Gonzaga Debate Institute 2013
Brovero/Lundeen
Notes
Gonzaga Debate Institute 2013
Brovero/Lundeen
***Uniqueness***
Gonzaga Debate Institute 2013
Brovero/Lundeen
1nc
Oil prices are high now
Strumpf, Wall Street Journal chief energy reporter, 7/10/13 — [DAN STRUMPF,
covers energy markets for Dow Jones and The Wall Street Journal,covers legal news and is
formerly a reporter for The Associated Press, 2013 (“U.S. Oil Soars Above $105 to 14-Month
High,” The Wall Street Journal, Energy, 7-10-13, Available Online
http://online.wsj.com/article/SB10001424127887324879504578597482108398030.html,
Accessed on July 10, 2013)][SP]
NEW YORK—U.S. oil prices soared above $105 a barrel to a fresh 14-month high after a
closely watched government report showed a sharp decline in the nation's crude stockpiles.
The amount of crude oil held by refiners and other companies fell by 9.9 million barrels last
week to 373.9 million barrels, the lowest in five months, according to the federal Energy
Information Administration.
U.S. oil prices soared Wednesday above $105 a barrel, a fresh 14-month high. In March, a
worker in Zavala County, Texas cleans around an oil well.
OPEC Doubts If Supply Will Keep Up With Demand
The decrease, which beat analysts' and traders' expectations, comes after a big drop in the
previous week. Over two weeks, U.S. crude-oil inventories have dropped by more than 20
million barrels, or 5.1%. That's the biggest fall over two weeks on record, according to EIA
records that date back to 1983.
The prospect of less supply sent oil futures on the New York Mercantile Exchange shooting to a
new intraday high of $105.99 a barrel, the highest since May 2012. Recently, the front-month
contract was 2.1% at $105.66 a barrel. Oil futures have risen 9.7% so far this month.
Gasoline futures also rose, to their highest level in three months. That could portend high
prices at the pump in the coming weeks, although recently, gains in retail gasoline prices have
been muted. Gasoline futures were 1.5% higher at $2.9707 a gallon.
The declines in U.S. supplies and higher oil prices are further evidence that a bottleneck in
the U.S. Midwest that had kept oil from getting to many consumers was easing. The glut of crude
had been growing for more than two years and culminated in May, when U.S. crude inventories
hit a record high.
Now, the crude is draining from the Midwest as pipeline and railroad companies add more
capacity to bring the oil to the Gulf Coast, one of the world's biggest crude-oil-processing hubs
and the source of most of the U.S.'s gasoline and diesel.
"It's a real game-changer," said John Kilduff, founding partner at Again Capital, of the sharp
declines in U.S. oil inventories. "The rail movements and the pipeline machinations are starting to
bite."
Also contributing to the reduction in crude-oil stockpiles is the restart of many refineries.
Operations at several big plants had been scaled down for maintenance.
Gonzaga Debate Institute 2013
Brovero/Lundeen
2nc – low inventory
Oil Prices are at an all-time high — low inventory
Prezioso, Reuters editor, 7/9/13 — [Jeanine Prezioso, Community Editor, North
American Power & Gas Forum, 2013 (“UPDATE 10-Oil prices end moderately higher, stifled by
dollar,” Reuters, Energy, 7-9-13, Available Online at
http://www.reuters.com/article/2013/07/09/markets-oil-idUSL4N0FF0ZO20130709, Accessed on
July 10, 2013)][SP]
Crude oil prices on both sides of the Atlantic ended with moderate gains on Tuesday,
supported by a stock market advance and worries over Egypt. But gains were limited by a
strong U.S. dollar and supplies were brought back online.
Spread trading trumped trading in the straight oil contracts, which were lackluster in thin
volume, one analyst said.
The spread between the U.S. August and September oil contracts CLQ3-U3 widened by some
30 cents to a high of 57 cents after Tuesday's settlement. This helped further backwardation
on the oil price futures curve, seen when prompt-month prices are higher than those further
along the curve.
Traders guessed that a fund or another entity was betting on a large draw in crude supplies
when inventory data is reported later this afternoon, making oil for the closer delivery
months more valuable.
The spread narrowed some 10 cents after the American Petroleum Institute released data
showing crude inventories fell by 9 million barrels, compared with expectations for a 3.3
million barrel draw.
Front-month U.S. crude oil futures rose more than $1 per barrel to a high of $104.76 after the
data's release.
On Wednesday, the U.S. government will release its inventory report.
Brent crude oil futures ended the day 38 cents higher at $107.81 per barrel. U.S. crude oil
futures settled 39 cents higher at $103.53, after trading as low as $102.31.
Fears that violence in Egypt could ignite conflict in the broader Middle East, which pumps a
third of the world's oil, continued to lend support to oil prices.
While oil prices had shaved some gains, Brent was still hovering at a three-month high and U.S.
crude at a 14-month high.
"The majority of last week's near $5 gain is on the back of geopolitical risk premium," said Gene
McGillian, analyst with Tradition Energy in Stamford, Connecticut.
Oil prices are rising now — shrinking inventory
Fox Business News 7/10/13 — [Fox Business, 2013 (“Oil Prices Zip 2% Higher as
Inventories Sink,” Fox Business, Reuters, 7-10-13, Available Online at
http://www.foxbusiness.com/industries/2013/07/10/oil-prices-zip-2-higher-as-inventories-sink/,
Accessed on July 10, 2013)][SP]
Oil rose on both sides of the Atlantic on Wednesday, with the U.S. benchmark climbing to a
14-month high above $105 a barrel, buoyed by a sharp decline in fuel stockpiles in top oil
consumer the United States.
But worries about a sluggish Chinese economy, underlined by bleak June trade data, kept a lid
on gains.
Gonzaga Debate Institute 2013
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U.S. crude rose $2.02 to $105.55 a barrel by 1442 GMT. Brent gained 48 cents to trade at
$108.29.
"While oil demand in the U.S. appears to be reviving, current figures from China point to
slowing demand dynamism there," a Commerzbank research note said.
The spread between Brent and U.S. oil fell below $3 a barrel for the first time since
December 2010 after data showed a drawdown in stocks.
U.S. crude stocks fell nearly 10 million barrels last week, according to data released on
Wednesday by the U.S. Energy Information.
Political risks were also supporting prices, and investors continued to keep watch on Egypt.
Egypt's new interim prime minister reached out to liberals on Wednesday to revive a shattered
economy as he began forming a government to heal a nation divided by bloodshed a week after
the elected president was overthrown.
ECONOMIC OUTLOOK
China, the world's No.2 economy, warned of a grim outlook for trade as it surprised markets
by reporting a fall in June exports and imports. Both had been expected to rise.
Its crude imports for the first half of the year fell 1.4 percent from a year ago.
"China is expected to stay below the 8 percent growth rate seen last year and might grow by 7.8
percent over 2013," a JBC Energy market report said.
Oil prices are surging now — low inventory
Saefong and Mozee, MarketWatch editor and journalist, 7/10/13 — [Myra P.
Saefong, assistant global markets editor, has covered the commodities sector for MarketWatch,
Carla Mozee, energy journalist for MarketWatch, 2013 (“Oil surges past $106 to close at 15month high,” MarketWatch, 7-10-13, Available Online at http://www.marketwatch.com/story/oilprices-top-104-on-sharp-inventory-decline-2013-07-09?link=MW_latest_news, Accessed on July
10, 2013)][SP]
Oil futures surged past $106 a barrel on Wednesday to score their highest settlement in 15
months after weekly U.S. supplies dropped by more than twice the amount analysts expected.
Nymex oil futures end above $106 a barrel for first time since March 2012.
Prices briefly touched an intraday high of $106.66 a barrel shortly after the Federal Reserve
released minutes of its June monetary policy meeting.
Crude oil for August delivery CLQ3 +2.43% jumped $2.99, or 2.9% to settle at $106.52 a
barrel on the New York Mercantile Exchange.
Based on the most-active futures contracts, that was the highest settlement since late March 2012,
according to FactSet data.
August Brent oil UK:LCOQ3 +0.19% rose 70 cents, or 0.6%, to $108.51 a barrel on ICE
Futures — a level not seen for a most-active contract since April of this year. The price
differential between Brent and West Texas Intermediate crudes has narrowed to below $3 a
barrel, the lowest levels since 2010. It traded above $20 in February.
Nymex crude futures were trading at just above $105 right before the U.S. Energy
Information Administration reported a 9.9 million-barrel decline in crude stockpiles for the
week ended July 5. Analysts polled by Platts were looking for a 3.8 million-barrel decline.
The latest decline follows a decline of more than 10 million barrels reported by the EIA for
the week ended June 28.
The American Petroleum Institute late Tuesday had reported a 9-million-barrel drop for last
week.
Crude supply levels are still above the five-year averages, but the “expectations of further
inventory draws in the weeks to come” due to the movement of crude out of Cushing, Okla.,
the trading hub for Nymex oil futures, are helping prices go higher,” said Tariq Zahir, managing
member at Tyche Capital Advisors.
Gonzaga Debate Institute 2013
Brovero/Lundeen
Gonzaga Debate Institute 2013
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2nc – Egyptian conflict
Oil prices high now — Egypt unrest and growing economy
Otter, CBS executive editor, 7/5/10 — [Jack Otter, the Executive Editor of CBS
MoneyWatch.com, 2013 (“Oil Prices Hit High For the Year, Energy Stocks Up,” Barron’s, CBS
Money Watch, 7-5-13, Available Online at
http://blogs.barrons.com/stockstowatchtoday/2013/07/05/oil-prices-hit-high-for-the-year-energystocks-up/, Accessed on July 10, 2013)][SP]
Oil prices hit a 2013 high today, driven higher by fears of unrest in the Middle East as well
as evidence that the U.S. economy does, indeed have a pulse. Energy stocks, on the whole,
moved higher. The Energy Select Sector SPDR (XLE) was up nearly 1% shortly before the
market close.
BLOOMBERG NEWS
Oil futures closed above $103, up almost 2% on the day and 7% on the week. The military
coup in Egypt has raised fears of a supply disruption. There was more turmoil today and
reports of shots fired in a confrontation between supporters of recently ousted president
Mohammed Morsi and those who opposed his rule.
In domestic news, the Labor Department announced that the U.S. economy added 195,000
jobs in June, beating expectations and adding evidence that the recovery may be picking up
steam. Better growth could push oil prices higher.
Even while the August futures contract increased, prices at the pump are falling, as inventories
rise. The average price per gallon is $3.47 according to AAA, down 5% in less than a month.
Oil Prices are at an all-time high — Egyptian unrest
Prezioso, Reuters editor, 7/9/13 — [Jeanine Prezioso, Community Editor, North
American Power & Gas Forum, 2013 (“UPDATE 10-Oil prices end moderately higher, stifled by
dollar,” Reuters, Energy, 7-9-13, Available Online at
http://www.reuters.com/article/2013/07/09/markets-oil-idUSL4N0FF0ZO20130709, Accessed on
July 10, 2013)][SP]
Crude oil prices on both sides of the Atlantic ended with moderate gains on Tuesday,
supported by a stock market advance and worries over Egypt. But gains were limited by a
strong U.S. dollar and supplies were brought back online.
Spread trading trumped trading in the straight oil contracts, which were lackluster in thin
volume, one analyst said.
The spread between the U.S. August and September oil contracts CLQ3-U3 widened by some
30 cents to a high of 57 cents after Tuesday's settlement. This helped further backwardation
on the oil price futures curve, seen when prompt-month prices are higher than those further
along the curve.
Traders guessed that a fund or another entity was betting on a large draw in crude supplies
when inventory data is reported later this afternoon, making oil for the closer delivery
months more valuable.
