand a
decreasing function of the price, this must mean a lower market price of fuel

A push towards alternative energy will drive down oil prices

OPEC will flood the market
Kole 7 William Kole, Despite rising prices, OPEC appears to be in no rush to
raise its output targets, September 8th,
http://www.nwitimes.com/business/local/article_65239e6b-bf00-5602-b6a4036eb072ef56.html
If you remember what happened in the 1970's (look it up if you don't) you will
find the biggest fear OPEC has. It is that oil prices will go up and stay high
long enough to fuel investment into conservation and alternative energy
sources to the point that a critical mass is reached and the need for their
oil is greatly diminished or replaced by other energy sources they don't
control. That's exactly what started happening in the 1970's and it took
OPEC opening up the tap to make oil cheap again over a decade to reverse
the trends. The result was that interest in conservation and alternative energy
waned and investments dried up in the face of cheap oil again. We are once again
nearing that point and you can expect to see OPEC flood the market again if
they see us getting serious with conservation and alternative energy
sources that compete with, or worse yet, actually replace demand for their
oil. OPEC walks the fine line between price and demand and wants to keep us
hooked up to their oil like a bunch of junkies on drugs while making as much money
as possible.

AT: US Not Key

Big reductions in US oil consumption drastically reduce world
oil prices
Carey 3 (John, Business Week, 2/24/03, lexis)
Yet reducing oil use has to be done judiciously. A drastic or abrupt drop in
demand could even be counterproductive. Why? Because even a very
small change in capacity or demand ''can bring big swings in price,'' explains
Rajeev Dhawan, director of the Economic Forecasting Center at Georgia
State University's Robinson College of Business. For instance, the slowdown in
Asia in the mid-1990s reduced demand only by about 1.5 million bbl. a
day, but it caused oil prices to plunge to near $ 10 a barrel. So today, if the
U.S. succeeded in abruptly curbing demand for oil, prices would plummet.
Higher-cost producers such as Russia and the U.S. would either have to sell oil at a big loss or stand on the
sidelines. The effect would be to concentrate power -- you guessed it -- in the hands of Middle Eastern nations, the
lowest-cost producers and holders of two-thirds of the known oil reserves . That's why flawed energy policies, such
as trying to override market forces by rushing to expand supplies or mandating big fuel efficiency gains, could do
harm.

U.S. demand is key to global oil prices the Aff eliminates the
cause of current high prices
Zakaria 4 Fareed, phD in political science from Harvard and former managing
editor of Foreign Affairs, Newsweek, Don't Blame the Saudis , 9/6,
http://www.fareedzakaria.com/ARTICLES/newsweek/090604.html
But the more lasting solution to America's oil problem has to come from energy
efficiency. American demand is the gorilla fueling high oil prices--more than
instability or the rise of China or anything else . Between 1990 and 2000
the global trade in oil increased by 9.5 billion barrels. Half of that was
accounted for by the rise in U.S. imports. America is consuming more
because it is growing more--but also because over the past two decades, it has
become much less efficient in its use of gasoline, the only major industrial
country to slide backward. The reason is simple: three letters--SUV. In 1990 sport
utility vehicles made up 5 percent of America's cars. Today they make up 55
percent. They violate all energy-efficiency standards because of an absurd loophole
in the law that allows them to be classified as trucks.

Reductions in US oil consumption cause massive ripples in the

oil market
Roberts 4 Paul Roberts, Columnist @ Harpers, The End of Oil, p. 95
Within the oil world, no decision of any significance is made without
reference to the U.S. market, nor is anything left to chance. Indeed, the oil players watch
the American oil market as attentively as palace physicians once attended

the royal bowels: every hour of every day, every oil state and company in
the world keeps an unblinking watch on the United States and strains to
find a sign of anything from a shift in energy policy to a trend toward
smaller cars to an unusually mild winter that might affect the colossal
U.S. consumption . For this reason, the most important day of the week for oil traders anywhere in the
world is Wednesday, when the U.S. Department of Energy releases its weekly figures
on American oil use, and when, as one analyst puts it, the market makes up its mind
whether to be bearish or bullish.

American oil demand is the key factor driving oil markets

Roberts 4 Paul Roberts, Columnist @ Harpers, The End of Oil, p. 95
At the same time, however, the sheer extent of American demand coupled with
the countrys own booming production (the United States is still the number three oil producer), gives Uncle
Sam a degree of influence over world oil markets and world oil politics
that goes well beyond anything the U.S. might achieve militarily . America
is not only the biggest oil market in the world, but the fastest-growing : in
the 199os, American oil imports grew by 3.5 million barrels a day, more than the total oil consumption of any

After
the United States, no other market offers exporters like Russia or Saudi
Arabia the same opportunities for both growth and volume of sales, and
no oil producer, whether country or company, can afford to miss out. Today, a
producers share of the U.S. market is a critical measure of that
producers political standing and future prospect s. Saudi Arabia, for example, is so
country except China and Japan, and that trend has continued in the first decade of the new millennium.

desperate to maintain its share of the U.S. market that it sells oil to Americans at a discount. Even oil states with
profoundly anti-American sentiments Venezuela, Libya, and until recently Iraq are exceedingly cordial when it
comes to selling or trying to sell oil to Americans.

Affirmative

AT: US Production Link

US oil exports have little to no impact on oil price or markets
Worstall 6/25 Tim Worstall, Contributor to Forbes Online, Fellow at the Adam
Smith Institute in London, 6/25/2014, The US To Allow Crude Oil Exports; Not That It
Will Make Much Difference, Forbes,
http://www.forbes.com/sites/timworstall/2014/06/25/the-us-to-allow-crude-oilexports-not-that-it-will-make-much-difference/
Weve the news that the US is to allow some crude oil exports for the first
time since the ban on them was set in place in the 1970s. This is good news as it
removes an economic inefficiency (and removing economic inefficiencies is
always good news) but its not going to make all that much difference to the
nation as a whole. Its really all a fight between the independent crude producers
and the independent refiners. They, obviously, care about how this goes, crude
exports or no crude exports, but it makes very little difference to the rest of us.
The news isnt that all crude exports are to be allowed, sadly, but that
certain sorts of condensates are being, well, really theyre being redefined
as being not crude and thus exportable:
The US government has moved towards lifting a 40-year ban on oil exports by
allowing two companies to sell ultra-light oil to foreign buyers.
Pioneer Natural Resources PXD -0.82%, of Irving, Texas, and Enterprise
Products Partners, of Houston, have been told by the Bureau of Industry and
Security that they can export the oil, known as condensate, which can be
turned into gasoline, jet fuel and diesel.
Some people seem to be rather over-hyping this:
Oil shipments could begin as soon as August, in a move that energy research
group IHS believes could add more than $1 trillion (590bn) to government
revenues through 2030, trim fuel prices and create an average of more than
300,000 jobs a year.
No, not really, thats not whats about to happen. As background you need to
understand that US produced crude cannot be exported but refined products
(gasoline, avgas, heating oil, all those sorts of things) produced from US crude can
be exported. The second thing you need to know is that all of these things, both
the crude and the refined products, are what is known as fungible. There are
slight differences between African, Middle East and US crude, between the
products of different refineries, but theyre all pretty much substitutes for each
other. Thus Ricardos Iron Law of One Price comes into play and their prices will be
the same around the world minus their costs of transport.
So, we would thus expect the price of US produced crude to be the same as the
price of North Sea crude (minus any small technical details like sulphur content and
so on). But one of the things you might have noticed is that for several years now
they have not been at the same price. WTI (which is US oil delivered Cushing, OK)
has been trading much lower, 10 to 15% lower, than Brent which is the benchmark
for N Sea oil. The reason being that the supply of US crude has been rising strongly

but no one is allowed to export it. So, the Iron Law cannot come into play: its not
possible to export that extra, newly produced, oil.
So what does happen? It gets refined into that gasoline and avgas and so on (not
entirely, but this is the driver of prices). Those products are freely exportable and
given that they will command the world price, be able to compete against the same
products made from the higher priced N Sea, African and so on oil, they will be
exported. What doesnt happen, not to any great extent that is, is that
Americans get lower gasoline prices. Because the refined products are
exportable and fungible to they will still trade at those world prices,
whatever the price of US produced crude.
This isnt entirely exact as there will always be some leakage in such schemes. But
essentially what the ban on crude exports has meant is that refiners get higher
profit margins and crude producers lower ones. For the refiners get to buy US crude
at the depressed inside the US price, refine and then receive the world price for
their products. By allowing exports this artificial boost to refining margins
disappears. Crude producers can either export at the world price or sell to domestic
refiners at again that world price. The refiners dont have the law bending the
market into giving them a fatter margin.
This doesnt make much difference to us as consumers , either inside or
outside the US. It also doesnt make much difference to the oil majors as
they own both crude production and refining capacity. It affects which
division makes the profits, yes, but not the profits of the overall company. So
whether or not crude exports should be allowed is really a fight down in the second
and third tiers of the independent companies. Who gets the profit, the crude
producers or the refiners?
This is only the start of course, this is only about condensates, but it bodes well for
relaxing the ban on all crude exports soon enough. Theres no good reason why the
law should favour the refiners over the crude producers at all.

High US Production wont reduce oil prices 7 reasons

Helman 13 Christopher Helman, energy staff writer for Forbes, 4-29-2013, 7
Reasons Why Oil Prices Wont Plunge, Forbes,
http://www.forbes.com/sites/christopherhelman/2013/04/29/7-reasons-why-oilprices-wont-plunge/.
The United States is in the midst of a miraculous supply boom that has
seen domestic oil output soar by more than 1 million barrels per day in the
past year to the highest levels in decades. U.S. oil output is now at 6.5 million
bbl per day, in third place after Saudi Arabia and Russia (both at roughly 9.8 million
bpd). And the growth shows no sign of slowing down. Add to that the slow
and steady recovery of the Iraqi oil industry, plus the likelihood that the shalecracking techniques perfected in the U.S. will be exported to the likes of China
and Russia, and it looks like the worlds oil demand will be easily met for years to
come. So its little wonder that oil prices have been falling in recent months, with
WTI at $93 and Brent crude down to $103 from a peak of $116 in February. Which
way from here? Well, analysts Oswald Clint and Rob West at Sanford Bernstein,

though not wildly bullish on oil prices, believe there are seven good reasons
why we will not see a sustained plunge in crude (but they call them seven
sources of hidden oil market elasticity). 1. Decline rates at mature fields Its
conventional wisdom that the output of mature oil fields declines at a rate of 5% to
10% a year, slowly fading away over time but never giving up the ghost entirely.
The Bernstein analysts earlier this year conducted a study of 3,100 oil fields that
debunked that myth. They found that some fields decline much faster. The decline
rate in the Gulf of Mexico, for instance, is 23%, with the North Sea is about 10%.
Russian fields fare a little better, at a 3.5% decline rate. Even if the average decline
rate worldwide is just 5%, that means the industry needs to develop a new Saudi
Arabia every two years, just to stay even. 2. Motorists are sensitive to
gasoline prices Data from the Dept. of Energy and the Federal Highway
Administration shows that the number of miles that American motorists drive is
inversely correlated wtih gasoline price increases. As gas prices rose 25% in early
2008, the number of miles driven dropped by roughly 3.5%. When gas prices fell
35% into the 2009 recession, miles driven jumped up 2%, year over year. Theres
not enough new Priuses or Teslas on the road to change this yet: if gas prices fall,
demand for gas will increase. 3. European imports Despite weak markets,
European refiners can be expected to buy more when prices fall. This is
what they did when prices dipped last year buying an additional 1.2 million bpd.
Europes crude oil inventories are also about 10 million barrels below 5-year
averages, so importers there would likely be buyers on a price dip. 4. China
inventories The Bernstein analysts note that in 2012 China increased the rate at
which it built up its oil inventories, adding 240 million barrels in 2012 after 140
million in 2011. When oil peaked in February China cut back its oil imports
to the lowest level in five months, indicating that if prices fall theyll pick
up the pace. 5. Rising marginal costs Despite the enormous growth in
the U.S., the costs of getting that oil out are growing at unprecedented
rates. Bernstein figures that the cost of producing the last barrel rose from $89 in
2011 to $114 in 2012. About 95% of U.S. production was done at a marginal cost of
$71 a barrel. Part of the marginal cost calculation involves non-cash expenses like
depreciation, but over the longer term a corporation will not survive if its marginal
production costs are higher than the going price of crude. 6. U.S. stripper wells
The first to go will be stripper wells. These are marginal wells that produce less than
15 barrels per day. But theres a lot of them, enough to produce 1 million bpd when
the price is high. Production costs are often high on stripper wells because they
often bring up a lot of water along with the oil, and water can be expensive to treat
and get rid of, especially when you dont have economies of scale. Most of these
wells become uneconomic at oil prices less than $90. 7. OPEC The cartel has a
stated production cap of 30 million barrels per day. But member states are
producing more like 30.4 million today. But the OPEC nations need prices of $90
to $100 to balance their budgets and keep their people happy with government
spending. They will adhere to quotas in order to get prices back up. The
Saudis have proven that they can be very disciplined when it comes to cutting
output. In 2009 when oil prices crashed they scaled back by 1.5 million barrels per
day. They also tend to export less when prices are low, and keep the oil in the
kingdom. Overall, the Bernstein guys believe that these seven criteria would be

enough to tighten global oil supplies by 1.5 million barrels per day if Brent crude
were to fall to $90 that would be enough tightness to bring prices back above
$100. Invest accordingly.

No impact on oil prices U.S. drilling doesnt cause global

declines
McAuliff 11 Michael McAuliff is a Senior News Correspondent on Capitol Hill for
The Huffington Post. More U.S. Oil Drilling Won't Lower Gas Prices, Experts Say
05/06/11 http://www.huffingtonpost.com/2011/05/06/more-us-oil-drilling-wont-helpgas-prices_n_858473.html
WASHINGTON -- Republicans used the politically potent argument about the cost of
gas Thursday to pass a bill expanding offshore oil and gas exploration. But analysts
say there's a major flaw in their case: More drilling will barely budge prices.
The Restarting American Offshore Leasing Now Act, which passed 266 to 144 with
33 Democrats buying into the scheme, orders the Department of the Interior to
move quickly to offer three leases to drill in the Gulf of Mexico and one off the coast
of Virginia. The bill demands that the leases be executed by next year. But the
legislation won't reduce the price at the pump, experts said. Nor would a vastly
more ambitious effort have much impact. "It's not going to change the price of
oil overnight, and it's probably not going to have a huge impact on the
price of oil ever," said Mike Lynch of Strategic Energy and Economic Research, Inc.
referring not just to those four leases, but to expanding all U.S. drilling. Yet
House Republicans -- backed by nearly three dozen Democrats -- held out their push
for exploitation of the four tracts as a panacea for the weak economy and high gas
prices. "Republicans are standing with the American people, who want us to
increase the supply of American energy that will lower costs, reduce our
dependence on foreign oil, and create jobs here in America," House Speaker John
Boehner (R-Ohio) proudly declared. "And Im certain - with $4 per gallon gas - the
American people will remember who listened to them, and who didnt." "I think high
gas prices and high energy costs are crushing jobs and are just unnecessary," Rep.
Glenn Thompson (R-Pa.) told The Huffington Post. "When we have access to
domestic resources, gas prices go down. Thats what happened in 2008 when Bush
opened up the outer-continental shelf." Rep. Doc Hastings (R-Wash.), the bill's lead
sponsor, made the same argument Wednesday. "If we send a signal to the markets
that were going to go after the resources that we have in this country," he told
bloggers on a conference call, "I think that will have a positive impact on driving the
price of gasoline down. As a matter of fact, that happened in 2008." But people
who study oil markets for a living say they are wrong. "I would really
doubt that that [2008 price drop] would have been because we committed
to more drilling," said Phyllis Martin, an analyst with the U.S. Energy Information
Administration (EIA), which just released its detailed, annual outlook on energy
supply and prices. "It was most likely the recession," Martin explained. "When
demand cuts back, the production cuts back and the prices fall." As for
opening four new drilling leases, that's not even a drop in the bucket.
Analyst Lynch said that, if the nation took an extremely vigorous stance on

oil exploitation -- and relaxed restrictions on the Gulf and drilled in the
Arctic National Wildlife Refuge in Alaska and off the coast of California,
where America's most easily accessible offshore oil is located -- it still
would not have much of an impact. "With the exception of the deep Gulf, where
there are restrictions, people are drilling as fast as they can," said Lynch, who
regards himself as a moderate Republican. He is bearish on oil prices and believes
the cost of crude will drop soon, regardless of an government policies. "You might,
under really optimistic scenarios, over five or six years, add 2 million
barrels a day of production," said Lynch, who favors more drilling, even if he
rejects the politicians' arguments. "On a global scale, it's significant. But we
would still be big importers -- we would still be dependent on foreign oil."
And prices would not move much because of it, the analysts explained. Oil is traded
on a world market, and the United States does not have enough petroleum to
increase the global supply, which would reduce demand -- and thus the
price -- for fuel. "In 2009, the U.S. produced about 7 percent of what was
produced in the entire world, so increasing the oil production in the U.S. is
not going to make much of a difference in world markets and world
prices," said the EIA's Martin. "It just gets lost. It's not that much." And boosting
drilling in the outer continental shelf? "What comes out of the OCS is about 1
percent of the world total, and that's not enough to affect world prices,"
Martin said, even noting that she believes there are even more untapped reserves
than officials can estimate at the moment.
*Note this article cites several experts on international oil prices.

U.S. drilling doesnt affect oil prices demand, time lag

Weiss 8 Daniel J. Weiss, a Senior Fellow and Director of Climate Strategy at the
Center for American Progress, 1-3-08, Time to Diversify Energy Resources as Oil
Hits $100 a Barrel,
http://www.americanprogress.org/issues/green/news/2008/01/03/3846/time-todiversify-energy-resources-as-oil-hits-100-a-barrel/
All of these factors are likely to continue throughout in 2008. Yet in the wake of these near record prices, oil
industry allies are likely to haul out the lobbying equivalent of a Christmas fruit cake. They will once again
push for more oil drilling off U.S. coastal areas and in the A rctic National Wildlife
Refuge. These tired proposals have been rejected time and again because they
would do little to reduce the price of oil in the short run or offset higher
demand in the long run. First off, additional offshore oil drilling in the eastern
Gulf of Mexico, or off the Atlantic and Pacific coasts, would not produce any oil
for five to seven years. It would take at least 10 years to produce any oil
from the Arctic. Such plans will not reduce the spot market price for oil. In
fact, we already tried this and it failed to reduce prices . In December 2006 Congress
and President Bush opened new areas to drilling off the Florida Coast when the price of oil was $62 per barrel. The

oil companies hold over 4,000 undeveloped

leases in the western Gulf of Mexico. If oil companies want to increase oil
supplies, it would be much faster to develop these leases rather than plod
through the laborious process to get Congress to approve offshore drilling
price is one-third higher today. Second,

in currently protected places. Interestingly, the Big Five oil companiesBP plc, Chevron Corp.,
Conoco Phillips Inc., ExxonMobil Corp., and Royal Dutch Shell plchave been spending a huge amount of their half
trillion dollars in recent profits buying back their own stock. Perhaps they should invest some of their record profits

the
U.S. oil supply-demand balance is insurmountable. We have less than 2
percent of the worlds known reserves, yet use 25 percent of its oil. Even if we
drilled off of every beach, and inside every national park, refuge, and forest, the United States does not
possess enough oil to significantly offset our growing demand .
in developing these leases before they greedily ask for access to more protected places. Most importantly,

U.S oil doesnt affect global prices Saudi Arabia has

overstated its supply
Luft 13 Gal Luft, Senior adviser to the United States Energy Security Council
and co-author of "Petropoly: The Collapse of America's Energy Security Paradigm,
American oil boom is bad news for Saudi Arabia, Newsday, 5/28/2013,
http://www.newsday.com/opinion/oped/american-oil-boom-is-bad-news-for-saudiarabia-gal-luft-1.5355333
Another potential explanation for Naimi's reluctance to grow capacity is that he
knows what Sadad al-Husseini, the former head of exploration at Saudi Aramco,
allegedly told the U.S. consul general in Riyadh in 2007. According to a leaked
cable published by WikiLeaks, Husseini said that Saudi Arabia may have
overstated its oil reserves by as much as 40 percent, meaning that
production at current levels is unsustainable. If Husseini's claim is true, it
means there is only one way for the kingdom to make ends meet: Keep
prices high by stalling the development of new capacity while adjusting
the production of oil downward to offset any growth in supply emanating
from the American oil boom. It also means, contrary to popular belief, that
the current rise in U.S. domestic production will have minimal impact on
global crude prices, and hence on the price we pay for gasoline at the pump. Oil
is a fungible commodity and its prices are determined in the global
market. If the United States drills more, Saudi Arabia will simply drill less,
keeping the supply/demand relationship tight and prices high.

High Prices Good/Low Prices

Bad

High Prices Good/Low Prices Bad

Economy

Investor Confidence
High Oil Prices Maintain Investor Confidence
Helman 6/24 Christopher Helman, Forbes staffer, 6/24/13, Why Cheap
Gasoline Could Be Bad for Americas Economic Comeback, Forbes,
http://www.forbes.com/sites/christopherhelman/2013/06/24/would-cheaper-gasolinebe-good-or-bad-for-america/
America is, of course, in the midst of an unprecedented oil boom. Thanks to
advances in drilling and fracking, oil companies have figured out how to develop
massive reserves in fields like the Bakken and Eagle Ford. Since 2008 U.S. oil output
is up 43%, including a massive 1 million barrel per day gain in 2012. This year, for
the first time in decades, the U.S. relies less on imported oil than on domestic
supplies. According to IHS IHS -1.06%-CERA, the boom in unconventional oil
and gas supports 1.7 million jobs, generates some $70 billion in federal,
state and local taxes, and adds roughly $250 billion a year to the U.S.
gross domestic product. And all those numbers are set to grow in the
years to come. But only if oil prices stay high. Its high prices that
incentivized drillers to develop the Eagle Ford and Bakken the two
biggest contributors to oil growth. The average costs of getting a barrel of oil
out of those fields is between $60 and $65 a barrel, according to Morgan Stanley MS
+0.62%. That includes the costs of surveying, drilling, fracking, processing,
transporting, taxes and royalties (but excludes costs of land acquisition). At current
prices companies will go right on drilling. But if for any reason oil were to drop
to $60, activity would quickly dry up. And considering that the average
unconventional oil well declines in volume by more than 50% in its first year, it
wouldnt take long for domestic supplies to slump and for jobs to slump with it.

High Oil Prices key to long term growth stability creates

capital investment
Al Khatteb 3/16 Luay Al Khatteb, founder and director of Iraq Energy
institute, 3/19/14, Huffington Post, Why World Oil Prices Should Be High and
Stable http://www.huffingtonpost.com/luay-al-khatteeb/why-world-oil-pricesshou_b_4992593.html
Contrary to popular wisdom, a lower oil price would only damage the
economic prosperity of the U.S. and the major oil-producing nations, most
of whom are developing nations acutely vulnerable to the damaging
aspects of oil price volatility, which slowed their economic development to
date. Critics might argue that such a high, stable price would slow down economic
growth and recovery but in the long run it would do much to moderate the
boom and bust aspects of the economic cycle, and reducing the risk to
future, necessary capital investment. Building economic recovery on
unrealistically cheap energy sets the system up for even greater failure

when inevitable price shocks occur. What the global economy needs are
stable, sustainable prices that can provide the basis for effective planning.

High Oil Prices good for stock market

Our Energy Policy 12 Administrator at Our Energy Policy, 3/6/12,
Economist: High Oil Prices Not (Necessarily) Bad for the Economy, Our Energy
Policy, http://www.ourenergypolicy.org/economist-high-oil-prices-not-necessarilybad-for-economy/
In a Yardeni Research blog post highlighted by an article in the New York Times,
economist Ed Yardeni argued that rising oil prices may actually be good
for the stock market, up to a point. This is due, in part, to energy sector
companies like Chevron and Exxon making up more than 12% of the S&P
500s market capitalization. Yardeni notes that since late 2008 there has
been a strong positive correlation between energy prices and the stock
market.

Low oil prices kill investor confidence

DeMarban 13 Alex DeMarban, reporter at AlaskaDispatch, 1/20/2013, Will
Arctic offshore oil drilling prove uneconomic in wake of US shale oil boom?
AlaskaDispatch http://www.alaskadispatch.com/article/will-arctic-offshore-oil-drillingprove-uneconomic-wake-us-shale-oil-boom
Five years ago, oil prices settled around $100 a barrel and heavily reignited
Shell's interest in the Arctic Ocean: The company plunked down more than $2
billion for a chance to drill into the relatively shallow floor of the Chukchi Sea. In the
early 1990s, low oil prices led Shell to abandon its original foray into the
offshore Arctic, despite having punched more than 20 holes, including some
that found oil. Fast-forward to 2013 and it's hard not to wonder if history will
repeat itself. In total, Shell has spent $5 billion on leases, operational costs and
other expenses, but the current exploration phase of that effort might just be the
easy part. To get any discovery to market in the years to come, Shell will have to
clear more regulatory hurdles, fend off additional legal battles, and spend
billions more to create concrete or steel production platforms, essentially
remote islands to process crude. The company also will need hundreds of miles
of pipeline to ship oil across one of the planet's most inhospitable and
environmentally protected regions. Shell spokesman Curtis Smith said it's too early
to speculate on how the Kulluk grounding will impact Shell's ongoing exploration
program off Alaska. "We will first complete an assessment of the Kulluk, but our
confidence in the strength of this program remains," he said. At what oil price -- or
at what point in time -- does the project become uneconomic? Smith said he
couldnt answer. And what will happen to oil prices in the coming years is
anyone's guess.

Employment
High oil prices lead to energy employment
The Financial Daily 13 economist newscast, 12/6/13, Shale Gas and Oil
Boom Gains & Vulnerabilities Lexis Nexis
Rising oil and gas prices since the early 2000s prompted a resurgence of
energy employment. Increased use of horizontal drilling and hydraulic
fracturing led to further gains in oil and gas hiring. As of 2011, the states
with the highest shares of energy employment were Alaska, Louisiana, New Mexico,
North Dakota, Oklahoma, Texas, West Virginia, and Wyoming. As shown in Figure 2,
energy employment shares increased in all eight of these states from 2000 to
2011.5 Although there is little oil and gas activity in West Virginia, its coal
production grew because coal prices followed the upward trend in oil
prices in the 2000s. Despite these gains, however, almost every one of these
states depends less on the five main energy-related industries than they did in
1982.

High Oil Prices led to Economic Performance

Financial Daily 13 The Financial Daily, economist newscast, 12/6/13 Shale
Gas and Oil Boom Gains & Vulnerabilities Lexis Nexis
Fossil fuel production has been important to these states' recent economic
performance. Since the early days of the shale boom in 2006, the four
states with the highest rates of employment growth are the states with
the highest shares of oil and gas employment (Figure 3). The greatest growth
has been in Texas and North Dakota, states with production from shale and the
largest production increases. As seen in Figure 3, between 2006 and 2012, U.S.
employment declined 0.05 percent per year on average, while employment in
North Dakota and Texas grew by 3.4 and 1.5 percent, respectively, the
fastest growth in the country.

Extraction
Low Oil prices prevent investment in extraction
Travberg 13 Gail Travberg, editor of The Oil Drum, 12/18/13, OilPrice.com,
How Low Oil Prices could Cause the Death of Oil, http://oilprice.com/Energy/OilPrices/How-Low-Oil-Prices-could-Cause-the-Death-of-Oil.html
Because of diminishing returns, the cost of oil extraction keeps rising. It is hard
for oil prices to increase enough to provide an adequate profit for producers. In fact,
oil prices already seem to be too low. Oil companies have begun returning
money to stockholders in increased dividends, rather than investing in
projects which are likely to be unprofitable at current oil prices. See Oil
companies rein in spending to save cash for dividends. If our need for investment
dollars is escalating because of diminishing returns in oil extraction, but oil
companies are reining in spending for investments because they dont
think they can make an adequate return at current oil prices, this does not
bode well for future oil extraction.

High Prices Good Producing Economies

High prices benefit producing economies resulting increased
production moderates spikes
Neuhauser 6/24 Alan Neuhauser, energy, environment and STEM reporter
for U.S. News & World Report, 6/24/2014, Data Mine: As Turmoil in Iraq Boosts Oil
Prices, Who Benefits the Most?, USNews, http://www.usnews.com/news/blogs/datamine/2014/06/24/data-mine-as-turmoil-in-iraq-boosts-oil-prices-who-benefits-themost
High prices mean high profits, right?
Well, not always.
As violence in Iraq forced crude oil prices past a nine-month high of $115 late last
week, it wasn't necessarily the producers who were reaping huge rewards, but
instead the traders the folks who spend each day selling high and buying low.
Newly recruited Iraqi volunteers, wearing police forces uniforms, take part in a
training session on June 17, 2014, in the central Shiite Muslim city of Karbala. Faced
with a militant offensive sweeping south toward Baghdad, Prime Minister Nuri alMaliki announced on June 15, 2014, that the Iraqi government would arm and equip
civilians who volunteer to fight, and thousands have signed up.
The real beneficiaries of what we would call this short-term volatility is traders,
says Jamie Webster, senior director of global oil markets for IHS, a consulting firm.
Anybody that benefits from not high prices or low prices, but rather moving prices,
theyre the ones who really benefit.
These traders can be your bankers on Wall Street or uncle on eTrade, but most often
its the independent oil companies, refineries and others who are constantly looking
to pickup oil at the lowest prices possible, and then sell it at the highest.
Producers can also benefit at least as long as their operations remain
untouched by turmoil.
For an existing producer who doesnt change anything about how theyre
producing, they will make more money on an existing barrel than they
would have otherwise, says Julie Carey, director of the consulting firm
Navigant Economics. Other producers might also try to increase
production: Can I now produce something that was not economic at a price
that was $10-per-barrel lower, but now is more economic with prices that
are higher? As we see prices rising, we see more production coming
online.

AT: High Prices Bad for Economy

High Oil Prices dont tank economy, they just show the
economy is bad current economy can withstand oil spike
Burrows 12 Dan Burrows, contributing financialist at CBS MoneyWatch,
2/28/12, Why Higher Oil and Gas Prices are good, CBSNews,
http://www.cbsnews.com/news/why-higher-oil-and-gas-prices-are-good-news/
True, oil price spikes preceded the 1973, 1980, 1991, 2001 and 2007
recessions, but the spike in early 2011 did not lead to one, Sonders notes
-- and she doesn't believe the current spike will also be an exception. "U.S.
consumers are now much better positioned to weather higher energy
prices, with well-improved job growth and consumer confidence, credit
growth picking up, aggressive Fed stimulus and record-low natural gas
prices," Sonders says. Additionally, total U.S. spending on energy as a percentage
of disposable personal income currently stands at less than 6 percent, down from
the 8 percent of the early 1980s. But most important is the fact that last
year's rise in energy prices was largely spurred by the second round of
quantitative easing by the Federal Reserve, Sonders says, whereas today's
driver of higher oil and gas prices is global growth.

High prices follow economic growth they dont prevent it

Hyman 13 Sean Hyman, financial insider at Money News, 7/19/2013, Rising
Oil and Gasoline Prices: A Blessing and a Curse, Money News,
http://www.moneynews.com/SeanHyman/oil-gas-priceeconomy/2013/07/19/id/515961/
You see, when economic growth is waning, there is less demand placed
upon the supplies of oil. And when the global economy is expanding, yes
even more so than the increased supplies, the demand increases upon the supplies
of oil and oil's price rises. I watch oil a lot because it's a great barometer of
how the global economy is faring. And what I like best about it is that it's more
of a real-time indicator than watching delayed gross domestic product reports, etc.
So oil's rise proves to us that the global economy still has its footing and
is strengthening overall. And that's a good thing. When economies are
expanding, jobs will be created.

Low prices dont help the economy the difference is marginal

at best
Washington Post 12 Byline Brad Plumer, Cheap oil wont save the worlds
economy, Washington Post, 6/25/12, http://www.washingtonpost.com/blogs/ezraklein/wp/2012/06/25/cheap-oil-wont-save-the-worlds-economy/)
Earlier this year, oil prices spiked upward, and observers worried that high prices could pinch the global economy.
Then the global economy stumbled on its own with slowdowns in the United States, China, Europe, and
elsewhere and oil prices slumped again. Crude traded in the United States sunk from $108 per barrel back in
February down to $78 per barrel today. So will the reverse be true?

Can low oil prices provide a

stimulus? A little, but not much . According to Andrew Kenningham, a senior economist with
Capital Economics, a $20 fall in oil prices basically transfers about 1 percent of
global GDP from countries that mainly produce oil (such as Russia and Saudi Arabia)
to countries that mainly use oil (lots of places). Since oil-consuming countries
tend to spend a bit more money on goods and services, this wealth
transfer will likely boost the global economy by about 0.5 percentage
points. That helps. But its not nearly enough to solve the worlds problems.
Cheaper oil may cushion the fall in demand, particularly in the U.S., where the pass-through from crude oil to
gasoline prices is high, Kenningham told Housing Wire. But it cannot reverse the slowdown.
James Hamilton, an economist and oil expert at the University of California San Diego, concurs. He notes that
gasoline prices have always tightly followed oil prices, so prices at the pump in the United States are likely to drop

thats not
enough of a boost to overcome all the other problems in the world : If gasoline
by quite a bit in the months ahead. That will put a little more money in the pockets of drivers. But

prices do fall from their value in April near $3.92 to $3.12, that would be an 80 cents/gallon swing. With Americans
buying about 140 billion gallons of gasoline each year, that translates into an extra $112 billion over the course of a
year that consumers would have available to spend on other things besides gasoline. So should we be celebrating?
Im afraid not. The primary reason that oil prices have come down is because of growing signs of weakness in the
world economy. I am very concerned about where events in Europe are going to lead, and recent U.S. data indicate

Cheap gas helps, but not so much if you dont have a job. The
When times are good and the global economy is
expanding, the world bumps against what appears to be a ceiling in the
production of easy oil. At that point, prices tick up, threatening to
squelch the recovery. Conversely, when times are bad, falling oil prices
dont appear to be enough to prop up the economy again.
some weakening.

world just cant win with oil lately.

Turns Case
Low Oil Prices Turn the Case only sustained high prices lead
to long term investment in renewable energy
Akst 6 Daniel Akst, contributing editor at the NYT and various other
publications, 9/17/06, The Good Thing about Oil Prices Is the Bad News, NYT,
http://www.nytimes.com/2006/09/17/business/yourmoney/17cont.html?
ref=yourmoney)
Dont kid yourself. Anything that reinforces the role of fossil fuels particularly oil
as the industrial worlds primary energy source is bad, not good. Anything that
prolongs the life of the internal combustion engine is a negative, not a positive.
Anything that makes it cheaper to pump greenhouse gases into the atmosphere is
cause for mourning rather than celebration. What we need is not lower oil
prices but higher ones significantly higher, enough to deter consumption
and make us look seriously at alternatives. Of course, it would be nice not to
have to rely on cartels and circumstances to make us moderate our consumption.
Hefty taxes on carbon-based energy, the proceeds of which could fuel
research into nonfossil alternatives, would be a much better approach, since
then at least wed be paying ourselves instead of our friends at the
Organization of the Petroleum Exporting Countries. As a bonus for saving the
planet, we might even undermine the intolerance and autocracy that are abetted in
many places by oil money. The sad fact is that just as oil is the lifeblood of Western
economies, oil revenue often is the lifeblood of tyranny. Oil-rich regimes that
trample the rights of women, finance terrorism and preach intolerance are sustained
by what we spend on gasoline and heating oil. The unfortunate paradox is that
moderating oil prices, while they may reduce the earnings of despots in the short
run, will only support our harmful addiction and the power of those same despots
in the long run. If that were the only bad thing resulting from lower oil prices, it
would be sufficient. Ah, but theres so much more. Lower oil prices would
promote more driving, for instance, a dismal outcome that would increase air
pollution and, in all likelihood, highway fatalities. More than 43,000 people were
killed on United States roads last year, and 2.7 million were injured. Many
thousands die annually from airborne pollutants as well. Then theres sprawl.
Cheaper gas will mean more far-flung, automobile-dependent communities. That
will bring more driving still, which will result in even more pollution and accidents.
This is to say nothing of the health effects associated with driving everywhere
instead of walking. All that driving brings us back to global warming. Fossil
fuels are implicated in what appears to be significant human-induced
climate change. Everyone I know professes to worry about this, but lets face it:
nothing but drastically higher prices will deter most of us from consuming
more carbon-based energy. Meanwhile, oil prices remain distressingly low.
Adjusted for inflation, remember, prices peaked some 25 years ago. HIGHER
prices have worked wonders before. Today, Americans can generate a
dollar of gross domestic product using just half the energy required in
1973, that watershed year of the oil embargo and lines at gas stations. In

countries where energy is more expensive, a dollar of G.D.P. requires

considerably less energy still. Unlike a tax, moreover, higher prices have the
advantage of applying all over the world, to everyone. The burden of higher oil
prices, unfortunately, will fall most heavily on the worlds poor but then again, so
would the burden of climate change. And surely the poor would benefit from
technologies that provide alternatives to fossil fuels.