The spread narrowed some 10 cents after the American Petroleum Institute released data
showing crude inventories fell by 9 million barrels, compared with expectations for a 3.3
million barrel draw.
Front-month U.S. crude oil futures rose more than $1 per barrel to a high of $104.76 after the
data's release.
Gonzaga Debate Institute 2013
Brovero/Lundeen
On Wednesday, the U.S. government will release its inventory report.
Brent crude oil futures ended the day 38 cents higher at $107.81 per barrel. U.S. crude oil
futures settled 39 cents higher at $103.53, after trading as low as $102.31.
Fears that violence in Egypt could ignite conflict in the broader Middle East, which pumps a
third of the world's oil, continued to lend support to oil prices.
While oil prices had shaved some gains, Brent was still hovering at a three-month high and U.S.
crude at a 14-month high.
"The majority of last week's near $5 gain is on the back of geopolitical risk premium," said Gene
McGillian, analyst with Tradition Energy in Stamford, Connecticut.
Gonzaga Debate Institute 2013
Brovero/Lundeen
2nc – predictive evidence
Uniqueness—In the status quo, oil prices are constantly rising and predicted
to continue along this path- it’s simple supply and demand.
Battaglia, Energy Curtailment Specialist, 13 (Sarah Battaglia, copywriter and
Social Media Specialist for Energy Curtailment Specialists, graduate of University
of New York, March 12, 2013, “Gas Prices Rise Despite Epic Oil Boom”, March
12, 2013, The Energy Collective,
http://theenergycollective.com/sbattaglia/197236/gas-prices-rise-despite-epic-oilboom, MC)
We’ve all noticed it. The price of a gallon of gasoline always seems to be increasing. Can’t
we catch a break? Will the price at the pump ever fall? Unfortunately, it’s not looking
good. Even with the current boom in oil production, we should not get our hopes up for a
significant drop in prices any time soon. Why is this? In an article from the Washington
Post, Author Brad Plumer explains, “The big thing to remember is that oil prices are a
function of both supply and demand. If world demand for oil rises faster than producers
can pump the stuff out, prices will go up. And that’s what is happening now.” Although
the world is producing more oil than ever before, demand for this resource continues to
soar. For the majority of 2012, world petroleum production averaged 88.8 million barrels
per day, 2 million barrels more than in 2010. The International Energy Agency projected
that oil production in the U.S. will continue along this path until 2020, possibly even longer,
because of companies that are extracting “unconventional” oil from shale rock and other
sources.
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a/t: US production now
We’re still increasingly dependent on Saudi Arabia
Krauss, New York Times Business correspondent, 12,
[Clifford, “U.S. Reliance on Oil From Saudi Arabia Is Growing Again”. August 16, 2012.
http://www.nytimes.com/2012/08/17/business/energy-environment/us-reliance-on-saudi-oil-isgrowing-again.html?pagewanted=all]
The United States is increasing its dependence on oil from Saudi Arabia, raising its imports
from the kingdom by more than 20 percent this year, even as fears of military conflict in the
tinderbox Persian Gulf region grow.
The increase in Saudi oil exports to the United States began slowly last summer and has
picked up pace this year. Until then, the United States had decreased its dependence on foreign
oil and from the Gulf in particular.
This reversal is driven in part by the battle over Iran’s nuclear program. The United States
tightened sanctions that hampered Iran’s ability to sell crude, the lifeline of its troubled economy,
and Saudi Arabia agreed to increase production to help guarantee that the price did not skyrocket.
While prices have remained relatively stable, and Tehran’s treasury has been squeezed, the
United States is left increasingly vulnerable to a region in turmoil.
The jump in Saudi oil production has been welcomed by Washington and European governments,
but Saudi society faces its own challenges, with the recent deaths of senior members of the royal
family and sectarian strife in the eastern part of the country, making the stability of Saudi energy
and political policies uncertain.
The United States has had a political alliance with the Saudi leadership that has lasted for
decades, one that has become even more pivotal to Washington during the turmoil of the
Arab spring and rising hostilities with Iran over that nation’s nuclear program. (Saudi
Arabia and Iran are bitter regional rivals.)
The development underscores how difficult it is for the United States to lower its dependence
on foreign oil — especially the heavy grades of crude that Saudi Arabia exports — even
as domestic oil production is soaring . It is a development that has alarmed conservative and
liberal foreign policy experts alike, especially with oil prices and Mideast tensions rising in recent
weeks.
“At a time when there is a rising chance of either a nuclear Iran or an Israeli strike on Iran’s
nuclear facilities, we should be trying to reduce our reliance on oil going through the Strait of
Hormuz and not increasing it,” said Michael Makovsky, a former Defense Department official
who worked on Middle East issues in the George W. Bush administration.
Senior Iranian officials have repeatedly threatened to close the Strait of Hormuz, the narrow neck
through which most Gulf oil is shipped, and the Iranian navy has held maneuvers to back up the
threats. Most analysts say it is doubtful the Iranians would take such an extreme measure because
that would block exports vital to the country’s economy, but the United States Navy has been
preparing for such a contingency.
Many oil experts say that the increasing dependency is probably going to last only a couple of
years, or until more Canadian and Gulf of Mexico production comes on line.
“Until we have the ability to access more Canadian heavy oil through improved infrastructure, the
vulnerability will remain,” said David L. Goldwyn, former State Department coordinator for
Gonzaga Debate Institute 2013
Brovero/Lundeen
international energy affairs in the Obama administration. “The potential for an obstruction of the
Strait of Hormuz therefore poses a physical threat to U.S. supply as well as a potential price
shock on a global level.”
Obama administration officials said they were not overly worried for several reasons. In the event
of a crisis, the United States could always dip into strategic petroleum reserves; domestic
production continues to climb; and Gulf of Mexico refineries could be adjusted to use higherquality, sweeter crude oil imported from other countries.
“There are going to be tensions in the Middle East whether that oil is going to the United States
or going to somewhere else,” said Adam Sieminski, administrator of the Energy Department’s
Energy Information Administration. “And if oil prices go up because of a problem in the Middle
East, that causes a problem for the world in general and not one that is specific to the United
States.”
In the United States, several oil refining companies have found it necessary to buy more
crude from Saudi Arabia and Kuwait to make up for declining production from Mexico and
Venezuela, insufficient pipeline connections between the United States and Canadian oil sands
fields, and the fallout from the 2010 BP disaster, which led to a yearlong drilling moratorium in
the Gulf of Mexico.
“As refiners, we buy from wherever the supply is readily available and where we can get the best
price,” said Bill Day, a spokesman for Valero Energy, the largest domestic refiner.
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Gonzaga Debate Institute 2013
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***Links***
Gonzaga Debate Institute 2013
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1nc Mexico Link
Oil prices are high now, but increasing Mexican production dramatically
lowers them
Cekerevac 6/21/13 — [Sasha Cekerevac, BA Economics with Finance specialization, a
Senior Editor at Lombardi Financial, 2013 (“Oil in Mexico: A Once in 80 Years Investment
Opportunity?,” Investment Contrarians, Econ Matters, LexisNexis, 6-21-13, Available Online at
http://www.lexisnexis.com/lnacui2api/results/docview/docview.do?docLinkInd=true&risb=21_T
17752288064&format=GNBFI&sort=BOOLEAN&startDocNo=1&resultsUrlKey=29_T1775228
8068&cisb=22_T17752288067&treeMax=true&treeWidth=0&csi=299488&docNo=5, Accessed
on July 8th, 2013)][SP]
Even though people want to move away from hydrocarbons as an energy source, for the near
future, we will continue to use oil as an input in many parts of the global economy.
And now a new development is opening the door to an investment opportunity not seen in
almost eight decades.
As of December 2012, Mexico has a new president, Enrique Pena Nieto, who is making radical
changes that will benefit his nation dramatically. He is a pro-business leader, and since his term
began, the Mexican economy has already seen a significant improvement in its current outlook, as
well as the potential for future growth.
Mexico's new president is now looking to end the country's multi-decade state-run
monopoly on oil and natural gas.
As oil prices remain far higher than oil production costs, there is a significant long-term
investment opportunity in this sector. The U.S. economy will still remain quite dependent on
oil for many decades, and many American firms lead the world in technological knowledge
and skills in extracting both oil and natural gas.
If Mexico does open the door to foreign businesses, there will be a huge investment
opportunity. Both deep-water drilling and shale-rock formations have extensive levels of
reserves, yet Mexico's state-run oil company, Petroleos Mexicanos (PEMEX), does not have
the skills or technology to extract resources in these geographical segments.
This is where the investment opportunity could be created for American firms. Our firms can help
in the extraction process, and both the U.S. companies and Mexican government would share
in the profits obtained from lower oil prices .
With Mexican oil production at 2.5 million barrels per day, down approximately one
million barrels from a decade ago, changes do need to be undertaken if that country wants
to increase production and profit from lower oil prices.
However, the proposal has not yet been approved, and is still under discussion.
To me, this means that service companies such as Halliburton Company (NYSE: HAL) could
benefit in this investment opportunity, especially since it has already been hired by PEMEX in the
past for its technical expertise.
Halliburton's stock has performed extremely well lately, and with oil prices continuing to remain
firm, 2013 will likely be yet another good year for Halliburton. However, I would advise longterm investors interested in Halliburton to wait for pullbacks before considering buying this stock.
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The investment opportunity from higher oil prices is not going away anytime soon. If
Mexico opens the door to foreign investors, we could see a massive influx of money rushing in
to develop one of the world's largest reserves of both oil and natural gas.
PEMEX
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2nc – prices link
Pemex low now—plan boosts oil production
Reuters 13 [Jun 28, 2013 “UPDATE 1-Mexico oil output slumps to near two-year low in May”
http://www.reuters.com/article/2013/06/28/mexico-oil-idUSL2N0F41RK20130628 7/8/13 EYS]
(Reuters) - Mexican crude oil production slid to its lowest level in nearly two years in May,
while exports were their weakest in more than two decades, official data showed on Friday.
Crude output at state oil monopoly Pemex, which President Enrique Pena Nieto has pledged to
reform in the coming months, fell to 2.51 million barrels per day (bpd) in May, its lowest level
since September 2011, according to the company's data.
Oil exports dropped to 1.03 million bpd, the lowest level of crude shipments since the national
energy information system began publishing monthly export figures in 1990.
Pena Nieto plans to boost production at Pemex by attracting private investment to the
company, though he faces opposition from traditionalists who have accused him of planning to
sell out the industry to foreign oil majors.
Pemex has been a source of Mexican pride since the government nationalized the industry in
1938, and reform of Pemex has long been fraught with difficulties.
The government aims to present its Pemex plan by September and officials say it is likely to
contain a blueprint to allow profit-sharing between Mexico and private firms in exchange for the
latter taking on exploration and production risks.
Mexico, the world's No. 7 oil producer, has seen output drop steadily from a peak of 3.4
million bpd in 2004. Over the same period, export volumes are down by over a third.
Pemex officials did not immediately returns calls seeking comment on the May output and export
figures.
If the country cannot find and exploit new discoveries to replace declining output at its largest,
aging fields, Mexico risks becoming a net importer of crude within a decade.
Investment would increase Mexico’s oil growth
Martin et. al, Bloomberg, 13 [Eric Martin, Carlos Manuel Rodriguez, and Helder Marinho,
6/20/13 “Mexico's President Pushes Reforms for State Oil Company Pemex”
http://www.businessweek.com/articles/2013-06-20/mexicos-president-pushes-reforms-for-stateoil-company-pemex 7/8/13 EYS]
Petróleos Mexicanos, known as Pemex, has long been the third rail of Mexican politics. The
state-owned company, originally based on oil fields seized from foreign owners over 70 years
ago, has produced sizable government revenue and union jobs for hundreds of thousands of
Mexicans. Foreign investment has been largely restricted.
But now Pemex’s main asset, the giant Cantarell offshore field, is shrinking fast. The company
says it needs to boost annual investment by 46 percent, to $37 billion, to tap undeveloped shalegas deposits and deep-water reserves. Without some private capital and expertise from
abroad, Mexico risks becoming an importer in the next decade. Many of Mexico’s politicians
and policymakers have known this for years. Yet Mexican nationalism, resistance from the
unions, and the sheer size of the task of transforming Pemex have stood in the way.
The planets may be aligning for a solution: Mexican President Enrique Peña Nieto says he’s
negotiating to get the political support he needs to break the state monopoly in oil and gas
exploration and production this year in a bid to accelerate Mexico’s economic growth. In the
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model envisioned by Peña Nieto, Pemex would develop certain fields, while foreign and private
companies would tap others. The oil and gas reserves in the ground would still be the property of
Mexico. Peña Nieto declines to discuss many details of the proposal or whether it would include a
change in the constitution, which limits how private companies can profit from the nation’s
energy resources.
He has, however, been sending signals to international oil companies that he needs their help
to arrest eight years of decline in Mexico’s crude output. “It’s obvious that Pemex doesn’t have
the financial capacity to be in every single front of energy generation,” the 46-year-old president
said in an interview in London on June 17, before he traveled to Northern Ireland for meetings
with Group of Eight leaders. “Shale is one of the areas where there’s room for private companies,
but not the only one.”
Gonzaga Debate Institute 2013
Brovero/Lundeen
2nc – Saudi backstopping link
The plan means we buy less from Saudi Arabia – there’s a direct tradeoff –
hurts relations
Krauss, New York Times Business correspondent, 12,
[Clifford, “U.S. Reliance on Oil From Saudi Arabia Is Growing Again”. August 16, 2012.
http://www.nytimes.com/2012/08/17/business/energy-environment/us-reliance-on-saudi-oil-isgrowing-again.html?pagewanted=all]
The United States is increasing its dependence on oil from Saudi Arabia, raising its imports
from the kingdom by more than 20 percent this year, even as fears of military conflict in the
tinderbox Persian Gulf region grow.
The increase in Saudi oil exports to the United States began slowly last summer and has
picked up pace this year. Until then, the United States had decreased its dependence on foreign
oil and from the Gulf in particular.
This reversal is driven in part by the battle over Iran’s nuclear program. The United States
tightened sanctions that hampered Iran’s ability to sell crude, the lifeline of its troubled economy,
and Saudi Arabia agreed to increase production to help guarantee that the price did not skyrocket.
While prices have remained relatively stable, and Tehran’s treasury has been squeezed, the
United States is left increasingly vulnerable to a region in turmoil.
The jump in Saudi oil production has been welcomed by Washington and European governments,
but Saudi society faces its own challenges, with the recent deaths of senior members of the royal
family and sectarian strife in the eastern part of the country, making the stability of Saudi energy
and political policies uncertain.
The United States has had a political alliance with the Saudi leadership that has lasted for
decades, one that has become even more pivotal to Washington during the turmoil of the
Arab spring and rising hostilities with Iran over that nation’s nuclear program. (Saudi
Arabia and Iran are bitter regional rivals.)
The development underscores how difficult it is for the United States to lower its dependence
on foreign oil — especially the heavy grades of crude that Saudi Arabia exports — even
as domestic oil production is soaring . It is a development that has alarmed conservative and
liberal foreign policy experts alike, especially with oil prices and Mideast tensions rising in recent
weeks.
“At a time when there is a rising chance of either a nuclear Iran or an Israeli strike on Iran’s
nuclear facilities, we should be trying to reduce our reliance on oil going through the Strait of
Hormuz and not increasing it,” said Michael Makovsky, a former Defense Department official
who worked on Middle East issues in the George W. Bush administration.
Senior Iranian officials have repeatedly threatened to close the Strait of Hormuz, the narrow neck
through which most Gulf oil is shipped, and the Iranian navy has held maneuvers to back up the
threats. Most analysts say it is doubtful the Iranians would take such an extreme measure because
that would block exports vital to the country’s economy, but the United States Navy has been
preparing for such a contingency.
Many oil experts say that the increasing dependency is probably going to last only a couple of
years, or until more Canadian and Gulf of Mexico production comes on line.
“Until we have the ability to access more Canadian heavy oil through improved infrastructure, the
vulnerability will remain,” said David L. Goldwyn, former State Department coordinator for
Gonzaga Debate Institute 2013
Brovero/Lundeen
international energy affairs in the Obama administration. “The potential for an obstruction of the
Strait of Hormuz therefore poses a physical threat to U.S. supply as well as a potential price
shock on a global level.”
Obama administration officials said they were not overly worried for several reasons. In the event
of a crisis, the United States could always dip into strategic petroleum reserves; domestic
production continues to climb; and Gulf of Mexico refineries could be adjusted to use higherquality, sweeter crude oil imported from other countries.
“There are going to be tensions in the Middle East whether that oil is going to the United States
or going to somewhere else,” said Adam Sieminski, administrator of the Energy Department’s
Energy Information Administration. “And if oil prices go up because of a problem in the Middle
East, that causes a problem for the world in general and not one that is specific to the United
States.”
In the United States, several oil refining companies have found it necessary to buy more
crude from Saudi Arabia and Kuwait to make up for declining production from Mexico
and Venezuela, insufficient pipeline connections between the United States and Canadian oil
sands fields, and the fallout from the 2010 BP disaster, which led to a yearlong drilling
moratorium in the Gulf of Mexico.
“As refiners, we buy from wherever the supply is readily available and where we can get the best
price,” said Bill Day, a spokesman for Valero Energy, the largest domestic refiner.
Saudi would flood the market in response to the plan and crash oil prices
Hulbert, European Energy Review Analyst, 12
[Matthew, Senior Research Fellow, Netherlands Institute for International Relations; Senior
Research Fellow at the Center for Security Studies, “OPEC’s pending Bloodbath,” June 10th,
2012, http://www.forbes.com/sites/matthewhulbert/2012/06/10/opecs-pending-bloodbath/]
That’s unlikely to happen, precisely because Riyadh can bring further pricing pressures to
bear if it wants to get its way in the cartel. The Kingdom’s policy space has admittedly
tightened over the past couple of years, but they remain the only producer capable of
significantly increasing or reducing production at will. Initial tanker data from Europe
suggests Riyadh may have started reigning in production that was running around 6% over OPEC
quota. It’s also raised July benchmarks for Arab Light grades in Asia. But Iran, Venezuela,
Nigeria, Angola and Algeria will want restraint to come far faster and far deeper to firm prices.
The line being spun from the ‘free lunch’ brigade is that storage should easily cover any Iranian
spikes when EU sanctions come into full effect 1st July, while OPEC quotas should be pared
down to 29.5mb/d (or less). Cheap words from petro-hawks, not least because they’ll all continue
to cheat on quotas to squeeze out every last drop they have. Riyadh knows that of course; hawks
want a price floor to be set at $100/b to sustain political regimes, but to do so entirely at Saudi
expense. Russia is no different outside the cartel: free riding 101. Saudi Arabia (and its GCC
partners) might be willing to play ball given ongoing concerns from the Arab Awakening, but
with some budgetary tweaks and counter-cyclical cash to burn, they could all easily survive
at $85/b making Iran et al sweat. Tehran might decide to rip up formal quotas as it did in June
2011, but that would be a costly mistake. If the Saudis let prices fall, political outages across
smaller producer states could help to set a floor for them anyway. Iran would have no say in the
matter. Given such ‘pricing perils’, Saudi Arabia holds all the aces to settle institutional
issues, not to mention giving the global economy more breathing space (and Washington greater
leeway over Iranian sanctions). But the real reason to let prices fall a little further isn’t just to
make very clear to OPEC states where the ultimate volume and pricing power rests, but to
fight Riyadh’s bigger battle over the next decade: Retaining 40% of OPEC market share in
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the midst of supposedly huge non-OPEC supply growth. It didn’t go unnoticed that despite
Saudi production averaging 31 year highs and prices hitting $128/b in March 2012, the forward
curve for 2018 was trading at $30/b discounts relative to spot. You’d think with the cartel maxed
out and proximate demand side problems looking bleak, five year curves would be exactly the
other way, in sharp contango (i.e. far above prompt prices) once the global economy and demand
side fundamentals were fixed. The fact they weren’t is principally because the market thinks vast
swathes of unconventional production will come online, not just in North America where
production is back above 6mb/d, but in Canada, Brazil and even Arctic extremes. At $100/b that
was a fair bet to place, but once benchmark prices drop back to two figures, the 6.4 trillion barrels
of unconventional reserves sitting in the Americas look a far less certain prospect. Canadian tar
distinctly sticky; Brazilian pre-salt horribly deep; Russian Arctic plays simply impossible. So
when OPEC meets in Vienna expect Saudi Arabia to call the shots. The new Secretary
General will either be a Saudi national, or a compromise candidate Riyadh can live with.
Quotas will stay close to 30mb/d with minor reductions possible. Thinly veiled threats of
sustained (or increased) production will be made if Iran doesn’t play ball. Yet the long term
price point to watch isn’t just one that keeps OPEC in business and Riyadh in control, but
where the al-Saud can maintain secular market share. Letting prices informally slide to
$85-90/b might be the kind of warning shot Riyadh wants to send to scrub unconventional
plays off global balance sheets. Its OPEC colleagues will see that as sailing far too close to the
political wind, but a Saudi bloodbath now, might be just the medicine OPEC requires to
sustain its long term health, not unless the cartel is absolutely determined to keep pricing itself
out of existence.
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Exts – yes backstopping
Saudi Arabia can flood the market— largest reserves of easy oil and
repository.
Faulkner, Breikling Energy CEO, 6/5/13
[Chris, interview with Oil Price, “Will Saudi Arabia Allow the U.S. Oil Boom?”,
http://www.financialsense.com/contributors/oil-price/will-saudi-arabia-allow-usoil-boom, accessed 7/10/13, ALT]
Can the US really compete with Saudi Arabia in terms of production?
Chris Faulkner: Sure, just as long as the Saudis will allow it. Don't forget the Kingdom is still the
world's swing supplier, a role it's held since the late 1970s. It's important to remember that the
Saudis not only have the largest proved reserves of oil, it's also the largest repository—by
far—of low-cost oil reserves. Much of Canada's oil sands and US tight oil requires $75 per
barrel or more to be economically viable. Saudi Arabia also needs $75 per barrel, but that's to
support its current domestic budget. The Kingdom's lifting costs are somewhere around $5 at last
report. So Saudi Arabia could easily flood the market, as it did in the early ‘80s, if it lost too
much market share, dropping oil prices to $50 or less, and US drilling and production
would collapse. Ideally, growing demand from China and other Asian markets will help sustain
Saudi production levels and oil prices even as the Americas become self-sufficient in oil.
Saudi Arabia empirically overshoots to account for supply chain interuptions.
Gately NYU Economics Professor et al 13
[Dermot, Khalid Alkhathlan King Saud University Professor of Economics,
Muhammad Javid Pakistan Institute of Development Economics Professor,
“Analysis of Saudi Arabia’s Behavior within OPEC and the World Oil Market”,
http://www.econ.nyu.edu/dept/courses/gately/Saudi_Behavior_Feb2013.pdf, p. 28,
accessed 7/10/13, ALT]
Saudi Arabia’s output behavior has varied over time in a systematic way, in response to
market ¶ conditions and also to interruptions within OPEC. Its behavior differed between
“normal” ¶ periods and periods with interruptions. In normal periods, when faced with
reduced demand, ¶ Saudi Arabia cooperated with its OPEC partners to restrict output.