High Oil Prices help renewable energy

Frangoul 14 Anmar Frangoul, reporter at CNBC, 5/8/14, High oil prices will
boost renewables: Pro, CNBC, http://www.cnbc.com/id/101653990#.
Higher oil prices would help to incentivize research and development into
renewable energy, according to Mark Lewis, senior analyst of sustainability
research at Kepler Cheuvreux. Brent crude futures traded just below $108 a barrel
around midday on Thursday, up some $8 a barrel from this time last year. "You've
got security of supply concerns, raised most recentlywith the tensions in the east
of Europe with Ukraine that has brought to the fore Europe's dependence on
imported fossil fuels, and you've got continuing high oil prices," Lewis said.
Only recently Elon Musk, CEO of Tesla Motors, announced ambitious plans to build a
$5 billion 'giga factory' that will produce up to 500,000 lithium batteries annually by
2020. And with ongoing tensions between Ukraine and Russia highlighting Europe's
dependency on imported fossil fuels, Lewis told CNBC that such a climate could
make the development of renewables, such as lithium ion batteries, a more
attractive proposition. "I think oil importing countriesreally should be looking at
battery technology, storage of energy, as the 'holy grail'," Lewis added. "This
really is it, because if you can make the big breakthrough there, we really do start
to see a change." With oil prices high and major oil companies cutting
back on capital expenditure levels, Lewis predicted that the appetite for
renewables will gain momentum. "I think this is a real issue," Lewis said. "The
oil companies are failing to make enough money even at current record
high price levels, we've seen the oil companies start to cut back on their cap ex
(capital expenditure) levels from the beginning of this year which kind of
tells you oil prices have to go higher, and that's where the incentive for
developing this technology will come through," he added.

High Oil Prices Force Use of Alternative Energy

Travberg 13 Gail Travberg, editor of The Oil Drum, 12/18/13, OilPrice.com,
How Low Oil Prices could Cause the Death of Oil, http://oilprice.com/Energy/OilPrices/How-Low-Oil-Prices-could-Cause-the-Death-of-Oil.html
Climate Change. There is no limit on oil production within the foreseeable future. Oil
prices can be expected to keep rising. With higher prices, alternative fuels
and higher cost extraction techniques will become available. The main
concern is climate change. The only reason that oil production would drop is
because we have found a way to use less oil because of climate change concerns,
and choose not to extract oil that seems to be available.

High Prices Good Specific

Country Modules

Russia

1NC Russian Oil DA

First, oil prices are high and stable
Second, the plan causes a sustained reduction in oil prices.
[Insert Link]

Third, high oil prices are key to the Russian economy

diversification is destructive
Feifer 11 (Gregory, Editor and Senior Correspondent for Radio Free Europe/Radio
Liberty, Russia's Image as Energy Superpower Benefitting from Middle East Crisis,
http://oilprice.com/Energy/Energy-General/Russia-s-Image-as-Energy-SuperpowerBenefitting-from-Middle-East-Crisis.html)
With U.S.-led fighter jets pounding military assets in oil-rich Libya, and Japan still struggling to contain radiation at
its stricken Fukushima nuclear plant, concerns are rising around the world about the future of energy supplies. But

As the unrest in the Middle East bites into supplies, prices for
crude approached $105 a barrel this week. That's helping drive windfall
profits that are enabling the world's biggest energy exporter to finally
emerge from recession triggered by the global financial crisis in 2008. But while that's good
news for Russia's economy, Kremlin critics say rising energy prices are
again shoring up the country's authoritarian government -- and that's bad for politics.
Energy Savior Russia is using the crises in the Middle East and Japan to burnish its
image as the world's energy superpower. Prime Minister Vladimir Putin -- who has predicted
not in Russia.

that Russia's GDP will equal its precrisis level by next year -- exchanged his usually stern demeanor for an
uncharacteristically friendly manner last week and promised to help Japan, where the nuclear crisis has forced
electricity blackouts. He predicted the effects of the earthquake and tsunami to energy supplies there will be longterm. "In that regard, we have to think of accelerating our plans to develop hydrocarbon-extraction projects --

Putin offered to pump more gas to

Europe by pipeline, freeing shipments of liquefied natural gas for Japan. He also proposed laying an
particularly gas extraction -- in the Far East," he said.

electricity cable to Japan and offered Japanese companies stakes in Siberian gas fields. Moscow has issued more
offers since, including encouragement for Japanese companies to invest in Russia's coal industry. But some analysts
are warning Russia's heightened focus on its global energy role is eroding any -- already distant -- hopes the
government would enact economic reform. The Kremlin vowed to diversify the country's economy after plummeting
oil prices dealt the economy a body blow during the global financial crisis. Anti-Westernism Rising Political analyst

the latest events in the Middle East are instead helping

speed a return to Russia's precrisis situation, when peak oil prices flooded
the country with cash. "We're returning to the golden era of 2006 and 2007, with
official propaganda slogans extolling a 'great energy power,'" Piontkovsky says.
"It's very good for a very limited group of people for a very short time period, but certainly it's
very bad for the country." Piontkovsky says the developments are reinforcing the "general
mentality" of Russia's leaders, reflected in a return to the kind of strident anti-Western rhetoric that
Andrei Piontkovsky says

was especially loud during the precrisis oil boom. He points to President Dmitry Medvedev's comments this month
in which he blamed Western countries for prompting the Middle East unrest, adding that "they have prepared such
a scenario for us." But

it's Putin who's seen as Russia's supreme leader.

He lashed out

on March 22 in his strongest anti-Western comments in years, condemning the UN Security Council for authorizing
force against Libya. He said last week's resolution enabled Western countries to take action against a sovereign
state "under the guise of protecting the civilian population." "It actually resembles medieval calls for crusades when

But the
atmosphere in Moscow is more nuanced then the rhetoric suggests. Medvedev
someone called on others to go to a certain place and liberate it," Putin said. Redefining Foreign Policy

rejected Putin's comments, calling them "unacceptable." And despite Putin's displeasure, Russia declined to veto
the resolution when it came to a vote last week, instead choosing to abstain. Fyodr Lukyanov, editor of the journal
"Russia in Global Affairs," sees that decision as more significant than the tough talk. "It's not typical," he says.
"Russia used to take stands for or against, particularly when it comes to issues such as intervention in other
countries." He says foreign policy isn't being driven by rising oil prices. "It's about the gradual refocusing of Russian
interests and redefining of Russian foreign-policy identity from a global one to a more regional one." That change,
he says, reflects a "much more rational calculation of priorities." "It doesn't mean Russia is more pro-Western,"
Lukyanov says. "Russia

is becoming less global, which means that, for example, the

idea to challenge Washington everywhere and over everything isn't
relevant anymore." Russia's Resources Card Boosting energy exports is among the priorities, as Putin's
latest salesmanship reflects. But maintaining current levels won't be as easy as it may appear. Economist Clifford

the key question for Russia's future economic

success will be how it responds to demand in resource-hungry China. Whatever the
rhetoric coming out of the Kremlin, he says, Russia has little chance of
competing in any other sector. "You can dream all you want about
diversification and blame Putin or whoever for not diversifying or praise
them because they want to diversify," Gaddy says, "but it doesnt make very
much sense. Russia's comparative, competitive advantage is not in
anything except resources, so the smart thing to do is play that card." For
Gaddy of the Brookings Institution says

now, Gaddy sees few long-term effects for Russia from the Middle East unrest, saying oil prices were predicted to
rise to $105 to $108 this year even before it began, while commodity prices are expected to continue rising for the

That's depressing news for Putin's critics. Many believe the

prime minister plans to return to the presidency in an election next year,
and -- if elected again -- he could remain in office for the next 12 years.
foreseeable future.

Fourth, Russian economic decline risks global nuclear conflict

Filger 9 (Sheldon, Columnist and Founder Global EconomicCrisis.com, Russian
Economy Faces Disasterous Free Fall Contraction, http://www.huffingtonpost.com/sheldonfilger/russian-economy-faces-dis_b_201147.html)
In Russia, historically, economic health and political stability are
intertwined to a degree that is rarely encountered in other major industrialized economies. It was the
economic stagnation of the former Soviet Union that led to its political downfall. Similarly, Medvedev and Putin,
both intimately acquainted with their nation's history, are unquestionably alarmed at the prospect that Russia's

economic crisis will endanger the nation's political stability , achieved at great cost
after years of chaos following the demise of the Soviet Union. Already, strikes and protests are occurring among
rank and file workers facing unemployment or non-payment of their salaries. Recent polling demonstrates that the
once supreme popularity ratings of Putin and Medvedev are eroding rapidly. Beyond the political elites are the
financial oligarchs, who have been forced to deleverage, even unloading their yachts and executive jets in a

Should the Russian economy deteriorate to the point

where economic collapse is not out of the question, the impact will go far
beyond the obvious accelerant such an outcome would be for the Global Economic Crisis. There is a geopolitical
desperate attempt to raise cash.

dimension that is even more relevant then the economic context. Despite its economic vulnerabilities and perceived

Russia remains one of only two nations on earth with

a nuclear arsenal of sufficient scope and capability to destroy the world as
we know it. For that reason, it is not only President Medvedev and Prime Minister
Putin who will be lying awake at nights over the prospect that a national
decline from superpower status,

economic crisis can transform itself into a virulent and destabilizing social
and political upheaval. It just may be possible that U.S. President Barack Obama's national security
team has already briefed him about the consequences of a major economic meltdown in Russia for the peace of the
world. After all, the most recent national intelligence estimates put out by the U.S. intelligence community have
already concluded that the Global Economic Crisis represents the greatest national security threat to the United
States, due to its facilitating political instability in the world. During the years Boris Yeltsin ruled Russia, security
forces responsible for guarding the nation's nuclear arsenal went without pay for months at a time, leading to fears

desperate personnel would illicitly sell nuclear weapons to terrorist

organizations. If the current economic crisis in Russia were to deteriorate
much further, how secure would the Russian nuclear arsenal remain? It
may be that the financial impact of the Global Economic Crisis is its least
dangerous consequence.
that

AT: Russian Economy Low Now

AT: Diversification Turn

High oil prices are key to diversification
1. Investment funds and confidence
Dashevsky 11 Steven, Managing Director of Dashevsky & Partners, The
Russian economy and its oil, 5-24, http://rt.com/business/news/russia-economy-oilrpice/
RT: High oil prices have helped Russias budget but is the country too dependent on
energy exports? SD: Well the dependence has declined greatly in recent years, but
I think the sad truth remains that, to a very significant degree, Russias
budget revenues and overall fiscal health is still very dependent on the
level of oil prices. RT: How does the energy sector shape the Russian investment
climate? SD: Well, there are many ways how the events happening in the oil
and gas sector influence what is happening in the broader economy . On
the one hand this is the biggest source of cash flow generation in the
country, so in a sense its the biggest source of investment funds, both for the
companies, and for the government and also because oil companies invest very
significant amounts of money every year, so the ability of Russian oil
companies to spend money affects really the entire Russian economy
from transport companies to oil service companies to catering companies to local
airlines so it is still, despite the significant efforts to diversify the economy, its a
very important source of investment funds. Thats kind of one angle, and
another angle is what is happening in the Russian oil and gas sector, since it
is the biggest sector in the economy, affects the general investment
climate, from the kind of sentiment perspective. So, when something good
happens like potentially was going to happen, BP-Rosneft deal, or if there are good
events happening, new fields are being developed, new pipelines are being
brought on-stream, that gives investor additional confidence that the
economy is progressing very well, and people are investing money in it, and
the whole country is open for business. Vice versa, if things are not going
well, if deals are breaking up, if instead of going to work people going to courts
against each other, that clearly creates a big drag on the investors
sentiment for all of the Russian economy, not just oil and gas.

2. Infrastructure spending
Bennallack 11 Owain, executive editor of Develop, The one market you can
buy on higher oil prices 3-3, http://www.fool.co.uk/news/investing/2011/03/03/theone-market-you-can-buy-on-higher-oil-prices.aspx
Yes, we're talking about Russia. As Matthias Siller, Investment Manager at Baring Asset Manager explains:

"There is generally a close relationship between the performance of the

Russian equity market and the oil price, with Russia lagging slightly. In a stronger oil
price environment, it is our belief that the Russian market will gain

upward momentum."

The following graph shows the relationship between the oil price and the Russian
market very clearly: You can clearly see that going on this prior trend, the Russian market could be about to shoot
upwards. It's already started 2011 with a bang in comparison with most other emerging markets, which have wilted.

there are very strong

reasons why Russia rises when the oil price does -- principally, that the country
is a huge exporter of oil, and its markets are stuffed to overflowing with
oil producers. In the short term at least, higher oil prices will massively boost their
profitability. It's estimated that a $150 barrel of oil would increase Russian
oil firm's operating profitability by an average of 60-80%. But Baring's Matthias Siller points
More reasons to buy Russia We're not habitual graph followers at the Fool. But

to two other reasons to be optimistic about Russian equities in this climate:

* More taxes for the government:

It's an election year in Russia, and incumbents flush with oil-fuelled tax
receipts could well increase infrastructural and social security spending,
to the benefit of banks, construction firms, property companies, and
retailers.
* A boost to oil production: Russian oil companies badly need to upgrade their facilities to get
more of their reserves to market. A higher oil price would give the Russian authorities leeway to introduce better
tax incentives to encourage this, which could enable Russia's producers to increase their output and profits. The
Russian market is on a P/E of just 10 and forecast to fall to around 7, so on the face of it this is pretty compelling
opportunity.

3. Construction, real estate, financial services, and telecomm

Schneider 4 Andrew, Kiplinger Business Forecasts, 6-8-2004, lexis
Energy will remain the key factor underpinning Russia's economy, with oil
and natural gas exports bringing in billions of dollars annually in foreign
income. This is providing the fuel for booms in construction and real
estate as well as in several service-sector industries ranging from financial
services and telecommunications to retail.
"Oil revenues are fueling growth in all these sectors," says Caren
Gaboutchian, a London-based economist with ING Financial Markets. He notes
that the link is particularly visible with regard to the construction boom.
"Oil companies pay their employees. The employees want to invest their
cash, and one of the best investments is the real estate sector in Moscow,
either residential or commercial," he points out.

AT: Dutch Disease Turn

Oil revenue will not cause Russian imperial aggression risk is
low
Manning and Jaffe 1 (RAND Energy Analysts,
http://www.cfr.org/publication/3960/russia_energy_and_the_west.html)
The long term threat of a revived, neo-imperial Russian hegemon can not be dismissed out of hand.
However, US policy based on such a worst-case scenario carries the danger of becoming a self fulfilling
prophecy. In reality, the material needs of the Russian people are so huge,

and the deterioration of the Russian military so deep, that the potential of
improved oil revenues to bring Russia back to a position where it could
dominate its neighbours, much less threaten the United States, is remote.

Oil dependence is overwhelmingly good for Russia no viable

alternatives
Dashevsky 11 (Steven, Managing Director of Dashevsky & Partners, The
Russian economy and its oil, May 24th, http://rt.com/business/news/russia-economy-oilrpice/print/)
With higher crude price bringing the budget back into balance but also stoking inflation Business RT spoke with
Steven Dashevsky, Managing Director of Dashevsky & Partners about oil and its relationship to the Russian
economy. RT: High oil prices have helped Russias budget but is the country too dependent
on energy exports? SD: Well the dependence has declined greatly in recent years, but I think the sad truth remains

to a very significant degree, Russias budget revenues and overall

fiscal health is still very dependent on the level of oil prices. RT: How does the
that,

energy sector shape the Russian investment climate? SD: Well, there are many ways how the events happening in

this is the
biggest source of cash flow generation in the country , so in a sense its the
biggest source of investment funds, both for the companies, and for the
government and also because oil companies invest very significant
amounts of money every year, so the ability of Russian oil companies to
spend money affects really the entire Russian economy from transport
companies to oil service companies to catering companies to local airlines
so it is still, despite the significant efforts to diversify the economy, its a very important
source of investment funds. Thats kind of one angle, and another angle is what is happening in the
the oil and gas sector influence what is happening in the broader economy. On the one hand

Russian oil and gas sector, since it is the biggest sector in the economy, affects the general investment climate,
from the kind of sentiment perspective.So, when something good happens like potentially was going to happen, BPRosneft deal, or if there are good events happening, new fields are being developed, new pipelines are being
brought on-stream, that gives investor additional confidence that the economy is progressing very well, and people
are investing money in it, and the whole country is open for business.Vice versa, if things are not going well, if deals
are breaking up, if instead of going to work people going to courts against each other, that clearly creates a big
drag on the investors sentiment for all of the Russian economy, not just oil and gas. RT: Are government moves to
diversify the economy away from energy likely to succeed in the short term? And in the long term? SD: Its a trick
question.Someone told me that the first time the Russian government has become concerned about its reliance on
oil and gas revenue, was, in fact, almost immediately after oil and gas was found in Siberia, in 1973, 1974.One of
the central communist party committees has discussed the subject. So that was 1974.Almost 40 years later I think

we still find ourselves in the current situation where the economy and the
budget are very, very, dependent on oil and gas. I personally dont see how it is

going to change. In the near term, and even in the long term , because
even if the Russian oil production begins to decline , or the global oil production begins
to decline, what will happen at that time would also mean high oil prices, so if
global production will be getting lower, the oil price will be getting higher
because of that. So, as a result, the Russian intake from commodity exports would more or less stay the
same it would be a big amount of money coming into the country. And there is very few other sources of hard

it would take a miracle to materially change

the structure of the Russian economy and of the Russian budget. Even the
long term, so I think the only thing you can do is really simply take this
natural wealth that has been given to you by god, and simply use it efficiently. I
dont think you can really say lets become a hi-tech nation, or lets
become a tourist mecca, or lets become the provider of savoir vivre products like France. They are
just not going to happen . You just take your natural resource wealth but
you try to use that efficiently, and try not to waste it. RT: What is the best way the
currency the economy could generate. So

government can diversify the economy and at the same time take advantage of the energy resources that it has?
SD: Well thats a slightly different question.The answer to that is very simple.If you are endowed with significant
natural resources, one way how you diversify your economy, if this is still the core of your economy, the core of
your wealth, the way you diversify and the way you make the economy more diversified is by creating more value
added.So I think the clear sort of strategic goal that the Russian government should pursue is increasing the degree
of refining of, for example, for oil.So instead of selling simple vacuum gas oil, maybe fuel oil, which is subsequently
being refined into high value added products in the west, you build these refining complexes here.Instead of
burning associated gas, for example, you create petrochemical refining complexes which process it into various

I dont think it is
fair to say that, ok if you have a natural resource driven economy, you are
in a bad situation. I mean Australia has a natural resource driven economy,
and so does Canada, and so does Norway, but there are always ways, if you think about
liquefied gas, and various associated petrochemical products, and you export that.So,

things to create value to make it more diversified, and the more you add value, the more added value is in the
product you sell the less vulnerable you are to commodity price swings.Because commodity price swings affect,
fir4st and foremost, the raw natural resources, and to a much lesser degree they affect the final product.So we all
know how much the oil price changes every day, but the price per tonne of rubber or plastic or certain
petrochemical specialized products doesnt change that often.Its subject to much more longer term contracts.And if

there
are different ways, I think, how you can diversify the economy, and simply
make Russia, instead of raw material exporter, into a high quality, high
value added energy exporter. In different types of energy, and different types of resources, as your
final product. And that I think is the only kind of reasonable diversification
strategy. RT Do you think Russia has Dutch disease and how does energy reliance work in Russia with the
you go from producing gas to also producing electricity, that doesnt change daily, its not as volatile.So

import competing sector? SD: There are elements of Dutch disease, so I think not all the symptoms are here

Dutch disease happens when one industry, in this case oil

really begins to crowd out investment and jobs and becomes
the centre of everything, so the rest of the economy kind of dies. In the
Russian case, its a little bit different because a lot of the money that flows
into the country, via the oil and gas sector, subsequently flows further into
the economy . So the impact from the oil and gas sector for example, on the
currency is not what it used to be. So, yeah, if the oil prices are high it gets stronger, but its not
dramatically stronger, and I think the economy is becoming, in relative terms, it is getting better if oil
prices are high, instead of getting worse.Dutch disease really happens if there is one sector that is doing
well and it drains resources from all the other sectors.In Russias case when oil prices are
high, all sectors are enjoying it because it trickles down to the entire
economy. So I think there are certain elements of it, but I dont think Russia has Dutch
because the oil industry is not,
and gas industry,

disease, and whatever people say , fortunately if oil prices are high it is good
for Russia, and it is good for Russia as a whole , not just for Russian oil
companies. RT: How open is the Russian energy sector to foreign investment?

No Dutch Disease for Russia

RT, interviewing Dashevsky 11 Steven Dashevsky, Managing Director of
Dashevsky & Partners, about the implications of oil dependence for the Russian
economy. (The Russian economy and its oil, 5/24,
http://rt.com/business/news/russia-economy-oil-rpice)
RT: What is the best way the government can diversify the economy and at the same time take advantage of the
energy resources that it has? SD: Well thats a slightly different question. The answer to that is very simple. If you
are endowed with significant natural resources, one way how you diversify your economy, if this is still the core of
your economy, the core of your wealth, the way you diversify and the way you make the economy more diversified
is by creating more value added. So I think the clear sort of strategic goal that the Russian government should
pursue is increasing the degree of refining of, for example, for oil. So instead of selling simple vacuum gas oil,
maybe fuel oil, which is subsequently being refined into high value added products in the west, you build these
refining complexes here. Instead of burning associated gas, for example, you create petrochemical refining
complexes which process it into various liquefied gas, and various associated petrochemical products, and you
export that. So, I dont think it is fair to say that, ok if you have a natural resource driven economy, you are in a bad
situation. I mean Australia has a natural resource driven economy, and so does Canada, and so does Norway, but
there are always ways, if you think about things to create value to make it more diversified, and the more you add
value, the more added value is in the product you sell the less vulnerable you are to commodity price swings.
Because commodity price swings affect, fir4st and foremost, the raw natural resources, and to a much lesser
degree they affect the final product. So we all know how much the oil price changes every day, but the price per
tonne of rubber or plastic or certain petrochemical specialized products doesnt change that often. Its subject to
much more longer term contracts. And if you go from producing gas to also producing electricity, that doesnt
change daily, its not as volatile. So there are different ways, I think, how you can diversify the economy, and simply
make Russia, instead of raw material exporter, into a high quality, high value added energy exporter. In different
types of energy, and different types of resources, as your final product. And that I think is the only kind of
reasonable diversification strategy. RT Do you think Russia has Dutch disease and how does
energy reliance work in Russia with the import competing sector? SD: There are elements of Dutch disease, so I

think not all the symptoms are here because the oil industry is not, Dutch
disease happens when one industry, in this case oil and gas industry, really begins to crowd out investment and

In the Russian case,

its a little bit different because a lot of the money that flows into the
country, via the oil and gas sector, subsequently flows further into the economy. So
the impact from the oil and gas sector for example, on the currency is not
what it used to be. So, yeah, if the oil prices are high it gets stronger, but its
not dramatically stronger, and I think the economy is becoming, in relative terms, it is
getting better if oil prices are high, instead of getting worse. Dutch disease really happens if there is one
sector that is doing well and it drains resources from all the other sectors. In Russias case when oil
prices are high, all sectors are enjoying it because it trickles down to the
entire economy. So I think there are certain elements of it, but I dont think Russia has
Dutch disease, and whatever people say, fortunately if oil prices are high it is good for Russia, and it is good
jobs and becomes the centre of everything, so the rest of the economy kind of dies.

for Russia as a whole, not just for Russian oil companies. RT: How open is the Russian energy sector to foreign
investment? SD: Its both open and closed.I think it is fairly open to larger strategic deals.We have seen BP-Rosneft
deal, which although it has been declined, for the time being, on technical grounds, and it didnt happen, the fact
that both sides wanted to do it, that the Russian government was willing to receive that investment, and BP was
willing to make it, I think it is a big testament to how open the industry is for business.Total bought a big stake in
Novatek, there are certain PSAs which continue to operate.If they went through difficult times, but both Sakhalin 1
and Sakhalin 2 are producing energy and making money off it.So on the one hand it is open, on the other hand it
clearly has become much more concentrated among the top players, so if you look beyond that, there are various
laws on participation in the Russian oil and gas sector, and, in general, if you are an up and coming western
company that wants to come in and develop the Russian reserves, I think you would have a problem unless you are

a global major that can bring something to the table with technology with capital etc, then I think it is fairly
open.So, I think it is more open than many many other emerging markets in the world.I would say that for big
companies it is fairly open, for small and mid sized companies it is fairly difficult, simply because the industry has
become a lot more concentrated in recent years. RT: Do you think energy prices will remain about where they are
for the short to medium term, and what does this mean for the Russian economy? SD: Well we went through the
period two years ago when the oil went from $90/bbl to $150/bbl down to $30/bbl, and for every price level there
was an absolutely credible explanation why this is the right price level.So I really have no idea what the oil price will
be in the future.The various research suggest that the price of about $60-$80/bbl makes production of oil
economical for most of the producers so if it drops below $60 a lot of people would have to stop production
because they would begin to lose money and at a price of about $80/bbl everyone is making a reasonable margin
for them to continue doing it so I think we should probably see the oil price gradually weakening a little bit to
where it was before the latest rally.And speaking about Russia $75-$80/bbl would give the government more or less
a balanced budget and more or less kind of stable existence for one or two years, but I think the way the social
expenditures, and the way the budget expenditures have been growing that pace of growth would not be
sustainable with the $80 barrel of oil.So, $75-$80 is OK to balance the budget one or two years maybe borrow
money a little bit externally going forward, I havent done this calculation, but there have been some analysts who
have done the math, and it seems that every year Russia would need an oil price of about $5-$10 dollars per year
higher to meet the rising budget expenditures.

Dutch Disease does not apply to Russia

Kuboniwa 10 PHD economics Dr.h.c. Central Economics and Mathematics
Institute, Russian Academy of Sciences (Masaaki Diagnosing the Russian Disease:
Growth and Structure of the Russian Economy Then and Now Institute of Economic
Research Hitotsubashi University, Tokyo, Japan October 2010)
In general, the relationship between the oil curse and economic growth in
resource-rich countries is elusive in the long run (Alexeev and Conrad, 2009). Nevertheless,
the Lehman shock, combined with the collapse of the oil price bubble, clearly showed that Russian economic growth heavily relies

We here characterize the present Russian situation as the

Russian Disease, the major symptom of which is a strong positive
relation between the countrys real growth and international oil price
changes. In the literature, the Russian Disease has often been considered as a variant of the Dutch Disease. The term Dutch
upon oil price changes.

Disease in the original context refers to the contrast between external health and internal ailments (The Economist, No. 26, 1977). It
also refers to the negative impact of expansion of natural resources in a country with oil price rises on its manufacturing growth
through the subsequent appreciation of the real exchange rate of its national currency (see Ellman, 1981 and Corden, 1984).
Although the real exchange rate of the Russian national currency (ruble) appreciated along with increases in oil prices, it is clear that

Russian Disease is quite different from the Dutch Disease in many

respects. First, unlike the Dutch case in the 1970s, oil price rises for 19982008 resulted in relatively high overall growth in Russia. In addition, the
impact of the marked fall in oil prices after the third quarter of 2008 on
Russian growth was much greater than that in the Dutch case during the
1980s. Second, in contrast to the case of the Dutch Disease, the negative impact of oil price
increases on manufacturing growth was not observed in Russia for the
1998-2008 period. The manufacturing sector was one of the major sectors
contributing to favorable growth in the 1998 (bottom)-2008 (peak) period, whereas its sectoral
contribution to the great contraction of GDP in 2009 was the largest among sectors. Putin and Medvedev
expected, and still expect, that the diversification of the economy,
including developments of manufacturing, would contribute to
establishing an economy that was not dependent on oil. Ironically , it is now
obvious that the diversification itself is oil-dependent . Third, the extraction of Russian oil and gas
the

could not show any large expansion in physical terms during the favorable growth period. The oil and gas industry was the booming
sector only in terms-of-trade. Putin seemed to expect the real expansion of oil and gas extraction through re-nationalization of the oil
and gas industry. The Russian oil and gas industry has been stagnant in real terms since 2005, partly due to this re-nationalization.
Although the fixed capital increment in the oil and gas sector showed subsequent increases, the value of its sectoral total factor
productivity (TFP) remained negative, and, thus, the oil and gas GDP growth was also very low for the 2004-2009 period and

negative for the 2006-2007 period (Rosstat HP as of September 8, 2010). The oil and gas sector will need tremendous capital
replacement investments to raise its TFP. The marked oil price falls induced Russias great contraction of the GDP in 2009, while the
oil and gas GDP did not show such a decline. This stagnant sector only buffered the overall growth contraction in 2009. Ironically,
Russia, with more than 10-million-barrel daily production, was the worlds largest producer of crude oil in 2009 thanks to a
remarkable output adjustment (an 11 percent reduction) by Saudi Arabia (BP, 2010). Russia, free from the OPEC output adjustments,
has always escaped the restraints of oil price increases, while it has been forced to face reductions in oil prices head-on. Fourth,

the continuous appreciation of the real effective exchange rate of the

ruble due to oil price rises induced the boost of imports in Russia, which,
in turn, did not necessarily induce adverse effects on Russias economic
growth and competitiveness. Russia experienced servicization, as in advanced countries as well as former
Soviet republics. It has particularly Russian features deriving from its specific path dependency, which includes economic players
strong preferences for imported goods and FOREX as well. The domestic distribution activities of imported goods are accounted for
as a part of sources of the GDP.

The boost of imports largely contributed to the high

growth of the trade sectors value added, which was, in turn, one of the
major sources of the overall high growth. In the Russian official statistics, the revenues from foreign
trade of oil and gas are included not in the mining sector but in the trade sector. However, these special foreign trade revenues
could not be the source of the rapid GDP growth because Russias exports of oil and gas were also stagnant in real terms.

import substitution, including domestic assembling of foreignmake durable goods, appeared along with the boost of imports in Russia.
The real appreciation of the exchange rate of the ruble boosted the
imports of consumer goods and eased the imports of equipment and
intermediate goods, which is considered to have contributed to
improvements in the manufacturing TFP. Based on the unpublished Rosstat data on import matrix,
Surprisingly,

the share of imports of manufacturing investment goods in the total gross demand for them amounted to 40 percent in 2006. In this
paper, we examine statistically some of these facts to diagnose the Russian Disease and focus on the terms-of-trade effects on the
overall growth as well as the manufacturing development. First, showing the key differences between the Dutch and Russian

a key symptom of the Russian Disease is a strong positive

relation between the countrys real growth and terms-of-trade-effects. We
Diseases, we prove that

also present three variants (oil prices, terms-of-trade, and trading gains) of the concept of terms-of-trade effects using the SNA

it shows a strong positive impact of terms-of-trade effects on

the Russian manufacturing, which markedly differs from one of the major
symptoms of the Dutch Disease (slower growth of manufacturing through the booming mining sector and
framework. Second,

real appreciation of exchange rates). We also suggests the significance of the manufacturing industry for the Russian economy.

the appreciation (depreciation) of real exchange rates of

Russias rubles induced the boost (decline) of its imports. Fourth, we prove that the
boost of imports, in turn, induced the GDP growth of the trade sector as
one of the major sources of the Russian overall growth. We also present the impact of oil
Third, we show that

prices on two kinds of real exchange rates (CPI-based and GDP-based real exchange rates).

Economic decline causes Russian aggression bigger internal

link
Peters 8 (Ralph, Retired United States Army Lieutenant Colonel and Degree in
International Relations from St. Marys University, Bankrupt Rogues: Beware Failing
Foes, NY Post, November 29th,
http://www.nypost.com/p/news/opinion/opedcolumnists/item_Sq6rxuaQjf2dV655mfd
h9M)
FEELING gleeful at the misfortunes of others is an ugly-but-common human characteristic. The world delighted in
our crashing economy, then we got our own back as Euro-bankers and Russian billionaires proved at least as greedy
as our own money-thugs. Of all the pleasures to be found in the pain of others, though, none seems more justified
than smugness over the panic in Moscow, Caracas and Tehran as oil prices plummet. We may need to be careful
what we wish for.

Successful states may generate trouble, but failures produce

catastrophes: Nazi Germany erupted from the bankrupt Weimar Republic;

Soviet Communism's economic disasters swelled the Gulag; a feckless
state with unpaid armies enabled Mao's rise. Economic competition killed a million Tutsis in
Rwanda. The deadliest conflict of our time, the multi-sided civil war in Congo, exploded into the power vacuum left
by a bankrupt government. A resource-starved Japan attacked Pearl Harbor .

The crucial point: The

more a state has to lose, the less likely it is to risk losing it. "Dizzy with
success," Russia's Vladimir Putin may have dismembered Georgia, but Russian
tanks stopped short of Tbilisi as he calculated exactly how much he could
get away with. But now, while our retirement plans have suffered a setback, Russia's stock market has
crashed to a fifth of its value last May. Foreign investment has begun to shun Russia as though the ship of state has
plague aboard. The murk of Russia's economy is ultimately impenetrable, but analysts take Moscow's word that it
entered this crisis with over $500 billion in foreign-exchange reserves. At least $200 billion of that is now gone,

the price of oil - Russia's lifeblood - has fallen by

nearly two-thirds. If oil climbs to $70 a barrel, the Russian economy may eke by. But the Kremlin can kiss
while Russian markets still hemorrhage. And

off its military-modernization plans. Urgent infrastructure upgrades won't happen, either. And the population
trapped outside the few garish city centers will continue to live lives that are nasty, brutish and short - on a good

Should oil prices and shares keep tumbling, Russia will slip into polni
mode - politely translated as "resembling a dockside brothel on the
skids." And that assumes that other aspects of the economy hold up - a fragile hope, given Russia's
overleveraged concentration of wealth, fudged numbers and state lawlessness. Should we rejoice if the ruble
continues to drop? Perhaps. But what incentive would Czar Vladimir have to halt
his tanks short of Kiev, if his economy were a basket case shunned by the rest of the world?
Leaders with failures in their laps like the distraction wars provide . (If religion
is the opium of the people, nationalism is their methamphetamine.) The least we might expect
would be an increased willingness on Moscow's part to sell advanced
weapons to fellow rogue regimes. Of course, those rogues would need money to pay for the
day.

bardak

weapons (or for nuclear secrets sold by grasping officials). A positive side of the global downturn is that mischiefmakers such as Iran and Venezuela are going to have a great deal less money with which to annoy civilization.

High Oil Prices Key to Russian Economy

Low oil prices cause investor flight and collapse the Russian
economy Russia cant diversify in time.
Vestrgaard 14 Jakob Vestrgaard, March 25, 2014, PhD, International Political
Economy; MSc, Economics Senior Researcher, Research Area on Global
transformations in finance, migration and aid, Russia Reeling: Pushing a Fragile
Economy Off the Cliff? GEG Watch, http://gegwatch.com/2014/03/25/russia-reelingis-putin-pushing-a-fragile-economy-off-the-cliff/
Third, the Russian economy is highly dependent on oil and gas. The IMF
stresses that both the Russian economy and its public finances remain
highly sensitive to oil prices. If sanctions are stepped up to include a block on
imports of Russian oil and gas, the effects on Russia would be huge. The revenue
loss is estimated to be in the order of $100 bn per day, which would have massive
repercussions, not least fiscally ( half of Russian state revenues come from
energy receipts). In October last year, the IMF noted that going forward the
Russian economy will have to rely on a more efficient use of resources and higher
investment, rather than increasing oil prices. If sanctions are stepped up, this
adaptation challenge will come sooner and harder than anyone had expected.
Fourth, Russia suffers from a resource curse. Russias energy resources are
fast shifting from an opportunity to a familiar curse as the country fails to
make the structural adjustments needed to diversify its brittle economy,
notes Christopher Hill, former US Assistant Secretary of State to East Asia. A strong
entrepreneurial response to quickly enhance the diversification of the
economy is hardly to be expected, given Russias low competitiveness and
innovation capacity (Russia is ranked 62nd in the Global Innovation Index and
64th in the WEF competiveness index). Dependency on natural resources and low
entrepreneurialism will make the bleeding caused by stricter sanctions all the more
shattering.