During interruptions, ¶ however, it would increase its output to offset reductions in the Rest
of OPEC, not to match the ¶ reductions. By contrast, a single model assuming the same
response by the Saudis to output ¶ reductions by the Rest of OPEC – regardless of whether
those reductions were due to demand ¶ cutbacks or to supply interruptions – does not
characterize history accurately. What has been ¶ consistent since 1973 has been the Saudi
response to offsetting interruptions, from the 1978 ¶ Iranian Revolution to the 2011 civil
war in Libya, and moderately consistent coordinated ¶ cutbacks with the Rest of OPEC
when demand fell, from the 1974-75 recession to the 2008-09 ¶ recession.
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Statement from oil minister proves Saudi Arabia will flood the market.
Bakr and Fineran, Wall Street Journal, 12
[Amena and Daniel, Live Mint with the Wall Street Journal, “Saudi Arabia
concerned over high oil prices”,
http://www.livemint.com/Politics/ruFMD3xzu7fDMhhxB9EBiP/Saudi-Arabiaconcerned-over-high-oil-prices.html, accessed 7/10/12, ALT]
Saudi Arabia is concerned about high oil prices and will take steps to moderate them, its oil
minister said, in a statement that some in the oil market read as a signal to consumer nations that
there is no need to release emergency oil reserves.
“Saudi Arabia is concerned about rising oil prices in the international oil market. The current
high price of oil is simply not supported by market fundamentals,” Ali al-Naimi said in the
statement on Monday.
“Saudi Arabia will, as always, take all necessary steps to ensure the market is well
supplied and to help moderate prices—and we will meet any additional demand from our
customers,” Naimi said, four days after US administration officials met energy analysts.
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a/t: no capacity
Saudi Arabia has largest spare capacity, empirically used to influence
market.
Down Jones 13
[The Dow Jones, 5/1/13, Gulf News, “Rift emerges over Saudi oil policy”,
http://m.gulfnews.com/business/oil-gas/rift-emerges-over-saudi-oil-policy1.1177886, accessed 7/12/13, ALT]
Saudi Arabia currently produces around 9 million barrels a day of oil, leaving 3.5 million
barrels a day as spare capacity.
The level of Saudi Arabia’s spare capacity is closely watched by oil markets. Two of the
strongest periods of oil price increases-from 2003 to 2005 and 2007 to 2008-coincided
with Opec spare production capacity, most of which is in Saudi Arabia, falling to historic
lows.
“Saudi Arabia’s national production management scheme is set to increase total
capacity to 15 million barrels per day and have an export potential of 10 [million]
barrels per day by 2020,” Prince Faisal, a former Saudi ambassador to the US and
UK said in a speech at the Belfer Centre for Science and International Affairs of
Harvard University. The speech was delivered last week and posted on the
centre’s website late Monday.
The prince clarified his position in an email on Tuesday. “Saudi consumption may
reach five million barrels of oil by then [2020], hence the production capacity of
fifteen million barrels,” is required to maintain country’s export potential, he said.
Saudi Arabia would be lucky to go past production of 9 million barrels a day by
2020 and, “we don’t see anything like 15 million barrels a day before 2030, 2040,”
said Naimi in an appearance at the Centre for Strategic and International Studies in
Washington DC Tuesday.
Any decision to increase capacity would be taken by Saudi Arabia’s oil ministry,
which directs Aramco, or the kingdom’s Supreme Petroleum Council, which is
chaired by the king.
Prince Faisal’s comments also run counter to the official position of the statecontrolled Saudi Arabian Oil Co., also known as Aramco. Aramco declined to
comment Tuesday, but its top executive has previously ruled out increasing
capacity to 15 million barrels a day despite acknowledging that domestic use of
crude would rise and thus limit exports.
Aramco’s Chief Executive Khalid Al Falih ruled out increasing Saudi production
capacity to 15 million barrels a day in 2011, despite acknowledging that domestic
use of crude would rise and thus limit exports, because he said expansion plans in
other producing countries such as Iraq and Brazil should be enough to satisfy
world markets.
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Before 2011 Saudi Arabia had planned to increase oil production capacity to 15
million barrels a day.
Some economists predict that if Saudi Arabia’s current energy-consumption
growth rate of 7 per cent a year continues unabated, within 20 years the kingdom
will burn more than eight million barrels a day domestically, or around two-thirds
of its current production capacity of 12.5 million barrels a day.
Saudi Arabia last year consumed around 3 million barrels per day of oil, according
to the US Energy Information Administration, almost double its 2000 level and
putting it on track to use more than 5 million barrels a day if a 7 per cent annual
growth rate were to continue.
Aramco’s Al Falih acknowledged in 2011 that, if left unchecked, domestic energy
consumption would rise to 8.2 million barrels of oil a day by 2030.
If Saudi Arabia were to raise its oil production capacity to 15 million barrels a day, it would
have enough of a supply buffer to instantly replace all of the production of Iraq, the secondlargest member of the Organization of the Petroleum Exporting Countries, Prince Faisal
said.
Iraq’s oil exports should rise to 3.4 million barrels a day in 2014, said the
country’s oil minister Abdul Kareem Luaiby on Tuesday.
Investment of over $100 billion in oil infrastructure will enable to kingdom to
remain for many more decades the major supplier of energy to the world, Prince
Faisal said.
Saudi Arabia, which is currently producing about 9 million barrels a day of oil, is the only
exporter in the world that can offset major supply disruptions at short notice. It did so in
2011 after the civil war in Libya took more than 1.5 million barrels a day of oil off the
market, and in 1990 after the suspension of Kuwaiti output during the Iraqi invasion.
Saudi Arabia can flood market- 80’s practices prove.
Ergo Task Force 12
[The Ergo Task Force Includes: Manager of Production Engineering and Future
Oilfield Development for Saudi Aramco, former Exxon Mobile Treasurer,
petrochemist, R & D Director for Leading Middle East NGO, Executive Director
of Leading Gulf Affairs Think Tank, Energy Advisor to the Saudi Ministry of
Commerce, Former OPEC Employee, February 2012, “The Waning Era of Saudi
Oil Dominance”,
http://www.ergo.net/ErgoSpecialReport_Saudi_Oil_Feb2012.pdf, accessed
7/12/13, ALT]
Saudi Arabia’s importance to global oil markets is due not solely to its immense reserves
and production, but also its spare production capacity, which far surpasses that of any
other country. Oil producers with spare capacity can ¶ ramp up production to calm
turbulent markets and prices in response to a crisis—Saudi Arabia did so during the high
market uncertainty in the period immediately after the September 11, 2001 terrorist attacks in
the US, and again during the 2011 Libyan unrest. However, spare capacity can also be wielded
as a tool to undermine other market participants. Between 1979 and 1980, Saudi Arabia
warned other OPEC members that high oil prices would eventually curb demand. It enforced its
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view in 1981 by flooding the market, bringing down prices and slowing upstream expansion
programs in countries that had sought high oil prices.
At present OPEC spare capacity is approximately 3 mbpd. Saudi Arabia represents
approximately 98% of this amount, making it the only country that can effectively and
strategically make use of spare capacity. Spare capacity also provides a proxy for price
movements in oil. Recent history reveals a close correlation between spare capacity and the price
of oil: when spare capacity dwindles, the risk of a supply disruption grows and prices rise. Two of
the sharpest periods of oil price inflation—2003 to 2005 and 2007 to 2008—coincided with
OPEC’s spare capacity falling to historic lows. Armed with immense reserves and production
capability, Saudi Arabia has historically played the role of the world’s swing producer, helping to
mitigate shocks to the oil market.
Saudia Arabia can flood the market to decrease prices— capacity and
political support.
Taqui AlBab Center for Strategic Studies Director 11
[Dr. Jassim, 7/4/11, The Pakistan Observer, “Saudi Arabia leads the move to bring
down oil prices”, http://pakobserver.net/detailnews.asp?id=101173, accessed
7/12/13, ALT]
Saudi Arabia has emerged as an international player and a savior by insisting on increasing
the oil production to bring down the oil prices. It is supported by the State of Kuwait,
United Arab Emirates and the State of Qatar.
Prince Turki Al-Faisal has stated that Saudi Arabia can flood the international market with
oil to bring down the prices. Saudi Arabia has the capacity to achieve this feat. It has a spare
production capacity of 4 million barrel per day. It is the world leading oil producer and can
achieve what it promises. It has also the financial resources to further expand oil production at a
fairly quick time.
Saudi Arabia has ability to control the oil market— can export up to 10
million barrels a day.
Peixe Oil Price 13
[Joao, 5/2/13, “Saudi Arabia Aim to Increase Oil Production to 15 Million Barrels
a Day by 2020”, http://oilprice.com/Latest-Energy-News/World-News/SaudiArabia-Aim-to-Increase-Oil-Production-to-15-Million-Barrels-a-Day-by2020.html, accessed 7/12/13, ALT]
One of Saudi Arabia’s main strengths, which has allowed it to invest heavily in
infrastructure and develop its economy, is the fact that it boasts a huge spare capacity
with which it can stabilise the global oil market, and influence prices, by either increasing
or decreasing production volumes. By increasing total production to 15 million barrels
a day, Saudi Arabia will be able to increase exports to 10million barrels a day.
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a/t: Mexican production now
Mexican oil decline now – reforms key to untapped capacity
Wood, Mexico Institute Director and CSIS Senior Associate, 13
[Duncan Wood, Professor, ITAM Senior Adviser, Woodrow Wilson International Center for
Scholars, Mexico Institute, Renewable Energy Initiative, a Senior Associate with the Americas
Program at the Center for Strategic and International Studies (CSIS) in Washington D.C., 2013
(“Growing Potential for U.S.-Mexico Energy Cooperation,” Mexico Institute, p. 38-9, Available
Online at http://wilsoncenter.org/sites/default/files/wood_energy.pdf, Accessed on June 30,
2013)][SP]
The Evolving Energy Context
The past 5 years have seen a revolution in the energy sector globally, with the advent of
shale gas and tight oil production dramatically altering the supply outlook. In the case of
gas, the success of American firms in drilling for gas in shale formations across the
continental United States has meant a flood of new supplies that have caused a major decline
in gas prices. From a Henry Hub spot price of over $13 per million British Thermal Units
(mmBTUs), the price has fallen to just over $2 per mmBTU by the end of 2012. This, in
turn, has greatly reduced the cost of generating electricity in the United States and has
encouraged utilities to switch to gas from other fuel sources. The United States has also
increased its domestic oil production by more than 800,000 barrels per day (bpd) through
the exploitation of tight oil reserves in places such as North Dakota, applying latest drilling
and hydraulic fracturing (fracking) technologies. Although we have seen this jump in
supply in the U.S., oil prices have remained high due to global demand pressures and the
international, rather than regional nature of oil pricing.
At the same time as U.S. production has risen, Mexican oil has experienced a precipitous
decline. From a level of 3.4 million bpd in 2004, Mexico’s oil production has fallen to only
2.55 million bpd. The stagnation of the national oil company, the prohibition on foreign or
private investment and participation in the sector, and the end of easy oil in Mexico has
meant that a change in thinking is desperately needed in Mexican hydrocarbons policy.
Mexico oil production is declining – development down
Reuters 3-26-13 — [Reuters, Mexico branch, 2013 (“Mexico's crude oil output dips to 18month low in March,” Reuters, Mexico City, 3-26-13, Available Online at
http://www.reuters.com/article/2013/04/26/mexico-oil-idUSL2N0DD2R420130426, accessed on
June 27, 2013)][SP]
MEXICO CITY, March 26 (Reuters) - Mexico's average crude oil production in March fell to
its lowest level since September 2011, while exports for the month fell nearly 10 percent
compared with the previous month, state oil monopoly Pemex said on Friday.