Russia is heavily reliant on high oil prices the threshold for

economic collapse is $120.
Schuman 12 Michael Schuman, 7/5/2012, former correspondent for the Wall
Street Journal and a staff writer for Forbes, Why Vladimir Putin Needs Higher Oil
Prices, Time, http://business.time.com/2012/07/05/why-vladimir-putin-needshigher-oil-prices/
But Vladimir Putin is not one of them. The economy that the Russian
President has built not only runs on oil, but runs on oil priced extremely
high. Falling oil prices means rising problems for Russia both for the strength
of its economic performance, and possibly, the strength of Putin himself. Despite
the fact that Russia has been labeled one of the worlds most promising
emerging markets, often mentioned in the same breath as China and India, the
Russian economy is actually quite different from the others. While India

gains growth benefits from an expanding population, Russia, like much of Europe,
is aging; while economists fret over Chinas excessive dependence on
investment, Russia badly needs more of it. Most of all, Russia is little more
than an oil state in disguise. The country is the largest producer of oil in the
world (yes, bigger even than Saudi Arabia), and Russias dependence on crude has
been increasing. About a decade ago, oil and gas accounted for less than half of
Russias exports; in recent years, that share has risen to two-thirds. Most of
all, oil provides more than half of the federal governments revenues.
(MORE: How Google Is Making Science Fiction Real) Whats more, the economic
model Putin has designed in Russia relies heavily not just on oil, but high
oil prices. Oil lubricates the Russian economy by making possible the
increases in government largesse that have fueled Russian consumption.
Budget spending reached 23.6% of GDP in the first quarter of 2012, up from
15.2% four years earlier. What that means is Putin requires a higher oil price to
meet his spending requirements today than he did just a few years ago.
Research firm Capital Economics figures that the government budget balanced at an
oil price of $55 a barrel in 2008, but that now it balances at close to $120. Oil prices
today have fallen far below that, with Brent near $100 and U.S. crude less than $90.
The farther oil prices fall, the more pressure is placed on Putins budget,
and the harder it is for him to keep spreading oil wealth to the greater
population through the government. With a large swath of the populace
angered by his re-election to the nations presidency in March, and protests erupting
on the streets of Moscow, Putin can ill-afford a significant blow to the
economy, or his ability to use government resources to firm up his popularity.
Thats why Putin hasnt been scaling back even as oil prices fall. His
government is earmarking $40 billion to support the economy, if necessary, over
the next two years. He does have financial wiggle room, even with oil prices falling.
Moscow has wisely stashed away petrodollars into a rainy day fund it can
tap to fill its budget needs. But Putin doesnt have the flexibility he used to
have. The fund has shrunk, from almost 8% of GDP in 2008 to a touch more
than 3% today. The package, says Capital Economics, simply highlights the
weaknesses of Russias economy: This cuts to the heart of a problem we have
highlighted before namely that Russia is now much more dependent on high
and rising oil prices than in the past The fact that the share of permanent
spending (e.g. on salaries and pensions) has increasedcreates additional
problems should oil prices drop back (and is also a concern from the perspective
of medium-term growth)The present growth model looks unsustainable
unless oil prices remain at or above $ 120pb. (MORE: How to Improve
Obamacare) The only way out of the trap is to decrease Russias dependence on
oil. That will require a much higher rate of investment, and especially private sector
investment, to develop new industries and create better jobs. Improving the poor
investment climate, however, will take a long list of reforms, which include fixing
inefficient state enterprises, allowing greater competition, stopping the state from
crowding out the private sector, and fighting widespread corruption. Putin himself
has repeatedly advocated for just such reforms, as he did in a speech at the St
Petersburg International Economic Forum in June: We are well aware of

serious long-term and medium-term challenges for our economy. The

economy is still not properly diversified. Much of the added value is created in
commodities sectors. There is a high proportion of non-competitive old
plants and the level of Russias dependence on oil prices remains high. We
must reduce the dangerously high [budget] deficit if oil revenues are not taken into
account. Thisis the Achilles heel of our economyWe understand very well
that we must offer investors exclusive conditions to compete for these investments,
so that the investors ultimately choose Russia. This is why we feel creating an
investment climate that is not just favorable, but truly better and more competitive,
is a key issue in state policyToday I want to reaffirm our principled position: the
state will gradually withdraw from a variety of industries and assetsUnfortunately
corruption is without exaggeration the biggest threat to our development. The risks are even worse than the
fluctuation of oil prices. Yet Putin and his political allies have said all this stuff before, and little has changed.
Achieving Putins stated goals will require drastic changes in the Putin state, changes he has so far shown little
willingness to make. He may have to, though. In a June 21 report, Capital Economics forecast growth would slow

Without reform, the

Putins economy and his legacy will rest on the unpredictable
swings in commodities markets.
sharply, to 3.8% in 2012 and as low as 2.5% in 2013, from the 4.3% achieved in 2011.
fate of

Low oil prices collapse Russian economy empirics

Reuters 12 Byline Jason Bush, Reuters, 7/2/12, international news journalism
agency Analysis: Oil-price slide highlights risks to Putin's Russia,
http://af.reuters.com/article/idAFL6E8HS3N220120702
MOSCOW (Reuters) - Falling oil prices could trigger a prolonged slump in
Russia that would lay bare the growing fiscal risks, threatening President
Vladimir Putin's election promise to increase wages and fanning public
discontent. The world's largest oil producer is well-placed in the short run to
withstand sliding prices, thanks to sizeable cash reserves and a flexible rouble. And
Putin, who returned to the Kremlin after March's election, is still widely popular. But
the oil price has fallen by over $30 dollars in the last three months, to close to $90
per barrel, and may fall further, narrowing his room for budgetary maneuver just as
mass protests have underscored dissatisfaction with the government. "This is not
the best start for the new government," said Peter Westin, chief strategist Aton
brokerage in Moscow. "If the oil price is temporarily at these levels, or even
lower, it's not a huge problem. The issue is whether it stays there." Oil and
gas taxes account for around half of revenues raised by the federal budget, which
Putin, as prime minister, used to boost public sector pay and pensions as a way of
overcoming the 2009 economic slump. Putin, who has taken a more populist
approach to dealing with his declining popularity, promised even more public sector
pay rises as part of his election campaign. While that would cushion the immediate
blow of any slowdown, running down the fiscal reserves to maintain high social
spending would only increase Russia's long-term vulnerability to yet another oil
price shock. "In the short term they can sustain a very low oil price, but they need
to address the structural problems in health, education and pensions," said Ivan
Tchakarov, chief Russia economist at Renaissance Capital. "This is not a sustainable
fiscal policy, there's no question about it." DEPENDENCY The last time oil prices

fell so precipitously, in 2009, Russia's economy slumped by a dramatic 8

percent. Collapsing oil was also a catalyst for Russia's 1998 economic
crisis that ended in devaluation and default. Putin, in his annual statement on
the budget on Thursday, acknowledged that Russia's reliance on energy
prices was one of its biggest policy headaches. "The Russian budgetary
system is highly dependent on the situation on world commodity markets,"
he said. "This limits the opportunities for budget maneuver." For now, Finance
Minister Anton Siluanov has earmarked $6 billion that could be spent in 2012 from a
budget rainy-day fund should a deteriorating global economy drag on growth in
Russia. "We hope we don't have to make use of these measures, because the steps
being taken by the government and central bank are sufficient," Siluanov said. He
trimmed his 2013 budget deficit forecast to 1.5 percent of gross domestic product,
assuming an average oil price of $97 per barrel. The fiscal plan will help keep the
national debt, now around 10 percent of GDP, manageably low. BUFFER Analysts
say the impact on Russia of lower oil prices may be milder than during previous
falls. "In the short term, in the next one to three years, we are fine," said Tchakarov.
He noted that according to Finance Ministry calculations, every one dollar
fall in the oil price means that the government loses around 55 billion
roubles ($1.7 billion) in oil-related taxes over the course of a year. With the
budget presently balancing at around $115 per barrel, an oil price of $90 per barrel,
if sustained over a full year, would leave the government short to the tune of
around $40 billion a year. But that is still just a fraction of the $185 billion that
Russia has stashed away in two fiscal reserve funds, designed to stabilize the
budget in just such an emergency. Even at $60 per barrel - the average oil price
during the crisis year of 2009 - the reserve funds could cover the shortfall for about
two years. "I find this worrying about the budget at this moment a little beside the
point," said Clemens Grafe, chief Russia economist at Goldman Sachs. "The fiscal
buffers they have to absorb this are going to be sufficient without cutting
expenditure." Analysts also point out that since the previous financial crisis in 20082009, the central bank has radically changed the exchange rate regime, allowing
the rouble to fall in line with the cheaper oil price. Since oil began its latest slide in
mid-March, the rouble has lost around 15 percent of its value against the dollar.
"The rouble weakened exactly in line with the oil price. And a weaker rouble is very
good because it will secure the rouble equivalent of oil taxes for the budget," said
Evgeny Gavrilenkov, chief economist at Troika Dialog. SIGNIFICANT SLOWDOWN
Despite these buffers, most economists expect that a sustained fall in the oil
price would cause a significant slowdown in Russia's economic growth - still
a surprisingly resilient 4.2 percent in May. "Between $70 and $80 per barrel you
will have a recession," said Westin from Aton. Russia's ability to maintain
government spending is limited by the so called non-oil deficit - a measure
of the underlying state of the budget once oil taxes are removed - that has
ballooned from 5 percent of gross domestic product in 2008 to over 10
percent this year. Even before the latest decline in the oil price, the International
Monetary Fund and World Bank were urging Russia to scale back this underlying
deficit by cutting down on bloated government spending. In a recent interview with
Reuters, Russia's deputy prime minister Igor Shuvalov vowed that while the
government intended to use its reserves to maintain expenditures this year, next

year's budget would be "very frugal, tight and responsible". That implies that sooner
or later, falling oil prices will force cutbacks that will hit the pockets of ordinary
Russians. "The silver lining of a failing oil price is that it does increase the urgency
of social reform and budget cuts," says Kingsmill Bond, chief Russia strategist at
Citigroup. ($1 = 32.9862 Russian roubles)

High oil prices are key to Russian growth investment,

inflation, and the ruble
Kramer 11 Andrew, Journalist @ the New York Times, Russia Cashes In on
Anxiety Over Supply of Middle East Oil, March 7th,
http://www.nytimes.com/2011/03/08/business
MOSCOW Whatever the eventual outcome of the Arab worlds social upheaval,
there is a clear economic winner so far: Vladimir V. Putin. Russia, which pumps more oil
than Saudi Arabia, is reaping a windfall from the steep rise in global energy
prices resulting from instability in oil regions of the Middle East and North
Africa. Riding the high oil prices, the Russian ruble has risen faster against
the dollar this year than any other currency, which is helpful because it
will curb consumer inflation during an election year. Russian stocks are buoyant, too:
the Micex index closed last week at 1,781, up nearly 6 percent since the beginning of the year. (Monday was a
holiday in Russia.) But the Russians could not step in to offset any potential big drop in global production, because
Russia does not have any oil wells standing idle that would allow it to increase production. Right now Russia is

at last weeks closing of $114, the price of each of

those barrels of Ural crude, the countries main export blend, has risen 24 percent
since the beginning of the year. Last week, the prime minister, Mr. Putin, sat down for a meeting
pumping oil at its top capacity. But

with Russias finance minister, Aleksei L. Kudrin, which was nationally televised on state news channels for the
publics enlightenment as the two discussed, just short of gloating, the benefits to Russia of a global oil panic. Mr.

budget revenues have become considerable, Mr. Putin said matter-of-factly. Mr.
that if prices hold Russia will be able to resume
contributions to its sovereign wealth funds for the first time since the summer
of 2008, when the global recession began. One of those sovereign
investment vehicles, the Reserve Fund, could reach $50 billion by the end
of the year, Mr. Kudrin reported. Just a few months ago Russian officials planning the 2011 budget had
Kudrin,

Kudrin agreed, noting

anticipated the fund would be depleted. Good, Mr. Putin responded to Mr. Kudrins account, nodding with
satisfaction. Russia, of course, does not have to look back farther than 2008 to see that a spike in the price of oil

Russian energy is in favor. Russias

perceived stability was a reason the French energy giant Total cited last week
in agreeing to buy about 12 percent of an independent natural gas producer
in Russia, Novatek, and join a liquefied natural gas project in the Russian Arctic. The upheavals
taking place in a number of the oil- and gas-producing countries now send a
signal to investors to come to Russia, Totals chief executive, Christophe de Margerie, said in a
can be just that followed by a dizzying drop. But for now,

meeting with President Dmitri A. Medvedev announcing the deal. Mr. Margerie said his company was committing
about $4 billion to the venture. Russia

offers a much safer environment for

investment, he said.

Oil experts say that because global production capacity for oil is still far larger than
world demand, the run-up in prices is being fueled by fear more than by reality. The concern is that the violence in
Libya could spread to other member states of the Organization for the Petroleum Exporting Countries, which are

Russia is not only outside OPEC, and thus free from the
cartels production restraints, but also, with its formidable secret police apparatus and a
primarily Arab nations.

population bulge among the elderly rather than the young,

is seen as less vulnerable to an

outbreak of social unrest.

Russia has long jockeyed against Saudi Arabia, a member of OPEC, to be

the worlds top oil-producing nation. Although the Saudis have more production capacity and vastly more reserves,
Russia is pumping more oil. And if oil and natural gas are considered together, Russia is the largest energyexporting nation. Which country is in first place for oil at any given moment depends on how the Saudis wield their
swing production capacity, the cushion of unused wells and pipelines the Saudis can turn on to tamp down global
prices. As the biggest OPEC member, Saudi Arabia is the cartels enforcer and enabler, with the power to influence
global prices or to moderate global disruptions by how much of its production capacity it chooses to put to work. If
the Saudis open the valves during periods of instability, Russia falls into second place as a producer but still
makes a healthy profit off higher prices. Russia has little incentive to invest in spare capacity in part because
being outside the OPEC cartel gives it less direct ability to influence prices through the ebb and flow of production.
If anything, a large idle capacity by Russia would work against its financial interests by acting as market
insurance, and thus holding prices down during periods of instability in the Middle East. Russian officials also say
that spare capacity is too hard to maintain in their far northern country. Most of its current production comes from
wells in Siberia that would freeze solid in the permafrost if not kept running. And the Russians will probably argue
the new fields they plan to open in Arctic waters will be so expensive to drill that it would be unwise to later shut
them down. They are producing flat-out on a permanent basis, Didier Houssin, the director of energy markets

In the longer term for

Russia, policies that encourage or discourage oil field investment are the
bigger determinant of how much oil the country can provide to global
markets. The energy agency forecasts that Russian energy output will remain about
stable for five years, but will require increasing investments as the main
oil provinces in western Siberia, having peaked years ago, continue to
decline. In this respect, Middle East instability could bring longer-term
benefits to Moscow than the current oil price spike, if it redirects even
more of the Western oil industrys investment to Siberia and the Russian
Arctic shelf. The British oil giant BP cited Russias relative stability compared with
OPEC regions, when BP in January announced a $7.8 billion deal to invest
in the state-owned Russian oil company Rosneft and jointly search for oil in
the Arctic. Later that month, Exxon Mobil, the biggest American oil company, signed a deal with Rosneft to
explore offshore in the Black Sea. Unrest in North Africa is also strengthening Russias
bargaining position with Europe on natural gas exports and pipeline politics although Russian
officials have used delicate phrasing to make this point. Aleksei B. Miller, the chief executive of Gazprom, in a
visit to European capitals late last month, suggested that Europeans reconsider their
opposition to new Russian pipeline proposals, in light of the external
situation in North Africa, a region that competes with Russia to export pipeline
and security at the International Energy Agency in Paris, said via telephone.

gas to Europe.

Russian economy is vitally dependent on oil prices key to

overall economic investment
Dashevsky 11 Steven Dashevsky, Managing Director of Dashevsky &
Partners, The Russian economy and its oil, 5-24,
http://rt.com/business/news/russia-economy-oil-rpice/
RT: High oil prices have helped Russias budget but is the country too dependent on energy exports? SD: Well the

to a very
significant degree, Russias budget revenues and overall fiscal health is
still very dependent on the level of oil prices. RT: How does the energy sector shape the
Russian investment climate? SD: Well, there are many ways how the events happening in the oil
and gas sector influence what is happening in the broader economy . On the
dependence has declined greatly in recent years, but I think the sad truth remains that,

one hand this is the biggest source of cash flow generation in the country , so in
a sense its the biggest source of investment funds, both for the companies, and for the government and also

the ability of Russian

oil companies to spend money affects really the entire Russian economy
because oil companies invest very significant amounts of money every year, so

from transport companies to oil service companies to catering companies to local airlines so it is still, despite the

its a very important source of investment

funds. Thats kind of one angle, and another angle is what is happening in the Russian oil
and gas sector, since it is the biggest sector in the economy, affects the
general investment climate, from the kind of sentiment perspective . So,
when something good happens like potentially was going to happen, BP-Rosneft deal, or if there
are good events happening, new fields are being developed, new pipelines are being
brought on-stream, that gives investor additional confidence that the
economy is progressing very well, and people are investing money in it, and the whole
country is open for business. Vice versa, if things are not going well, if deals are
breaking up, if instead of going to work people going to courts against each other, that clearly creates a
big drag on the investors sentiment for all of the Russian economy, not
just oil and gas.
significant efforts to diversify the economy,

High prices boost government revenue results in social

spending, infrastructure development, and domestic liquidity.
Holmes et al. 11 Frank, John Derrick, and Tim Steinle, Co-managers of the
U.S. Global Investors Eastern European Fund, What's Driving Russia's
Outperformance?, http://www.usfunds.com/investor-resources/frank-talk/EasternEurope/Whats-Driving-Russias-Outperformance-5318/?
CFID=3340758&CFTOKEN=38605250
The Russian MICEX Index, which increased 22.5 percent in 2010, has jumped 15 percent so far in 2011,
significantly outperforming many other markets. China is the second-best performer of the
BRICs, rising more than 5 percent, while India (down over 10 percent) and Brazil (down over 2 percent) have
lagged. Overall, the MSCI Emerging Markets Index has dropped just over 1 percent. This has effectively recouped
Russia with the other BRIC countries. The Russian economy lagged out-of-the-gate once the global recovery began,
leading some to question whether it belonged in the same category as Brazil, China and India. Those sentiments

Russians outperformance has

been driven by several factors. First, the Russian ruble has appreciated 7 percent against the U.S. dollar,
seemed premature and symptomatic of an anti-Russia mindset.

boosting stock market performance for U.S. investors. This development also has a long-term benefit as a strong
ruble benefits the countrys domestic sectors, something well discuss later. A second factor driving Russia has

geopolitical and natural disaster events that have transpired during the
past few weeks. Russia is relatively safe from the type of political uprisings
seen in the Middle East and North Africa. Its government is decidedly popular with the public
been the

and the one-two punch of President Medvedev and Prime Minister Putin give the government clout on both

The price of oil has risen roughly 25 percent since

unrest and turmoil began in the Middle East and North Africa. As an
energy exporter of crude oil and natural gas, Russia is one of the few large
economies in the world that directly benefits from higher energy prices .
Russia is the worlds largest oil producer and its estimated that for every
$10 increase in the average annual price of oil, Russias revenues rise by
$20 billion, according to the Financial Times. Since Russia is not a member of OPEC, it
is not bound by production caps and can increase production as it sees fit
international and domestic fronts.
the

while prices are at elevated levels.

Russia is also the worlds top exporter of natural gas and

Stratfor Intelligence points out the situation in Libya has shut down 11 billion cubic-meters of natural gas flow to
Italy. As Europes third-largest consumer of natural gas, Italy has turned to Russia for gas supplies. In addition, a
shutdown of several Japanese nuclear facilities could mean as much as a 14 percent increase in natural gas
consumption to meet the Japans energy demands. In the energy sector, the Eastern European Fund (EUROX)
portfolio emphasizes companies that show strong growth in production, reserves and cash flow, relative to their

Russian energy equities, which carry

the largest weighting in the MICEX, have gained 25 percent this year. This is higher than non-oil
Russian equities, which have risen only 7.7 percent. However, as oil and gas taxes swell the
governments revenue, these funds are increasingly allocated to social
and public works programs which are likely to create an opportunity for
non-energy related equities. These sectors appear poised to benefit from the
current macroeconomic environment. This table from Merrill Lynch shows the performance of
peers. Specifically, Novatek, Rosneft and TNK-BP fit this profile.

the different sectors of the Russian market following a sustained rise in oil prices. Merrill Lynch compiled research
on the seven instances where oil prices rose 20 percent in a two-month span and maintained at least half those
gains over the following six month period. Historically, the average gain for Russian equities is more than 34
percent. While energy generally jumps out ahead when oil prices move higher, you can see that it lags other
sectors as the rally progresses. We have long been positive on both Russian financials and the consumer sector and
these sectors appear well positioned going forward. Consumer-oriented equities such as retailers have historically
been the best performers, netting an 85 percent gain on average and triple the gain of energy equities. Retailers X5
and Magnit should be able to capitalize on these trends. Russian financials are next with an average 83 percent

Another area that could

directly benefit from the Kremlins cash-filled pockets is infrastructure.
Russia is in dire need of a significant revamping of its infrastructure. Similar
gain. Sberbank, Russias largest bank, is the largest holding in EUROX.

to the American Society of Civil Engineers report that rates Americas infrastructure a D, the World Economic
Forum says the quality of Russias infrastructure lags that of other emerging countries such as South Africa, Turkey,

The areas most in need of upgrading are Russias transportation

and electrical power grid. The quality of Russias roads ranks in the bottom-third in the world,
China and Mexico.

according to Merrill Lynch, and its estimated that Russia loses 6 percent of GDP each year due to underdeveloped
roads. In fact, the combined length of Russias roadways declined 6 percent between 2002 and 2010 despite a 60
percent increase in car penetration, Merrill-Lynch says.

Its a similar story for Russias airports

and rail network. Russia currently has roughly 300 operational airports but just 40 percent of them have
paved runways and 30 percent do not have an airfield lighting system, Merrill Lynch says. The rail network, almost
entirely constructed during the Soviet era, is highly concentrated in the Western region of the country and is
estimated to require more than $70 billion in investment for upgrades and repairs by 2020, according to Merrill
Lynch. Russias aging power grid is unreliable and accident-prone . Merrill Lynch
projects that significant investment by 2020 is required to update and modernize the grid. With industrial
consumers accounting for 85 percent of electrical consumption, keeping the power up and running is essential to
maintaining Russias industrial production levels. To finance the much needed infrastructure improvements, the
Russian government created the $420 billion Federal Target Program (FTP). The FTP focuses on key transportation
areas such as rails, autos, marine and civil aviation. The FTP has specific goals to meet by 2015 such as increasing
the percentage of roads that meet federal standards by 23 percent. The plan also calls for a 47 percent increase in
the shipment of goods and a 40 percent increase in airline penetration through improvements of aviation
infrastructure. In addition to the FTP, three special events will help drive Russias infrastructure spending: The 2012
Asia-Pacific Economic Cooperation (APEC) Summit, 2014 Winter Olympics in Sochi and the 2018 World Cup. Merrill
Lynch estimates that total spending for the World Cup will reach $50 billion. Construction for the Games in Sochi
includes 161 miles of roads and 65 miles of rails, and the APEC calls for 48 new objects to be constructed for a total

higher energy prices are in danger of slowing down

consumers in the U.S., Western Europe and certain emerging market countries, it has the
opposite effect for the Russian economy. With increased cash flow from its
natural gas and crude oil exports, the Russian government has the much-needed
capital to invest in the countrys aging infrastructure and to support domestic
consumption . This should drive outperformance of Russian markets
throughout 2011 and stimulate demand for infrastructure-related commodities
of $83 million. While

such as crude oil, copper, cement and iron ore.

Reverse causal evidence that decline causes economic crisis.

Mauldin 11 William, Staff Writer @ Dow Jones Newswire, Russian Budget
Under Threat From Oil Drop Amid Election Spending, June 5th,
http://www.morningstar.co.uk/uk/markets/newsfeeditem.aspx?
id=138501958334655
MOSCOW (Dow Jones)--Russia's ability to balance its $375 billion budget has come
under threat after a sharp drop in crude prices, especially since the
Kremlin plans on boosting spending during a year of parliamentary elections and
preparations for the 2012 presidential vote. Russia's annual budget is expected to lose
$36 billion from Brent crude's $18 drop from a high of $127.02 a barrel, assuming prices don't
rebound. The crude drop threatens to put the budget into deficit territory ,
since Finance Minister Kudrin has said the budget needs an average 2011 oil price of
$115 to balance, although many economists say the crucial oil price is
somewhat lower. The ruble weakened significantly against the dollar on
Friday after oil slumped, but Russian Eurobond prices were relatively steady, taking their cues on
international debt markets and Treasuries. "I am surprised the market reaction has not been more aggressive," said
Timothy Ash, emerging markets analyst at Royal Bank of Scotland. "The

question is whether this

drop in oil and commodity prices is just a correction of the start of a new weaker trend. If it is
the latter, you do not want to be long Russia."

No offense high prices are always better than low prices.

Russian Times 11 RT Online, Russia surfing the oil price surge, February
25th, http://rt.com/business/news/russia-surfing-oil-surge/
RT: On balance do you think high oil prices are good for Russia ? Surely it
means more money? VO: Sure, absolutely. One way or another high oil prices
gives much more resources for Russia to deal with. Thats why, no matter
what way you look at it, it is always better for Russia to have high oil
prices than low oil prices. I guess the most important thing is to realize that the sustainability of these
prices is the big question.

Global oil prices are key to the Russian economy 9% swing in

budget surplus.
Cooper 9 William H. Cooper June 29, 2009, Specialist in International Trade and
Finance, Russias Economic Performance and Policies and Their Implications for the
United States, Congressional Research Service,
http://fas.org/sgp/crs/row/RL34512.pdf
The levels of Russian oil production have varied over the years and have
roughly mirrored overall conditions of the Russian economy and global
demand. The graph in figure 2 above indicates that from 1989 to 1996, the volume
of oil production decreased appreciably, from 11.1 million barrels/day (mbd) to 6.1
mbd or about 45%. This period is contemporaneous with the deep slide in
Russian economic growth shortly before and immediately after the

collapse of the Soviet Union. The decline was caused by a dramatic drop in
world demand for oil, a decrease in world oil prices, the depletion of exploited
Russian oil fields, and the lack of investment in discovering new ones. Production
began to grow in 1997, at first gradually, then more rapidly reaching 9.8 mbd in
2008, still below the 1989 level.52 Oil production has continued to increase but at a
decelerating rate, with possible implications for the future. Russias Economic
Performance and Policies and Their Implications for the United States Among the
factors which contributed to the deceleration of oil production was the Yukos case
which led Russian oil companies to reduce investment in upstream activities. Also,
the heavy taxation of oil revenues is another contributing factor. Most oil-sector
investment in Russia is aimed at increasing current production rather than
developing new fields; therefore, any slowdown in the growth of capital spending is
soon reflected in slower growth of production and exports. Russia will be not be able
to sustain oil production over the long term if the investment in the sector is not
increased.54 While oil production activities represent a small direct part of
Russian GDP, the income derived from oil production has contributed
significantly through the multiplier effect to overall GDP growth. According
to the IMF, the Russian federal government budget enjoyed a fiscal surplus
equivalent to 4.6% of GDP in 2007; however, if oil-related revenues are
excluded, the budget would have been in a deficit equivalent to 4.7% of
GDP.55 Of course, the IMF calculation assumes that the Russian government would
have maintained the level of expenditures. This analysis suggests that Russia is
becoming more reliant on world oil prices increasing or at least remaining
high. The significance of oil and other natural resources to the Russian
economy is perhaps no more evident than in Russian foreign trade. Even
during the Soviet period, oil and other natural resources were by far the
primary source of hard currency revenues. They have maintained and, at
times increased, their importance in post-Soviet era Russian foreign trade.
In 2007, energy resources (oil, natural gas, and coal) accounted for 65% of
total Russian export revenues. Metals accounted for another 14% of Russian
exports.56 Russias increasing reliance on exports oil and other energy resources
and raw materials has made Russian trade vulnerable to the volatility of
international commodity prices. Exports of machinery and equipment accounted for
only 5% of Russian exports.57

Russia Key To Global Economy

Russian economic downturn will disrupt the global economy
Cooper 9 William H. Cooper June 29, 2009, Specialist in International Trade and
Finance, Russias Economic Performance and Policies and Their Implications for the
United States, Congressional Research Service,
http://fas.org/sgp/crs/row/RL34512.pdf
The greater importance of Russias economic policies and prospects to the
United States lie in their indirect effect on the overall economic and
political environment in which the United States and Russia operate. From
this perspective, Russias continuing economic stability and growth can be
considered positive for the United States. Because financial markets are
interrelated, chaos in even some of the smaller economies can cause
uncertainty throughout the rest of the world. Such was the case during
Russias financial meltdown in 1998. Promotion of economic stability in Russia
has been a basis for U.S. support for Russias membership in international economic
organizations, including the International Monetary Fund (IMF), the World Bank, and
the World Trade Organization (WTO). As a major oil producer and exporter,
Russia influences world oil prices that affect U.S. consumers.

Russian Economic Collapse Causes War

Russian economic collapse causes increased expansionism and
U.S.-Russia conflict
Vestrgaard 14 Jakob Vestrgaard, March 25, 2014, PhD, International Political
Economy; MSc, Economics Senior Researcher, Research Area on Global
transformations in finance, migration and aid, Russia Reeling: Pushing a Fragile
Economy Off the Cliff? GEG Watch, http://gegwatch.com/2014/03/25/russia-reelingis-putin-pushing-a-fragile-economy-off-the-cliff/
Recession in Russia is a frightening scenario, not least in the current
political climate of surging nationalism and Great Russia ideology . And few
doubt that if the West does indeed step up its sanctions on Russia, Putin would retaliate. But how? The option
European investors should fear the most, is forced nationalization. Eurointelligence reports that the Duma is already

escalation. Yet, if Putin

continues into Eastern parts of Ukraine or imposes the Russian army on smaller
targets such as Moldova the West will have little choice but to step up sanctions
(although this course of action could easily hurt the fragile economic recovery, not
least in the Eurozone). So far, sanctions are relatively mild, aimed at a small group
of individuals and two Russian banks. If sanctions are tightened in the coming
weeks and months to include energy import restrictions, a freezing of Russian
assets in the EU, and cutting Russian banks off from the dollar and euro markets
two questions are particularly pressing: First, can Putin avoid that this will cause
Russias already low growth to drop further and be replaced by recession? Second, if
not, where will the Russian population turn its frustration and anger, and how will
Putin play it domestically? In the optimist scenario, Putins domestic power base
will gradually erode, and the events will mark a turning point in the history of
Russian democracy, with a serious blow taken by authoritarian ruling. In a pessimist scenario,
recession and social unrest will be impetus for further conquests by Putin
and the beginning of a new Cold War period. Alexander Rubtsov, from the Russian
Academy of Sciences, asserts that if Putin is pressed domestically, there will be two ways he can go:
either tighten the screws, and so be ready to crush mass protests with
repression, or arrange new conquests. Comparisons with Nazi Germany in
the 1930s, and the annexation of Sudetenland, easily seem exaggerated .
But if Putin is indeed pushed into a corner with a suffocating economy
and increasing inflation and unemployment his response, and its
geopolitical repercussions, certainly are not pleasant to imagine. Although it
is not at all clear that Putin is prepared to negotiate, as Neil Buckley notes, one
can only join him in hoping that a major multilateral diplomatic push for a settlement will lead to a
final peace over Ukraine between Moscow, Washington and Brussels,
before the situation spins irreversibly out of control.
preparing the legislation. Its in the best interest of both parties to avoid such

Russia Answers

2AC Russian Oil DA

Russian economy low now Ukraine tensions cause capital
outflows
Vestrgaard 14 Jakob Vestrgaard, March 25, 2014, PhD, International Political
Economy; MSc, Economics Senior Researcher, Research Area on Global
transformations in finance, migration and aid, Russia Reeling: Pushing a Fragile
Economy Off the Cliff? GEG Watch, http://gegwatch.com/2014/03/25/russia-reelingis-putin-pushing-a-fragile-economy-off-the-cliff/
Putins political ambitions may come at high cost to the Russian economy.
Current tensions between Putin and Western leaders, and the fear of tighter
sanctions, are already causing trouble. The Russian government announced
yesterday that it is expecting capital outflows to soar to $70bn in the first
quarter of the year, a fourfold increase in comparison with a total outflow
of $63bn last year. The outflows seriously weaken the Russian economy,
at a time when foreign direct investment is collapsing, notes Wolfgang
Mnchau. Sanctions are still modest, so it is mainly the fear of tighter
sanctions in the near future and the potential Russian retaliations that
is currently driving capital outflows. If sanctions are tightened, to possibly
include a block on imports of Russian gas and oil, the impact on the Russian
economy could be devastating. To realize just how bad things could get, take into
account that by end 2013, the Russian economy was already causing deep concern.
Economic growth was only slightly above 1 % and the IMF raised alarm
that considerable vulnerabilities persisted. Russia faces four key problems,
all of which will dramatically worsen if sanctions imposed by US and the EU are
further tightened:

No Link: [insert]
No Internal Link: oil isnt key to Russias economy.
Adomanis 12 Mark Adomanis, Forbes Contributor, 7/18/12,
http://www.forbes.com/sites/markadomanis/2012/07/18/russias-economy-in-2012-astrong-start-and-an-uncertain-future/
The IMF recently cut its forecast for Russias 2013 GDP growth from 4 percent to 3.9 percent, and
repeated its forecast that 2012 economic growth would come in right at 4
percent. The Russian Ministry of Economic Development is slightly less optimistic, predicting that 2012 GDP
growth will be in the 3.4-3.7% range (though it reserves the right to revise this upward if necessary). Well the
results of the first half of 2012 are now available from Rosstat and, at first glance,
they would appear to be ground for significant optimism: GDP grew at a 4.9% rate, fixed
capital formation grew at 4.7%, and retail turnover galloped ahead at a
rapid 6.9% annual rate. Also on the positive side of the ledger was a 3% growth
in disposable incomes and a strikingly large 10% decline in unemployment

to a post-Soviet low. Russia has now officially surpassed its pre-crisis GDP
peak and is doing so with oil prices that are roughly $30 a barrel less than
they were in 2008 , when the world energy market was at the height of its
decade-long run up in prices, and with notably lower levels of both unemployment and inflation. So
while the Russian economy isnt exactly a world-conquering colossus, its
arguably in better shape than its ever been: prices are more stable, more
workers are active, and investment and consumption are increasing.

Turn: low oil prices spark economic diversification efforts that

are key to long-term economic growth.
Kommersant 06 Russias Daily Online New Source, Low Oil Prices May Push
Up Russias Economy, 7/16/2006,
http://www.kommersant.com/p705040/r_500/Low_Oil_Prices_May_Push_Up_Russias_
Economy/
The OPEC Reference Basket has fallen below $60 per barrel, for the first time
over the last five months, closing at $59.08 at the New York exchange
yesterday. However, futures for Light Sweet grew. Analysts explain it, saying
that stags decided to buy more contracts at attractive low prices. Experts
note that a new drop is the start of a long-term trend of a decline in oil
prices. Russian authorities have already given their predictions of how
Russias economy will be affected by lower oil prices. The Central Banks
head Sergey Ignatyev said that Russia would not suffer even if oil falls
below $25-30 per barrel. Independent experts are of a different opinion,
though. With a Urals barrel at $80 a Russian oil company has after-tax net profit
of $36.3 billion annually. If Urals decline to $30, the net profit will plummet to
$7.8 billion. Yet, a fall in natural resources prices may give a positive
impulse to the Russian economy. Certainly, if the natural resources
industry slows down, other sectors may speed up as the Central Bank
will no longer have to strengthen the ruble to trend down inflation,
Evgeny Nadoshin at the Trast bank said. This is what Russian business has
long been asking for. A sharp drop in oil prices may force the Russian
government to reinvigorate reforms and diversify economy, which will
boost Russias economy. Even if authorities prefer a passive stance
and keep on increasing budget expenses ahead of presidential
election, Russias gold reserves and stabilization fund will help the
economy to slow down as smoothly as possible.

No Impact: the 98 economic crisis proves that Russias

economy is resilient.
Beehner 05 Lionel, Masters degree in International and Public Affairs from
Columbia, Council of Foreign Relations - Council of Foreign Relations, Is Russias
Economy Running out of Energy?, October 28, 2005, http://www.cfr.org/economicdevelopment/russias-economy-running-out-energy/p9119

Russias oil exports are up, its currency is strong, and its gross domestic product (GDP) growth has hummed along
at a 7 percent clip for the seventh year in a row, surpassing all other Group of Eight (G8) members. Maybe President
Vladimir Putins pledge to double Russias GDP does not sound so farfetched. Think again, some economists say.