Pemex produced 2.516 million barrels per day (bpd) of crude oil in March, down 1.5
percent from February's output of 2.555 million bpd.
Meanwhile, crude exports in March averaged 1.103 million per day, down 9.6 percent,
compared with 1.220 million bpd in shipments last month.
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Pemex said earlier this week that it is on track to boost oil output by 530,000 barrels per day
(bpd) by 2018, consistent with the company's goal of ramping up production to 3 million bpd by
then.
Mexico is the world's No. 7 oil producer and a top exporter to the United States, but its
energy minister has warned the country could become a net oil importer by the end of this
decade if major new oil finds cannot be developed.
United States and Mexican oil outputs are at record lows
Martin and Rodriguez, Bloomberg News reporters, 12 — [Eric and Carlos Manuel,
Bloomberg News Mexico City Associates, 2012, (“Mexico May Finally Get a Modern Oil
Industry”, Bloomberg Businessweek, 7-12-12, Available online at
http://www.businessweek.com/articles/2012-07-12/mexico-may-finally-get-a-modern-oilindustry, Accessed on July 10, 2013, SP)
When it was discovered in 1976, Mexico’s offshore Cantarell oil field was one of the world’s
largest , and it quickly became a money machine for Petróleos Mexicanos (Pemex), the giant
state-owned oil company. Thanks to this bonanza, Mexico became one of the top three sources
of crude for the U.S. and Pemex became the biggest source of tax revenue for the
government. Cantarell seemed to justify Mexico’s expulsion of the big British and American oil
companies in 1938, and its policy ever since of forbidding outside investors from exploring and
producing in the country. The ban on major outside investment in Pemex is even enshrined in
the Mexican constitution.
Today, Cantarell’s output is shrinking. Pemex’s total production declined to 2.5 million
barrels a day last year, from 3.4 million in 2004, and in the last quarter oil exports to the
U.S. hit the lowest quarterly average since 1993. Pemex estimates it has 27 billion barrels of
untapped oil in the deepwater Gulf, but it is relying on limited in-house experience and thirdparty technology to exploit it. So far it has failed to find any commercially viable crude after 20
attempts. Pemex lost $7.4 billion last year on $126 billion in revenue, its fifth consecutive
annual loss.
Mexican oil output is on the decline and it will become a net importer of oil
without “major new oil finds”
Reuters, Staff, 13 — [Reuters, 2013, (“Mexico's crude oil output dips to 18-month low in
March,” Bloomberg Businessweek, 4-26-13, Available online at
http://www.reuters.com/article/2013/04/26/mexico-oil-idUSL2N0DD2R420130426, Accessed on
July 10, 2013, SP)
Mexico's average crude oil production in March fell to its lowest level since September
2011 , while exports for the month fell nearly 10 percent compared with the previous month,
state oil monopoly Pemex said on Friday.
Pemex produced 2.516 million barrels per day (bpd) of crude oil in March, down 1.5 percent
from February's output of 2.555 million bpd.
Meanwhile, crude exports in March averaged 1.103 million per day, down 9.6 percent, compared
with 1.220 million bpd in shipments last month.
Pemex said earlier this week that it is on track to boost oil output by 530,000 barrels per day
(bpd) by 2018, consistent with the company's goal of ramping up production to 3 million bpd by
then.
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Mexico is the world's No. 7 oil producer and a top exporter to the United States, but its
energy minister has warned the country could become a net oil importer by the end of this
decade if major new oil finds cannot be developed.
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1nc Venezuela Link
Venezuelan production lowers global oil prices
White, Telegraph Mining Correspondent, and Rowley, Telegraph Reporter,
13
[Garry & Emma, 3/11/13, Telegraph, “Death of Hugo Chavez propels Venezuelan
oil production into the spotlight,”
http://www.telegraph.co.uk/finance/commodities/9920725/Death-of-Hugo-Chavez-propelsVenezuelan-oil-production-into-the-spotlight.html, accessed 7/8/13, MC]
Venezuela has the largest known oil reserves in the world, but oil output has slumped by
almost a third because of Mr Chavez’s nationalisation of the industry.
At the end of 2011, the country held 17.9pc of the world’s known oil reserves, compared with
16.1pc in Saudi Arabia and 11pc in Canada, according to BP’s statistical review of world energy.
However, it only represented 3.5pc of global production compared with 13.2pc in Saudi Arabia.
It is likely that oil output could rise, should there be an easing of the country’s antagonism to
foreign investors. Some believe this could lead to a fall in the oil price and a consequent boost
to the global economy.
“The death of Hugo Chavez may see oil prices fall as they did during the 2002 coup,” Gerard
Lane, an oil analyst at Shore Capital, said. “With greater foreign investment it is foreseeable
that the 30pc fall in Venezuelan oil production could be reversed.
Indeed the scale of potential oil output is enough combined with on-going shale oil production
growth in the USA, suggesting that oil prices could fall.”
However, such a scenario is unlikely just yet. “Venezuela’s massive oil reserves will not be
unleashed on global oil markets anytime soon, while the near-term impact on prices will be
limited,” Ole Hansen, head of commodity strategy at Saxo Bank, noted.
“The state oil company PDVSA has increasingly been handing over its income to fund various
government programmes, leaving it with negative cash flows for the past five years,” Mr Hansen
added.
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2nc – supply link
The first link is supply and demand – Venezuelan production is down now,
but increased production lowers prices – they have enough reserves to tip the
scales – that’s White and Rowley Increasing U.S. cooperation with Venezuela
causes oil prices to plummet- increased supply means lower prices.
Scicchitano, Editor, 13 (Paul, also a writer, publisher, and photographer and the
creative inspiration behind Sustainable Success Alert, 3/6/13, News Max,
“Hoekstra: Post-Chavez Venezuela Could Fuel Eventual Oil Price Drop”,
http://www.newsmax.com/Newsfront/chavez-death-oildrop/2013/03/06/id/493333, accessed 6/19/13, MC)
The former chairman of the powerful House Intelligence Committee tells Newsmax the
death of Venezuelan dictator Hugo Chavez is unlikely to have any effect on global oil prices in
the short term, but could bring greater stability — and possibly a big price drop — in the
long term.“If we get a government that’s more friendly to the West — it brings about
fundamental reforms in Venezuela — I think you could perhaps in the long term say it’s positive
for the United States,” predicted Hoekstra speaking in an exclusive interview on Tuesday. “It’s
positive for American consumers because a stable oil market will mean that prices will go
down. “Chavez was always one you’re never quite sure what was going to happen,” he said.
“Instability breeds premium pricing. Stability will lower prices, lower risk — and hopefully
that’s what we’ll see.” Hoekstra, who is on the advisory board of LIGNET, a global intelligence
and forecasting service based in Washington, D.C., said that the United States should respond to
Chavez’ death in a “professional” and respectful manner. “We need to extend our sympathy to the
people of Venezuela. They’ve lost their president,” explained Hoekstra, who recently made a bid
for a U.S. Senate seat in Michigan. But Hoekstra believes that the United States should also
approach Chavez’ passing as an opportunity. “We need to recognize that Hugo Chavez has not
been a friend to the United States and has been an antagonist to us,” he said. “And we now need
to use this as an opportunity to reach out to the people of Venezuela, and hopefully start a
new chapter with that country and develop a much better relationship.”
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2nc – backstopping link
The next link is OPEC infighting – Venezuela’s clout in OPEC is low now
because of decreased production.
Krauss, New York Times Business correspondent, 12,
[Clifford, “U.S. Reliance on Oil From Saudi Arabia Is Growing Again”. August 16, 2012.
http://www.nytimes.com/2012/08/17/business/energy-environment/us-reliance-on-saudi-oil-isgrowing-again.html?pagewanted=all]
The United States is increasing its dependence on oil from Saudi Arabia, raising its imports
from the kingdom by more than 20 percent this year, even as fears of military conflict in the
tinderbox Persian Gulf region grow.
The increase in Saudi oil exports to the United States began slowly last summer and has
picked up pace this year. Until then, the United States had decreased its dependence on foreign
oil and from the Gulf in particular.
This reversal is driven in part by the battle over Iran’s nuclear program. The United States
tightened sanctions that hampered Iran’s ability to sell crude, the lifeline of its troubled economy,
and Saudi Arabia agreed to increase production to help guarantee that the price did not skyrocket.
While prices have remained relatively stable, and Tehran’s treasury has been squeezed, the
United States is left increasingly vulnerable to a region in turmoil.
The jump in Saudi oil production has been welcomed by Washington and European governments,
but Saudi society faces its own challenges, with the recent deaths of senior members of the royal
family and sectarian strife in the eastern part of the country, making the stability of Saudi energy
and political policies uncertain.
The United States has had a political alliance with the Saudi leadership that has lasted for
decades, one that has become even more pivotal to Washington during the turmoil of the
Arab spring and rising hostilities with Iran over that nation’s nuclear program. (Saudi
Arabia and Iran are bitter regional rivals.)
The development underscores how difficult it is for the United States to lower its dependence
on foreign oil — especially the heavy grades of crude that Saudi Arabia exports — even
as domestic oil production is soaring . It is a development that has alarmed conservative and
liberal foreign policy experts alike, especially with oil prices and Mideast tensions rising in recent
weeks.
“At a time when there is a rising chance of either a nuclear Iran or an Israeli strike on Iran’s
nuclear facilities, we should be trying to reduce our reliance on oil going through the Strait of
Hormuz and not increasing it,” said Michael Makovsky, a former Defense Department official
who worked on Middle East issues in the George W. Bush administration.
Senior Iranian officials have repeatedly threatened to close the Strait of Hormuz, the narrow neck
through which most Gulf oil is shipped, and the Iranian navy has held maneuvers to back up the
threats. Most analysts say it is doubtful the Iranians would take such an extreme measure because
that would block exports vital to the country’s economy, but the United States Navy has been
preparing for such a contingency.
Many oil experts say that the increasing dependency is probably going to last only a couple of
years, or until more Canadian and Gulf of Mexico production comes on line.
“Until we have the ability to access more Canadian heavy oil through improved infrastructure, the
vulnerability will remain,” said David L. Goldwyn, former State Department coordinator for
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international energy affairs in the Obama administration. “The potential for an obstruction of the
Strait of Hormuz therefore poses a physical threat to U.S. supply as well as a potential price
shock on a global level.”
Obama administration officials said they were not overly worried for several reasons. In the event
of a crisis, the United States could always dip into strategic petroleum reserves; domestic
production continues to climb; and Gulf of Mexico refineries could be adjusted to use higherquality, sweeter crude oil imported from other countries.
“There are going to be tensions in the Middle East whether that oil is going to the United States
or going to somewhere else,” said Adam Sieminski, administrator of the Energy Department’s
Energy Information Administration. “And if oil prices go up because of a problem in the Middle
East, that causes a problem for the world in general and not one that is specific to the United
States.”
In the United States, several oil refining companies have found it necessary to buy more
crude from Saudi Arabia and Kuwait to make up for declining production from Mexico
and Venezuela , insufficient pipeline connections between the United States and Canadian oil
sands fields, and the fallout from the 2010 BP disaster, which led to a yearlong drilling
moratorium in the Gulf of Mexico.
“As refiners, we buy from wherever the supply is readily available and where we can get the best
price,” said Bill Day, a spokesman for Valero Energy, the largest domestic refiner.
Saudi Arabia will flood the market to crash oil prices and assert its leadership
of OPEC.