Russias economy, buoyed by an increase in global demand for oil, has fully rebounded
after the 1998 collapse and ruble devaluation , experts urge caution. Recent growth, like a

While

Potemkin village, is not what it seems on the surface, due more to skyrocketing world oil prices than to sound
macroeconomic policies. Indeed, Moscow has expanded control over Russias main cash-cow: energy. The Russian
oil and gas sectors new paradigm can be summarized in two words: state domination, Ariel Cohen, a senior
research fellow at the Heritage Foundation, wrote in a February 2005 executive memorandum. The free-market
paradigm has been abandoned. For example, the governments October 2003 arrest of Mikhail Khodorkovsky,
formerly Russias richest man and head of the countrys second-largest oil company Yukos, sent shockwaves
through the market (In the year after Khodorkovskys arrest, capital flightonly $2.9 billion in 2003soared to $9
billion). Gazprom, the state-controlled gas behemoth, recently acquired Sibneft, Russias fifth-largest oil firm, and
now enjoys a near monopoly on the countrys gas production and vast network of pipelines. Hence, Moscows
maneuvers have validated charges that Russias economy is unhealthily tied to oil, a commodity whose value
fluctuates widely. In

1998, when world oil prices dipped to around $10 a barrel,

this drop coincided with the worst of Russias economic crises and the
collapse of the ruble , wrote Fiona Hill, a senior fellow with the Brookings
Institution, in a December 2004 article in the Globalist.

Turn: Dutch DiseaseDependence on oil ensures Russian

economic instability and foreign aggression.
Shlapentokh 06 Vladimir Shlapentokh, professor of sociology at Michigan
State University, Oil & Gas Journal, HEADLINE: Intoxicated by high oil prices:
Political Dutch disease afflicting the Kremlin, November 6, 2006, lexis
As suggested by many economists, Dutch disease--a country's excessive dependence on the export of
raw materials--can have serious economic consequences as a country
becomes increasingly dependent on that raw materials sector. Other
branches of the economy, such as manufacturing, often decline because of the
concentration of such resources as oil or gold, as happened in 16th century Spain. A
sudden fall in the price of the raw materials could bring an economic
collapse. Seemingly, the Russian leaders, like their colleagues in Venezuela and Iran,
see the world through the prism of oil revenues. It goes without saying
that one of the first victims of the political Dutch disease is democracy .
However, an even more dangerous consequence of the political Dutch
disease is the leader's loss of a sober assessment of reality. Under the
impact of their technological achievements, both Stalin and
Khrushchev, with their skewed visions of reality, moved the country
closer to a major war. Putin's euphoria over oil prices may not be as great as his predecessors'
enthusiasm, but his aggressiveness in foreign policy in general, and toward the US and Russia's neighbors in
particular, has clearly increased since 2005. The shift occurred in late 2005 when Moscow brandished its gas
weapon against Ukraine and indirectly against Europe. Russia's foreign policy has hardened (despite some
cooperative gestures toward the West) and influenced several international conflicts, including issues
surrounding North Korea, Iran, and the Middle East. The conspicuous demonstrations in July of friendship with
Venezuela's Chavez, another political leader inebriated by oil revenues, and the readiness to sell him weapons
despite American protests were clear signals of unfriendliness toward the US. Russian media treated Moscow's
attitudes toward Chavez as an obvious demonstration of disregard toward American concerns. Dmitry
Medvedev's proposal to make the ruble fully convertible in an attempt to renew the currency's international
status was another result of the country's oil fever. Medvedev talked contemptuously about "the financial
irresponsibility of the United States," citing the country's growing national deficit. He also denounced the
International Monetary Fund's attempt to promote market reforms, forgetting that only a few years ago Russia

had scrounged for credits from this bank. Oil fever has not infected all Russians . The level
of enthusiasm among the general public and particularly among experts does not match the levels observed
after Sputnik and cosmonaut Gagarin were launched into space, to say nothing of the excitement after the

Gaidar who suggested

that the leadership's oil delirium and its disregard for the instability of
oil prices were dangerous to the country. Several independent
politicians and journalists have seconded Gaidar's critique of the Kremlin's
"hydrocarbon doctrine," demonstrating concern for the "time bomb in our
political system." Concerned about the Kremlin's "muddled vision of the world," some independent
minds in Russia, such as Dmitry Muratov, the editor of Novaya Gazeta, insisted: " The intellect of the
government changes inversely with the price of oil ." n6 Leonid Radzikhovsky, a
1945 war victory. Among the most persistent critics of the oil frenzy is Egor

famous liberal journalist, wrote about the inverse correlation between the level of democracy and the price of
oil. What is more, even Vladislav Surkov, until now the Kremlin's leading ideologue challenging Medvedev, in a

the Russian economy

would inevitably reveal its fake prosperity in the "post-hydrocarbon
era." Russia is not the only country in the world that is obsessed with oil. Every country, in one way or
struggle for influence over Putin, suggested that, with gas as its only basis,

another, is preoccupied with oil. While the US, Europe, China, and India are concerned about fuel supply and
the adverse influence of high oil prices on the economy and standard of living, several countries, including

As the
experiences of Stalin and Khrushchev showed, Russian leaders
sometimes overstretch the potential of their advantages and lose a
sober perspective of reality. Mesmerized by his clout, Putin may accept
"the invitation" of the Russians to stay in power after 2008. Today, 51% of the
Russia, have turned their oil resources into weapons for achieving their domestic and foreign goals.

Russians would vote for him if he decided to try for a third term, which he promised not to do. In the foreign
arena, Putin has already shown less willingness to cooperate with the West and the US in particular. His foreign
policy may harden even more. However, it is unlikely that Moscow will demonstrate direct hostility toward the

The idea that oil will

allow Russia to take control over Ukraine, Georgia, and Belorussia is
deeply engrained in the minds of Kremlin politicians. We can expect an
exacerbation of the political developments in the post-Soviet space,
which will undoubtedly complicate relations with the West . Aside from the
West in the near future. The post-Soviet space is another story, however.

damage to Russia's international relations, the oil delirium is more problematic to the country's long-term

The over-confidence in oil revenues may lead to a decline

in the spirit of entrepreneurship, to a refusal to modernize industry, or
even to an acceptance of deindustrialization. The obsession with high
oil prices explains why the Kremlin sees few obstacles to the country's
continued move toward an authoritative regime. It also explains the Kremlin's
national interests.

conspicuous disregard for the growing problem of corruption in society. With the vision of the Russian
leadership blurred, it may become increasingly insensitive to various destructive tendencies in the country.
The impact of the price of oil on political decision-making in Russia is crucially important to the world and
should be closely monitored.

2AC Russian Democracy Turn

Low oil prices key to Russian democratic transition high
prices preserve corruption
Krastev 6 Ivan Krastev, chair of the Centre for Liberal Strategies in Sofia,
Bulgaria, executive director of the International Commission on the Balkans,
6/13/2006, The energy route to Russia democracy,
http://www.opendemocracy.net/globalizationinstitutions_government/democracy_energy_3637.jsp
In an attempt to explain the Russian revolution to Lady Ottoline Morrell, Bertrand Russell once remarked that,
appalling though Bolshevik despotism was, it seemed the right sort of government for Russia: "If you ask yourself

In explaining the
recent resurgence of authoritarianism in Russia one does not need to reread Dostoevsky
or draw on the Bolshevik legacy. It is enough to take into account the rise of the price
of oil. At least this is what one might think when reading the new Freedom House study Nations
how Fyodor Dostoevsky's characters should be governed, you will understand".

in Transit 2006 (released on 13 June 2006 in Berlin) that rates the democratic performance in twenty-seven

shows that the

skyrocketing of oil prices in the last year has led to deteriorating
governance standards, restrictions on media and the judiciary, and rising
corruption in all four energy-rich countries of the former Soviet Union
Russia, Turkmenistan, Kazakhstan and Azerbaijan. The study is a powerful illustration of
Thomas Friedman's "first law of petropolitics" formulated in Foreign Policy magazine
(March/April 2006 [subscription only]). According to this law " the price of oil and the pace of
freedom always move in the opposite direction in oil-rich petrolist states ".
It follows that the worst enemy of Russian democracy is not the Kremlin or
oligarchs but the high price of oil. The soaring price of oil has made the
energy-rich post-Soviet states more powerful, less democratic and more
corrupt. The oil money that has floated the state budget dramatically
decreases Russian state dependence both on foreign funding and on the
taxes collected from its citizens. Russia's reliance on western credits has turned into Europe's
reliance on Russian oil and gas. The result is that Russia does not want to be lectured any
more; she wants to lecture. Now when the Russian government has more money
than it knows how to spend, the Russian government has lost interest in
improving the quality of its governance, and concentrates instead on deciding whom to buy
and whom to leave in the cold. More money means larger and better client networks. But even more
important the high price of oil has given birth to a new state ideology
oil nationalism. "We, the people" has been transformed into "We, the people who have oil". The country's
oil is at the core of the new Russian state identity. Oil, not history or culture, is at the heart of
Russia's claim to great-power status. It is oil that makes Russians feel
powerful, special and privileged. Any criticism of the government is simply
dismissed as an attempt by foreigners to put their hands on Russian oil . A
countries in the European Union and its eastern neighbourhood. The study

green revolution The combination of the "orange" fears of the elites and the new price of oil has produced a real
regime change in Russia. In less than two decades Russia has been transformed from a communist one-party state
into an oligarchic one-pipeline state. The monopoly of power is now fixed not in any article of the constitution but in
the legislation regulating the use of the energy infrastructure. When at the most recent European Union-Russia
summit, at Sochi in May 2006, Gazprom rejected EU demands for Russia to open its pipeline network to access by
independent producers and other countries, this was a declaration of the new Russian philosophy of power. The
western response to the rise of Russia as a non-democratic energy superpower is a mixture of indignation, fear and

double-standard politics. The visit in May of the United States vice-president Dick Cheney in Lithuania is a disturbing
illustration of this new reality. Cheney went to Vilnius where he ferociously attacked Russia's democratic record; the
next day he flew to Kazakhstan and praised Nursultan Nazarbayev for stabilising his country. If the American vicepresident reads the democracy ranking in the Nations in Transit 2006 survey he will learn that in Kazakhstan there
is even less freedom than in Russia. But what senior members of the American administration are reading these
days is not reports of human-rights organisations but reports on the US's energy-resource balance. The result is a

the "second law of

petropolitics" (pace Thomas Friedman) is that the price of oil and the will of
democratic governments to promote democracy in energy-rich states
always move in opposite directions. Now, it is clear that the democratisation
of Russia is preconditioned on the fall of the price of gas and oil and the
de-monopolisation of the Russian energy sector . The success of the west in
overcoming its oil and gas dependency and moving towards renewableenergy sources will be the one and only indicator of the success of
Europe's democracy-promotion policies. Talking democracy without
fighting high oil prices does not make sense any longer . The European Union's
policy that is at the same time morally appalling and strategically wrong. So,

democracy-promotion effort will have results only if it is combined with a common EU energy policy. A coalition
composed of old cold warriors, western-funded NGOs and freedom-loving youth is no longer capable of bringing
democracy to Russia; a new, effective coalition needs to be more of an eclectic mixture of environmentalists,
business leaders and innovative scientists. In this context, Vladimir Putin is absolutely right to believe that the only
real challenge that he faces is not from within Russian society but from outside. Where Putin is wrong is in fearing
the spectre of an "orange revolution" that could be exported to Russia. What he should be afraid of is a green
revolution in the west.

Only when the price of oil falls in the west will freedom rise

in Russia.

So, if you want to see Russia free and democratic, stop signing anti-Putin petitions and voting for
hardline anti-communists. This will change nothing. What you should do is to turn down the lights when you leave

The fight for democracy

today is a fight against the tyrannical price of oil.
your apartment, sell your American car and start using public transport.

Russian democracy prevents proliferation and US-Russia

nuclear conflicts.
McFaul 1 (Michael McFaul, Peter and Helen Bing Senior Fellow at the Hoover
Institution, Pull Russia into the West, Christian Science Monitor, 2001
http://www.csmonitor.com/2001/0726/p11s1.html
Since coming to office, President Bush has made real progress in challenging some of the lingering legacies of the
Cold War. He has advanced a vision of defending U.S. national security interests that is not constrained by Cold War

Bushs new approach to international security issues has

yielded real resultsincluding most notably President Putins agreement in July to
rethink Russias categorical rejection of missile defense systems . But to
end the Cold War totally will require Bush to advance new thinking on the
other major legacy of that erathe divide between rich and poor,
democratic and autocratic, NATO and non-NATOthat still separates Europe
into East and West. This final remnant of the Cold War will disappear only
when Russia becomes a democracy, fully integrated into Western
institutions. Unfortunately, the promotion of Russian democracy has taken a
back seat to arms control. In the long run, this is a bad trade for American
security interests. Bush is our first truly postCold War president. Before becoming president, even Bill
logic and agreements. Mr.

Clinton worried about multiple warheads on Soviet ICBMs, pondered communist expansion in Asia, and was curious
enough about the Soviet Union to travel there. Bush was doing other things during the Cold War. My guess is that
he never met a "Soviet" citizen. Unlike most of his foreign-policy advisers, who made their careers fighting the Cold
War, Bushs thinking is unencumbered by a past era. For many, this lack of experience is frightening. Yet Bushs
lack of baggage also presents opportunities. Twelve years after the fall of the Berlin Wall, and 10 years after the

Soviet Union broke up, it is striking how many Cold War practices continue. Tens of thousands of U.S. troops remain
in Germany, Pentagon war plans still aim to destroy with nuclear missiles Russian military plants (many of which are
long out of business), and U.S. and Russian heads of state still meet to discuss arms control. " The

best
defense against a hostile Russia in the future? Promoting Russian
democracy and integration into the West now." Bushs willingness to think
beyond the Cold War must be applauded. Already, he has compelled everyone to rethink the
strategic equation between offensive and defensive weapons systems. Although still unwilling to discuss concrete

Bush has reiterated his campaign promise to reduce unilaterally, if

necessarythe number of nuclear warheads in the U.S. arsenal. In agreeing with Putin
numbers,

this past July to link the discussion of these reductions with consultations about defense systems, Bush has moved
closer to convincing the Russians that his plans for missile defense need not threaten their security. But getting
Russian acquiescence on this new equation is the easy part of dismantling Cold War legacies. After all, Presidents
Yeltsin and Clinton agreed years ago that nuclear arsenals should be reduced far below levels agreed to in Start II.
And despite all the posturing, Putin and his security officials dont really believe that the Anti-Ballistic Missile Treaty
is the "cornerstone" of strategic stability between the United States and Russia. They rightly have calculated that
even the most robust U.S. missile defense system will not make nuclear deterrence obsolete. Most important,
Russian government officials know that a U.S. missile defense system is a tool of limited utility in most foreign and
security policy issues. And thats the problem with Bushs current policy toward Russia. By focusing almost

Bush
has devoted almost no attention to the most important issue in U.S.Russian relationsRussian democracy and Russian integration into the
West. If Russia becomes a full-blown dictatorship in the next 10 years, a U.S.
missile defense system will be a rather useless weapon in the arsenal for
dealing with an enemy Russia. If, in this worst-case scenario, autocratic
Russia decides to invade NATO member Latvia, destabilize the Georgian
government, or trade nuclear weapons with Iran, Iraq, or China, our
missile defense system will do little to deter these hostile acts against
U.S. national interests. "If Bush can nudge Putin in a more democratic direction, then he will be
remembered as the president who dispelled the last lingering elements of the Cold War." The best defense
against these potential hostile acts is to promote Russian democracy and
integration into the West now. If Russia becomes a full-blown democracy in
the next 10 years, then the prospects for conflict between the United States and
Russia, be it over the Latvian border or the balance of nuclear weapons, will be
reduced dramatically. A democratic Russia moving toward entry into the European Union and even
exclusively on securing Russian acquiescence to missile defense and U.S. withdrawal from the ABM treaty,

NATO will also make possible the unification of Europe and the final disappearance of East-West walls (be it through
visa regimes or military alliances) that still divide Europe.

1AR Oil Not Key To Russian Economy

Russia has diversified makes economy resilient to shocks.
Melik 12 James Melik, 7/4/2012, Reporter, Business Daily, BBC World Service,
Russia moves to diversify economy with technology projects, BBC,
http://www.bbc.com/news/business-18622834
Twenty miles west of Moscow, a new technology race , rather like the space race of the 1960s, is opening
up. In the area of farmland, Russia is trying to build its own version of Silicon Valley the Skolkovo Innovation Centre. It is part of the government initiative to
divert the country away from its economic dependence on oil and gas and
towards a new kind of industry. It has been a key policy for Dmitry Medvedev,
the man who was Russia's president until he was replaced by Vladimir Putin at the beginning of May 2012. The Skolkovo project is
widely criticised in Russia and construction work has still not started in earnest more than two years after the proposals was

Another aim of this proposed technology drive is to keep clever

Russians in the country, along with their money-making ideas, rather than
them leaving because they are fed up with corruption and the weight of bureaucracy. Cash not credit Many of
these technology companies are able to start up because of funds
acquired from venture capitalists. But how do these venture capitalists decide who to back? Continue
announced.

reading the main story Start Quote Buying things online, which is a normal thing to do in the West, is just starting here
Richard Creitzman Fast Lane Ventures "We

look for proven business models that work

abroad and we basically copy them and bring them to Russia," says Richard
Creitzman at Fast Lane Ventures. "We find the ideas, we find the people, we find the funding," he says. "We give a
management team the opportunity to start up a company, assisted with
infrastructure, and let them try to build that company ." The Russian
government is promoting technology and internet-based companies, and Mr
Creitzman says the development at Skolkovo is a good example of using state money
along with private funding. The success of such ventures depends on Russians adapting to new ideas. "The
use of the internet and e-commerce sites, buying things online, which is a normal thing to do in the West, is just starting here," Mr
Creitzman says. "People tend not to pay by credit cards, they tend to pay the courier that delivers the item. Continue reading the
main story Start Quote It's for the good of the state to develop new businesses Richard Creitzman Fast Lane Ventures
"There is less trust of credit cards, less trust of the goods, so the market isn't as developed here yet as it is in the West." Business
as usual Looking ahead, with the new Vladimir Putin presidency, thoughts turn to what the business climate is going to be in the
next few years. "We are not planning for any major changes," says Mr Creitzman. "Every couple of weeks there is an investment
committee that sits down and goes through a range of ideas that are developed by the management, the shareholders and the
business analysts," he says. He maintains that the state has money, especially as the oil price is probably going to remain good in
the medium-term - maybe three to five years. "Skolkovo was created under President Medvedev's presidency. I don't think that is
going to change. I think that will continue to have support because it's for the good of the state to develop new businesses," he
says. Ms Shalimova Ms Shalimova says she created Lokata to be a nationwide service Branching out Lokata is a small company
taking advantage of the pro-technology climate, which received funding from Fast Lane Ventures. Zhanna Shalimova, the chief
executive, says her company allows people to search for goods and services online in the brochures and catalogues of retailers and
service providers. She has taken the idea from a German company doing the same thing and implemented it in Russia. "We are
very lucky because we have such really strong shareholders ," she says. "We have Fast Lane
Ventures, who are specialists in internet start-ups as they know this industry very well," she says. She concedes Lokata may not be
a typical start-up because they have a product that was already developed and tested in Europe. "But still I think that there are
many bureaucratic things in Russia, which makes life not so easy," she says. However, that does not deter her and she sees her
business growing outside the main cities. "Internet

connectivity in Russian regions may

exceed 85% by 2015. This makes the regions highly attractive for
advertisers," she says. "We created Lokata as a national service that will cover the whole country."

Oil prices not key to economy inflation and prevents oil from
driving growth
Kelly 11 writer for Reuters (Lidia, May 19, 2011, Russia's economy struggles
for sustainable growth http://in.reuters.com/article/2011/05/18/idINIndia-57105920110518)
Russia's economy is struggling to attain sustainable growth despite the
surge in prices for its oil exports, data showed on Wednesday, pointing to
another tough decision on official interest rates later this month. Industry output
grew at its slowest rate in 18 months in April, while producer prices rose
more than forecast and weekly consumer inflation, stuck at 0.1 percent,
underlines the conflicting pressures on the central bank. Pledging to keep fullyear inflation below 7.5 percent ahead of presidential elections in March 2012,
the central bank is expected to continue tightening monetary policy -- but
a sluggish economy will complicate its decision-making on how to control
prices and manage rouble appreciation driven by high oil prices. Investors
have been scrutinising data for clues on the central bank's move after the regulator
unexpectedly raised all key rates last month, including the benchmark refinancing
rate. The latest data, including Monday's figures showing gross domestic
product growing a weaker than expected 4.1 percent year-on-year despite
surging oil prices, suggests that emerging Europe's largest economy is
struggling. "We would have expected that given the high oil prices
something of this would transfer to the real economy , but the big story is
inflation, which is eating into the real income of consumers," said David
Oxley, an emerging markets economist at Capital Economics in London.

Manufacturing and construction key oil prices dont increase

growth
Kelly 11 writer for Reuters (Lidia, May 19, 2011, Russia's economy struggles
for sustainable growth http://in.reuters.com/article/2011/05/18/idINIndia-57105920110518)
Crude has held above $100 per barrel for a third month in a row -- more
than $30 above what had been initially assumed in the 2011 budget -ensuring fresh cash inflows into the economy and propping up Russia's
trade and current account surplus. The Economy Ministry said late last
month that it was relying on industry to put the economy onto a
sustainable path to 4.2 percent gross domestic product growth this year.
"Manufacturing sectors of the industry will be the drivers of economic
growth in 2011, with growth dynamics of 7.5 percent," the ministry said in a
document describing economic scenarios. But while manufacturing grew 5.3
percent year-on-year in April, it was down 3.6 percent on the month,
Wednesday's data from the Federal Statistics Service showed. Extraction of raw
materials, including oil and gas, was also down on the month, after a period
when rising crude prices encouraged production. "Industry in Russia strongly
reacts to changes in external demand, but high oil prices are not enough any
more and from the point of view of internal growth, expectations about
growth in the second quarter come, first of all, from construction," said

Natalya Orlova, an economist at Alfa-Bank. Construction was one of main

drivers of Russia's stellar performance in the second half of the last
decade, before the 2008 crisis brought a halt to virtually all projects. Oxley at
Capital Economics said the upshot is that growth will likely pick up in the
second half, with pre-election spending taking hold and the spike in
inflation fading to take some of the pressure off the central bank.

1AR Diversification Turn

Reliance on oil guarantees long term political instability and
economic collapse only diversification solves
Hockenos 6/6 Paul Hockenos, former editor of the journal Internationale
Politik, columnist for Al-Jazeera, June 6, 2014, Al Jazeera,
http://america.aljazeera.com/opinions/2014/6/vladimir-putinrussiachinanaturalgasoilcurseeconomy.html
A cornerstone in Putins power play, Russian oil and gas supplies are essential to a
resurgent Russia. Only Saudi Arabia exports more oil than Russia, which boasts nearly a
quarter of the worlds (non-OPEC) oil production . But Russias lopsided
dependence on its petroleum revenues (which account for 70 percent of the
countrys annual exports and 52 percent of the federal budget) undermines
its political stability in the long run. Putins recapture of the mineral
extraction industry from the private sector has hastened the countrys slide into
authoritarianism and state-controlled capitalism. Moreover, given an unstable
global market, Putins gambit stakes economic performance on variables
beyond Moscows control. Unless he takes radical measures to diversify
Russias economy in the near future, its bottom will eventually fall out,
facilitating his demise. As witnessed in the Ukraine crisis, the clout Russia packs with
its petroleum resources, at least in the short term, is undeniable. Precipitous
price hikes on petroleum exports were used to discipline the unruly postMaidan Ukrainian leaders, while Ukraines pre-Maidan Russian loyalists were rewarded. Russias
leverage reverberatesva far beyond gas-dependent Central Europe . In March,
as the United States and the European Union mulled punitive action against Moscow in the wake of the Crimea

Germanys reluctance was difficult to overlook. More than a third

of its imported gas comes from Russia. And with Russias 30-year, $400 billion gas deal with
annexation,

China signed last month, Putin tried to show the U.S. that it is not the only superpower he can do business with.
Spoils of the Soviet era At home, the Kremlins recouping of petroleum riches for the purposes of the state and its
elites paved the way for Putin to remake Yeltsin-era Russia into a centralized, autocratic regime under his control.
When Putin first came into office in 2000, the spoils of the Soviet Union had been divvied up among the oligarchs
understandably provoking the ire of an impoverished population, especially one weaned on statist, anti-market
thinking. Moreover, the constitution allowed the state to reserve ownership over subterranean resources. This
enabled the Kremlin to wrest control of the bulk of gas and oil industry revenues from the privatized oil companies,
tycoons such as Mikhail Khodorkovsky and foreign oil companies. By the mid-2000s, Russias oil production was
surging, as were prices for petroleum products on the international market, which laid the basis for economic
recovery and stability in Russia. This was a welcome relief from the hardship caused by the implosion of
communism a decade before. Finally, average Russians could buy smartphones and new cars and take vacations
abroad. While Russias ascent slowed during the 200809 financial crisis, it bounced back quickly, continuing to
bolster the middle class, swell state coffers and enhance Putins popularity. This relative economic improvement
catapulted the Russian leader into an undisputed position of power as both president and prime minister. Yet

Putins solid-looking fortress is built on sand. The curse

of oil, a phenomenon in which mineral wealth corrupts autocratic states and often
leads to civil strife, is usually the misfortune of underdeveloped countries. While Russia is not a
classic example of such a country, it clearly has many of the same risks as the petrostates: namely, lack of
democracy, domestic conflict, stunted reforms, high corruption and
economic disarray. In the past 25 years, Russias petrochemical resources
have lifted the country out of the dumps but also brought it crashing
down. They also created favorable conditions for Putin to amass power in an
energy experts argue that

ever more centralized state, silence the opposition and civil society and, as of 2014, assert a claim to great-power
status by annexing a sovereign territory. According to Michael L. Ross, the author of The Oil Curse,

petroleum-rich states that rely on extraction of rents from state-owned

assets, rather than the tax revenue of their wage earners and productive sectors, tend to be
more authoritarian. Those states, for example, are not beholden to their citizens in terms of
expenditures. Accountability is indefinitely suspended while social services and
infrastructure projects are given or taken away arbitrarily by a
paternalistic state. If 2014 is the year that Putin officially revealed his intentions, in retrospect it might
also be viewed as the pinnacle of his power and Russias global pretensions. Moreover, oil-addicted
countries are constantly at the mercy of the world market, which makes
long-term planning impossible. Their economies are extremely sensitive to
marginal shifts in supply and demand. In a volatile industry such as energy, the
countrys fate is determined by prices, which can mean boom or bust. The
lack of transparency inherent in petrochemical industry dealings facilitates corruption and conceals incompetence.
In 2010, for example, Putin pushed through laws halting publication of information about the governments oil and
gas businesses, making the records off limits to critics and the media.

High oil profits allow Russia to avoid diversificationthis will

crush the economy long term
Tempera 11 Michele, Is Russia Diversifying Its Economy or Once More
Strengthening Its Already Strong Sectors? PECOB, March
From the Soviet period the Russian Federation inherited a rigid industrial structure on which it has built its presentday productive system with substantial continuity. The strict configuration of the Soviet planned economy has left
Russia with few big industrial complexes which were for the most part less efficient and productive than the western
European ones. The main and driving economic sectors were at the time, and remain today:
energy, weapons manufacturing and steel and aluminium production. The peculiar soviet economic policies
prevented any significant diversification until the early nineties, when a general economic collapse and the loss of

The far-reaching
privatization wave that occurred after the fall of communism has partly
reshaped these traditional economic divisions, leaving a good slice of the biggest factories in
the satellite states economies support led to an arrest in any possible productive development.

the hands of the public sector through its state-owned or state controlled enterprises and the holding companies.

This change happened, especially under the Eltsin government tenure, without any effect
on the whole productive structure except for the ownership of some of the more profitable state
enterprises. The internal political and financial scenery emerged in this way and and brought Russia to the new
millennium with a roughly tripartite economic structure. The first segment is composed by a number of small
enterprises and activities which suffered huge technological backwardness and isolation from the rest of the
countrys economy. The second segment is made up of an extended public sector which stretches to cover the
majority of strategic financial and productive enterprises once owned by the soviet regime. The control over these
strategic economic strong points is exerted through public holding companies or by the federal government directly.
The third economic part, which came to light at the beginning of the new millennium, is constituted by the state
enterprises or some of their branches that the so called oligarchs were able to gather at the time of the vast, non-

This situation led to an almost motionless

economic structure, where a small number of primary sectors have been
advantaged at the expenses of dynamic, widespread and balanced
economic development. At the same time the majority of Russian human and
monetary resources have been devoted to those sectors, leaving only a
minor role to all other activities. From Putins rise to power in 1999 onwards, this unbalanced
transparent and suspect post-soviet privatizations.

trend has been going on without any interruption and is still evident today. Nevertheless the last eleven years have
seen the rising need to cope with the lack of economic alternatives outside of the above mentioned pillars, that
historically have been the backbone of Russias productive system. The necessity to enlarge the economic options

has been felt by Moscow as a priority on paper, but it hasnt been already addressed successfully. Throughout the
ten years of Putins hold on power, there have been some efforts to solve the problem of imbalance between
overdeveloped and underdeveloped economic sectors. However, the various attempts to diversify Russian economy
have been, it seems, in vain. It is also possible to affirm that in the same period of time, what could have been
considered as a temporary weakness, caused by the understandable postsoviet financial and institutional
difficulties, has become Russias permanent structural feature, keeping the national economy from being helpful to
the bulk of the population. In this context the last ten years have seen the funding of the three key Russian
productive sectors (defence, energy and steel) rise until the great majority of the total state investment spending. If
we take into consideration 2010 and the beginning of 2011, we can easily observe that the tendency described
above hasnt changed considerably. On the contrary, in October 2010, Prime Minister Putin and Energy Minister
Shmatko announced at a conference held in gas-rich Siberia that investments in the gas sector will escalate until
2030 to an amount of approximately 450 billion dollars. The plan hinges on the national gas monopoly of Gazprom,
the state company which is the strategic point on which Russian economic and political powers rely. Moreover the
nuclear energy and oil production output will be augmented through large supplementary investments made by
public and private Russian agencies. The defence sector will have an even larger share of the investments at hand
for the future, confirming the past trend. By 2020 the military spending will reach almost 2% of Russian GDP, with a
extensive army and renewal of heavy weapons worth 650 billions dollars up to the same year. The steel industry is
following the same path, mostly for two reasons: the unquenchable Asian demand that keeps alive the profitability
of the production, and the home consumption stirred (directly or indirectly) by state economic activities. These
huge investment plans, focused on the few already-developed economic sectors, will absorb most of the public
financial resources in the approaching decades. Its a situation that reveals the misleading nature of the
declarations and actions taken by the Russian political authorities ahead of an urgent and widely recognized need
to diversify the Russian economy. In fact the necessity and the will to work effectively for the diversification of the
economic structure has been a central issue in the official statements made by Moscow, more than once in the last
years. For what concerns the policies oriented towards this goal, the agreements with the European Union in the
spring 2010 whose content went from know how and technology transfer to bilateral cooperation in research must
be underlined. Furthermore a national plan to modernize and upgrade the productive activities in Russia has been
lunched in the fall 2010 with a massive commitment by the government, but which remained largely on paper. Even
though something has been done, the endeavours made by the public authorities have so far fallen apart,
generating activities separated and isolated from the general (and frail) economic net. This outcome has tragically
resembled the national outlook depicted by the three main national sectors inside a weak economy. In addition, it
must be noted that technological research and the productive activities which have flourished in the last years as a
consequence of the efforts made by Moscow to encourage innovation and diversification of the economy, have kept
a strong association with the three main national economical sectors. In this way the possible benefits of an
enlargement to the whole economy of dynamic and new activities have remained limited to little circle of industries
linked to the main ones. The Special Economic Zones (SEZs), established in the last decade as a tool to attract
investments and start new enterprises on the Russian territory, are to be considered as another example of failed
attempt to enlarge the economic participation of a wider segment of the population. They didnt generate the
expected effect on the countrys wellness as a whole, only improving artificial arithmetical indexes, sacrificing
labour rights and environmental laws without a real positive outcome for the majority of the people. The same goes
for the Foreign Direct Investments in Russia. They have been mainly directed to the three driving sectors of the
national economy, almost without touching other parts of the national economical structure that are in need of
support. While in terms of foreign investments draw the gas and oil industry kept on gaining ground in the last few
years, the rest of economy, especially the small and medium enterprises, lagged behind almost to a standstill. The
poor judicial and institutional accountability, holds investors from risking something in other activities than the ones
already developed whose attachment to state interests assures a sufficient degree of certainty in the mid-term
repayment. The strong pledge of Moscow in attracting foreign investments, emerging in the last decade, has risen
simultaneously to a lack of internal autonomous economic action, apart from the three main sectors and a few
others. This circumstance is still present and yet the ineffectiveness of this strategy has not been fully understood
and overturned by political authorities. In fact it prevents the economy from acting autonomously and the political
actors from taking the proper role in shaping a complete, modern and balanced industrial policy. The concentration
of the foreign investments in a small number of productive sectors has caused a mounting vulnerability of the three
sectors themselves. As the weight of foreign capitals grew in these segments of national economy, so did the
potential risks involved in a sudden downturn or retirement of investments. It happened in the last three years with
the effects of the international financial crisis. In 2009 foreign direct investments in Russia fell by 13% against 2008,
while the 2010 figure was even worse. This sharp and harmful drop was generated by the concentration of foreign
capitals in the primary and narrow part of the national economy. Another problem connected to the missed
diversification of Russian economy and thus its polarized and imbalanced nature, is its exposure to the oscillations
of world market trends. This is especially true for the energy sector, which is mainly export oriented and makes up
for the majority of the state monetary resources and reserves. In fact the fluctuation of oil and gas prices is
dangerous for Russia, given the lack of flexibility in its economy, and the prominence of this sector inside the
national economic setting. A proof of the difficulties explained above has been given recently by the 15% fall in gas
and oil sales to EU during 2009 and 2010. At the same time the economic growth is diminished by 8% in 2009. This
explains briefly but clearly the damaging effect caused by the low range of productive options present in the

Russian economic structure, especially in times of financial turbulence or market prices variations. Another example
is given by the very high unemployment rate observed in some of the biggest Russian cities which are dominated
by an almost single sector industry. The so called mono-industrial

cities represent the tip

of the iceberg and the most apparent icon of the neglected productive
diversification in the country. The awful, direct and immediate result on the
population of those cities, in terms of job losses and consequent distress,
is a mirror in which Russia can reflect its larger but similar structural economic
problems on a national level. The existence of the three mentioned sectors in a privileged position inside the
Russian economy has favoured the creation of economic, financial and political centres of power. As receivers
of the highest amount of monetary resources and investments from
abroad as well as from the government, those industries have developed a big
influence ahead of the other economical players in the country. Being the
backbone of the Russian productive economy, they have precedence over
other issues and are now able to direct reforms so as to avoid any
structural reform of the Russian economic system. The stronger this
influence is, the more difficult will be to change the present unfair and polarized
economical pattern. This in turn strengthens the influence held by the three sectors themselves. This condition,
as it is easily understandable, holds very negative implication for the rest of the economy as well as for the

the most visible

of the detrimental effects is the absence of the relocation of wealth produced
among the society and the harsh inequality which is a trademark of post soviet Russia. In this context, it is
almost impossible for medium and small ventures to prosper and to
broaden the economic options for citizens and government, which is a result of the shortage in public
support, political strategic vision and allocation of resources to more receivers than the accustomed ones. The
energy sector surely plays the biggest role in offering the successive Russian
governments an enormous monetary (also political and electoral) revenue which has
discouraged (and still does) the productive diversification of the economy. The three pillars of Russian
economic structure as a whole, and in the end for the Russian population. At the moment,

economy (energy, weapons and steel) have created the image of the state abroad as a and have shaped the post-

It seems that this trend its not

turning around and that the envisaged change towards diversification has
a long way to go yet. Apart from the consequences already exposed, there are two more reflections to
soviet countrys structure both politically and economically.

be made. The development of these three sectors is harming the environment producing goods in an unsustainable

Hydrocarbons, vast quantities of steel and heavy weapons are old

products belonging to the old economy of the twentieth century,
whose usage will be less and less frequent in the upcoming years
way for unsustainable purposes.
fashioned

(unfortunately apart from the weapons). Whats more, the production, on an extremely large scale, of heavy
weapons has a double moral repercussion. On one side the export of weapons and war technology in general
produces violence in other parts of the world; on the other side the huge defence spending at home is removing
(and will even more so in the near future, given the plan outlined above) essential resources otherwise vital to face
many social and economic problems which badly affect Russia. The three sectors are still gaining ground inside the
crisis hit Russian economy, developing rapidly but in a quantitative way (more steell, more weapons, more gas,
more aluminium etc.). Rather than taking into account the need to raise significantly the quality standards and,

Russia is still chasing after

an economic model both unsustainable and already out of time.
most of all, consider other goals for the future of its economy and society,

Failure to diversify from oil exposes Russia to international

economic fluctuations
Tempera 11 (Michele, Is Russia Diversifying Its Economy or Once More
Strengthening Its Already Strong Sectors? PECOB, March)/
The Special Economic Zones (SEZs), established in the last decade as a tool to attract investments and start new
enterprises on the Russian territory, are to be considered as another example of failed attempt to enlarge the
economic participation of a wider segment of the population. They didnt generate the expected effect on the
countrys wellness as a whole, only improving artificial arithmetical indexes, sacrificing labour rights and
environmental laws without a real positive outcome for the majority of the people. The same goes for the Foreign
Direct Investments in Russia. They have been mainly directed to the three driving sectors of the national economy,
almost without touching other parts of the national economical structure that are in need of support. While in terms
of foreign investments draw the gas and oil industry kept on gaining ground in the last few years, the rest of
economy, especially the small and medium enterprises, lagged behind almost to a standstill. The poor judicial and
institutional accountability, holds investors from risking something in other activities than the ones already
developed whose attachment to state interests assures a sufficient degree of certainty in the mid-term repayment.
The strong pledge of Moscow in attracting foreign investments, emerging in the last decade, has risen
simultaneously to a lack of internal autonomous economic action, apart from the three main sectors and a few
others. This circumstance is still present and yet the ineffectiveness of this strategy has not been fully understood
and overturned by political authorities. In fact it prevents the economy from acting autonomously and the political
actors from taking the proper role in shaping a complete, modern and balanced industrial policy. The concentration
of the foreign investments in a small number of productive sectors has caused a mounting vulnerability of the three
sectors themselves. As the weight of foreign capitals grew in these segments of national economy, so did the
potential risks involved in a sudden downturn or retirement of investments. It happened in the last three years with
the effects of the international financial crisis. In 2009 foreign direct investments in Russia fell by 13% against 2008,
while the 2010 figure was even worse. This sharp and harmful drop was generated by the concentration of foreign

Another problem connected to

the missed diversification of Russian economy and thus its polarized and
imbalanced nature, is its exposure to the oscillations of world market
trends. This is especially true for the energy sector, which is mainly export
oriented and makes up for the majority of the state monetary resources
and reserves. In fact the fluctuation of oil and gas prices is dangerous for
Russia, given the lack of flexibility in its economy, and the prominence of
this sector inside the national economic setting. A proof of the difficulties explained
above has been given recently by the 15% fall in gas and oil sales to EU during
2009 and 2010. At the same time the economic growth is diminished by 8% in
2009. This explains briefly but clearly the damaging effect caused by the low range of productive options present
capitals in the primary and narrow part of the national economy.

in the Russian economic structure, especially in times of financial turbulence or market prices variations.

High oil prices undercut Russian economic diversification

Ria Novosti 12 (Unrest in Libya hurts Russian economic diversification,
analysts say, 3/14, http://en.rian.ru/business/20110314/162994533.html)
Efforts of Russia, one of the world's largest crude producers, to increase the share of its
non-energy economy has been nipped in the bud by higher oil prices
following the unrest in Libya, a significant oil supplier to the international market, analysts say.
Unrest in Libya, a member of the Organization of Petroleum Exporting Countries (OPEC) and the world's 12th largest
crude exporter, propelled oil prices to $130 per barrel, the highest in the last two and a half years. This might seem

analysts say it
deprives the economy of incentive to diversify with the bulk of investment
coming into the highly profitable energy sector. "High oil prices push us back
to ... the pre-crisis development model in the medium-term prospect," Alexei
Devyatov, an Uralsib bank analyst, said. "The economy starts focusing on the raw
a boon for Russia, where energy revenue accounts for 65% of the budget revenue, but

materials sector, while other industry growth will slow down ." In 2010, as oil prices
eased, Russia's processing industry expanded 11.8% compared with a 3.6% growth of the mining industry, statistics
show. Windfall oil revenues flowing into the country put the central bank at the crossroads whether it should target
inflation, like central banks in developed states, or curb the strength of the ruble. The central bank started changing
its policy to target inflation, one of the Kremlin's everlasting woes, last fall, when it widened the floating corridor of
its currency basket, consisting of dollars and euros, and cut the volume of its monthly interventions. But more
petrodollars hunting for the ruble make the national currency more expensive which translates into less competitive
Russian exports, primarily in oil. "Rising oil prices change central bank's policy. It is returning to its previous policy,"
Devyatov said. But easing the ruble means switching on the printing press and fueling inflation. "If oil prices are
high, it is difficult for the central bank to fight inflation which is considerablly flat now. It is difficult to prevent
inflation from growing when producers' costs are rising and capital, which correlates with the oil price, is coming in,"
Alexandra Evtifyeva from VTB Capital said. But in the short-term, Russia will benefit from soaring oil prices which
will help it replenish state coffers. "We have a chance to balance our deficit-ridden budget thanks to the oil prices,"
Investcafe analyst Dmitry Adamidov said. A strong inflow of liquidity will also help replenish the country's Reserve
Fund, set up to cushion the federal budget against a fall in oil prices, which was battered considerably by the
international financial crisis.

High oil prices create inflation and the devaluation of non-oil

sectors of the economy low oil prices lead to growth
Bernstam and Rabushka 1Michael S. Bernstam, a research fellow at the Hoover
Institution, Stanford University, is an economic demographer who studies economic
systems in their relationship with income, population, financial development,
natural resources, the environment, conflict, and other social change AND Alvin
Rabushka is the David and Joan Traitel Senior Fellow at the Hoover Institution (The
Dutch Disease: Peter the Great's Real Legacy?, July 2, 2001,
http://www.hoover.org/research/projects-and-programs/russian-economy/6020 )
On June 29, 2001, the Russian government stated that it would soon introduce
legislation to reduce the obligatory selling of foreign currency proceeds by
exporters to the Central Bank from 75 to 50 percent. This measure, as we have discussed in detail with statistical
evidence on this site ("The Secret of Russian Economic Growth: Testing an Old Hypothesis with New Data" and "Can More Liberal Subsidies Spur Growth and Reduce Inflation?"),

threatens economic growth and fiscal solvency.

Nevertheless, Russia is abuzz with talk of the Dutch disease . The current conventional wisdom as summarized in a
June 20, 2001, Wall Street Journal article entitled "Russia's Strong Ruble Damps Hopes for Extended Growth" is that high commodities prices are causing an economic slowdown,

high oil prices, although the source of recent growth

and strong profits in the oil sector, are causing inflation and real ruble
appreciation that will strangle the growth of non-oil industries for years to
come. There is a related, though somewhat contradictory, fear that profits in the oil sector (and equity prices) will decline if world prices fall while domestic production costs rise.
threatening Russia's recovery. This view holds that

High oil prices are credited with Russia's strong 8.3% growth in 2000, the highest rate in more than 30 years. Every dollar rise in Russia's oil is said to contribute 0.4% to GDP. Energy and
metals constitute 80% of exports and the bulk of the domestic equity market. The prevailing view in Russia is that devaluation of the ruble after August 1998 played an important role in
recent growth by increasing domestic demand, as Russian consumers switched to cheaper domestic goods.

the conversion of large foreign currency earnings into

rubles, which are sold to the Central Bank under its 75% repatriation rule,
leads to increasing the monetary base, thereby inflation. Since Russia's
inflation exceeds that of its trading partners, the ruble is appreciating in
real terms, which reduces the competitiveness of non-commodities
producers.
Real ruble appreciation is thus presumably causing a slowdown in growth
(currently running at 5.4%) say those in the Dutch disease school of thought. With annual inflation running at 15-20% this year, the ruble will
appreciate as much as 15% in real terms. This ruble appreciation must be
curtailed to restore higher growth.
Subscribers to the Dutch disease argue that

What's the policy answer to this conundrum?

If high oil prices are the cause of ruble appreciation,

economic slowdown, and the Dutch disease, which crowds out the
On the above argument, the answer seems clear.

development of non-oil production, then lower oil prices are the cure. Less
foreign earnings from oil exports would reduce the rise in the domestic money supply,
slow inflation, ease or halt ruble appreciation, thus stimulating growth in non-oil
industries. If so, the Russian government should simply instruct the country's oil
exporters to sell oil at a lower price. Less foreign currency earnings would increase Russian growth. It would also curry favor with
Western countries by reducing their oil import bills. Who knows? Perhaps Western Europe and the United States would buy manufactured Russian goods out of gratitude. Or write off
some portion of Russian debt. Actually price-for-debt might be negotiated. There is probably no single gesture that would earn Putin more thanks in the West, and kudos from economists
and bankers, than a decision to cut oil prices.

It would be a small price to pay if lower oil prices reduce profits and equity
values of energy firms since the presumed benefit would be the promise of higher future
economic growth. Sacrificing current growth from high oil earnings
appears to be a price worth paying to encourage an increase in domestic
non-oil output and the promise of higher future growth from a weaker
ruble.

1AR Dutch Disease

High oil prices cause Russian imperialism
Khrushcheva 08 (Nina L. Khrushcheva is an associate professor of international
affairs at the New School, The Russians are Coming, Chronicle of Higher
Education, 9-5, Lexis)
Russia's resurgence is largely the result of international economic conditions, in particular the
world's energy crisis. As long as the price of oil remains high, Putin will be
able to promote an image of Russia -- one of the world's main energy suppliers -- as a divinely
ordained nation, destined to withstand the decay and destruction of the West. Judging
by Russia's recent incursion into Georgia, that is more than just a slogan.
Putin is proudly uninterested in Western criticism, which has earned him broad popular
support at home. He believes that Russia's quick show of force has taught a
lesson to the United States, Georgia, and all of the former Soviet satellites
seeking closer ties with the West. His popularity will allow him to go on to
make the case that Tbilisi, Sevastopol, and Tallinn belong to Russia and -- if necessary -should be taken by force.

High oil prices hurts relations with Russia and causes Russian
expansionism history proves
Applebaum 11Masters in IR from the London School of Economics, BA from
Yale (Anne, The Washington Post, When oil prices rise, Russia has freedom over a
barrel, Tuesday, January 4, 2011, http://www.washingtonpost.com/wpdyn/content/article/2011/01/03/AR2011010304070.html )
Why the change of tone? Why now? Many complex theories have been hatched to explain it. This being Russia, none can be proved. But perhaps the explanation is very simple: Oil is

if one were to plot the rise and

fall of Soviet and Russian foreign and domestic reforms over the past 40
years on a graph, it would match the fall and rise of the international oil
price (for which domestic crude oil prices are a reasonable proxy) with astonishing precision.
To see what I mean, begin at the beginning: In the 1970s, oil prices began to rise significantly, along
with the then-Soviet Union's resistance to change. The previous decade (with oil prices at $2 or $3 a barrel,
not adjusted for inflation) had been one of flux and experimentation. But after OPEC pushed prices up in the 1970s, oil revenue poured in - and the Soviet Union
entered a period of internal "stagnation" and external aggression. Soviet leader Leonid
Brezhnev invested heavily in the military, halted internal reforms and in 1979 (when oil was at $25 a barrel) invaded Afghanistan.
Brezhnev was eventually followed by Yuri Andropov, who had the good fortune to run the Soviet Union
when oil prices were still high (at his death, in 1984, they averaged $28 a barrel). Andropov could thus
afford both an internal crackdown on dissidents and a continued tense relationship
with the West. But Andropov was followed by Mikhail Gorbachev, who took over just as prices
plunged. In 1986 (with oil down to $14 a barrel), he launched his reform programs, perestroika and glasnost. By 1989
once again above $90 a barrel - and the price is rising. And if that's the reason, it's nothing new. In fact,

(when oil was still only at $18) he allowed the Berlin Wall to fall, freed Central Europe and ended the Cold War.

Prices fluctuated, but they did not really rise again in the 1990s (plunging as low as $11 in 1998), the years
when Boris Yeltsin was still trying to be best friends with Bill Clinton , the Russian
media were relatively free and there was still talk, at least, of major economic reforms. But in 1999 (when oil prices rose to $16 a
barrel), Yeltsin's prime minister, Vladimir Putin, launched the second Chechen war, the West

bombed Belgrade, and the mood in Russia turned distinctly anti-Western

once again.
The fortunate Putin took over as president in 2000, at the start of a long and seemingly
inexorable rise in oil prices. Indeed, Gorbachev's calls for internal reform were long
forgotten by 2003 (when oil prices were creeping up to $27 a barrel). The days when Yeltsin pushed for Russia to join Western institutions were a distant memory by 2008,
when Russia invaded Georgia (and oil was at $91 a barrel).

High oil prices allow Russia to challenge US hegemony

Bennett 12 graduate U Chicago and Emory School of Law ( John T. Oil Prices
Fueling Russia's Disruption of U.S. Foreign Policy April 04, 2012
http://www.usnews.com/news/articles/2012/04/03/oil-prices-fueling-russiasdisruption-of-us-foreign-policy)
Russia's burgeoning oil and natural gas exports are underwriting Russian
efforts to regain status as a world superpower Russia, once an old foe, is again
proving to be a major obstacle for America's foreign interests, and will
continue to be a thorn in the country's side as long as oil prices remain
high. Russian leaders have the Obama administration's efforts to pressure
Iran into giving up its nuclear weapons ambitions difficult at every turn.
Moscow has also joined China in rejecting a U.N. measure that would
strike a diplomatic blow to Syrian president Bashir al-Assad, frustrating White House officials. The
White House will also likely seek new, harsh sanctions against North Korea
if it launches a long-range rocket that could one day be fitted with a
nuclear weapon capable of hitting U.S. turf. But experts say again that Moscow--along
with support from Beijing-- will likely stand in the say . [See pictures of the violence in Syria.] Russia's
return to the fore as a check against America's global whims has escalated
in recent months, as Russian Prime Minister Vladimir Putin was elected as President, and is setting his agenda for a
third term. U.S.-Russian relations returned to the front pages last week after Obama urged outgoing Russian President Dmitry
Medvedev to "give me space" on several issues, including a European missile defense shield that Moscow opposes. Likely GOP
presidential nominee Mitt Romney soon after called Russia America's "top geopolitical enemy." " Putin

still aspires
for Russia to be a superpower," says Steven Pifer, a former U.S. ambassador to Ukraine. "There are
only two ways for Russia to achieve that: nuclear weapons, and oil and natural
gas sales." The price of a barrel of oil was nearly $105 at midday Tuesday, steadily climbing from a 52-week low of $76.35 per barrel
in October. Oil prices began to rise in late 2010, peaking at $113 per barrel in May 2011, before dipping last summer and then rising
again. [Whose Russia Comment Was More Damaging: Obama's or Romney's?] Russia is the world's second-largest oil exporter at 5
million barrels a day, and its the ninth-leading natural gas exporter at 38.2 billion cubic meters a year, according to the CIA World
Factbook. Russia rakes in nearly $500 billion annually in exports, with the CIA listing petroleum and natural gas as its top two

oil revenues "give it a

comfort zone" from which its leaders feel they have the global cache to
make things tough for Washington. Burwell says she "places more weight" for Russia's recent global
commodities. Frances Burwell, vice president of the Atlantic Council, says Russia's

muscularity on "Putin's re-emergence." The Russian once-and-soon-again president "clearly sees playing the national card as the

bloated national coffers from

high oil and gas prices underwrite Putin's muscle-flexing , experts say.
strong guy internationally benefits him," she says. But, make no mistake,

Diversification Inevitable
Diversification is inevitable Russia will import key
technologies and business models from the west.
Blau 10 John Blau 6/30/2010, reporter for DW, German national broadcasting
network, Russia looks westward for help with high-tech diversification,
DWhttp://www.dw.de/russia-looks-westward-for-help-with-high-tech-diversification/a5742646
After more than a decade of relative freedom, Russia's economy is dependent on the
energy sector. Now leaders in Moscow want to build up a high-tech
industry with help from the West. Graphic depicting a microchip Russia hopes to race ahead toward hightech diversification Hit by the global financial crisis that led to a sharp fall in trade, Russia has
embarked on a campaign to develop its economy away from being simply
an exporter of primary commodities, such as oil and gas. President Dmitri Medvedev
is staking much of his economic vision on creating a globally competitive high-tech industry. Part of
Moscow's plan is to buy into or even acquire key companies located in
technologically advanced, competitive markets such as Germany and
France. Infineon speculation Russia's growing appetite for technology companies
is the likely cause of renewed speculation about Russian financial holding
company Sistema acquiring a stake in German chipmaker Infineon. The
Russian government, Financial Times Deutschland reported without citing sources, has called on Berlin to let
Sistema take a 29-percent stake in Infineon. According to the report, both Medvedev and Prime Minister Vladimir
Putin insisted on the plan in talks with German Chancellor Angela Merkel. Infineon chip Infineon is on Russia's
high-tech acquisition radar Sistema has declined to comment, and Infineon is providing little information. A
spokesperson told Deutsche Welle the chipmaker "is not currently holding talks" with the Russian company,
declining to comment on whether the two firms or the leaders of their countries have negotiated in the past. In
December 2009, Sistema confirmed talks about becoming a partner in a possible investment in Infineon by the
Russian state. Munich-based Infineon already has some operations in the Zelenograd region near Moscow, where
Russia's largest semiconductor companies, Mikron and Angstrem, operate facilities. Already a big user of German
technology Angstrem is already a big user of technology from Germany; the manufacturer, for instance, hired
M+W Zander in Stuttgart to build a new chip factory and also took over a production line operated by Advanced
Micro Devices (AMD) in Germany. Another key component of Medvedev's high-tech diversification plan is to create

The Russian president, who this month toured

California's high-tech mecca, intends to build a technology center called
Skolkovo outside of Moscow. He hopes talented and entrepreneurial
Russians, if given sufficient funding and scientific freedom, will hatch
lucrative inventions to help break the country's dependence on gas and
oil. Russian President Dmitry Medvedev and German Chancellor Angela Merkel Merkel and Medvedev are
a Russian equivalent of Silicon Valley.

reportedly talking about a Russia-Infineon hookup It's not as if Russia needs to start from scratch, though. The
country has long been a leader in aviation and space technology, where, with the help of advanced microelectronics
technology and expertise, it hopes to become a force again. Russia was also at the cutting edge of photovoltaics

What's necessary now, most experts

agree, is a change of focus. 'Doctoring with intellectual property rights'
"Russia clearly needs to diversify its economy," Fredrik Erixon, director of the European
Centre for International Political Economy in Brussels, told Deutsche Welle.
"But it's not so much a question of whether it will diversify but how."
Erixon pointed to earlier attempts by Russia to build its own high-tech
industry. The attempts failed, he said, for a number of reasons, including a
lack of sufficient funding, isolating local companies from foreign
until the government ceased funding 15 years ago.

competition and, in particular, "doctoring with intellectual property

rights." He also cited a lack of transparency in Russian business as another issue the country will need to
overcome in order to build a sustainable high-tech industry. "Russian companies don't have the corporate
governance regulations their counterparts in the West have," Erixon said. "So it can be very difficult to know who's
always behind a company, whether it's the government or some other group." Reciprocity is better Alexander

a need for
transparency is "correct," he argues that reciprocity, at this point in
Russia's economic development, is better. "Just 20 years ago, private ownership in Russia
Rahr, an expert on Russia at the German Council for Foreign Relations in Berlin, believes that while

was forbidden," Rahr told Deutsche Welle, adding that "time is still needed" for Russia to establish the level of

What's important now, he said, is for

Russian companies to be able to buy into western companies and vice
versa. "Access to each other's market needs to be the same," Rahr said. "This still
transparency expected by western companies.

requires some political effort."

Saudi Arabia

1NC Low Oil Prices Cause Saudi Instability

Low oil prices lead to civil unrest in Saudi Arabia
Hargreaves 13 Steve Hargreaves, 7/18/13, Staff Reporter for CNN, Falling oil
prices could spark global turmoil, CNN,
http://money.cnn.com/2013/07/18/news/economy/opec-oil/
But if oil prices fall over the next few years, as some analysts predict, the
effects won't be all roses. OPEC (The Organization of the Petroleum Exporting
Countries), for example, could be on the losing end. And that could lead to
unrest in countries around the world. Oil producing nations in the Middle East
and elsewhere have used bulging oil revenues of the last few years to placate their
people. No place is this more true than Saudi Arabia, which has subsidized
housing, health care, gasoline and a host of other things to the tune of hundreds
of billions of dollars since the Arab Spring protests began in 2010. As a result,
Saudi Arabia now needs oil prices close to $100 a barrel just to balance its
budget. If oil prices fall, it may have to cut social spending. In a country
that's been a reliable oil exporter to the global market for over half a century, yet
has both a restless segment clamoring for reform as well as extremists in
the ranks, the repercussions could extend well beyond OPEC. "It's not in the U.S.
interest to have a more unstable Middle East, even if we are importing no oil
from that region," said Meghan O'Sullivan, a professor at Harvard's John F.
Kennedy School of Government who specializes in Mideast petro-politics. "Or
Russia either," she added, referring to the world's second largest oil exporter.
OPEC in a bind: Thanks to an energy boom in United States, Canada and elsewhere,
plus a slowing of Chinese demand as that economy matures and shifts to less
energy-intensive industries, demand for OPEC oil may fall by a million barrels
a day over the next three years, according to the latest projections from the
International Energy Agency. Coupled with rising oil consumption at home and a
projected fall in oil prices, OPEC nations could see a 30% cut in revenue by 2018,
according to Trevor Houser, an analyst at the Rhodium Group.

2NC/1NR
Saudi Arabia is completely dependent on oil revenues social
services and employment
Luft 13 Gal Luft, Senior adviser to the United States Energy Security Council
and co-author of "Petropoly: The Collapse of America's Energy Security Paradigm,
American oil boom is bad news for Saudi Arabia, Newsday, 5/28/2013,
http://www.newsday.com/opinion/oped/american-oil-boom-is-bad-news-for-saudiarabia-gal-luft-1.5355333
With no revenues from personal income tax and 40 percent of its 28
million citizens under the age of 15 - not to mention a male population
that is mostly employed in the bloated public sector - Saudi Arabia is
heavily dependent on oil revenues to provide cradle-to-grave social
services to its people. And the financial liability has only gotten heavier
since the Arab Spring forced the regime to fight public discontent with ever
more gifts and subsidies. To make things worse, Saudi Arabia is the world's sixth sixth! - largest oil-consuming country, guzzling more crude than major industrialized
countries such as Germany, South Korea, and Canada. With so much of its oil consumed
at home, the kingdom has only 7 mbd to export - even as government expenditures are on the
rise.

Saudi Arabia requires high prices to maintain its economy

Luft 13 Gal Luft, Senior adviser to the United States Energy Security Council
and co-author of "Petropoly: The Collapse of America's Energy Security Paradigm,
American oil boom is bad news for Saudi Arabia, Newsday, 5/28/2013,
http://www.newsday.com/opinion/oped/american-oil-boom-is-bad-news-for-saudiarabia-gal-luft-1.5355333
All this is to say that in order for Saudi Arabia to guarantee its economic
viability, it must ensure that the break-even price of oil - the price per barrel
it needs to balance its budget - matches the country's fiscal needs. This
break-even price - the "reasonable price" or, as the Saudi Arabian euphemism has
it, the "fair price" - has risen sharply in recent years. "In 1997, I thought 20 dollars
was reasonable. In 2006, I thought 27 dollars was reasonable," Naimi explained in
March. "Now, it is around $100 . . . and I say again 'it is reasonable.'" According
to the Arab Petroleum Investments Corporation, the break-even price is currently
$94 per barrel, less than the current spot price for Brent crude. (Iran needs oil to be
at $125 per barrel to break even, which explains the feud between Iran and Saudi
Arabia within OPEC.) But absent deep political reforms that create new sources of
income, the break-even price will surely grow. According to Riyadh-based
Jadwa Investment, one of the world's most important knowledge bases on
Saudi Arabia's economy, by 2020 the break-even price will reach $118 per
barrel. At this point, the Saudi Arabia Monetary Agency's cash reserves will begin
to drain rapidly and the break-even price will soar to $175 a barrel by 2025 and to

over $300 by 2030. And this cuts to the heart of the dilemma: To balance its budget
in the future, Saudi Arabia will need to either drill more barrels and sell them for
lower prices or drill fewer barrels - actively reducing global supply - and sell each at
a higher price.

Saudi Backstopping
Saudi perception of demand reduction will cause them to
release spare capacity crashing prices and forcing out
alternative energies for decades
Meyer and Swartz 8 Gregory Meyer and Spencer Swartz, Adjunct Professor
@ University of Phoenix + staff writer for the Wall Street Journal, 5/5/2008,
ENERGY MATTERS: Saudi Fears Of High Oil Prices Fade With Demand, now
available at http://snuffysmithsblog.blogspot.com/2008/05/saudi-fears-of-high-oilprices-fade.html)
Saudi Arabia's role in the global oil market has sometimes been likened to the
Federal Reserve, calibrating its output depending on market signals. Critical to this
unique standing has been Saudi maintenance of a cushion of "spare capacity," now
estimated at about two million barrels a day. For much of the recent period, the
kingdom has refrained from tapping into all or most of its spare capacity.
Within oil industry circles in places like Houston, the Saudi power has also carried a
somewhat ominous connotation. Faced with growing production from the U.K.,
Mexico and other non-OPEC countries in the mid-1980s, Saudi Arabia flooded
the market in an effort to drive out high-cost production and reassert its
dominant market share. The 1986 oil price crash ushered in more than 15 years
of mostly-lower crude prices, instilling a memory of economic hardship on the
western oil industry that continues to be reflected in Big Oil's caution during these
heady times. The shift to lower petroleum prices also impeded the
development of renewable energy for about two decades . In his book, The
Prize, Daniel Yergin compared the Saudi tactic in the 1980s to power plays by John
Rockefeller and other heavyweights in the history of oil who have used a "good
sweating" to drive out competitors. "No one is worrying about over-supply," Yergin
said in an interview. Instead, the market is preoccupied with meeting growth in
China, India and other fast-developing economies. "What (the Saudis) have
discovered is that the tolerance level in consumers is higher than they
thought," said Thomas Lippman, an adjunct scholar at the Middle East
Institute, a Washington research institute. Given the specter of higher demand in
Asia and the increased cost of bringing on new oil production, many analysts
believe the long-term price of oil is in the $45-$60 a barrel range. Recent comments
by Naimi suggest the Saudi official sees an even higher floor than that. "A line has
been drawn now below which prices will not fall," Naimi said in March in an
interview with PetroStrategies, a French energy publication. Citing the marginal
costs of biofuels and Canadian tar-sands, Naimi defined the floor as "probably
between $60 or $70." Naimi in April said Saudi Arabia was putting off a plan to
expand oil capacity beyond 12.5 million barrels because of concerns about demand
growth. "Unless we see really genuine demand, we have to pause right now and see
what happens," Naimi told Petroleum Argus. Some energy analysts say the
Saudi move suggested a more sober outlook on oil prices. "If they see a lot
of risk on the demand side then you could see very low prices and

potentially a lot of underutilized capacity down the road," said Ken

Medlock, a fellow at Rice's Baker Institute.

Efforts to increase oil supply or reduce demand will cause

Saudi-led OPEC to engineer a price crash
Morse 2 Edward Morse, former Deputy Assistant Secretary of State for
International Energy Policy, Foreign Affairs, March/April, ebsco,
http://www.foreignaffairs.com/articles/57803/edward-l-morse-and-james-richard/thebattle-for-energy-dominance)
A simple fact explains this conclusion: 63 percent of the world's proven oil reserves are in the Middle East, 25
percent (or 261 billion barrels) in Saudi Arabia alone. As the largest single resource holder, Saudi Arabia has a
unique petroleum policy that is designed to maximize the benefit of holding so much of the world's oil supply.

Saudi Arabia's goal is to assure that oil's role in the international economy
is maintained as long as possible. Hence Saudi policy has always
denounced efforts by industrialized countries to wean themselves from oil
dependence, whether through tax policy or regulation. Saudi strategy focuses on three different political
arenas. The first involves the ties between the Saudi kingdom and other OPEC countries. The second concerns
Riyadh's relationship with the non-OPEC producers: Mexico, Norway, and now Russia. Finally, there is Saudi Arabia's

Given the
size of the Saudi oil sector, the kingdom has a unique and critical role in
setting world oil prices. Since its overriding objectives are maximizing
revenues generated from oil exports and extending the life of its
petroleum reserves, Riyadh aims to keep prices high as long as possible.
But the price cannot be so high that it stifles demand or encourages other
competitive sources of supply. Nor can it be so low that the kingdom cannot achieve minimum
revenue targets. The critical balancing act of Saudi foreign policy, therefore, is to
maintain oil prices within a reasonable price band. Stopping oil prices from falling below
link to the major oil-importing regions -- most importantly North America, but also Europe and Asia.

the minimum level requires cooperation from other OPEC countries and occasionally from non-OPEC producers.
Preventing oil prices from rising too high requires keeping enough spare production capacity to use in an
emergency. This latter feature is the signal characteristic of Saudi policy. The kingdom can afford to maintain this
spare capacity because of the abundance of its oil reserves and the comparatively low cost of developing and
producing its reserve base. In today's soft market, in which

Saudi Arabia

produces around 7.4 mbd, the

kingdom has close to 3 mbd of spare capacity. Its spare capacity is usually ample enough to
entirely displace the production of another large oil-exporting country if supply is disrupted or a producer tries to
reduce output to increase prices. Not only does this spare capacity help the kingdom keep prices in check, but it

It is a blunt
instrument that makes policymakers elsewhere beholden to Riyadh for energy
also serves to link Riyadh with the United States and other key oil-importing countries.

security. This spare capacity is greater than the total exports of all other oil-exporting countries -- except Russia.

Saudi spare capacity is the energy equivalent of nuclear weapons, a

powerful deterrent against those who try to challenge Saudi leadership and
Saudi goals. It is also the centerpiece of the U.S.-Saudi relationship. The United States relies on that capacity
as the cornerstone of its oil policy. That arrangement was fine as long as U.S. protection meant Riyadh would not

Saudi Arabia's
OPEC partners must also cooperate with the kingdom in part to prevent
Riyadh from producing a glut and having prices collapse; spare capacity also serves
"blackmail" Washington -- an assumption that is more difficult to accept after September 11.

to pressure key non-OPEC producers to cooperate with Saudi Arabia when necessary. But unlike the nuclear

the Saudi weapon is actively used when required. The kingdom has
periodically (and brutally) demonstrated that it can use its spare capacity
deterrent,

to destroy exports from countries challenging its market share . This tactic is the
weapon that Saudi Arabia could use if Moscow ignores Riyadh's requests for cooperation.

Saudi Arabia will oversupply the market if threatened by

alternative energy
Meyer and Swartz 8 Gregory Meyer and Spencer Swartz, Adjunct Professor
@ University of Phoenix + staff writer for the Wall Street Journal, 5/5/2008,
ENERGY MATTERS: Saudi Fears Of High Oil Prices Fade With Demand, now
available at http://snuffysmithsblog.blogspot.com/2008/05/saudi-fears-of-high-oilprices-fade.html)
The Saudi national most vocal in outlining the potential threat of
renewable energy has been former petroleum minister Sheikh Ahmed Zaki
Yamani, who held Naimi's job from 1962 to 1986. Perhaps Yamani's most oft-quoted
statement was his prediction that "The Stone Age did not end for lack of stone, and
the Oil Age will end long before the world runs out of oil." The comment has been
cited as early as the 1970s, but Yamani has continued the mantra. Speaking last
week, Yamani said his advice to OPEC is "to increase production and lower
prices because this is harmful midterm (and) long term to OPEC itself,"
according to a report in Energy Intelligence. "It will increase the activities to
find alternative sources of energy, and OPEC will remain helpless at that
time." Yamani was unavailable for an interview, but the Centre made available its
Executive Director, Fadhil Chalabi, who was Acting Secretary General of OPEC in
1983-1988. Chalabi said leading OPEC producers are being short-sighted in
seeking ever-higher oil prices. While demand growth has been impressive in
developing countries so far, Chalabi warned that China's use of coal, nuclear energy
and other sources will displace oil. "It's a matter of time," Chalabi said.

Saudi Arabia Answers

Low Prices Dont Hurt Saudi Arabia

Low prices dont impact Saudi Arabia they want to maintain
good relations with the U.S. empirics prove
RT 6/25 Russian Newspaper, 6-25-14, Saudi Arabia vs high oil prices: Its not
all about the money, http://rt.com/business/opec-meeting-increase-oil-cartelprices-saudi-arabia-804/
Right now oil supply heavily exceeds demand leading to falling prices. Its an
advantage for oil consumers in the US and Europe, but it is bad news for most OPEC
producers like Iraq, Iran, Venezuela, Angola, and Russia. So when OPEC was meeting
in Vienna, some oil states like Iraq were expected to ask the cartel to curb output
and push prices back up. The oil driven economy of Russia, which is not an OPEC
member, was also seeking more expensive oil. But Saudi Arabia, the worlds
largest oil producer, turns out to be willing to see Brent fall further even
below the current price of $96 per barrel. So why dont the Saudis want
higher prices? Vladimir Rozhankovsky from Nord Capital explains: Weve
seen this before in the 70s during the Yom Kippur War, when the US asked
Saudi Arabia to lower oil prices, with North America in turn offering to help in
the construction of oil drilling facilities. This time Saudi Arabia is also likely to
please the US, seeking to keep a lid on prices and winning over support on the
matter of its Gulf neighbours. Sanctions imposed by the US in response to Tehran's
refusal to curb its nuclear program have already significantly cut Iranian crude
exports from about 2.5 million barrels a day last year to between 1.2 and 1.8
million barrels now, according to estimates by US officials.

Middle East

1NC Low Prices Hurt Middle East Stability

High Oil Prices key to Middle East stability
Hargreaves 13 Steve Hargreaves, reporter for CNN, 7/18/13, CNN Money,
Falling oil prices could spark global turmoil
http://money.cnn.com/2013/07/18/news/economy/opec-oil/
As a result, Saudi Arabia now needs oil prices close to $100 a barrel just to
balance its budget. If oil prices fall, it may have to cut social spending. In
a country that's been a reliable oil exporter to the global market for over
half a century, yet has both a restless segment clamoring for reform as
well as extremists in the ranks, the repercussions could extend well
beyond OPEC. It's not in the U.S. interest to have a more unstable Middle
East, even if we are importing no oil from that region ," said Meghan
O'Sullivan, a professor at Harvard's John F. Kennedy School of Government who
specializes in Mideast petro-politics. "Or Russia either," she added, referring to the
world's second largest oil exporter. OPEC in a bind: Thanks to an energy boom in
United States, Canada and elsewhere, plus a slowing of Chinese demand as that
economy matures and shifts to less energy-intensive industries, demand for OPEC
oil may fall by a million barrels a day over the next three years, according to the
latest projections from the International Energy Agency. Coupled with rising oil
consumption at home and a projected fall in oil prices, OPEC nations could
see a 30% cut in revenue by 2018, according to Trevor Houser, an analyst at the
Rhodium Group.

1NC Low Prices Hurt Middle East Economies

Low prices devastate Middle East economies
Al Khatteb 3/19 Luay Al Khatteb, founder and director of Iraq Energy
institute, 3/19/14, Huffington Post, Why World Oil Prices Should Be High and
Stable http://www.huffingtonpost.com/luay-al-khatteeb/why-world-oil-pricesshou_b_4992593.html
Despite the low cost of Middle East oil production, only a few of the region's
smaller states could cope with an extended price drop below $100. Most
need an oil price of $90 or greater to cover current government spending,
with the IMF forecasting fiscal deficits in nearly all of the region's oil-exporters by
2015 in the event of a major price drop. Even at $100 per barrel, public spending is
expected to slow down in the region. These countries have grown dependent
on their high oil rents, spending huge sums on unrealistic energy subsidies to
domestic consumers and failing to invest in future generations. Even Iraq, despite
experiencing the region's largest spike in domestic production, is running up an
ever-mounting deficit as government spending outstrips expanded
revenues. Last year's budget reached $119 billion, a whopping six-fold increase on
2004 spending levels, while the government is expected to spend upwards of $150
billion this year. While oil production in Iraq is at its highest level in decades (3.5
million barrels a day in February, with some 2.8 million destined for export ),
increased revenues are entirely dependent on high oil prices. Any drop in
prices means that Iraq's deficit - perpetually hovering at around 17% would spiral
out of control. Worse, operating costs for Iraq's oil industry are rising faster than
its oil income, leaving fewer and fewer funds for capital investment, desperately
needed for true economic development.