Fang, Rice Prof of Polysci, et al 12
[Songying & Amy Myers Jaffe, Wallace S. Wilson Fellow in Energy Studies,
James A. Baker III Institute for Public Policy at Rice University & Ted
Temzelides, PH.D. Rice Scholar, James A. Baker III Institute for Public Policy
Professor of Economics, Rice University, January 2012, James A. Baker III
Institute for Public Policy at Rice University, “NEW ALIGNMENTS? THE
GEOPOLITICS OF GAS AND OIL CARTELS AND THE CHANGING
MIDDLE EAST,” p. 18-19, http://www.bakerinstitute.org/publications/EF-pubGasOilCartels-012312.pdf, accessed 7/8/13, MC]
However, it would be premature to draw the conclusion that Saudi Arabia will no longer be
willing to wage a price war. Its interest in carrying the spare capacity to wage a credible price
war goes beyond its security relationship with the United States. Saudi Arabia gains
international clout from its ability to guard the global economy by raising oil output and
lowering oil prices. Moreover, Riyadh’s ability to threaten other oil producers that it could
flood the oil market is a critical aspect buttressing its leadership role inside OPEC and gives
the country regional clout as well. Indeed, among the best levers Saudi Arabia has to influence
regional politics is its ability to dramatically lower the price of oil. Saudi Arabia has flooded the
oil market for geopolitical reasons in the past, and could arguably do so again. For example,
Saudi Arabia has made it clear that it aims to draw the line against Iranian expansionism.27 Iran
is dependent on oil revenues for more than 65 percent of its government revenue. In contrast, the
Kingdom is in a position to withstand a period of low oil prices. Thus, Saudi Arabia’s ability to
wage a price war is a major tool it can use to diminish Iranian power in the region and weaken
Iran’s position as a regional military and political rival to the Kingdom. The ability to wage an
oil price war also helps the Kingdom to guard against other producers with large oil
reserves, such as Iraq, from taking over its oil market share. In fact, Iraq has expressed the
ambition to reach 10 to 12 million b/d of production by 2017. This level is commensurate with
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Saudi Arabia’s capacity. Rising Iraqi output could alter the balance of political power within
OPEC and challenge Saudi Arabia’s current leadership. Iraqi oil reserves are considered very
low-cost to develop and are competitive with those of Saudi Arabia. In summary, while the costs
of maintaining enough spare capacity to wage a price war have risen for Saudi Arabia, there are
still many geopolitical incentives for the Kingdom to maintain this capability. This includes
contributing to its security by weakening Iran and by remaining important to the United States,
which would then be more apt to provide security guarantees in exchange for the free flow of
oil.28
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Exts – yes backstopping
Saudi would flood the market in response to the plan and crash oil prices
Hulbert, European Energy Review Analyst, 12
[Matthew, Senior Research Fellow, Netherlands Institute for International Relations; Senior
Research Fellow at the Center for Security Studies, “OPEC’s pending Bloodbath,” June 10th,
2012, http://www.forbes.com/sites/matthewhulbert/2012/06/10/opecs-pending-bloodbath/]
That’s unlikely to happen, precisely because Riyadh can bring further pricing pressures to
bear if it wants to get its way in the cartel. The Kingdom’s policy space has admittedly
tightened over the past couple of years, but they remain the only producer capable of
significantly increasing or reducing production at will. Initial tanker data from Europe
suggests Riyadh may have started reigning in production that was running around 6% over OPEC
quota. It’s also raised July benchmarks for Arab Light grades in Asia. But Iran, Venezuela,
Nigeria, Angola and Algeria will want restraint to come far faster and far deeper to firm prices.
The line being spun from the ‘free lunch’ brigade is that storage should easily cover any Iranian
spikes when EU sanctions come into full effect 1st July, while OPEC quotas should be pared
down to 29.5mb/d (or less). Cheap words from petro-hawks, not least because they’ll all continue
to cheat on quotas to squeeze out every last drop they have. Riyadh knows that of course; hawks
want a price floor to be set at $100/b to sustain political regimes, but to do so entirely at Saudi
expense. Russia is no different outside the cartel: free riding 101. Saudi Arabia (and its GCC
partners) might be willing to play ball given ongoing concerns from the Arab Awakening, but
with some budgetary tweaks and counter-cyclical cash to burn, they could all easily survive
at $85/b making Iran et al sweat. Tehran might decide to rip up formal quotas as it did in June
2011, but that would be a costly mistake. If the Saudis let prices fall, political outages across
smaller producer states could help to set a floor for them anyway. Iran would have no say in the
matter. Given such ‘pricing perils’, Saudi Arabia holds all the aces to settle institutional
issues, not to mention giving the global economy more breathing space (and Washington greater
leeway over Iranian sanctions). But the real reason to let prices fall a little further isn’t just to
make very clear to OPEC states where the ultimate volume and pricing power rests, but to
fight Riyadh’s bigger battle over the next decade: Retaining 40% of OPEC market share in
the midst of supposedly huge non-OPEC supply growth. It didn’t go unnoticed that despite
Saudi production averaging 31 year highs and prices hitting $128/b in March 2012, the forward
curve for 2018 was trading at $30/b discounts relative to spot. You’d think with the cartel maxed
out and proximate demand side problems looking bleak, five year curves would be exactly the
other way, in sharp contango (i.e. far above prompt prices) once the global economy and demand
side fundamentals were fixed. The fact they weren’t is principally because the market thinks vast
swathes of unconventional production will come online, not just in North America where
production is back above 6mb/d, but in Canada, Brazil and even Arctic extremes. At $100/b that
was a fair bet to place, but once benchmark prices drop back to two figures, the 6.4 trillion barrels
of unconventional reserves sitting in the Americas look a far less certain prospect. Canadian tar
distinctly sticky; Brazilian pre-salt horribly deep; Russian Arctic plays simply impossible. So
when OPEC meets in Vienna expect Saudi Arabia to call the shots. The new Secretary
General will either be a Saudi national, or a compromise candidate Riyadh can live with.
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Quotas will stay close to 30mb/d with minor reductions possible. Thinly veiled threats of
sustained (or increased) production will be made if Iran doesn’t play ball. Yet the long term
price point to watch isn’t just one that keeps OPEC in business and Riyadh in control, but
where the al-Saud can maintain secular market share. Letting prices informally slide to
$85-90/b might be the kind of warning shot Riyadh wants to send to scrub unconventional
plays off global balance sheets. Its OPEC colleagues will see that as sailing far too close to the
political wind, but a Saudi bloodbath now, might be just the medicine OPEC requires to
sustain its long term health, not unless the cartel is absolutely determined to keep pricing itself
out of existence.
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a/t: no capacity
Saudi Arabia has largest spare capacity, empirically used to influence
market.
Down Jones 13
[The Dow Jones, 5/1/13, Gulf News, “Rift emerges over Saudi oil policy”,
http://m.gulfnews.com/business/oil-gas/rift-emerges-over-saudi-oil-policy1.1177886, accessed 7/12/13, ALT]
Saudi Arabia currently produces around 9 million barrels a day of oil, leaving 3.5 million
barrels a day as spare capacity.
The level of Saudi Arabia’s spare capacity is closely watched by oil markets. Two of the
strongest periods of oil price increases-from 2003 to 2005 and 2007 to 2008-coincided
with Opec spare production capacity, most of which is in Saudi Arabia, falling to historic
lows.
“Saudi Arabia’s national production management scheme is set to increase total
capacity to 15 million barrels per day and have an export potential of 10 [million]
barrels per day by 2020,” Prince Faisal, a former Saudi ambassador to the US and
UK said in a speech at the Belfer Centre for Science and International Affairs of
Harvard University. The speech was delivered last week and posted on the
centre’s website late Monday.
The prince clarified his position in an email on Tuesday. “Saudi consumption may
reach five million barrels of oil by then [2020], hence the production capacity of
fifteen million barrels,” is required to maintain country’s export potential, he said.
Saudi Arabia would be lucky to go past production of 9 million barrels a day by
2020 and, “we don’t see anything like 15 million barrels a day before 2030, 2040,”
said Naimi in an appearance at the Centre for Strategic and International Studies in
Washington DC Tuesday.
Any decision to increase capacity would be taken by Saudi Arabia’s oil ministry,
which directs Aramco, or the kingdom’s Supreme Petroleum Council, which is
chaired by the king.
Prince Faisal’s comments also run counter to the official position of the statecontrolled Saudi Arabian Oil Co., also known as Aramco. Aramco declined to
comment Tuesday, but its top executive has previously ruled out increasing
capacity to 15 million barrels a day despite acknowledging that domestic use of
crude would rise and thus limit exports.
Aramco’s Chief Executive Khalid Al Falih ruled out increasing Saudi production
capacity to 15 million barrels a day in 2011, despite acknowledging that domestic
use of crude would rise and thus limit exports, because he said expansion plans in
other producing countries such as Iraq and Brazil should be enough to satisfy
world markets.
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Before 2011 Saudi Arabia had planned to increase oil production capacity to 15
million barrels a day.
Some economists predict that if Saudi Arabia’s current energy-consumption
growth rate of 7 per cent a year continues unabated, within 20 years the kingdom
will burn more than eight million barrels a day domestically, or around two-thirds
of its current production capacity of 12.5 million barrels a day.
Saudi Arabia last year consumed around 3 million barrels per day of oil, according
to the US Energy Information Administration, almost double its 2000 level and
putting it on track to use more than 5 million barrels a day if a 7 per cent annual
growth rate were to continue.
Aramco’s Al Falih acknowledged in 2011 that, if left unchecked, domestic energy
consumption would rise to 8.2 million barrels of oil a day by 2030.
If Saudi Arabia were to raise its oil production capacity to 15 million barrels a day, it would
have enough of a supply buffer to instantly replace all of the production of Iraq, the secondlargest member of the Organization of the Petroleum Exporting Countries, Prince Faisal
said.
Iraq’s oil exports should rise to 3.4 million barrels a day in 2014, said the
country’s oil minister Abdul Kareem Luaiby on Tuesday.
Investment of over $100 billion in oil infrastructure will enable to kingdom to
remain for many more decades the major supplier of energy to the world, Prince
Faisal said.
Saudi Arabia, which is currently producing about 9 million barrels a day of oil, is the only
exporter in the world that can offset major supply disruptions at short notice. It did so in
2011 after the civil war in Libya took more than 1.5 million barrels a day of oil off the
market, and in 1990 after the suspension of Kuwaiti output during the Iraqi invasion.
Saudi Arabia can flood market- 80’s practices prove.
Ergo Task Force 12
[The Ergo Task Force Includes: Manager of Production Engineering and Future
Oilfield Development for Saudi Aramco, former Exxon Mobile Treasurer,
petrochemist, R & D Director for Leading Middle East NGO, Executive Director
of Leading Gulf Affairs Think Tank, Energy Advisor to the Saudi Ministry of
Commerce, Former OPEC Employee, February 2012, “The Waning Era of Saudi
Oil Dominance”,
http://www.ergo.net/ErgoSpecialReport_Saudi_Oil_Feb2012.pdf, accessed
7/12/13, ALT]
Saudi Arabia’s importance to global oil markets is due not solely to its immense reserves
and production, but also its spare production capacity, which far surpasses that of any
other country. Oil producers with spare capacity can ¶ ramp up production to calm
turbulent markets and prices in response to a crisis—Saudi Arabia did so during the high
market uncertainty in the period immediately after the September 11, 2001 terrorist attacks in
the US, and again during the 2011 Libyan unrest. However, spare capacity can also be wielded
as a tool to undermine other market participants. Between 1979 and 1980, Saudi Arabia
warned other OPEC members that high oil prices would eventually curb demand. It enforced its
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view in 1981 by flooding the market, bringing down prices and slowing upstream expansion
programs in countries that had sought high oil prices.
At present OPEC spare capacity is approximately 3 mbpd. Saudi Arabia represents
approximately 98% of this amount, making it the only country that can effectively and
strategically make use of spare capacity. Spare capacity also provides a proxy for price
movements in oil. Recent history reveals a close correlation between spare capacity and the price
of oil: when spare capacity dwindles, the risk of a supply disruption grows and prices rise. Two of
the sharpest periods of oil price inflation—2003 to 2005 and 2007 to 2008—coincided with
OPEC’s spare capacity falling to historic lows. Armed with immense reserves and production
capability, Saudi Arabia has historically played the role of the world’s swing producer, helping to
mitigate shocks to the oil market.