2NC/1NR Low Prices Hurt Middle East Economies

Low Oil Prices Kill OPEC Economies
Tatlow 98 Didi Kirsten Tatlow, reporter at Moscow Times, 11/24/1998, The
Moscow Times, http://www.themoscowtimes.com/news/article/opec-ministersgather-to-discuss-low-oil-prices/282894.html
While low prices are good news for consumers, many OPEC states are facing
potentially serious situations back home. In Saudi Arabia, where oil provides
over 70 percent of the national income, economic growth this year will drop to
a negligible 0.3 percent compared to 7 percent in 1997, a banking and ratings
agency said Saturday. "For every one dollar fall in the oil price, it is
estimated that the country loses in the vicinity of $2.5 billion in budget
revenues," Cyprus-based Capital Intelligence said in a report. With average prices
falling from $18 in 1997 to around $12, Saudi Arabia can expect just $26 billion
in oil export revenues, 24 percent below budget, the agency said. Kuwait's staterun news agency said last week it expected oil revenue for 1998 to be 45 percent
lower than last year.

Venezuela

1NC Low Prices Cause Venezuelan Instability

Low oil prices lead to Venezuelan instability
Hargreaves 13 Steve Hargreaves, reporter for CNN, 7/18/13, CNN Money,
Falling oil prices could spark global turmoil
http://money.cnn.com/2013/07/18/news/economy/opec-oil/
The pain won't be evenly spread. Iran, Venezuela and Nigeria are already
thought to be exceeding spending relative to what oil revenues bring in,
and are particularly vulnerable to a fall in oil prices in the next few years.
"In Iran, it could be a factor in regime change," said Steffen Hertog, an
assistant professor of Middle East policy and economy at the London School of
Economics. "It could certainly instigate a wave of popular unrest." In
Venezuela, where previous attempts to bring pennies-a-gallon gas prices closer
to market rates preceded deadly riots and the toppling of the government,
falling oil revenue could also bring about a change in regime, according to
Hertog -- although he thinks the change would probably occur at the ballot box
instead of the streets

Canada

1NC Low Prices Hurt Canadian Economy

High oil prices help Canadian economy oil industry and
government royalties
Canadian Press 6/24 The Canadian Press, 6/24/2014, Rising oil prices: Bad
news for consumers, good news for Canadian oil industry, CTVNews,
http://www.ctvnews.ca/business/rising-oil-prices-bad-news-for-consumers-goodnews-for-canadian-oil-industry-1.1884029#ixzz35xR3KNsQ
CALGARY -- Economists see more good than bad for Canada's economy as
recent tensions in Iraq drive up global crude oil prices.
Scotiabank commodity market specialist Patricia Mohr says the increase has a "twopronged impact," but the benefits should outweigh the drawbacks.
"Of course on the positive side, it really bolsters earnings for Western
Canada's oil industry, but also the oil industry in Newfoundland and Labrador,"
she said. That, in turn, brings more tax and royalty revenues to government
coffers.
On the downside, crude is a big factor in gasoline prices. So the higher it goes, the
more consumers are pinched.
"But I would guess that the positive impact on earnings and also on our
merchandise trade performance would offset the negative impact on
consumers of higher gasoline prices," said Mohr.
Todd Crawford, senior economist at the Conference Board of Canada,
agrees the higher prices will be good for the bottom line of industry and
government alike, but not necessarily on a sustained basis.

AT: Other Areas

AT: High Prices Hurt Asian Economies

Asian economies resilient to oil prices strong balance of
payments create prevent impact
Bajoria 6/26 Rahul Bajoria, regional economist for Asia-Pacific at Barclays,
6/26/2014, Asias Rising Resilience to Oil Prices, Wall Street Journal,
http://blogs.wsj.com/economics/2014/06/26/asias-rising-resilience-to-oil-prices/
India, China and South Korea are among the Asian economies that rely
heavily on oil from Iraq, but spillovers will affect the entire region, as Asias
industrialized, exporting countries are large net importers of oil. Malaysia is the
regions only net exporter of energy commodities, making it a beneficiary of higher
oil prices (note that we do not adjust our analysis for the possibility that demand
could fall as oil prices rise).
The immediate impact of higher oil prices will be felt in current-account balances
and, against a backdrop of Fed tapering, persistently higher prices could create
financing issues.
Even so, the resilience of Asias balance of payments has strengthened in
recent years, along with the brand premium of many of the regions
exports. If oil averages $130 per barrel in the second half or the year, versus our
base case of $110 per barrel, we estimate that the regions cumulative currentaccount surplus would fall by $60 billion to a still-hefty $293 billion.
That means oil prices would need to rise dramatically before Asias external
surplus came under pressure; indeed, we estimate oil prices would need to
average $190 a barrel for a full year to cut Asias current account surplus
to zero. By way of comparison, in 2011 it would have required a terminal oil price of
just $120 per barrel to wipe out Asias current-account surplus.

High Prices Bad/Low Prices

Good

High Prices Bad Global Economy

General Global Economy

High oil prices prevent global economic growth $120 a barrel
causes global recessions
Kennedy 6/26 Simon Kennedy, reporter for Bloomberg News in London,
6/26/2014, Rising Oil Prices Loom Over World Economic Recovery,
BloombergBusinessweek, http://www.businessweek.com/articles/2014-06-26/risingoil-prices-loom-over-world-economic-recovery
The global economy faces a new threat from an old enemy: oil. A spike in the
price of crude foreshadowed economic slumps in each of the last four decades. So
economists are worrying because the price of Brent crude, considered the
benchmark for the industry, recently reached its highest point in nine months
above $115 a barrel. The jump in price came amid fresh violence in Iraq, the
Organization of the Petroleum Exporting Countries second-biggest producer after
Saudi Arabia. Brent started the year about $6 cheaper.
The rule of thumb favored by many economists is that every $10 increase in
the price of a barrel of oil ends up reducing global growth by about twotenths of a percentage point. Thats not an inconsequential amount for an
already lackluster expansion. The World Bank on June 10 cut its outlook for 2014
global growth to 2.8 percent from 3.2 percent in January. There is no doubt that,
beyond a certain point, higher prices become a major constraint on global
economic activity, particularly if the price reflects supply problems, rather
than buoyant demand, says Julian Jessop, chief global economist at Capital
Economics in London. Energy importers such as China and Japan would
suffer the most from any jump in price, though exporters in the Middle East
would benefit, according to Neil MacKinnon, a global macro strategist at VTB Capital
in London. Oil now has the probability of all-out civil war in Iraq baked into its price,
as well as the prospect of more violence in Ukraine. Those two risks add $10 to $15
to the price of a barrel of crude.
Things could still turn around if the Iraq crisis dissipates. And OPEC says its
confident it can pump enough extra oil to make up for a shortfall in Iraqi production.
The world is also more energy-efficient than it once was, and the U.S. has larger
domestic supplies, which can put a cap on price rises.
Even at $100 a barrel, though, oil can act as a drag on global growth. Worldwide
economic activity was already weakening in the early precrisis days of 2008, when
oil breached $100 a barrel. Oil then slumped with the crash but rebounded to $100
in 2011, hampering the recovery. Capital Economics suggests there is a 20
percent risk of the fighting in Iraq pushing oil up to $120, which it says is
the danger point: That price is associated with previous global economic
slowdowns. Whats more, says Jessop, a strong and sustained recovery
seems unlikely as long as oil is above $100.

High oil prices threaten global economic recovery India and

Europe particularly at risk
International Business Times 6/23 International Business Times, Byline
Meagan Clark, 6/23/2014, 7 Global Consequences Of Soaring Oil Prices,
International Business Times
Crude oil prices in the U.S. and around the world are hitting highs last seen in
September amid the ongoing crisis in Iraq as terrorist group Islamic State in Iraq and
Syria (ISIS) seizes cities and oil refineries in their march toward Baghdad.
Here are seven ways that rising oil prices will impact global economies:
1. Growth in the euro zone, dragged down by France and Germany, is
grinding to its slowest pace in six months , according to a June survey released
Monday. About 5,000 companies across the currency area and in the
manufacturing and services sectors reported higher input prices and
specifically higher oil prices as a key cause of rising costs, according to
survey compiler Markit. Apparently, oil prices are not yet high enough to weigh
down manufacturing and service sectors in the U.S. and China, where Markit
surveys found conditions are reviving despite fears of a slowdown.
2. India is dependent on oil imports for more than three-fourths of its
needs, and about 13 percent of its imports come from Iraq. That means Asias
third-largest economy , whose stock market has performed among the best in the
world this year, could see an economic crisis unfold if oil prices dont fall
again. Since India subsidizes many fuels like diesel and kerosene, aiming to shield
the poor from price fluctuations, the government must compensate losses to fuel
retailers. Every dollar increase in the oil price raises the subsidy burden by about
$997 million, an Indian oil official told the Wall Street Journal.
3. The price of gasoline in the U.S. is closely pegged to the international price of
oil. In general, a $10 increase in the oil price will cause a 25 cent rise in gas prices.
(This is known as the Hamilton-to-a-Quarter Rule, a $10 bill with Alexander
Hamiltons face to a quarter.) This rule only roughly estimates the national average
price of gasoline, and prices always vary by region. For example, gas prices soared
past $4 a gallon in California on Sunday, but are around $3.80 in Michigan.
4. Another handy rule: a 1 penny shift in U.S. gas prices generally leads to a $1
billion increase in American household energy consumption. If gas prices rise by a
dime, thats a $10 billion increase in household energy consumption. Analysts have
said gas prices could rise 5 cents to 10 cents this summer if the turmoil in Iraq
continues.
5. Since energy, particularly oil, is about 10 percent of the consumer
price index, a 10 percent increase in energy prices increases inflation by
an additional 1 percent (added to an economys inflation from other factors),
according to Deutsche Bank Chief U.S. Economist Joseph LaVorgna.
6. Rising oil prices also hits gross domestic product. In general, a $10
increase in the price of oil cuts 0.2 percent to 0.3 percent from GDP. That means,
so far the uptick in oil prices is causing about a 0.15 percent decline in
global GDP. The International Monetary Fund estimated in January that global GDP
would grow at about 3.7 percent this year.

7. The global economic recovery will be weak and unsustainable as long

as oil prices remain above $100 per barrel, according to the
macroeconomic think tank Capital Economics. Julian Jessop, head of
commodities research, said June 20 that if the unrest in Iraq drags on like the
civil war in Syria has, he expects even with Western oil reserves and
increased output from Saudi Arabia adding to global oil supply, prices
could settle at $120 per barrel for an extended period.
This would be the level at which global growth has faltered in the past,
he added.

High oil prices due to Middle East conflicts threaten the global
economy
Chapman 6/26 David Chapman, Technical Analyst & Investment Manager
with Economics Degree, 6-26-14, Rising Oil Prices A Problem for the World
Economy, Gold Seek, http://news.goldseek.com/GoldSeek/1403805389.php
Oil prices appear to be forming a potential ascending triangle over the past few
years. The high thus far in this pattern was at $114 in April 2011. The current top of
the pattern is near $111 and a breakout above that level could suggest a major
move to the upside. If the pattern is correct as an ascending triangle a breakout
over $111 could suggest a move towards the top of the major channel currently
near $148/$150. If oil prices were to move those levels it could be suggesting that
the situation in Iraq deepens. Persistent high oil prices would also threaten
the fragile global recovery. The huge pattern from 1980 appears as a huge
ascending wedge triangle. Normally that is a bearish pattern. The top of the channel
hooks the 1980 top up with the top of 2008. The bottom channel starts with the
1998 low and runs along the low of 2008. The top of the channel is currently near
$190 while the bottom of the channel is currently near $80. There appears to be
considerably more latitude for a sharp rise in oil prices as opposed to any
down move. If the ascending triangle pattern is correct there appears to be
considerably more ability for oil prices to rise within the triangle. The turmoil in
Iraq and Syria are civil wars that are threatening to spread into other
countries and drag in foreign powers. In the middle of this sits some of the
largest oil reserves in the world and one of the major choke points for the
shipment of oil. If oil prices were to rise further because of a further
deterioration of the conflict in the Middle East it could become a major
problem for the world economy.

High oil prices threaten the global economy

Rugaber & Crutsinger 11 Christopher S. Rugaber & Martin Crutsinger,
Christopher: reporter for AP, International Trade at Bureau of National Affairs &
Martin: reporter for AP, 03-10-11, Higher oil prices threaten global economy, The
Washington Post, http://www.washingtonpost.com/wpdyn/content/article/2011/03/10/AR2011031004708.html?sid=ST2011031006222

Higher oil prices are slowing global economic growth, and the impact is likely
to spread in coming months. Stocks sink amid concerns out of China and Europe,
continued turmoil in Arab world. Unemployment rate slipped in Md. and Va. in
January, held steady in D.C.
Oil prices helped raise the U.S. trade deficit to a seven-month high in
January, when crude prices were $87.50 a barrel. Oil is now trading at more than
$100 a barrel, suggesting the gap will widen in coming months. Even fast-growing
China isn't immune - higher oil prices contributed to a rare trade deficit
there in February. "It's a bad start, because we all know the oil shock is
still coming," said Paul Ashworth, an economist at Capital Economics.
Pricier oil dampens consumer spending and that cuts into economic
growth. Surging oil prices can also stir up inflation fears, triggering higher
interest rates that cut into household and business spending. In January,
America's foreign oil bill rose 9.5 percent, or $3.04 billion, to $34.9 billion. That's the
highest monthly total since October 2008. Since then, political turmoil in Libya,
Egypt and Tunisia have sent oil prices surging. At the same time, accelerating
economic growth in Asia and Latin America has also boosted demand. The impact is
visible in bold numbers each morning on gas station marquees across the United
States. Pump prices have risen 13 percent in the past month to a national average
of $3.53 a gallon, according to AAA, Wright Express and Oil Price Information
Service. Airlines have also been rapidly raising their fares to offset higher fuel costs.
American Airlines said Thursday it is increasing its base fares by $10, the seventh
price hike this year by U.S. airlines. Jay Bryson, global economist at Wells Fargo
Securities, said he has cut his U.S. growth estimate for the January-March period
to 2.9 percent, down from about 3.3 percent last month. Much of that reduction is
due to the impact of higher oil and gas prices. The $46.3 billion trade deficit in
January also will subtract from economic growth. Higher prices for oil helped
drive imports up at the fastest rate in 18 years, as did rising demand for
foreign cars, auto parts and machinery. Imports rose at nearly twice the pace
of exports, to $214.1 billion, the Commerce Department said. Exports rose to an
all-time high of $167.7 billion. That isn't all bad news. A wider deficit is partly a
sign of greater spending by businesses and consumers. But it also means that
more of that spending is going overseas, reducing U.S. economic growth.
Imports of foreign-made autos and auto parts increased 14 percent, or $2.67 billion,
as auto production rose in the U.S. and Canada. Demand for big-ticket capital goods
such as industrial machinery and computers increased 5.2 percent. Imports of
consumer goods, such as clothing, shoes, electronic appliance and toys and games,
were up 2.2 percent. "To the extent that this surge reflects the strength of domestic
demand ... it isn't necessarily a disaster," Ashworth said. Rising oil prices can
slow the economy in another way: by spurring central banks to raise
interest rates. Few economists expect the U.S. Federal Reserve to take such a
step. But that's a potential problem in Europe. Both the European Central Bank
and the Bank of England appear to be preparing interest rate hikes in the
next couple of months, in an effort to keep inflation in check. Many
analysts fear that could bring a faltering economic recovery in Europe to a
halt. Though Germany, Europe's economic powerhouse, is growing strongly, a
number of countries, notably the highly indebted nations such as Greece and

Portugal, are expected to contract further this year. Europe is a major source of U.S.
exports and a slowdown there could weigh on the U.S. recovery. The turmoil in the
Middle East could have a bigger impact on Europe's economy than the U.S.,
economists at Bank of America Merrill Lynch wrote in a research note. The U.S. has
a lot of natural gas, which serves as alternative energy source, and can refine a
wider variety of crude oil, the economists said. European countries are more
exposed to rising oil prices because they primarily consume the "sweet crude"
produced by Libya. Refineries in Europe are not as well equipped as those in the
U.S. to process other varieties of oil. Still, the impact on both the United States and
Europe will likely be limited, economists said. Mark Zandi, chief economist at
Moody's Analytics, recently cut his forecast for economic growth in 2011 from 3.9
percent to 3.5 percent. He cited rising oil prices and expected spending cuts in
Washington as the reasons for the downward revision. Zandi also boosted his
estimate of the average price of oil this year from $90 to $100. Oil prices would
have to top $150 a barrel to truly threaten the recovery in the U.S. and around the
world, most economists say. Pricey oil is hurting even the strongest
economies. China, which typically runs huge trade surpluses with the rest
of the world, reported a surprise deficit of $7.3 billion for February. Higher
prices for oil and other commodities pushed imports up 19.4 percent while its
exports dropped 2.4 percent. The export decline reflected the fact that Chinese
businesses were idled for the weeklong Lunar New Year holiday. Analysts said the
rare trade deficit for China was likely to be temporary and not the start of a trend.
More expensive oil isn't bad news for everyone. Saudi Arabia, Iran and Venezuela
and other OPEC members, as well as Russia and Mexico, benefit from the rise in
prices.

Oil prices need to decrease to allow economic growth

Katusa 11 Marin Katusa, Investment Analyst, Senior Editor of Casey Energy
Dividends, Casey Energy Confidential, & Casey Energy Report, 09-23-2011, What
Low Oil Prices Really Mean, Money Show Network,
http://www.moneyshow.com/articles.asp?aid=GURU-24618
Oil prices in large part reflect global sentiment towards our economic future
prosperous, growing economies need more oil while slumping, shrinking economies
need less, and so the price of crude indicates whether the majority believes
we are headed for good times or bad. That explains the worrythose worried
investors and economists are using oil prices as an indicator, and falling prices
indicate bad times ahead. But oil prices have to correct when economies slow
down, or else high energy costs drag things down even further. And the
current relationship between oil prices and global economic output is not pretty. In
fact, every time the cost of oil relative to global production has hit current
levelsand thats after the sharp corrections earlier this monthan
economic slump, if not a recession, has followed, according to a Reuters
article. The warning signal that is currently flashing red is the Oil Expense
Indicator, which is the share of oil expenses as a proportion of worldwide
gross domestic product (specifically, it is oil price times oil consumption

divided by world GDP). Since 1965, this indicator has averaged roughly 3% of
GDP, and has only exceeded 4.5% during three periods: in 1974; between 1979 and
1985; and in 2008. Each period saw severe global recessions. In 1973 and 74, the
Arab oil embargo sent oil prices rocketing skywards in the worlds first oil shock. In
1979, a revolution in Iran knocked out much of that countrys oil output and
catalyzed the worlds second oil shock.
And, of course, in 2008 the housing bubble collided with speculative buying of new
debt instruments and a commodities boom to propel oil prices to a record high of
US$147 a barrel, which helped to trigger the global financial crisis and the worst
slump since World War II. So where are we right now? Well, Brent crude prices would
have to fall to the low $90s per barrel for the Oil Expense Indicator to drop below
4.5%. Instead of that, Brent prices have been above $100 per barrel for more than
six months (aside from an intraday low of $98.97 on August 9) and are still hovering
between $105 and $110. Oil prices play a major role in global economic
growth because oil is crucial to every part of the economy. It powers
manufacturing as well as food and commodities production, it fuels
transportation, and it is a building block for industries like plastics and
electronics. When oil prices stay too high for too long, they choke out
economic growth. Merrill Lynch analysts agree, writing in a recent note: The last
two times that energy as a share of global GDP nearedthe current level, the world
economy experienced severe crises: the double-dip recession of the 1980s and the
Great Recession of 2008. So we face two options: oil prices come down
sharply, or we enter a recession, which will drag oil prices down. Either
way, crude has to get cheaper.

High oil prices will devastate the world economy

Gordon 12 Greg Gordon, Correspondent at McClatchy Newspapers, 08-12-12,
Will high oil costs permanently ruin worlds economy?, McClatchy DC,
http://www.mcclatchydc.com/2012/08/12/160935/will-high-oil-costspermanently.html
Many experts now believe that, absent the discoveries of numerous new
giant oilfields or breakthroughs in development of alternative fuels, oil
demand will persistently push global prices to unaffordable levels,
shackling economic growth indefinitely.
Even if discoveries somehow keep pace with demand, extracting oil from
increasingly harsh conditions, such as beneath the Arctic Ocean or other deep
ocean waters, will put upward pressure on prices. Despite the potentially huge
economic consequences, no full-scale, multinational energy conservation effort has
been launched to buy time for development of alternatives, such as electric cars,
that would ease pressure on oil supplies and prices. When oil prices eclipsed
$100 a barrel in 2011 and early this year, they were edging toward the
breaking point the threshold where economies can no longer expand,
said Charles Hall, a professor in the School of Environmental Sciences and Forestry
of the State University of New York. Hall, a co-author of the book Energy and the
Wealth of Nations: Understanding the Biophysical Economy, said that the economy
has stalled in the past when U.S. energy costs have approached 13 percent of the

gross domestic product. Annual global expenditures on raw energy have climbed to
an estimated $8 trillion to $9 trillion, exceeding 10 percent of the $70 trillion world
gross domestic product. Those figures, however, omit the succession of price upcharges along the manufacturing, marketing and delivery chain for energy-related
components of goods and services. I dont think the economy is ever going to grow
again . . . not on a sustained basis, Hall said in an interview. Since last spring, oil
prices have retreated below $100 a barrel, and global supplies are flush, even
despite trade sanctions that have curbed petroleum exports from Iran, the worlds
second largest producer.
But Christine LaGarde, chief of the International Monetary Fund, said
recently that high oil prices remain a major threat that could tip the
global economy into recession, especially if Iran triggers a price shock
by retaliating with further export cuts. Researchers at her agency have
predicted that oil prices will permanently double to about $200 a barrel
over the next decade. The soaring prices, up from less than $24 a barrel a
decade ago, are expected to cost European nations $500 billion this year, nearly
triple the average they paid for imported oil from 2000 to 2010, partly because of
the sunken value of the euro, Maria Van der Hoeven, executive director of the Parisbased International Energy Agency, said recently. Energy costs also can share blame
for crimping American workers standard of living. Adjusted for inflation, median
weekly earnings over the last quarter-century rose less than $10, while crude oil
prices nearly tripled and net U.S. gasoline prices doubled. In a paper published in
2009, Hamilton reported that the price of crude oil has jumped sharply in advance
of 10 of the 11 U.S. recessions since World War II. His bigger discovery was that the
sharp rise in prices before the economic collapse of 2008 didnt stem from an Arab
oil embargo, military conflict or other Middle East supply disruption, as occurred
before five other major economic downturns. Instead, it was largely booming
demand and stagnant production that briefly sent the price to a record $145 a
barrel in July 2008, probably accelerating the crisis that sank the world economy, he
found. Sure enough, after oil prices pulled back in 2009 and 2010,
consumption shot up by more than 5 percent last year, and prices spurted
above $100 a barrel again. The world economy soon slumped into its
current doldrums. Now scientists and economists are fretting about the
implications if oil becomes so unaffordable that it leads to a chain-reaction
surge in the costs of other fuels. What if oil prices get so high that its
economically attractive to convert natural gas and coal supplies to liquid fuels? Will
prices for those resources rocket into the stratosphere, too? Is there no way out of
energys grip?
The kinds of tradeoffs that lie ahead might be exemplified by the sudden North
American natural gas rush, which has led to a supply glut and plummeting gas
prices. The bargain prices sparked a burst of interest in converting cars and trucks
to cheaper, cleaner-burning natural gas. But only 130,000 natural gas-powered
vehicles are on U.S. roads, and replacing a sizable share of the nations 250 million
vehicle fleet with specially built natural gas-powered models would take decades
and require installation of thousands of refueling stations. Further, Sadad Al
Husseini, a former top officer of the Saudi Arabian national oil company Aramco,
told McClatchy that an intensive conversion to natural gas would make a global

(natural) gas crunch almost inevitable in the next decade. While there are vast
deposits of natural gas in the United States and worldwide, inexpensive gas
reserves are finite, he said. The more oil is displaced by gas on a crash basis, the
faster the low-cost reserves are depleted. Leading advocates of a theory that
global oil production will soon peak and begin a potentially economically
disastrous decline are standing firm, although theyve had to push back
their doomsday dates several years. The first half of the age of oil saw this
rampant expansion of industry, transportation, trade, agriculture, said Colin
Campbell, an 81-year-old retired Irish petroleum geologist who founded the peak oil
movement. The population went up six times in parallel over 100 to 150 years . . .
triggered by the cheap, easy energy that made everything possible. Now we face
the second half, which is about to dawn, which just undermines this whole world
system under which were now living, he said. Naturally, no one wants to admit
that. The global economy is premised on expansion, where what we face
is contraction, Campbell said.

High oil prices hurt global economic growth

Rubin 12 Jeff Rubin, former chief economist and chief strategist at CIBC World
Markets Inc., 09-23-12, How High Oil Prices Will Permanently Cap Economic
Growth, Bloomberg, http://www.bloomberg.com/news/2012-09-23/how-high-oilprices-will-permanently-cap-economic-growth.html
For most of the last century, cheap oil powered global economic growth. But in the
last decade, the price of oil has quadrupled, and that shift will
permanently shackle the growth potential of the worlds economies. The
countries guzzling the most oil are taking the biggest hits to potential
economic growth. Thats sobering news for the U.S., which consumes almost a
fifth of the oil used in the world every day. Not long ago, when oil was $20 a barrel,
the U.S. was the locomotive of global economic growth; the federal government was
running budget surpluses; the jobless rate at the beginning of the last decade was
at a 40-year low. Now, growth is stalled, the deficit is more than $1 trillion and
almost 13 million Americans are unemployed. And the U.S. isnt the only
country getting squeezed. From Europe to Japan, governments are
struggling to restore growth. But the economic remedies being used are
doing more harm than good, based as they are on a fundamental belief that
economic growth can return to its former strength. Central bankers and policy
makers have failed to fully recognize the suffocating impact of $100-abarrel oil. Running huge budget deficits and keeping borrowing costs at record
lows are only compounding current problems. These policies cannot be longterm substitutes for cheap oil because an economy cant grow if it can no
longer afford to burn the fuel on which it runs. The end of growth means
governments will need to radically change how economies are managed.
Fiscal and monetary policies need to be recalibrated to account for slower potential
growth rates.
Energy Source Oil provides more than a third of the energy we use on the planet
every day, more than any other energy source. And you can draw a straight line

between oil consumption and gross-domestic- product growth. The more oil we
burn, the faster the global economy grows. On average over the last four decades, a
1 percent bump in world oil consumption has led to a 2 percent increase in global
GDP. That means if GDP increased 4 percent a year -- as it often did before the 2008
recession -- oil consumption was increasing by 2 percent a year. At $20 a barrel,
increasing annual oil consumption by 2 percent seems reasonable enough.
At $100 a barrel, it becomes easier to see how a 2 percent increase in fuel
consumption is enough to make an economy collapse.
Fortunately, the reverse is also true. When our economies stop growing, less oil is
needed. For example, after the big decline in 2008, global oil demand actually fell
for the first time since 1983. Thats why the best cure for high oil prices is high oil
prices. When prices rise to a level that causes an economic crash, lower prices
inevitably follow. Over the last four decades, each time oil prices have
spiked, the global economy has entered a recession. Consider the first oil
shock, after the Yom Kippur War in 1973, when the Organization of Petroleum
Exporting Countries Arab members turned off the taps on roughly 8 percent of the
worlds oil supply by cutting shipments to the U.S. and other Israeli allies. Crude
prices spiked, and by 1974, real GDP in the U.S. had shrunk by 2.5
percent. The second OPEC oil shock happened during Irans revolution and the
subsequent war with Iraq. Disruptions to Iranian production during the revolution
sent crude prices higher, pushing the North American economy into a
recession for the first half of 1980. A few months later, Irans war with Iraq shut
off 6 percent of world oil production, sending North America into a double-dip
recession that began in the spring of 1981. Kuwait Invasion When Saddam Hussein
invaded Kuwait a decade later, oil prices doubled to $40 a barrel, an unheard-of
level at the time. The first Gulf War disrupted almost 10 percent of the
worlds oil supply, sending major oil-consuming countries into a recession
in the fall of 1990. Guess what oil prices were doing in 2008, when the
world fell into the deepest recession since the 1930s? From trading around
$30 a barrel in 2004, oil prices marched steadily higher before hitting a peak
of $147 a barrel in the summer of 2008. Unlike past oil price shocks, this time
there wasnt even a supply disruption to blame. The spigot was wide open. The
problem was, we could no longer afford to buy what was flowing through it. There
are many ways an oil shock can hurt an economy. When prices spike, most of us
have little choice but to open our wallets. Paying more for oil means we
have less cash to spend on food, shelter, furniture, clothes, travel and
pretty much anything else. Expensive oil, coupled with the average
Americans refusal to drive less, leaves a lot less money for the rest of the
economy. Worse, when oil prices go up, so does inflation. And when inflation
goes up, central banks respond by raising interest rates to keep prices in
check. From 2004 to 2006, U.S. energy inflation ran at 35 percent, according to the
Consumer Price Index. In turn, overall inflation, as measured by the CPI, accelerated
from 1 percent to almost 6 percent. What happened next was a fivefold bump in
interest rates that devastated the massively leveraged U.S. housing market. Higher
rates popped the speculative housing bubble, which brought down the
global economy. Unfortunately, this pattern of oil-driven inflation is with us again.
And world food prices are being affected. According to the food-price index

tracked by the United Nations Food and Agriculture Organization, the cost of food
rose almost 40 percent from 2009 to the beginning of 2012. And since 2002, the
FAOs food-price index, which measures a basket of five commodity groups (meat,
dairy, cereals, oils and fats, and sugar), is up about 150 percent.
Food Prices A double whammy of rising oil and food prices means inflation will be
here sooner than anyone would like to think. Rising inflation rates in China and India
are a clear signal that those economies are growing at an unsustainable pace. China
has made GDP growth of more than 8 percent a priority but needs to recalibrate its
thinking to recognize the damping effects of high oil prices. Growth might not stall
entirely, but clocking double-digit gains is no longer feasible, at least without
triggering a calamitous increase in inflation. If China and India, the new engines of
global economic growth, are forced to adopt anti-inflationary monetary policies, the
ripple effects for resource-based economies such as Canada, Australia and Brazil
will be felt in a hurry.
Triple-digit oil prices will end the lofty economic hopes of India and China,
which are looking to achieve the same sort of sustained growth that North
America and Europe enjoyed in the postwar era. There is an unavoidable
obstacle that puts such ambitions out of reach: Todays oil isnt flowing from the
same places it did yesterday. More importantly, its not flowing at the same cost.
Conventional oil production, the easy-to-get-at stuff from the Middle East or west
Texas, hasnt increased in more than five years. And thats with record crude prices
giving explorers all the incentive in the world to drill. According to the International
Energy Agency, conventional production has already peaked and is set to decline
steadily over the next few decades. That doesnt mean there wont be any more oil.
New reserves are being found all the time in new places. What the decline in
conventional production does mean, though, is that future economic growth will be
fueled by expensive oil from nonconventional sources such as the tar sands,
offshore wells in the deep waters of the worlds oceans and even oil shales, which
come with environmental costs that range from carbon-dioxide emissions to
potential groundwater contamination. And even if new supplies are found, what
matters to the economy is the cost of getting that supply flowing. Its not enough
for the global energy industry simply to find new caches of oil; the crude
must be affordable. Triple-digit prices make it profitable to tap ever-moreexpensive sources of oil, but the prices needed to pull this crude out of
the ground will throw our economies right back into a recession. The
energy industrys task is not simply to find oil, but also to find stuff we can afford to
burn. And thats where the industry is failing. Each new barrel we pull out of the
ground is costing us more than the last. The resources may be there for the
taking, but our economies are already telling us we cant afford the cost.
Today, the world burns about 90 million barrels of oil a day. If our economies are no
longer growing, maybe we wont need any more than that. We might even need
less. Maybe the oil trapped in the tar sands or under the Arctic Ocean can stay
where nature put it.

High oil prices hinder the global economy and its recovery
The Guardian 11 Associated Press, 12-14-11, High oil prices threaten global
economy, IEA warns, The Guardian,
http://www.theguardian.com/business/2011/dec/14/iea-high-oil-prices-globaleconomy
High oil prices threaten to worsen a global economic slowdown and crude
producers should consider boosting output, the chief economist for the
International Energy Agency said on Wednesday. "The current high oil
prices have the potential to strangle the economic recovery in many
countries," Fatih Birol said in a speech in Singapore. "I hope that high oil prices
don't slow down Chinese economic growth and the negative effect that would have
on the global recovery." Crude has jumped to $100 a barrel from $75 in October
amid signs the US economy will likely avoid a recession. Most economists expect
global growth to slow next year as Europe's debt crisis threatens to drag the
continent into recession. Birol suggested crude producers should boost output amid
growing demand in developing countries and falling inventories in wealthy nations.
The Organisation of Petroleum Exporting Countries is meeting later on Wednesday
in Vienna to decide whether to change the cartel's output quotas. "I'm sure Opec
knows much better than me what to do," Birol said when asked if Opec should raise
output. "But seeing that oil prices are still high today and the negative effect that
has on the recovery of the global economy, I hope the energy producing countries
will take these things into account and make their decision accordingly." Birol said
crude prices could rise to $150 by 2015 if oil-producing countries in the
Middle East and North Africa don't invest $100bn a year to maintain
existing fields and develop new ones. More than 90% of global crude
production growth during the next 20 years will come from that region, led by Saudi
Arabia, Iran, Iraq, Kuwait, Algeria and United Arab Emirates, Birol said. "Recent
developments, including the Arab spring, have changed the mindset of many
governments," Birol said. "In some countries, oil investments have been
diverted to social spending. Oil policies are taking on a more nationalistic
tone, which means not to increase production as much as is needed in the
world market."

IMF says high oil prices threaten the global economy

Huffington Post 12 Reuters, 02-24-12, IMF: Global Threat of Rising Oil
Prices Right In Front Of Us, Huffington Post Business,
http://www.huffingtonpost.com/2012/02/24/oil-prices-rising-prompt-imf-warningglobal-economy_n_1299637.html
The International Monetary Fund flagged higher oil prices as a rising
threat to the global economy on Friday, urging policymakers to keep a
close eye on western tensions with Iran, which is facing punitive measures
against its crude supplies. Looming U.S. sanctions on Iran's oil buyers, as well
as an impending European Union oil embargo, have forced countries to cut back
on purchases from the world's fifth-largest exporter of crude, pushing up
the price of the commodity. Policymakers from around the globe are converging

on Mexico City for a meeting of finance ministers and central bankers from the
Group of 20 economic powers, and several of them raised concerns over the
spiralling crude costs. "A new risk on the horizon, or maybe not on the
horizon, maybe right in front of us, is high oil prices," David Lipton, First
Deputy Managing Director of the International Monetary Fund, said in a presentation
at the G20 gathering. "The situation in Iran is a risk that we have to be thinking
about. Our assessment is that the global economy is not really out of the
danger zone," Lipton added, noting, however, that it was too early to revise down
the Fund's growth forecasts. Lipton was speaking just after U.S. Treasury Secretary
Timothy Geithner said Washington was weighing the circumstances that could
warrant tapping the U.S. strategic oil reserve to counter the supply disruptions from
Iran. The fear of tightening supplies, exacerbated by a threat from Tehran
to close the Strait of Hormuz - the main Gulf oil shipping lane - have lifted
prices to new highs. Western powers are increasingly at loggerheads with Iran
over its efforts to generate nuclear power. Iran insists it wants to harness atomic
energy for peaceful ends, but the West suspects it is trying to acquire nuclear
weapons. A day after hitting a record high in euro terms, Brent crude jumped
above $124 a barrel, raising worries that a run of sharp price gains could
stymie the euro zone's growth prospects, making it harder for
governments to meet budget targets and pull the currency bloc out of its
debt crisis. Mexico, which is hosting the G20 meeting, has been pushing for the
euro zone to take further steps to solve the debt crisis and for policymakers to make
progress on increasing the IMF's firepower, lest it be needed to help in Europe. But
some countries have said there can be no talk of more IMF resources without a
stronger European firewall, which is to be discussed among European Union leaders
next week. Angel Gurria, the Secretary-General of the Organisation for Economic
Co-operation and Development, followed up on Geithner's comments by saying the
jump in oil prices were due to politics and would not be solved by releasing
reserves. "These prices are due to a great extent ... because there is a lot of
tension, these discussions every day over the Straits of Hormuz and Israel," Gurria
told Reuters in Mexico City. Gurria said there was no distortion in markets and oil
prices of up to $100 per barrel were "the new normal". "We are not seeing a
situation today where there is something wrong with (market)
fundamentals, in fact, we are seeing a slowdown in the global economy.
There should be a reduction in consumption," he said. The weak dollar also
was cited by analysts as a supportive factor for oil. The dollar index weakened and
the euro hit a fresh 2-1/2 month high against the dollar.