Saudia Arabia can flood the market to decrease prices— capacity and
political support.
Taqui AlBab Center for Strategic Studies Director 11
[Dr. Jassim, 7/4/11, The Pakistan Observer, “Saudi Arabia leads the move to bring
down oil prices”, http://pakobserver.net/detailnews.asp?id=101173, accessed
7/12/13, ALT]
Saudi Arabia has emerged as an international player and a savior by insisting on increasing
the oil production to bring down the oil prices. It is supported by the State of Kuwait,
United Arab Emirates and the State of Qatar.
Prince Turki Al-Faisal has stated that Saudi Arabia can flood the international market with
oil to bring down the prices. Saudi Arabia has the capacity to achieve this feat. It has a spare
production capacity of 4 million barrel per day. It is the world leading oil producer and can
achieve what it promises. It has also the financial resources to further expand oil production at a
fairly quick time.
Saudi Arabia has ability to control the oil market— can export up to 10
million barrels a day.
Peixe Oil Price 13
[Joao, 5/2/13, “Saudi Arabia Aim to Increase Oil Production to 15 Million Barrels
a Day by 2020”, http://oilprice.com/Latest-Energy-News/World-News/SaudiArabia-Aim-to-Increase-Oil-Production-to-15-Million-Barrels-a-Day-by2020.html, accessed 7/12/13, ALT]
One of Saudi Arabia’s main strengths, which has allowed it to invest heavily in
infrastructure and develop its economy, is the fact that it boasts a huge spare capacity
with which it can stabilise the global oil market, and influence prices, by either increasing
or decreasing production volumes. By increasing total production to 15 million barrels
a day, Saudi Arabia will be able to increase exports to 10million barrels a day.
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2nc – Canada impact
Venezuela trades off with Canadian production
White, Telegraph Mining Correspondent, and Rowley, Telegraph Reporter,
13
[Garry & Emma, 3/11/13, Telegraph, “Death of Hugo Chavez propels Venezuelan
oil production into the spotlight,”
http://www.telegraph.co.uk/finance/commodities/9920725/Death-of-Hugo-Chavez-propelsVenezuelan-oil-production-into-the-spotlight.html, accessed 7/8/13, MC]
Should production eventually rise, which seems likely, the main loser is likely to be Canada.
Venezuela positioned its oil industry away from the US to the more “friendly” nationals of
China and Russia.
Oil exports to the US are about 900,000 barrels of oil equivalent per day (boepd), down from a
high of 1.4m boepd in 1998. This has benefited Canada, which has seen exports to the US
double.
“Venezuela’s oil is of the heavy crude variety, which is also what the Canadians produce
around Alberta,” Mr Hansen noted. “Companies operating in Alberta will be able to export their
know-how, which is good for the companies. However, this may be less so for the overall
economics around Alberta, with Venezuelan heavy crude being much cheaper to extract.”
However, the Canadian need not worry that the Venezuelans will get their act together
quickly. This seems unlikely to happen for some time.
Goldman Sachs managed to sum up the consensus view, saying that Mr Chavez’s death
should have “limited impact on the nation’s oil production in the short term” while a “change
of leadership may foster longer-term investment and boost output.”
Venezuela needs foreign oil companies to boost this output. Once it accepts this, and invites
the oil majors to use their skills, global oil prices should see some relief.
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a/t: production now
Venezuelan oil production is collapsing quickly
Ladislaw and Verrastro, Center for Strategic and International Studies senior fellow and
vice president, 2013 — [Sarah, co-director and senior fellow with the Energy and National
Security Program at CSIS, and Frank, senior vice president and James R. Schlesinger Chair for
Energy and Geopolitics at CSIS, 2013 (" Post-Chavez Outlook for Venezuelan Oil Production",
CSIS, 3-6-13, Available Online at http://csis.org/publication/post-chavez-outlook-venezuelan-oilproduction, Accessed on July 10, 2013)][SP]
The winds of change are once again blowing in Venezuela. The recent announcement of Hugo
Chavez’s passing has opened up a host of questions about the future leadership of Venezuela and
the potential impact this leadership transition could have on Venezuelan oil production and global
oil markets. Venezuela is one of the largest oil and natural gas resource holders in the world.
It is among the world’s largest oil producers (13th) and exporters (10th) and has historically
been one of the United States’ largest sources of oil imports (4th behind Canada, Saudi Arabia
and Mexico). Ever since the failed coup and the subsequent strike that brought about a short
collapse in oil production in 2002, followed by nationalization of the oil sector, onlookers have
been waiting for indications that the regime’s approach to energy production would either fail
once and for all or that some political change would bring about reform and rejuvenation of the
energy sector. A political transition in Venezuela is now upon us but how it evolves could mean a
lot for the energy sector and global energy markets. Despite its enormous oil resources,
Venezuela's oil production (regardless of whose figures you use) has long been in steady
decline. In 2011 liquids production was 2.47 million barrels per day (mmbd) , down a million
barrels per day since 1999. Some of this is reflects the changing cost and economics of
Venezuelan oil production but field decline is significant and expertise and reinvestment are
questionable and looking harder to come by. The internal technical and managerial capabilities
of state run oil and gas company PDVSA have deteriorated since the 2002 strike and aftermath.
Increasingly, PDVSA relies on contractors, as well as other private company partners, to keep
the fields in production but reports state that contractors have not been paid in months and that
the political uncertainty in the country has even driven routine decision making to a halt. The
sustained political uncertainty has also slowed investment ; Russian and Indian companies
were planning to invest in Venezuela's oil fields but so far have withheld incremental new
money. China has not announced a new line of credit or extensions on its development-linked
financing since last April. At the same time that production is dropping, highly subsidized
domestic consumption of oil is increasing while revenue from exports is also declining. The
United States remains the largest recipient of Venezuelan oil exports at 950,000 barrels per day in
2011, roughly 40 percent, plus another 185,000 barrels per day from the Caribbean that was
Venezuelan sourced but those volumes area down as U.S. demand has declined and other crudes
have become available. Venezuela's next largest export destinations are the Caribbean (31
percent) and then China (around 10 percent).
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1nc Cuba Link
Increased Cuban ends their dependency on Venezuela
Pentland, Forbes, 11
[William, 9/4/11, Forbes, “Cuba Chases 5 Billion Barrels of Undiscovered Oil;
U.S. Groups Respond”,
http://www.forbes.com/sites/williampentland/2011/09/04/cuba-chasing-5-billionbarrels-of-undiscovered-oil-u-s-intervenes/, accessed 7/10/13, ALT]
U.S. officials believe Cuba’s waters could contain more than 5 billion barrels of
undiscovered oil. Cuba will begin a plan to tap its offshore oil later this year, when
a consortium led by Spanish company Repsol YPF S.A. plans to start drilling a
well in more than 5,500 feet of water off the country’s northern coast, which will
likely trigger a race to set up production in Cuban waters, presuming Repsol finds
oil.
If oil is discovered, Cuba will reduce its reliance on Venezuela for its energy needs. In
2009, Cuba produced roughly 50,000 barrels of oil a day from onshore and coastal
wells and relied on imports from Venezuela to supply an additional 130,000 barrels to
meet consumption levels, according to the U.S. Energy Information Administration.
That means they lower oil prices
Hargreaves CNN 13
[Steve, CNN 3/6/13, “In turbulent Venezuela, gasoline will likely stay at pennies a
gallon”, http://money.cnn.com/2013/03/06/news/economy/venezuelagas/index.html, accessed 7/10/13, ALT]
Thanks to generous subsidies, the Venezuelan people pay an absurdly low price for gas. The
average price for a gallon of regular at the end of January was four U.S. cents, according to the
research firm Airinc.
That's right: One. Two. Three. Four. Pennies.
There's a common belief in Venezuela -- and in other oil-exporting nations -- that oil is a national
resource that citizens have every right to use cheaply.
The International Energy Agency, which represents oil-importing countries, unsurprisingly
takes the other side of the argument. It says these subsidies encourage "wasteful
consumption," which in turn contributes to higher oil prices worldwide.
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2nc – yes reserves
Cuba projected to be in top 20 largest oil reserves.
Carroll Guardian Latin America Correspondant 8
[Rory, 10/17/2008, The Guardian, “20bn barrel oil discovery puts Cuba in the big
league”, http://www.guardian.co.uk/world/2008/oct/18/cuban-oil, accessed 7/8/13,
ALT]
Friends and foes have called Cuba many things - a progressive beacon, a quixotic underdog, an
oppressive tyranny - but no one has called it lucky, until now .
Mother nature, it emerged this week, appears to have blessed the island with enough oil
reserves to vault it into the ranks of energy powers. The government announced there may be
more than 20bn barrels of recoverable oil in offshore fields in Cuba's share of the Gulf of
Mexico, more than twice the previous estimate.
If confirmed, it puts Cuba's reserves on par with those of the US and into the world's top
20. Drilling is expected to start next year by Cuba's state oil company Cubapetroleo, or Cupet.
Cuba has substantial oil and natural gas reserves.
Kennedy, Daily Finance, 11
[Bruce, 3/5/11, “Cuba's Deepwater Oil Exploration Could Be a Game Changer”,
http://www.dailyfinance.com/2011/03/05/cuba-deepwater-oil-exploration-gamechanger/, accessed 7/7/13, ALT]
The other bit of news is that a semi-submersible oil rig, originally due to arrive in Cuban
waters this month, will reportedly be delayed until late summer.
Working Around U.S. Trade Embargo The rig is a multinational project: owned by an Italian
oil service group, constructed by a Chinese firm and funded by a consortium led by the Spanish
energy company Repsol (REP). The delay is being blamed on technical problems -- but "part of
the delays were originally that the [rig's] works were going to have more than 10% of U.S.
technology, which is not acceptable to the U.S.," says Jonathan Benjamin-Alvarado, political
science professor at the University of Nebraska at Omaha.
That 10% figure is a part of the U.S. trade embargo against Cuba, now in its sixth decade. But
the possibility of a good-size oil find off the Cuban coast could be a major game-changer for
both Havana and Washington.
A 2004 assessment by the U.S. Geological Survey reported that about 4.6 billion barrels of
oil -- as well as substantial deposits of natural gas -- might lie trapped in the sediment just
north of Cuba.
Cuba could produce more oil than US, plus additional natural gas.
Miller Center for Research on Globalization 11
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[Edward, 11/4/11, Center for Research on Globalization, “Cuba’s Offshore Oil
and the U.S. Imposed Blockade”, http://www.globalresearch.ca/cuba-s-offshoreoil-and-the-u-s-imposed-blockade/27466, accessed 7/9/13, ALT]
While the US Geological Survey estimates Cuba’s offshore oil reserves at around 5 billion
barrels, Cuban estimates place that figure at around 20 billion barrels, and, no doubt, a fair
amount of natural gas, as the two exist together in concert wherever oil is found. Both
countries have their reasons for exacerbating these extremes, however were the Cuban estimate
to prove correct it would put them between China (13th, with just over 20 billion barrels)
and the US (14th, with just over 19 billion barrels). The country currently uses about 176,000
barrels of oil per day, putting consumption at 86th in the world on a per capita basis. Around a
third of this is produced locally and the rest comes from Venezuela’s vast oil reserves. This low
per capita consumption is a residual effect of the Special Period, where minimizing consumption
and recycling became somewhat of a national ideology.
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2nc – oil exporter link
Cuba has potential for economic power as oil exporter.