Empirics
High oil prices negatively impact global economic growth
Li 12 Dr. Mingqi Li, associate professor of economics at University of Utah, 3-142012, The Global Is Now More Vulnerable to Oil Prices than Ever, Oil Price,
http://oilprice.com/Energy/Oil-Prices/The-Global-Economy-is-Now-More-Vulnerableto-Oil-Prices-than-Ever.html
This paper examines the impact of oil price changes on global economic growth.
Unlike some of the recent studies, this paper finds that oil price rises have had
significant negative impact on world economic growth rates. A time-series
analysis of the data from 1971 to 2010 finds that an increase in real oil
price by one dollar is associated with a reduction of world economic
growth rate by between 0.04 and 0.1% in the following year. Therefore, an
increase in real oil price by 10 dollars would be associated with a reduction of world
economic growth rate by between 0.4 and 1% in the following year. For a global
economy that in average grows at about 3.5% a year, a reduction of this
size is very significant. Moreover, the regressions seem to have suggested that
the impact of oil price on economic growth may have increased over the
last one or two decades. This is in contradiction with the widely held belief that
the global economy has become less vulnerable to oil price shocks. These findings
suggest that if the world oil production does peak and start to decline in the
near future, it may impose a serious and possibly an insurmountable
speed limit on the pace of global economic expansion.

High oil prices damage the global economy

Warner 13 Jeremy Warner, assistant editor of The Daily Telegraph & business
and economics commentator, 11-21-2013, Oil is both the lifeblood and the poison
of the global economy, The Daily Telegraph,
http://www.telegraph.co.uk/finance/oilprices/10465340/Oil-is-both-the-lifeblood-andthe-poison-of-the-global-economy.html
Ever since the price shocks of the Seventies, oil has had an unerring
ability to play havoc with the world economy. This shouldnt entirely surprise,
for oil is the basic feedstock, or energy source, for much of todays
economic prosperity and wealth. Without it, we would still be manually drawing
water from well and stream, or riding to market in a horse and cart. For all the wellintentioned talk of decarbonisation, oil remains the lifeblood of most gainful
economic activity. There is no chance of that changing in the foreseeable
future. Yet in performing this service, hydro-carbons have also become a key
driver of the economic cycle itself. A rising oil price is both deflationary
and inflationary at the same time a poisonous economic mix if ever there
was one. If the price goes too high, it will depress the economy while
simultaneously adding to inflation. More money spent on oil means less
for spending on everything else. Fortunately, there is also a benign reverse
effect. Eventually, weakened demand will cause the price to start falling, at which

point oil becomes a powerfully reflationary force. At least, thats how it used to
work. Over the past decade, this pattern has changed. Fast growth in emerging
markets has undermined the old rules, so that, despite economic
stagnation in high income nations, we still have what are by historic
standards very high oil prices. Opec has also got better at manipulating supply
to sustain the price. The reflationary effect that Western nations used to enjoy from
a falling oil price no longer occurs. No one would suggest that this is the whole or
even primary explanation for the permanent stagnation that seems to have settled
like a pall on many advanced economies, but it is undoubtedly part of the story.
Energy prices are simply too high to allow for the resumption of more
normal levels of growth. Indeed, the real surprise is that the damage
hasnt been greater still. Even 10 years ago, the persistence of $100 a barrel oil
would have had a devastating effect on high-income economies. Today, weve had
to learn to live with it.

High oil prices risk global recession empirics prove

Hodges 12 Paul Hodges, Chairman of International eChem, 12-15-2012, High
oil prices present recession risk, ICIS, http://www.icis.com/blogs/chemicals-and-theeconomy/2012/12/high-oil-prices-present-recess/
Oil prices are heading for a second successive year of record annual
prices. Last year, Brent averaged $111/bbl and it is averaging similar levels so far
in 2012. History suggests this is very bad news for consumers, for
companies and for the global economy. The reason is that consumers in most
major economies are now paying record or near-record prices for gasoline
and diesel, and for heating or cooling their homes. But their incomes have
not risen to match these higher prices. So they have been forced to cut
back on other spending. In turn, this is now reducing corporate earnings
and risks tipping the world into recession. The chart explains the issue in its
historical context. Since 1970, oil prices have mostly been below 3% as a share of
global GDP. The exceptions when it was above this level in 1973/4, 1979/80,
1989/90 and 2007/8 were all followed by recession. The impact is not immediate
though, due to the inefficiency of the mechanisms by which higher oil
prices are passed through to end-users in the major industry sectors.
Crude oil itself is traded in real-time on electronic exchanges and in physical
markets. But buyers cannot then immediately increase their own prices. Typically,
prices downstream are set for 6 months or even a year ahead, in line with the needs
of consumer industries such as retail and autos. Thus when oil prices start
rising, buyers down the chain have to rush into the market and buy
furiously, in as large a quantity as possible, in order to protect their
margins. This then creates the perception of shortages and drive prices
still higher. In turn, it gives the outside world the illusion of robust
demand. Why else thinks the complacent observer, would people be buying in
such volume? It is only when prices finally stop rising that reality begins to dawn.
Value chains are notoriously complex in this area, and it takes time for players to
fully recognise that the perceived shortages were mainly driven by inventory
changes. And only then do companies finally discover demand was actually

reducing over the period, as cash-strapped consumers cut back on discretionary

spending. Worryingly, this seems to be the point we are reaching today. It is
therefore probably no real surprise that companies are reporting
increasing pressure on margins and volumes, and analysts are hastily
starting to revise their 2013 growth forecasts.

Lower oil prices benefit consumers, stocks, and the economy

overall
La Monica 11 Paul R. La Monica, Assistant Managing Editor of CNN Money,
05-12-2011, Oils down and so are stocks? Thats silly, CNN Money,
http://money.cnn.com/2011/05/12/markets/thebuzz/
Oil prices have taken a hit in the past few days, and so have stocks. The market did
bounce back a bit Thursday afternoon as oil prices edged from their lows, but
apparently investors are still worried about what lower crude will mean for profits in
the energy sector. The big five oil companies -- whose CEOs testified in front of
Congress Thursday about energy prices and tax breaks -- have been notable losers
lately. That makes sense. The party may be over for the likes of Exxon Mobil (XOM,
Fortune 500), Chevron (CVX, Fortune 500), Royal Dutch Shell (RDSA), BP (BP) and
ConocoPhillips (COP, Fortune 500). Still, why has the entire market fallen just
because oil prices are down? And why did it recover from its losses when oil
rebounded? Well, there is also chatter that the sharp pullback in
commodities could be a sign that the global economy -- particularly
emerging markets -- are slowing down. But that is such a short-sighted,
anti-consumer point of view. It's no wonder why so many average Americans
think there is a disconnect between Wall Street and Main Street. Let me explain it to
traders with a Foghorn Leghorn-ian rebuke. "No no no! You've got it all wrong!.
Lookit here son. Boy, I say, boy, lower oil prices are good for consumers and the
economy. Good, I tell ya!" People are anxious about gas being this close to $4 a
gallon.. That could lead to lower amounts of spending on other goods. That's not an
encouraging sign for retailers or any company that makes consumer products. So
the fact that oil prices may finally be heading back toward normal levels -assuming that gas prices eventually follow suit -- is undeniably a good
thing for consumers. And that's good for the economy and the broader
market. "Higher oil prices are a sign of contraction, not inflation. If
commodity prices are coming down, that's bullish for consumers and
stocks, not bearish," said Max Bublitz, chief strategist with SCM Advisors, a
money manager based in San Francisco owned by asset manager Virtus Investment
Partners (VRTS). Keep track of oil and other commodities; Even big businesses (that
aren't in the energy sector of course) should be rejoicing. Fuel costs have the
potential to eat into the profits of many firms. Airlines, truckers and other
transportation companies obviously get hurt by higher oil prices. But so do leisure
companies like cruise line operators Royal Caribbean (RCL) and Carnival (CCL),
automakers GM (GM, Fortune 500) and Ford (F, Fortune 500) and big purchasers of
plastic like Coke (KO, Fortune 500) and Pepsi (PEP, Fortune 500). "Historically, oil
prices are inversely correlated with stock prices because oil is such a big

input cost for companies," said Kate Warne, market strategist with Edward Jones
in St. Louis. "At some stage, we should begin to see lower oil prices as a
catalyst for stocks to go up." Keep in mind that even though oil has "plunged" in
the past week, prices are still uncomfortably high. It wasn't that long ago that prices
were consistently in the $80 to $90 a barrel range. The only thing that's really
changed in the past few months to justify the huge spike in oil is that there are more
fears about supply due to the "Arab Spring" revolts in the petroleum-rich nations of
the Middle East and North Africa. It seems odd to suggest that demand for oil in
China, India, Brazil and other developing nations is falling off a cliff just because oil
has pulled back to below $100. Unless crude actually plummets below the $80 to
$90 range it was in before events in Egypt, Tunisia and Libya became fodder for
daily headlines, all that appears to be going on now is a reversion back to where
prices arguably should be absent any speculative froth. Warne said some
investors may also be making the mistake of reading too much into what
is happening in the markets on a short-term basis. Commodities plunge in
one-week? Must be the beginning of a double-dip recession! "There is often an
overreaction to information. There is this tendency where each new piece
of data is viewed as having much bigger implications than it should," she
said. Bublitz agreed that people may be overanalyzing the volatility in oil and other
commodities. There may not be a real rhyme or reason behind the big swings
because it could simply be due to program trading. Or to quote Pink Floyd: Welcome
to the Machine. "I don't want to sound all 'grassy knoll' here but I think a lot of
what's going on with the commodity markets is about algorithmic trading and
computer systems seeking momentum," Bublitz said, "To a certain degree, that's
been feeding things on the way up and the way down." So if oil prices keep falling,
resist the urge to declare that it's the start of a new bear market for stocks. Instead,
you'd be better off breathing a sigh of relief because it just might mean gas prices
won't hit a new record high after all.

Manufacturing
High oil restrains global economic activity manufacturing is
key to growth
Parkinson 13 David Parkinson, The Globe and Mail Columnist and Economy
Lab Editor, 3-22-13, Oil prices crippling to manufacturing activity and economic
recovery, The Globe and Mail, http://www.theglobeandmail.com/report-onbusiness/economy/economy-lab/oil-prices-crippling-to-manufacturing-activity-andeconomic-recovery/article10196577/
The long-overdue retreat in crude oil prices may provide a welcome break for
consumers. But it isnt enough to get oils foot off the throat of the global economy,
Julian Jessop argues. Mr. Jessop, chief global economist at London-based Capital
Economics, wrote in a research note this week that Brent crude the North Sea
crude grade that serves as a key global benchmark for oil pricing
remains at levels where, historically, the worlds energy-intensive
manufacturing sector stalls. This despite Brents pullback in the past six weeks
from nearly $120 (U.S.) a barrel to $108 a consequence of global demand
concerns as well as investor risk aversion amid the Cyprus banking crisis.
(The North American benchmark grade, West Texas intermediate, also fell nearly $8
a barrel between the end of January and early March, but has since recovered
almost half that decline.) Mr. Jessop said recent history indicates that oil is a
hindrance to manufacturing activity and, by extension, economic
recovery whenever Brent is more than $100 a barrel. The global
manufacturing PMI [purchasing managers index] fell below 50 in early 2008 when
Brent first climbed above $100, and before the global crisis hit hard. The PMI also
started to weaken in early 2011 when Brent rose above $100 again. Oil prices have
been relatively stable above $100 for most of the last two years, but the recovery
has been lacklustre throughout this period, too. High oil prices are themselves
a major constraint on economic activity, he said. Every $10 increase in
the price of a barrel of crude represents a transfer equivalent to around
0.5 per cent of global income from oil consumers to oil producers. While
global GDP would be constrained by less than that oil producers will spend some
of their windfall Mr. Jessop still estimated that a $10 rise in the oil price
reduces global GDP by about 0.2 per cent. Oil prices rose by about $12 in just
two months between early December and early February (sufficient to knock around
0.25 per cent from global GDP). It seems unlikely that it is entirely a coincidence
that the recovery in the global manufacturing PMI has stalled again this year, he
said. Our view is that this is evidence of demand destruction, where high
oil prices undermine the global recovery and hence prove to be
unsustainable. Either oil prices have to fall a lot further, or demand will
need to find new momentum from another source. But even if Brent crude
retreated into the $90-$95 range consistent with Capital Economics forecast for
the next two years we dont expect cheaper oil alone to provide enough of a
boost to global demand to offset fiscal headwinds, he said. The cumulative fiscal
tightening planned in advanced economies adds up to at least 2 per cent of their

GDP over the next two to three years, or 1 per cent of global GDP, Mr. Jessop wrote.
To offset this oil prices would have to slump by $50, taking Brent to $60. This is
not inconceivable, but it is unlikely, providing another reason to expect the recovery
to remain sluggish.

Poverty
Study shows high oil prices exacerbate poverty and hurt
economic growth
Naranpanawa & Bandara 9 Athula Naranpanawa & Jayathileka S.
Bandara, Naranpawa: BSc, PhD, Lecturer at Griffith University Business School,
2009, Poverty and Growth Impacts of High Oil Prices: Evidence from Sri Lanka,
Purdue University,
https://www.gtap.agecon.purdue.edu/resources/download/5514.pdf
In this study, two CGE models, the Global Trade Analysis Project (GTAP) model
and a
poverty-focused Sri Lankan CGE model, were linked in the top-down mode to
examine the poverty and growth impacts of high oil prices on the Sri
Lankan economy. The results suggest that in the short run, high oil prices
would have an overall negative impact on Sri Lankas economic growth
and also exacerbate poverty. Furthermore, results suggest that urban low
income households are the most adversely affected group followed by
rural low income households who are predominantly employed in the
agricultural sector. In contrast, estate low income households are the least
affected out of all low income households. Moreover, energy intensive
manufacturing and services sectors would be affected most compared to
the agricultural sector. The overall results suggest that it would be necessary
to implement complementary policies that would ease out the burden of
high oil prices on low income groups in the short run. These complementary
policies should include the continuation of the currently operating fuel subsidy
scheme, better targeting vulnerable low income groups. The IMF has also been
advocating this argument in recent weeks (see The Island, April 5, 2011). There is a
need for a proper fuel pricing policy and targeted subsidies within the context of
post-war development and poverty alleviation in Sri Lanka.

High Prices Bad Political Instability

Political Instability
High oil prices cause political instability
Global Risks Insights 13 (Political risk analysis for businesses and
investors, 08-15-2013, The Real Reason High Oil Prices Lead to Instability, Oil
Price, http://oilprice.com/Energy/Oil-Prices/The-Real-Reason-High-Oil-Prices-Lead-toInstability.html)
Businesses rarely gain from political instability so trying to predict unrest is a critical
activity for any entity investing in a volatile corner of the world. One of the factors
most often cited as contributing to unrest is high oil prices. Drawing a link
between rising oil prices and political instability is not particularly novel. Indeed, it
has been pointed out by countless observers who see anger with rising
costs leading to political activism. They note that oil is linked to higher costs
across the board. The most direct interaction with oil for many people is at a gas
station. But oil prices affect the cost of nearly everything else. For example, the
price of diesel fuel for farming equipment alters food prices. This was a
major source of concern in Egypt during the revolution, where food
inflation has hit double digits multiple times in the past several years. But
if oil prices are really to blame for instability then Egypt also offers a tricky puzzle.
Oil prices peaked at $140 per barrel in 2008, before crashing during the Great
Recession. They remained at less than $100 per barrel during the start of the
revolution in January 2011. The fact that the Arab Spring timeline does not match
the rise and fall of oil prices might cause some to discard petroleum as a critical
factor in the revolutions. However, that would be to miss the real political cost
of high oil prices. High oil prices have a delayed political effect,
particularly in countries that heavily subsidize petroleum. If oil prices
spike sharply and governments are unwilling to reduce subsidies for fear
of political ramifications, it can lead to an increase in national debt and a
crowding out of public services as an increasing percent of public
resources are diverted to petroleum costs. Egyptian energy subsidies are
estimated at $16.8 billion and the Petroleum Ministry is reported to lose roughly 66
percent on each barrel of oil they produce. In more individual terms, Egyptians
spend 18 cents USD per liter for diesel fuel at pump stations, while Americans
spend over a dollar. These subsidies were a critical factor in exploding Egypts
budget. At the start of the revolution, Egyptian national debt was 73.2 percent of
GDP and the budget deficit stood at 8.1 percent of GDP. Given such numbers, it
is little wonder the government was unable to make significant gains in
healthcare, education or infrastructure. Oil subsidies were not the only
driver of this debt burden, but they were a key contributor. This toxic
combination of subsidies, rising petroleum prices, and exploding debt is
not unique to Egypt. Pakistan and Venezuela are just two examples of other
countries facing a similar situation. The lesson here for companies seeking to avoid
instability is twofold. First, rising oil prices can have an indirect political
impact through increasing debt and crowding out other government

services. Second, this effect may be delayed and not fully felt until
repayments become due in later years.

High Prices Bad US Economy

General US Economy
U.S. markets are strong now, but sustained high oil prices will
stall the economy
MarketWatch 6/22 Wall Street Journals MarketWatch, Byline Anora
Mahmudova, MarketWatch markets reporter, 6/22/2014, $50 jump in oil prices
could stall U.S. economy, MarketWatch, http://www.marketwatch.com/story/50jump-in-oil-prices-could-stall-us-economy-2014-06-22
The weekly gains now resemble daily gains of yesteryear. In fact, the benchmark
index has not had a daily move of more than 1% for more than two months. Still,
the stock market is on track for solid monthly and quarterly gains barring a
catalyst that may result in a long-awaited pullback.
Several such catalysts, such as sectarian war erupting in Iraq and consequently a
sharp rise in oil prices, continued tensions between Ukraine and Russia and the
Federal Reserve policy meeting were brushed off by investors in equity markets in
the past week.
However, if oil prices continue to climb, stock markets will take notice,
according to analysts at Morgan Stanley. Also read: U.S. oil hits 9-month high as Iraq
worries simmer
Rising oil prices translate to rising gasoline prices, but there is lag of several
weeks. Given recent jump in oil prices, gas prices in the U.S., which have remained
stable since the beginning of May, are poised to increase in coming weeks. Higher
prices at the pump will be taxing for consumers, whose purchasing power
is still questionable.
The good news is that a temporary price increase of $10 a barrel will have no
impact on the economy a year out, according to Morgan Stanley analysts. Thats
primarily due to increased efficiency of cars consumers change of behavior when
gas prices rise Americans just drive less.
The not so good news is that a permanent rise of a $10 a barrel price
increase would knock down real GDP growth by 0.4 percent four quarters out.
A sustained $50 a barrel jump in oil prices would be enough to stall the
U.S. recovery, the Morgan Stanley note said.
If situation in Iraq escalates further, markets will be jittery.
Rising oil prices worry the Fed officials too. Federal Reserve Chairwoman Janet
Yellen said escalation of war in Iraq and a jump in oil prices would be listed as
something in the category of risks to the outlook during her press conference
Wednesday following the FOMC meeting.

Low oil prices are good for US economic growth and stability
most recent evidence proves
Levi 3/26 Michael A. Levi, David M. Rubenstein Senior Fellow for Energy and
the Environment in the Council on Foreign Relations, 03-26-14, The Geopolitical
Potential of the U.S. Energy Boom, US House of Representatives Meeting Report,

http://docs.house.gov/meetings/FA/FA00/20140326/101956/HHRG-113-FA00-WstateLeviM-20140326.pdf
The main geopolitical consequences from the U.S. oil boom will also result from
dynamics unrelated to exports. Rising U.S. oil production will restrain oil price
increases. How much so is highly uncertain, and depends on oil production decisions
by Saudi Arabia and, to a lesser extent, other major oil producers; the long-run
impact of higher U.S. oil production could be as little as a few dollars a barrel
(perhaps the most likely case) and as much as twenty dollars a barrel or more. At a
minimum, rising U.S. oil production reduces the risk of substantially
higher oil prices. Lower oil prices are good for U.S. economic growth,
reduce U.S. exposure to oil market disruptions overseas and thus increase
U.S. freedom of action in the world, harm oil exporters (some but not all of
which are hostile or unfriendly to the United States), and help oil
importers.

Lower oil prices benefit the US Economy

Unger 13 David J. Unger, Staff Writer for Christian Science Monitor with a
Masters Degree in Journalism, 10-25-2013, Oil prices fall below $100. Still good for
the US economy?, CS Monitor, http://www.csmonitor.com/Environment/EnergyVoices/2013/1025/Oil-prices-fall-below-100.-Still-good-for-US-economy
High supply and low demand are pushing US oil below the $100 mark after
months of prices clinging to triple digits and prices could fall further still.
Robust oil inventories are driving prices down, along with hopes that easing
relations with Iran could bring additional oil onto the global market. Falling oil
prices typically boost US economic growth as cheaper energy helps
consumers and industry's bottom lines. And, despite the hit that the
booming US oil industry will take, it's still true that cheaper oil is a net
positive for US growth. It would take a much bigger price plunge to derail the
boom. That isn't likely to happen anytime soon, most analysts suggest. "The oil
market remains well-supplied as production in the US has increased to just shy of
7.9 million barrels per day, the highest level since 1989," Andrew Lipow, president
of Lipow Oil Associates in Houston, says in a telephone interview. Mr. Lipow also
cited "record production out of Saudi Arabia and the market anticipating that some
progress might be made between Iran and United Nations on their nuclear
program." Prices dipped below $100 Monday for the first time since July, hitting a
low of $95.95 Thursday. They have since rebounded a bit, rising 37 cents Friday to
$97.48 in midday trading. Average US gas prices dropped a cent to $3.32 per gallon
Friday, according to AAA, the national motor club based in Heathrow, Fla. That's
down four cents from a week ago. The drops came as US crude oil stocks jumped a
larger-than-expected 5.23 million barrels for the week ending Oct. 18, according to
the US Energy Information Administration (EIA). That puts inventories at 10 percent
above the five-year average, according to an analysis by Platts. A tepid September
jobs report released this week curbed optimism about US economic growth, putting
added downward pressure on oil prices on projections of lower demand. The US
economy added 148,000 jobs in September, according to government data, less

than the 180,000 many economists expected. Iran's Tuesday announcement that it
has halted uranium enrichment to bomb-grade levels improved the outlook for USIran relations. Sanctions have crippled Iran's oil industry, and investors hope an
easing of tensions could open up Iran's vast oil reserves to the West. The country
has the world's fourth-largest proven oil reserves and the world's second-largest
natural gas reserves, according to EIA . Oil prices remain historically high, but
the recent drop is a boost for consumers and companies who have been
waiting for prices to reflect increased production in North Dakota, Texas,
and other shale formations across the US. Those sites are at risk if prices drop
too low, however. "Fracked oil is high cost oil," Morgan Downey, a commodities
trader based in New York, writes in an e-mail. "There is a cost curve, with some able
to produce under $50 and some only if oil prices are above $75 per barrel. That's
what many forget: the boom in US tight oil supply exists only because oil prices are
high. If prices drop to $50 or less for an extended period, we could see US oil
production contract and the boom would be over."
Oil could dip to $93 a barrel by the end of the year, Lipow projects, with retail
gasoline hitting $3.20. Even then, prices would remain well above the breakeven point, in a sweet spot that helps consumers while keeping domestic
oil production profitable."Low oil prices are still a good thing for the US
economy," Jamie Webster, an energy analyst with IHS PFC Energy, a global
consulting firm, writes in an e-mail. "While unconventional oil is relatively expensive
oil to produce, we are still not in the range where investment slows
measurably, so you still have strong support for oilfield jobs."

GDP
Lower oil prices increase GDP, lower inflation, and help demand
recovery
Ranasinghe 13 Dhara Ranasinghe, CNBC Senior Writer, Reuters
correspondent and sub editor, 04-17-2013, Growth Worries? Asia Should Hail That
Oil Price Fall, CNBC, http://www.cnbc.com/id/100651177#.
As worries over the outlook for the global economy resurface, analysts tell CNBC
that Asia can take comfort from one fact the sharp fall in oil prices.
According to Credit Suisse, a sustained 10 percent drop in oil prices would
add 10-20 basis points to gross domestic product (GDP) growth in nonJapan Asia and knock 50-90 basis points off headline inflation. Oil prices
have fallen almost 7 percent in the last five days on expectations of sluggish
demand from the U.S. and China, the world's two biggest economies. The price of
Brent crude oil has tumbled 18 percent from a peak of $118 a barrel in February to
below $98 this week. Weaker-than-expected economic data from the U.S. and China
over the past week have heightened concerns that the global economic outlook is
not as strong as many expected just a couple of months ago. But the fall in oil
prices provides a silver lining, say analysts. Mizuho Corporate Bank's market
economist Vishnu Varathan says there are three reasons why the oil price
slide is positive for Asian economies. "Most Asian countries are oil
importers, so lower oil prices translate into more positive economic
dynamics in terms of consumer and investor sentiment because it will
lower inflation," he said. "It's also good for manufacturers because Asia byand-large is a net exporter of goods to the rest of the world so there are
less cost pressures." "The bigger picture good news is that lower oil prices
shift some of the resources from oil producers to consumers, aiding the
global demand recovery," he added. He said one caveat is that for net oil
exporters in Asia such as Malaysia, government coffers could suffer from the fall in
oil prices. Lower Oil Equals Lower Inflation: Analysts pointed to the positive
impact lower oil prices would have on Asia's inflation outlook. "Given the
importance of the global oil price in driving inflation in Asia, this development will
reduce upward price pressure," Credit Suisse said in a research note published
late Wednesday. "China, Thailand and Singapore are likely to be the biggest
beneficiaries in terms of lower headline inflation." Price pressures in countries such
as China and India have been seen as an obstacle to further monetary easing,
although latest data suggest inflation has started to ease. In China, annual
consumer inflation eased to 2.1 percent in March from 3.2 percent in February,
while data this week showed India's key inflation gauge eased to below 6 percent in
March for the first time since 2009. "There's been good news for the Indian
economy in recent weeks, that gold prices, crude oil prices have come off," Patrick
Bennett, currency strategist at CIBC in Hong Kong told CNBC's "Asia Squawk Box" on
Thursday. "This will have a positive impact on the trade and current account
deficit and the RBI [Reserve Bank of India] will be able to cut interest
rates again early next month." Credit Suisse adds that because India, as well as

Indonesia, subsidizes fuel heavily the fall in oil prices is good news for the public
finances in those countries. It says the lower inflation pressure from lower oil
prices supports its view that central banks in India, South Korea and
Taiwan will lower interest rates in the months ahead. The Bank of Korea took
markets by surprise last week by leaving its benchmark rate unchanged at 2.75
percent in the face of government pressure to give the economy a boost via a rate
cut. It has kept monetary policy steady for the past six months.

Low oil prices encourage GDP growth

Colten 13 Katie Colten, Communications and Membership Manager at FAS, coeditor of the Public Interest Report, 05-21-13, Energy and World Economic Growth,
Federation of American Scientists, http://fas.org/pir-pubs/energy-and-worldeconomic-growth/#footnote_plugin_reference
These events are not surprising because oil has a very low elasticity of demand and
supply with respect to price. That means very large price changes are required to
increase supply or decrease demand. In addition, oil has a very high elasticity of
demand with respect to income. That means economic growth strongly
increases oil demand. Lastly, oil expenditures can be a large enough
component of GDP to adversely affect economic growth if they grow too
large. Added together, these interactions can produce the following cycle: High
GDP growth drives oil prices to high levels since high income elasticity increases oil
demand while low price elasticities require high oil prices to balance demand and
supply 2) The resulting high share of GDP spent on oil reverses GDP growth; With
lower GDP growth, high income elasticity reduces oil demand;
With lower oil demand, low oil price elasticities sharply lower oil prices;
and Low oil prices reduce oil production investments but encourage high
GDP growth. Oil prices are only one factor affecting the world economy.
Nonetheless, world GDP growth and oil prices are periodically engaged in
the cycle described above. Oil prices can also stabilize at levels that are not high
enough to cause a downturn in GDP growth, while GDP growth is not high enough to
push oil prices past the level where the share of GDP spent on oil reverses GDP
growth. 3)

Lower oil prices help economic growth, metal markets

Richter 13 Joe Richter, 11-25-2013, Copper Rises as Lowe Oil Prices Hel Buoy
Demand Outlook, Bloomberg News, http://www.bloomberg.com/news/2013-1125/copper-drops-amid-speculation-federal-reserve-to-slow-stimulus.html
Copper futures rose to the highest in two weeks in New York on
speculation that a drop in crude-oil prices will help underpin economic
growth, brightening demand prospects for the metal. West Texas
Intermediate crude futures for January delivery fell as much as 1.9 percent today on
the New York Mercantile Exchange, after Iran and world powers reached an initial
deal on the nations nuclear program. Copper gained 1.1 percent last week amid
signs of stronger demand in China, the worlds biggest user. The drop in oil

prices is positive for the health of the consumer and for economic growth
overall, Bill ONeill, a partner at Logic Advisors in Upper Saddle River, New
Jersey, said in a telephone interview. Its more support for the demand side of
the equation, after copper had a nice little run last week. Copper futures for
delivery in March added 0.4 percent to settle at $3.23 a pound at 1:07 p.m. on the
Comex in New York after reaching $3.2685, the highest for a most-active contract
since Nov. 11. Money managers almost tripled their copper net-short positions, or
bets on falling prices, to 24,067 futures and options contracts in the week ended
Nov. 19, U.S. Commodity Futures Trading Commission data showed. The figures may
indicate the market got a little oversold after prices declined earlier this month,
ONeill said. Inventories monitored by the Shanghai Futures Exchange fell 11
percent last week, the most since December 2011, data showed. Stockpiles
monitored by the London Metal Exchange dropped to a nine-month low today. On
the LME, copper for delivery in three months increased 0.1 percent to $7,099 a
metric ton ($3.22 a pound). Nickel, zinc, lead and aluminum fell in London. Tin rose.

Consumer Confidence
Low gas prices boost the economy consumer confidence
Geewax 13 (Marilyn Geewax, NPR Senior Business Editor, Cox News
Correspondent, Nieman Fellow at Harvard, Masters from Georgetown, 10-18-2013,
Declining Gas Prices Pump Up A Shaky Economy, NPR,
http://www.npr.org/2013/10/18/236222110/declining-gas-prices-pump-up-a-shakyeconomy)
In recent weeks, economists have been worrying about the negative impact of the
now-ended government shutdown and potential debt crisis. But away from Capitol
Hill, the economy has been getting a big boost: Gasoline prices have been
declining, week after week. In some parts of the country, a gallon of unleaded
regular gasoline is now down to less than $3 a gallon a price most Americans
haven't seen in three years. And any time the pump price starts dropping,
consumer spirits start rising. "When it falls, everyone has a smile on their face,
and when it goes up, nobody is happy," said Mike Thornbrugh, spokesman for
QuikTrip, a Tulsa, Okla.-based company that operates nearly 700 gas stations
nationwide. Dozens of them are located in the Tulsa area, where many stations sell
gas for around $2.99 a gallon, thanks to low fuel taxes and nearby refineries. Chuck
Mai, spokesman for the AAA auto club in Oklahoma, says the lowering of
geopolitical tensions involving Iran, Syria, Egypt and other places in the
Middle East has helped cut prices. "Tensions seem to have cooled there," Mai
said. "And no hurricanes threatening the Gulf [of Mexico], so everything looks
good for continued lower prices." Mai's assessment is shared by most
economists, who are predicting prices will be heading even lower over the
next several months. Analysts point to a number of triggers that shot down gas
prices, allowing the average price of a gallon to slide from $3.74 in March to $3.37 a
gallon this week.

Low oil prices increase consumer confidence and benefit the

economy
Fahey & Wiseman 12 (Jonathan Fahey & Paul Wiseman, Fahey: Associated
Press Energy Writer & Wiseman: Associated Press Economics Writer, 05-16-2012,
Lower oil prices good news for motorists, Obama, The Washington Times,
http://www.washingtontimes.com/news/2012/may/16/lower-oil-prices-good-news-formotorists-obama/)
A threat thats been hanging over the economy is starting to look a lot less
menacing.
Oil and gasoline prices are sinking, giving relief to businesses and
consumers who a few weeks ago seemed about to face the highest fuel
prices ever. President Obamas re-election prospects could also benefit, especially
if prices keep falling as some analysts expect. A majority of Americans disapproved
of Mr. Obamas handling of gas prices in an AP-GfK poll early this month. But that
was before the full effect of the recent drop had reached drivers. The

average U.S. retail gasoline price has dropped 21 cents a gallon to $3.73 since
hitting a 2012 peak of $3.94 on April 6. The economy could gain, too.
Consumers who spend less on fuel have more to spend on other
purchases, from autos and furniture to appliances and vacations, that could help
drive economic output and job growth. The price drop will likely boost
consumer confidence. It also comes at a timely moment: Ahead of the Memorial
Day weekend, a busy one for travel and entertainment spending. Its extra money
in the wallets of most American consumers, and thats going to help, said James
Hamilton, an economist at the University of California, San Diego who studies oil
prices. Lower oil prices also mean cheaper diesel and jet fuel for shippers
and airlines. Crude oil, which is used to make gasoline, is at a seven-month low of
$92.81 a barrel. Its down nearly 13 percent since May 1. Behind the steady drop
are larger fuel stockpiles, easing fears about Iran and expectations of lower demand
as the global economy slows. The average national gasoline price is expected to fall
as low as $3.50 a gallon this summer. It could even dip near $3 in some states. The
national average is being propped up by refinery problems in California that have
lifted prices well above the national average there, according to Tom Kloza, chief oil
analyst at the Oil Price Information Service. A 50-cent drop in the gasoline price
would save consumers roughly $70 billion over a year. Earlier this year, oil and
gasoline prices were jumping from already high levels. Global demand was rising.
And production outages were reducing supplies. Tensions between Iran and the
West over Irans nuclear ambitions raised fears that output from the worlds thirdbiggest exporter would plunge.

Transportation Costs
Oil price decline benefits consumers, airlines, shippers, and
the economy
Fahey 13 (Jonathan Fahey, Associated Press Energy Writer, 04-22-2013Lower
Oil Prices Boost U.S. Drivers, Economy, The Columbian,
http://www.columbian.com/news/2013/apr/22/lower-oil-prices-help-driverseconomy/)
A sharp decline in the price of oil this month is making gasoline cheaper at
a time of year when it typically gets more expensive. Its a relief to
motorists and business owners and a positive development for the
economy. Over the past three weeks, the price of oil has fallen by 9 percent to $89
a barrel. That has helped extend a slide in gasoline prices that began in late
February. Nationwide, average retail prices have fallen by 27 cents per gallon, or 7
percent, since Feb. 27, to $3.52 per gallon. Analysts say pump prices could fall
another 20 cents over the next two months. The price of oil is being driven lower by
rising global supplies and lower-than-expected demand in the worlds two largest
economies, the United States and China. As oil and gasoline become more
affordable, the economy benefits because goods become less expensive to
transport and motorists have more money to spend on other things. Over
the course of a year, a decline of 10 cents per gallon translates to $13 billion in
savings at the pump.Diesel and jet fuel have also gotten cheaper in recent weeks,
which is good news for truckers, airlines and other energy-intensive businesses. It
makes a big difference to my bottom line, says Mike Mitternight, owner of a
heating and air conditioning service company in Metairie, La. He has five pickup
trucks that can burn $1,000 of gas per week when prices are near $4 a gallon.
Lately hes been paying as little as $3.19, and saving $200 a week. Gasoline prices
typically rise in the late winter and spring as refiners shut down parts of their plants
to perform maintenance and begin making more costly blends of gasoline required
by federal clean-air regulations. The trend was earlier and less dramatic this year.
Pump prices only came within 15 cents of last years peak. Oil production is growing
quickly in the U.S. and Canada, helping boost global supplies. And some of the
factors that pushed prices higher the two previous years political turmoil in North
Africa and the Middle East and refinery disruptions in the U.S. havent
materialized this spring. At the same time, demand for fuels is growing slower than
expected. China, the worlds biggest oil importer, is experiencing slower-thanexpected economic growth. And much of Europe is in recession. In the U.S., wintry
weather in the Midwest and Northeast has kept more drivers off the roads this
spring, analysts say. The typical U.S. household will spend an estimated $326 on
gasoline this April, the equivalent of 7.8 percent of median household income,
according to Fred Rozell, an analyst at GasBuddy.com. Thats $38 less than last
April, when households spent 8.8 percent of their income on gas. Its the difference
between going out to dinner one more time or not, says Diane Swonk, chief
economist at Mesirow Financial. It matters. The U.S. government releases its initial
estimate of economic output during the first three months of 2013 on Friday.

Economists forecast the economy grew at an annual rate of 3.1 percent, compared
with 0.4 percent in the final three months of 2012. Philip Verleger, an economist
who studies energy prices, says that many monthly household expenses are fixed,
but gasoline is one of the few big expenses that varies. That means when
gasoline prices rise or fall people notice. This is the equivalent of a
pay raise, he says. Shippers and airlines are also benefiting. Fuel is by far
airlines biggest and most volatile cost. A one-cent decline in the price of jet
fuel saves the U.S. airline industry $180 million over a year, according to the
industry group Airlines for America. Lower energy prices also give potential
customers more money to spend on air travel.

High Prices Bad Specific

Country Modules

India

2AC High Prices Hurt Indian Economy

A. Oil prices will rise, threatening Indias economic recovery
Reuters, 6/28/2014, Oil prices to rise as high as $120 per barrel: report,
Deccan Chronicle, http://www.deccanchronicle.com/140618/businesslatest/article/oil-prices-rise-high-120-barrel-report
Mumbai: The government expects oil prices to rise as high as $120 per
barrel for several months because of fighting in Iraq, potentially driving a hole
of at least 200 billion rupees ($3.3 billion) in the budget, two government sources
told Reuters.
Prime Minister Narendra Modi won last month's general election by a
landslide with promises of faster economic growth and new jobs, tapping
into voter anger over India's longest slowdown in a quarter of a century.
Ahead of his maiden budget next month, Finance Minister Arun Jaitley is grappling
with a food inflation scare, and now faces the risk that higher oil prices could
swell the government's subsidy bill.
"If oil prices remain high even for three to four months around $120 a barrel, it
could have a significant impact on the fiscal deficit and economic growth,"
a senior Finance Ministry official told Reuters on condition of anonymity. The official
added that this could increase subsidy costs by 200-225 billion rupees in the fiscal
year to March 31, 2015.
That would threaten the deficit target of 4.1 per cent of gross domestic product
inherited from the last government. "If oil prices remain high, it would not be
easy to meet the fiscal deficit target," the source added.
India, the world's fourth-largest oil consumer, imports around 4 million barrels a day
of crude oil - costing $165 billion a year at current prices, or more than a third of its
total import bill. The last government based its interim budget in February on an
assumption that India's basket of oil imports would cost around $105 per barrel on
average in the current fiscal year.
Prices for Brent crude, an international oil benchmark, have risen by $3 to $113
over the past week, during which Islamic militants have taken control over tracts
of northern Iraq and threatened the authority of the Baghdad government.
For every dollar that oil prices rise, the government incurs annual costs of
70-75 billion rupees (around $1.2 billion) to compensate state oil firms for
selling diesel, kerosene and other fuels at below cost. Subsidies are assessed
quarterly, based on the average oil price in the preceding quarter. That means that
the higher expected oil price would feed through into subsidy costs in the second
half of the fiscal year.

B. Indias economy is critical to world economic order

Gordon Brown, former UK Prime Minister, 11-20-10, India has a critical role in
new world economic order: Gordon Brown, (Speech to delegates at the Hindustan
Times Leadership Summit), Hindustan Times, http://www.hindustantimes.com/india-

news/newdelhi/india-has-a-critical-role-in-new-world-economic-order-gordonbrown/article1-628888.aspx2.
India could be the fastest growing economy in the world in the next ten
years as the mass of economic activity shifts from the US and Europe to
Asia entrusting greater responsibility on India in the new global economic
world order, former UK prime minister Gordon Brown said on Saturday. "The
Indian economy will double in size in the next seven, certainly by 2020,"
former Brown told delegates at the Hindustan Times Leadership Summit in New
Delhi. India's gross domestic product (GDP) is set to grow by 8.5% in 2010-11, and
a 10% growth rate was achievable in the near term, Brown said during a special
address Lessons from the Last Global Crisis. "Your (India's) role at G-20 is
absolutely critical. India is right at the centre of the discussions," Brown
said. "It is in India's interest that the world economy grows fast." India has a
crucial role to play in driving investment, trade and consumption to push
growth in the world economy.

1AR High Prices Hurt Indian Economy

High oil prices threaten the Fragile Five India and Brazil
are at risk
Wall Street Journal, Byline Chiara Albanese, market reporter for the Wall
Street Journal, and Jake Maxwell-Watts, 6/26/2014, Oil Prices Cast a Shadow Over
Emerging Markets, Wall Street Journal, http://online.wsj.com/articles/oil-prices-casta-shadow-over-emerging-markets-1403824507
The "Fragile Five" are looking brittle again.
The recent run-up in global oil prices has reawakened worries about
emerging economies already struggling with a slowdown in growth. High
energy prices are shining a spotlight on the vulnerabilities of the Fragile
FiveTurkey, India, Indonesia, South Africa and Braziland the big oil
importers in its ranks, investors and analysts say.
Members of the Fragile Five import more than they export and rely on capital flows
to make up the difference. Higher import costs fueled by rising oil prices
could spur rapid inflation, which tends to repel investors.
The Turkish lira rose 3.9% against the dollar from the start of 2014 to its high for the
year in mid-May but has since weakened by 2.7%. Indonesia's currency, the rupiah,
strengthened 8.2% against the dollar from January to early April but has since
erased most of those gains. India's rupee was up 6% year to date through May 22
but then lost 3.1%.
Benchmark stock indexes in Turkey, Indonesia and India are also off recent highs.
Some investors are concerned that the recent weakness could deteriorate
into yet another selloff, especially if oil prices continue rising or if Federal
Reserve officials strike a more hawkish tone. The recovery in emerging markets
came on the heels of lackluster performance last year, triggered largely by the Fed
signaling it would rein in some easy-money policies. The Fragile Five were among
the biggest laggards.
"Countries with current-account deficits relying on energy imports are
most vulnerable," said James Kwok, portfolio manager at Amundi Asset
Management, which managed $1.1 trillion as of March 31. "We will monitor closely,"
Mr. Kwok said, adding that the fund hasn't cut exposure yet but could do so if oil
prices keep rising back toward last year's highs.
The price of Brent crude, the global benchmark, has jumped more than 5%
since June 10, when Islamist militants took the Iraqi cities of Mosul and Tikrit. Iraq is
the second-largest producer in the Organization of the Petroleum Exporting
Countries, and oil traders are worried that Iraq's exports could be
threatened if violence spreads.

High oil prices threaten Indias economic recovery

Wall Street Journal, Byline Anant Vijay Kala, Economics Reporter, The Wall
Street Journal, and Saurabh Chaturvedi, Reporter, Wall Street Journal, 6/20/2014,

Rising Oil Prices Could Derail India's Economic Comeback, Wall Street Journal,
http://online.wsj.com/articles/rising-oil-prices-could-derail-indias-economiccomeback-1403268133
NEW DELHIIndia's heavy reliance on imported oil, especially from Iraq,
makes it more vulnerable than most countries to the conflict there, with
surging oil prices threatening to derail the new prime minister's plans to
resuscitate the economy.
Crude-oil prices have shot up to a nine-month high of about $115 per barrel. India
imports most of its oil and subsidizes fuel so higher oil prices are
particularly painful for Asia's third-largest economy. They could
exacerbate the country's fiscal and current account deficits as well as its
already-high inflation rates.
India's benchmark stock price index has slipped from record highs while the rupee
has lost ground against the dollar since June 10. New Prime Minister Narendra Modi
has mobilized his ministers to try to contain the fallout from what is evolving into his
first economic crisis since taking office less than a month ago.
"For an energy-deficit country like India, the oil crisis is a negative," Onno Ruhl, the
World Bank's India head, said Friday.
Indian markets were feeling a bit bubbly when the bad news from Iraq started.
India's rupee had been strengthening against the dollar and the country's stock
market was one of the best-performing markets in the world this year amid hope
that Mr. Modi and his Bharatiya Janata Party would use their rare majority in
parliament to pass business-friendly legislation and long-delayed modernization of
the country's ports, roads and power networks.
Investors and executives seemed to be taking a victory lap, sure that good times
were about to return to the country that less than a year ago was dubbed by
analysts as one of the "fragile five" emerging markets expected to struggle as the
U.S. wound down its easy-money policies.
The problems in Iraq are making India look fragile again.
India is the fourth-largest oil consumer in the world and relies on imports
for more than three-fourths of its oil needs. In the year ended March 31, India
imported 190 million tons or 3.8 million barrels per day of crude oil. Iraq accounted
for about 13% of those imports, second only to Saudi Arabia which supplies about
20% of India's oil imports.
The first companies in India to feel the effects, analysts say, will be the refiners such
as Indian Oil Corp. 530965.BY +0.91% or Reliance Industries Ltd. who buy Iraqi oil.
They will have to look for new suppliers to keep their plants fully utilized if supplies
are interrupted. That could have a cascading impact on petrochemical companies,
power plants and other major users of petroleum products.
Oil and energy company shares have plunged this week. Indian Oil shares have
fallen as much as 8%, while Reliance shares fell about 5% since Tuesday.
Next, the rising cost of oil could add to India's consumer price inflation rate, which
the country has only recently been able to bring down to just over 8% in May from
the more than 11% late last year.
Over the past few years, inflation in India has hovered at intolerably high levels
while the fiscal and current account deficits have swelled, presenting serious
challenges for the economy, which has slowed to its weakest levels in a decade. The

economy grew just 4.7% in the last fiscal year, about half the nearly 9% growth it
recorded in the fiscal year ended March 2011.
"India's economy is highly sensitive," to inflation from bad weather as well
as rising oil prices, Frederic Neumann, co-head of Asian economic research at
HSBC said in a report. "A prolonged rise in the cost of crude would pose headaches
for the government and [the Reserve Bank of India] alike."
HSBC estimates that a $10 per barrel increase in the price of crude oil pushes up
wholesale inflation by a full percentage point over a 12-month period. Higher
gasoline prices push up the prices of food and most other commodities because of
the increased transportation costs.
Rising oil prices also inflate India's already massive subsidy bills. India fixes the
prices on many fuelsincluding diesel and keroseneat below cost, hoping to
shield the poor from price fluctuations. Fuel retailers are forced to lose money and
then the government compensates them for the money they lost.
An oil ministry official, who declined to be named, said every dollar increase in the
price of crude oil raises the government's subsidy burden by about 60 billion
rupees.
"This will be a setback to India's efforts to improve its fiscal situation," said
Anis Chakravarty, an economist at Deloitte, Haskins & Sells.

1AR Indian Economy Key to Global Economy

India has huge responsibility in global economy
The Express Group, two-time winner of International Press Institute's India Award
for Outstanding Journalism, Kurt Shorck Award for International Journalism, Natali
Prize for Journalism and the International Federation of Journalists - Journalism for
Tolerance Prize, 3-15-12, India needs to play major role global economic matters:
Survey, The Indian Express, http://archive.indianexpress.com/news/india-needs-toplay-major-role-global-economic-matters-survey/924149/2.
India needs to play a more constructive role in global economy,
particularly in matters like international trade and capital flows,
government said today. "Given its size and its profile in the global economy, India
will inevitably need to play an active role at global level," the Economic
Survey 2011-12 said, adding that this would not be limited to just in debates on how
to resolve the continuing crisis and prevent the recurrence of similar crises in the
future. "But in influencing the rules for the global economy on overarching
macroeconomic issues such as trade, capital flows, financial regulation,
climate change, and governance of global financial institutions," the survey
added. India is on an advantageous position over many nations now
because of its large domestic market, its robust investment-to-GDP ratio
and demographic advantage. It has emerged as the fourth largest
economy globally. On the other hand, eurozone is passing through a crisis and
the US economy, though shown some improvement in recent times, still remains
sluggish. At this juncture, it is not a "realistically feasible option" for India to
take a passive stance and just wait out the period of crisis, the survey said. On
the contrary, it is imperative for India to get itself engaged with the global
development both with actions and ideas as any untoward development
could impact it as well. "India is already too much a part of the global
economy and polity; developments in the world will affect India deeply
and what India does will affect the world. There is, therefore, a need for
India to engage with the world in terms of action and ideas," the survey
said. It also said any rise and fall of the Indian economy has its bearing
on the global growth and thus, there was a need for India to "take this
responsibility seriously".

India has critical role in world economy

Namrata Kath Hazarika, staff writer at SME Times, 3-8-13, 'India, Asia-pacific
region critical to world economic growth', SME Times,
http://www.smetimes.in/smetimes/news/top-stories/2013/Mar/08/india-asia-pacificregion-critical-world-economic-growth80402.html.
India and other Asia-pacific regions will play a critical role in contributing to
the economic and financial growth of the world, said the Union Minister for
Commerce and Industry and Textiles, Anand Sharma in New Delhi on Thursday.
"Countries which has built capacities and built institution will play it's not

a defining role but a critical role in the narrative of this century. That is
what the Asia-pacific region is all about. This region in any case has been the
slowest to move," he added while addressing the ICC Asia Pacific CEO Forum. He
said these (the Asia Pacific Region) are the countries now that refer to as the
emerging economies. This economic region, which will be USD 16 trillion plus
and the potential is to double in a decade, Sharma added. India is an
important part of the South Asian economies, he added, "India is integral to
the change that is taking place. India is not an observer and India is not a
witness, India is center to it. And, we have been very clear while talking to
our partner countries and our interlocutors. I recall telling many of them
that you cannot look at Asia's economic integration without India being
the part of the process." "And I am very happy that India with our bigger
neighbour China along with Korea, Japan are very much engaged with the Asian
group," Sharma also said. The new emerging countries today are innovators
and developers and are strong partners with the developed world, Sharma
mentioned.

Indias economy is a critical engine of the global economy, also

growing more interconnected with the US
Betwa Sharma, staff writer for Rediff Real Time News, 11-24- 09, India's growth
critical for global economy: Nooyi, Rediff Real Time News,
http://business.rediff.com/report/2009/nov/24/india-growth-critical-for-globaleconomy-nooyi.htm.
Noting that India's rapid growth is a critical engine of global economy,
PepsiCo chief Indra Nooyi has said the business community in the United States was
eager on playing an active role in the country's future economic development.
"India is now on a trajectory of more rapid growth. It now stands in fact as
a critical engine of global growth, a vital partner in global security and a
model for democratic development," Nooyi, who is the chairperson of the USIndia Business Council, said following an address by Prime Minister Manmohan
Singh. Underlining that US-India relations have been deepening, Nooyi said,
"We've been able to transform the US-India relationship fundamentally
from one of Cold War mistrust to really strategic partnership." "I know I
speak for all the business interests in this room when I say that we wish you the
best for that development," she noted. "More than that, we want to actively
participate. In this interconnected world, no nation will succeed unless it
enjoys profitable relationships with others."

Indias economy crucial to global economy, especially in

Southern Asia, IT industry and services sectors key
LISA Forum India, 12-9-10, Indias Role in a Changing Global Economy, Golden
View, http://www.gvlocalization.com/en/news1.asp?id=665&Menuid=490.
Indias IT industry has emerged as a global leader for high-quality
engineering and design tasks and for development of products sold

around the world. At the same time it has helped spur a revolution in
Indias internal consumer economy, which is on track to become the third
largest in the world by 2035. Over half of the worlds leading IT firms are
located in India and the size of this sector is expected to quadruple by
2025. Much of this growth will be fueled by specialized, top-quality small-andmedium-sized companies. Meeting the demand that Indias internal market
will generate and facilitating the export of Indian high-tech consumer
goods will be a leading challenge for the globalization industry in the
coming decade. In particular, reaching Indian customers will require the
development of sophisticated and powerful approaches to multilingual
communication based on low-cost mobile platforms, a significant engineering task.
Achieving these goals will require adoption of technical, cultural, and process
standards and close collaboration between Indian government and industry and
international organizations involved in India. The emergence of large-scale trade
flows in consumer goods between countries India, China, Russia, and Brazil has
tremendous implication for the localization industry, both in India and around the
world. New language pairs, such as HindiPortuguese, will be increasingly
important and critical content will need to be provided in a variety of languages that
are seldom addressed today. Multinational companies will need to find ways to sell
to the bottom of the pyramid and creatively adapt products to market conditions
in India and other countries. India will also have a crucial role to play in
providing services for the growing consumer markets in all of southern
Asia. With a large and dedicated base of business process and IT outsourcing
companies, India will need to add globalization capabilities to meet foreign demand
for services. At the same time, Indias twenty-two official languages provide
access to a market of over 800 million consumers, making India the new
strategic market for multinational companies looking for new markets that
will experience substantial growth.

Europe

2AC High Prices Hurt European Economy

A. Higher oil prices threaten European economic recovery
CNN Money, Byline Mark Thompson, International Editor at CNN Money,
6/23/2014, Oil prices spark economic growth concerns, CNN Money,
http://money.cnn.com/2014/06/23/news/economy/oil-prices-economy/
Islamist militant gains in Iraq sent world oil prices higher Monday, sparking
concerns that this could hurt global economic growth, especially in Europe
where the recovery seems to be faltering.
Crude oil prices in London and New York touched levels not seen since last
September after militants from the Islamic State in Iraq and Syria (ISIS) seized city
after city over the weekend as they continued their march towards Baghdad.
Costlier energy could spell trouble for European economies still struggling
to regain momentum after the region's debt crisis.
Growth in the eurozone has slowed to its weakest pace in six months,
according to a June survey of purchasing managers released Monday. Companies
across manufacturing and services reported higher input prices.
"Both sectors reported higher oil prices as a key cause of rising costs,"
survey compiler Markit noted.
Rising energy costs may ease fears of deflation, which prompted the
European Central Bank to unveil an unprecedented range of stimulus measures
earlier this month.
But they add to worries about growth in countries such as France, where business
activity contracted for a second month running in June.
"Most important is the rise of energy prices," said Dominique Barbet at BNP Paribas,
commenting on the weak French data. "This will not only add to the production cost
of industry, but also put pressure on households' purchasing power."

B. EU is critical to the global economy, its the largest

economic entity in the world
Andr Sapir, Belgian Economist and Professor at the Solvay Brussels School of
Economics & Management, 2008, Europe and the Global Economy,
http://tria.fcampalans.cat/images/Europe%20and%20the%20global%20economy
%20-%20A.%20Sapir.pdf.
The European Union is the largest single economic entity in the world,
with half a billion people and a gross domestic product (GDP) slightly
larger than that of the United States. Its presence in the world economy
is powerful: it is the largest exporter and the second largest importer
(behind the US) of goods; the largest exporter and importer of services; the
largest importer of energy; the largest donor of foreign aid; the second
largest source of foreign direct investment (FDI) and the second largest
destination of FDI (behind the US); and the second destination for foreign
migrants (also behind the US). The EUs presence in the world economy

manifests itself not only through trade, capital and migratory flows but
also via an intense regulatory activity. It is, if not the main, at least the
second most important regulatory power in the world in just about every
area, including: competition policy, where EU authorities have taken the lead in
certain aspects of antitrust; environmental protection, where the EU is the main
proponent of regulation against global warming; money, with the euro being the
second largest international currency in the world (behind the US dollar); and
financial market regulation, with European markets also ranking number two in the
world (again behind the US). The European Union is not only a global
economic power, more or less on a par with the United States. It is also
the undisputed regional economic power of a geographical area that
encompasses Europe, the Middle East and North Africa (EMENA). But is it a global
or even a regional economic leader, with clearly defined objectives and a coherent
set of foreign economic policies to achieve them?

AT: High Prices Help Producers

Higher prices not helping oil producers increased costs have
matched increased revenues
HIS 6/27 IHS, global information company in energy, economics, geopolitical
risk, sustainability and supply chain management, 6/27/2014, IHS: Escalating Costs
Driving Diminishing Returns For Oil And Gas Companies Despite Stronger Oil Prices,
Oil and Gas Financial Journal, http://www.ogfj.com/articles/2014/06/ihs-escalatingcosts-driving-diminishing-returns-for-oil-and-gas-companies-despite-stronger-oilprices.html
Despite stronger oil prices, corporate returns on average capital employed
(ROACE) are lower than in 2001, when oil prices were less than $30 per
barrel, according to research from information and insight provider IHS (NYSE: IHS).
Our IHS study, which assessed energy company performance and capital
returns, included more than 80 oil and gas companies, said Nicholas D.
Cacchione, director at IHS Energy and a lead researcher on cost and energy
company performance. Collectively, these companies averaged an 11%
ROACE in 2012 and 8.6% in 2013, both of which are weaker than the
ROACE achieved in 2001 when the WTI (West Texas intermediate) crude oil price
hovered at just under $27 per barrel. The WTI crude oil price averaged $94 per
barrel in 2012 and $98 per barrel in 2013.
Said Cacchione, My guess is that shareholders are asking What gives? The
culprit is cost escalation. While returns have increased in recent years,
costs have accelerated at a rate that has squeezed margins . The more
than $60-per-barrel increase in global oil prices since 2002 has been offset
by significantly higher costs, and to a lesser degree, weaker U.S. natural gas
prices. Margins have basically been frozen.
Looking at the upstream sector, which comprises the majority of business of the
study universe; lifting costs have more than quadrupled since 2000 to
greater than $21 per barrel. Finding and developing costs have followed a
similar trajectory, reaching nearly $22 per barrel of oil equivalent (BOE) in 2013.
Government fiscal take (based on financial disclosure), which excludes the impact of
royalty volumes in the upstream sector, increased from 49% of pretax profits in
2000, to 60% in 2013.

Oil Shocks

Oil Shocks Advantage US Production Prevents

Shocks
New U.S. production key to balance prices Iraq and other
disruptions will cause price shocks absent increased
production
Bawden 6/16 Tom Bawden, Environmental Editor for The Independent
(London), 6/16/2014, Long years of oil price stability are at risk, BPs top economist
warns, The Independent, http://www.independent.co.uk/news/business/news/longyears-of-oil-price-stability-are-at-risk-bps-top-economist-warns-9540548.html
Bob Dudley, BPs chief executive, said: The major disruptions to
production seen throughout 2013 were balanced by continued rises in
production elsewhere. This underlines the importance of continuing to
secure these new supplies through continued access to new resources ,
policies to encourage markets and investment, and the application of new
technologies worldwide.
The US will leapfrog Saudi Arabia and Russia to become the worlds biggest
producer of oil and gas in the next three years thanks to its reserves of shale oil,
according to the International Energy Agency.
The review found that renewable energy production continued to grow albeit
from a low base. Renewable technologies such as wind, solar and tidal power now
account for more than 5 per cent of global power output and, including biofuels,
for nearly 3 per cent of primary energy consumption. But sustaining costly subsidy
regimes has become a challenge where penetration rates are highest principally in
Europe, where renewable producers are grappling with weak economic growth and
strained budgets, the report cautioned.
For now, though, the big energy story remains oil and whether Iraqi
disruptions or US production increases will win the day a further front in
the battle between the US and Iraq.

U.S. Oil exports stabilize global markets

Jaffe 13 Amy Myers Jaffe, 3/27/13, Expert in energy at the James Baker institute
of public policy. Executive director of energy and sustainability., The Experts: How
the U.S. Oil Boom Will Change the Markets and Geopolitics
http://online.wsj.com/news/articles/SB100014241278873241052045783826902494
36084
For four decades, the geopolitical leverage achieved by large petro-exporting
states has been a major challenge for the U.S. and its allies. Now, the rapid
growth of oil and natural-gas production from unconventional shale
resources in North America is rapidly eliminating this threat , with positive
geopolitical implications for the U.S. As political uncertainty spreads across the
Mideast, rising U.S. shale-oil production may become a more critical

touchstone to market stability. In fact, the U.S. shale-oil boom might roll back
the clock to the 1960s when a U.S. oil surplus (via the Texas Railroad Commission), put
Washington, not Riyadh, as the world's swing producer. In a world where the U.S. will
have few, if any, oil imports to replace during a global supply outage,
Washington will have more discretion to use the Strategic Petroleum
Reserve to help allies in times of crisis or to prevent oil producers from
using energy cutoffs to achieve financial or geopolitical goals. U.S. oil and gas exports will
also garner closer ties to allies and friendly countries through closer
economic relations.

AT: Oil Shocks Advantage

No impact experts agree economies are resilient to oil
shocks
Kahn 11 Jeremy Kahn, Master of Science in IR from the London School of
Economics, former managing editor at The New Republic, Boston Globe 2/13/2011,
Crude Reality,
http://www.boston.com/bostonglobe/ideas/articles/2011/02/13/crude_reality/)
The idea that a sudden spike in oil prices spells economic doom has
influenced Americas foreign policy since at least 1973, when Arab states, upset with Western
support for Israel during the Yom Kippur War, drastically cut production and halted exports to the United States. The
result was a sudden quadrupling in crude prices and a deep global recession. Many Americans still have vivid
memories of gas lines stretching for blocks, and of the unemployment, inflation, and general sense of insecurity and
panic that followed. Even harder hit were our allies in Europe and Japan, as well as many developing nations.

Economists have a term for this disruption: an oil shock. The idea that such oil
shocks will inevitably wreak havoc on the US economy has become deeply rooted in the American psyche, and in
turn the United States has made ensuring the smooth flow of crude from the Middle East a central tenet of its
foreign policy. Oil security is one of the primary reasons America has a long-term military presence in the region.
Even aside from the Iraq and Afghan wars, we have equipment and forces positioned in Oman, Saudi Arabia,

But a growing body of

economic research suggests that this conventional view of oil shocks is
wrong. The US economy is far less susceptible to interruptions in the oil
supply than previously assumed, according to these studies. Scholars
examining the recent history of oil disruptions have found the worldwide
oil market to be remarkably adaptable and surprisingly quick at
compensating for shortfalls. Economists have found that much of the
damage once attributed to oil shocks can more persuasively be laid at the
feet of bad government policies. The US economy, meanwhile, has become
less dependent on Persian Gulf oil and less sensitive to changes in crude
prices overall than it was in 1973.
Kuwait, and Qatar; the US Navys Fifth Fleet is permanently stationed in Bahrain.

U.S. economy can absorb price increases there will be no

shock
Luskin 11 Donald Luskin, Chief Investment Officer for Trend Macrolytics LLC, a
consulting firm providing investment strategy and macroeconomics forecasting and
research for institutional investors, columnist both for National Review Online and
SmartMoney.com, Oil Prices Won't Kill the Recovery, Wall Street Journal 2011,
http://online.wsj.com/article/SB10001424052748704893604576200392973262006.
html?mod=googlenews_wsj
Will the spike in oil prices emanating from instability in the Middle East be
enough to derail the U.S. economic recovery, just when it's finally building up a head of
steam? Surely it's not helpful. But while our collective memory and intuition about oil
shocks may cause us to fear the worst, a clear-eyed look at the data
suggests that oil prices may have to rise considerably higher to trigger a
U.S. recession. The oil shocks of the 1970s and early '80s, which caused
deep recessions, were so epochal that we're conditioned to assume that

any rise in oil prices is bad for growth and any fall is good. Yet historical data tells
us that most oil-price changes are not correlated with future changes in
real output growth. For example, oil prices rose steadily throughout the
mid-2000s while growth remained strong. Where oil prices do matter to
growth is in extremis, in those rare cases when an extraordinary and rapid oil-price change creates an
economic shock. But it's difficult to come up with a simple rule that tells us when
an oil shock is enough to cause a recessionor not. Crude oil prices as high
as $147 a barrel in the summer of 2008, for instance, aren't seen as the cause
of the Great Recession. Most observers would cite instead the fall of Lehman Brothers and the banking
crisis that immediately followed, events that occurred at roughly the same time. Let's just accept that
oil shocks matter. Is today's oil price of about $104 a barrel in the U.S. (and $115
globally) a shock? To be a shock, it has to be big. And "big" is a matter of context. Yes,
today's oil prices are more than 30% higher than they were a year ago.
That sounds big. But at the same time, they are more than 30% lower than
they were less than three years ago. That's big, too, but in the opposite direction. Which
context counts? Research by economist James Hamilton of the University of California, San Diego
suggests that oil prices imperil the economy when they reach a new threeyear high. Steven Kopits, managing director of the energy consulting firm Douglas-Westwood, says the overall
economy is threatened when the 12-month average oil price exceeds the year-ago 12-month average price by more
than half. Below those levels consumer and investor expectations aren't sufficiently disrupted to make a difference.

Both conditions are very far from being triggered at today's prices. To be a
shock, it has to be a surprise, and in one sense the current situation is: Despite all the pessimistic
narratives that have overhung the economy during the last six quarters of recoveryhousing double-dip, insolvent
states and municipalities, collapse of the euro zone, real estate bubble in China, and so onvirtually nobody was
predicting that the Middle East would be ept with contagious regime change spread via Facebook and Twitter. That

should anyone really be surprised to learn that the Middle East is

politically volatile? No, and things there might get crazier. But if the history of the
said,

region has taught us anything, it is that whoever controls the oil always eventually ends up selling it to the

In the
meantime, Saudi Arabia has committed to make up for any transitory
shortfalls. Pumping an additional one million barrels a day would not be a
stretch for the Saudisdoing so would merely bring the Kingdom's production levels back up to mid2008 levels. So even if we now face a shock, it will be transitory, and it will be
buffered. That's why, for all the uncertainty, oil is now $104 a barrel, not
$1,000 a barrel. More importantly, the U.S. economy is today wellpositioned to absorb an oil spike without experiencing it as an oil shock.
First, we're nowhere near peak oil consumption , which we hit in August 2005 at 21.7
million barrels per day. We're now 9% below that, even though consumption has
recovered substantially since its worst levels of the Great Recession in September 2008. The last
three recessionsthose that started in 1990, 2001 and 2008began only after oil
consumption reached new peak levels. Economies in the early stages of
recovery, like ours today, are less vulnerable to oil shocks than those in the late
stages of expansion. As a business cycle matures, the economy experiences diminishing returns from
developed world, often despite their ravings about the developed world's imperialist evils.

any given factor of productionlabor, credit, oil or anything else. When a recovery is still new, large gains can be
levered from relatively modest increases in inputs, so the economy can afford to pay more for those inputs.

We've also grown much more efficient when it comes to energy

consumption. It may come as a surprise to many, but today in the U.S.
we're consuming the same amount of crude oil that we did 12 years ago
and real output is more than 25% higher. For all the talk of our being the planet's most

we've become remarkably oil efficient. Finally, this oil spike

is coming at a fortuitous moment in American politics. President Obama, tacking to
the political center after his party's self-described "shellacking" in last year's midterm elections, said earlier
this month that he wants to "increase domestic oil production in the short
and medium term." That may be the most shocking thing about this oil spike.
villainous energy hog,

Shocks are exaggerated consensus of economists

Kahn 11 Jeremy Kahn, Master of Science in IR from the London School of
Economics, former managing editor at The New Republic, Boston Globe 2/13/2011,
Crude Reality,
http://www.boston.com/bostonglobe/ideas/articles/2011/02/13/crude_reality/)
There is no denying that the 1973 oil shock was bad the stock market crashed in
response to the sudden spike in oil prices, inflation jumped, and unemployment hit levels not seen since the Great

The 1979 oil shock also had deep and lasting economic effects.
Economists now argue, however, that the economic damage was more
directly attributable to bad government policy than to the actual supply
shortage. Among those who have studied past oil shocks is Ben Bernanke, the
current chairman of the Federal Reserve. In 1997, Bernanke analyzed the effects of a sharp
rise in fuel prices during three different oil shocks 1973-75, 1980-82, and 1990-91.
He concluded that the major economic damage was caused not by the oil
price increases but by the Federal Reserve overreacting and sharply
increasing interest rates to head off what it wrongly feared would be a
wave of inflation. Today, his view is accepted by most mainstream
economists. Gholz and Press are hardly the only researchers who have
concluded that we are far too worried about oil shocks. The economy also faced a
Depression.

large increase in prices in the mid-2000s, largely as the result of surging demand from emerging markets, with no ill
effects. If

you take any economics textbook written before 2000, it would

talk about what a calamitous effect a doubling in oil prices would have , said
Philip Auerald, an associate professor at George Mason Universitys School of Public Policy who has written about oil
shocks and their implications for US foreign policy. Well,

we had a price quadrupling from

2003 and 2007 and nothing bad happened. (The recession of 2008-9 was triggered by
factors unrelated to oil prices.) Auerald also points out that when Hurricane Katrina
slammed into the Gulf Coast in 2005, it did tremendous damage to
offshore oil rigs, refineries, and pipelines, as well as the rail lines and
roads that transport petroleum to the rest of the country. The United
States gets about 12 percent of its oil from the Gulf of Mexico region, and,
more significantly, 40 percent of its refining capacity is located there. Al
Qaeda times 1,000 could not deliver this sort of blow to the oil industrys
physical infrastructure, Auerald said. And yet the only impact was about five
days of gas lines in Georgia, and unusually high prices at the pump for a
few weeks.

No impact to shocks every empiric proves

Kahn 11 Jeremy Kahn, Master of Science in IR from the London School of
Economics, former managing editor at The New Republic, Boston Globe 2/13/2011,

Crude Reality,
http://www.boston.com/bostonglobe/ideas/articles/2011/02/13/crude_reality/)
Among those asking this tough question are two young professors, Eugene Gholz,
at the University of Texas, and Daryl Press, at Dartmouth College. To find out what actually
happens when the worlds petroleum supply is interrupted, the duo
analyzed every major oil disruption since 1973. The results, published in a
recent issue of the journal Strategic Studies, showed that in almost all
cases, the ensuing rise in prices, while sometimes steep, was short-lived
and had little lasting economic impact. When there have been prolonged price rises, they
found the cause to be panic on the part of oil purchasers rather than a supply shortage. When oil runs
short, in other words, the market is usually adept at filling the gap. One
striking example was the height of the Iran-Iraq War in the 1980s. If
anything was likely to produce an oil shock, it was this : two major Persian Gulf
producers directly targeting each others oil facilities. And indeed, prices surged 25 percent in the first months of

within 18 months of the wars start they had fallen back to their
prewar levels, and they stayed there even though the fighting continued
to rage for six more years. Surprisingly, during the 1984 Tanker War phase of that conflict when
the conflict. But

Iraq tried to sink oil tankers carrying Iranian crude and Iran retaliated by targeting ships carrying oil from Iraq and
its Persian Gulf allies the price of oil continued to drop steadily. Gholz and Press found just one case after 1973 in
which the market mechanisms failed: the 1979-1980 Iranian oil strike which followed the overthrow of the Shah,
during which Saudi Arabia, perhaps hoping to appease Islamists within the country, also led OPEC to cut production,

In their paper, Gholz and Press ultimately conclude

that the markets adaptive mechanisms function independently of the US military
presence in the Persian Gulf, and that they largely protect the American economy from
being damaged by oil shocks. To the extent that the United States faces a national security
exacerbating the supply shortage.

challenge related to Persian Gulf oil, it is not how to protect the oil we need but how to assure consumers that
there is nothing to fear, the two write. That is a thorny policy problem, but it does not require large military
deployments and costly military operations.

Saudi Arabia can temper price shocks

Reuters 6/25 English Newspaper, 6-25-14, Saudi Arabia committed to supply
extra oil if needed, http://gulfbusiness.com/2014/06/saudi-remains-committedsupplying-market-extra-oil-needed-official/#.U6s2tJRX-uY
Top oil exporter Saudi Arabia is committed to supplying the market with
extra crude to meet any rise in demand or if there are disruptions in oil
supplies, a Saudi oil official said Tuesday. Saudi Arabia, which currently
produces around 9.7 million barrels per day, has the ability to pump to its
full capacity of 12.5 million bpd, the official told Reuters. Arabia has the
capability to produce up to 12.5 million bpd when the customers ask for it. The oil
resources, production facilities and the management all support this, the official
said. If there is an increase in demand or disruption in supplies, Saudi Arabia
will supply the market. Saudi Arabia will continue to make sure there is a
balance in the international oil market. Saudi Arabia did that in the past
and will continue to do so. Stabilizing [the] oil market in terms of
balancing supply and demand and reducing volatility of oil prices has been
Saudi Arabias top concern in the past 40 years at least. Saudi Arabia has in
the past shown an ability to raise production to meet its customers needs, he
added, citing times when Riyadh had to up its output to cover disruptions

during the Iraqi invasion of Kuwait in the early 1990s, and Libyas civil strife
in the aftermath of its 2011 uprising, among others.