Scheer and Moss E Magazine 12
[Roddy and Doug, 3/11/12, The Environmental Magazine, “Cuba’s Offshore Oil
Program”, http://www.emagazine.com/earth-talk/cubas-offshore-oilprogram#sthash.G7TdtvTz.dpuf, accessed 7/9/13, ALT]
Geologists estimate that the rock formations off Cuba’s northern coast could yield
anywhere from five to 20 billion barrels of oil. American foreign policy experts are concerned
that Cuba’s inexperience with off-shore drilling could lead to a spill in sensitive waters not unlike
the 2010 BP oil disaster. They’re also worried that Cuba could yield more political and
economic power if it becomes a net exporter of oil.
Although Cuba is reportedly using state-of-the-art equipment and is working with
experienced international drilling contractors, some U.S. environmental groups are still troubled:
“A major oil spill in Cuban waters could devastate both coastal Cuba and the United States,”
reports the Environmental Defense Fund (EDF). “Florida’s $60 billion tourism and fishing
industries—as well as the Dry Tortugas marine sanctuary and deepwater corals in the Southeast
Atlantic—are at stake.”
Today Cuba imports half of the 200,000 barrels of oil it consumes each day from its
friendly neighbor to the south, Venezuela. The other half of Cuba’s oil comes from its own
two existing on-shore oil facilities. Finding significant off-shore reserves could end its
dependency on Venezuela and turn Cuba into an oil exporter, possibly even thawing relations
with a still oil-hungry U.S. Indeed, if the find is big enough, U.S.-based oil firms may want in,
and who knows how that will affect the U.S. embargo on trade with Cuba.
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2nc – Venezuelan dependence link
Subsidies for Cuba cut overall Venezuelan production.
Ladislaw CSIS Energy Director and Verrastro CSIS Vice President 13
[Sarah O. and Frank A., Center for Strategic and International Studies “PostChavez Outlook for Venezuelan Oil Production”, http://csis.org/publication/postchavez-outlook-venezuelan-oil-production, accessed 7/9/13, ALT]
At the same time that production is dropping, highly subsidized domestic consumption of oil is
increasing while revenue from exports is also declining. The United States remains the largest
recipient of Venezuelan oil exports at 950,000 barrels per day in 2011, roughly 40 percent,
plus another 185,000 barrels per day from the Caribbean that was Venezuelan sourced but
those volumes area down as U.S. demand has declined and other crudes have become available.
Venezuela's next largest export destinations are the Caribbean (31 percent) and then China
(around 10 percent). Venezuela sells to many of its Caribbean neighbors at below market
rates due to extremely preferential financing relationships, including additional heavy
subsidies for Cuban exports. All of this culminates in an outlook for continued decline in oil
production and a worsening economic outlook for Venezuela during a politically difficult
time.
Increased production in Cuba floods market with Venezuelan oil.
Bertran, International Business Times, 12,
[Pierre, 2/14/12, International Business Times, “Reversal of Fortune: Venezuela
Could Be Biggest Beneficiary of New Cuban Oil”,
http://www.ibtimes.com/reversal-fortune-venezuela-could-be-biggest-beneficiarynew-cuban-oil-410554, accessed 7/9/13, ALT]
Which OPEC member could benefit hugely from Cuba's nascent offshore oil industry?
Venezuela.
As Cuba starts its first offshore drilling and foreign companies eye more prospects, the Latin
American republic led by President Hugo Chavez may be among the biggest winners.
The reason is that after years of subsidizing the island nation of former president Fidel
Castro and now his brother Raul, a Cuba that starts making money from oil might slowly
wean itself off Venezuelan aid. Cuba now refines about 50,000 barrels of oil a day, about a
third of its requirements. Venezuela makes up the difference for free, said Jorge Pinon, the
former president of Amoco Oil Latin America and an expert on the Cuban oil industry. Pinon
now is a research fellow at the Center for International Energy and Environmental Policy at the
University of Texas.
Instead of cash, Cuba pays back its Latin American neighbor by sending doctors, teachers
and other skilled labor in a sort of international bartering system, Pinon said in an interview.
Cuba may have vast oil reserves, mostly offshore. The U.S. Geological Survey estimates
the island has reserves equivalent to 941 million barrels of oil.
Oil-hungry China has extended a line of credit to Cuba for the purpose of expanding the
country's refining capacity to 150,000 barrels a day. That expansion should be completed by
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2015, Pinon said. That would be just in time, Cuban authorities hope, for the Spanish-contracted
Scarabeo-9 oil rig to find and start producing oil offshore.
Repsol, Spain's biggest oil company, is using that rig to drill only 56 miles from the Florida
coast. The rig itself was built in China.An expanded and improved Soviet-era refinery in
Cienfuegos on Cuba's southern coast, previously refurbished by Venezuela, is expected to enable
the country to meet its domestic demand. That would immediately benefit the Chavez regime
because the oil would be sent to Venezuela for sale on world markets.
With the extra revenue, Venezuela could start paying the Cuban government in cash for
the skilled labor exchanges between the two countries, Pinon said.
96,300 barrels of Venezuelan oil subsidized to Cuba daily.
Uchoa BBC Brazil 13
[Pablo, 1/23/13, BBC, “Venezuela oil deals: Poor nations worry about future”,
http://www.bbc.co.uk/news/business-21081458, accessed 7/9/13, ALT]
Venezuela sent 243,500 barrels of oil a day to 16 countries across the region in 2011,
according to the latest report by state-owned oil company PDVSA.
This represents about 8% of its official oil production (2.99m barrels a day in 2011) and
about 10% of what market analysts estimate is the company's output (2.3m to 2.4m barrels a
day).
Through Petrocaribe, countries like Jamaica, the Dominican Republic, Nicaragua, Haiti,
Grenada and St Vincent and the Grenadines received 94,600 barrels of cheaper Venezuelan oil a
day.
Under a separate agreement, Cuba alone received the equivalent of 96,300 daily
barrels, totalling over $3.5bn at market prices.
Havana and Caracas have a much broader and deeper co-operation, through which Cuba
has already sent thousands of doctors and teachers to provide the backbone of Mr Chavez's social
programmes, known as the misiones.
Foreign investment in Cuba allows Venezuela to increase production, solves
mismanagement.
Sizemore, Sizemore Investment Founder, 13
[Charles Lewis, 1/16/13, “What Happens if Hugo Chavez Croaks?”
http://charlessizemore.com/what-happens-if-hugo-chavez-croaks/, accessed
7/9/13, ALT]
Without Chavez’s patronage, Cuba will have to seek a lifeline elsewhere…which means it will
likely have to open its economy further to foreign investment. Perhaps the best way to get
exposure to an investment boom in Cuba and its neighbors would be via the shares of the
Herzfeld Caribbean Basin Fund (Nasdaq:$CUBA).
It is by no means a pure play on Cuba (remember, we’re talking about a communist
country here…), but it is a nice collection of companies in the tourism, banking, and consumer
products companies of the Caribbean and Latin American regions that should benefit from Cuban
liberalization.
The Castro brothers are not the only radical regime at risk from the demise of Chavez.
Bolivia and Nicaragua both depend on Venezuelan generosity, and Syria and Iran have benefitted
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from political and diplomatic support. None of these are really investable themes, however, and
it’s probably better that way.
One major question mark is the price of crude oil (NYSE:$USO). Venezuela has the
largest oil reserves in the world—yes, even larger than Russia or Saudi Arabia—yet its
annual production places it in 11th place globally. Venezuelan crude oil production has
been in steady decline since Chavez took power and for obvious reasons. Professional
managers were replaced with political hatchet men, and no foreign investor in their right
mind would invest in the country even if Chavez allowed them.
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a/t: production now
Drilling prospects in Cuba have died — no oil production now
Reuters 12 — [Reuters, 2012 (“Drilling rig leaves Cuba, taking oil hopes with it,” Reuters, 1111-12, Available Online at http://www.reuters.com/article/2012/11/14/cuba-oil-rigidUSL1E8MEHET20121114, Accessed on May 30, 2013)][SP]
HAVANA, Nov 14 (Reuters) - The Scarabeo 9, a Chinese-built offshore drilling rig that Cuba
hoped would open a new era of oil production, sailed away from the island on Wednesday,
taking with it the communist country's near-term dreams of energy independence.
The massive, multi-colored rig, owned by Italian oil services company Saipem, could be seen
from Havana heading east through the blue waters of the Florida Straits en route, industry sources
said, to West Africa.
It may be years before Cuba sees another rig like it.
The Scarabeo 9, designed to operate in water up 12,000 feet deep (3,650 meters), was used to
drill three wells, all in more than a mile (1.6 km) of water off Cuba's north and west coasts - and
all unsuccessful.
Cuba had hoped to tap into deepwater offshore fields it says may hold 20 billion barrels of oil and
end its dependence on socialist ally Venezuela, which ships the Caribbean island 115,000 barrels
of petroleum a day in an oil-for-services deal.
A consortium led by Spanish oil giant Repsol, which contracted the Scarabeo 9 from Saipem,
hit the first dry hole last spring. That was followed by unsuccessful wells by Malaysia's
Petronas in partnership with Russia's Gazprom Neft, and by Venezuela's state-owned PDVSA.
Little is known about the PDVSA well, but Repsol and Petronas both encountered very hard
rock that slowed drilling and, in Petronas' case, made it impossible to produce hydrocarbons
that were found.
The Malaysian firm is continuing to do three-dimensional seismic work searching for reservoirs
of oil, but Repsol is leaving the island after 12 years.
Using a different rig, it drilled Cuba's first offshore well in 2004, where it said it found oil, but the
find was not "commercial."
Other companies including Angola's Sonangol, India's ONGC and Petrovietnam hold offshore
exploration leases in Cuba, but none are known to have any imminent drilling plans.
Jorge Pinon, a Cuba oil expert at the University of Texas in Austin, said it could be a decade
or more before anyone takes another chance on Cuba's deepwater fields.
"This deal is done. It's going to take a long time before the next one," he said. "You could
even be looking at 15 to 20 years if you put it all together."
He said the difficult geology encountered by Repsol and Petronas is discouraging, as is the
fact that companies must pass through the crucible of long-hostile U.S.-Cuba relations.
The five-decade-long U.S. trade embargo against the island 90 miles (145 km) away makes it
difficult to find a suitable drilling rig for Cuba. Would-be drillers face political pressure from
U.S. opponents of the Cuban government.
"It's a difficult, tendentious process. There are a lot of other places in the world today where
oil companies can go to explore - Brazil, Angola, the U.S. Gulf of Mexico, for example - so
Cuba has lost its place in the pecking order ," Pinon said.
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***Impacts***
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1nc warming impact
Lower oil prices kill renewable investment—causes global warming.
Haug, Harvard Graduate, 11
[Marianne, Former Director at the International Energy Agency, chairs Advisory
Group on Energy of the EC, and is Senior Research Advisor at the Oxford
Institute of Energy Studies, 2011, Oxford Journals, “Clean energy and
international oil,” http://oxrep.oxfordjournals.org/content/27/1/92.full, accessed
7/10/13, MC]
Developing and commercializing clean energy is one of the basic strategies to combat climate
change. It involves the near total decarbonization of the power sector, the use of renewables
and low-carbon fuels for heating and cooling, and last, but not least, the increasing
substitution of oil in the transport sector. Hybrid, battery electric, and fuel-cell cars fuelled by
clean power or hydrogen, together with sustainable biofuels and natural gas/CNG, are considered
the most likely technologies that will reduce oil demand.
Such fundamental transformation of the energy sector evolves over time through co-evolution
of technologies, markets, institutions, and societal values. Despite the absence of a global price
or tax for carbon, governments of the major economies worldwide are putting in place the
building blocks for a transition to a low-carbon economy. The present emphasis is on support for
RD&D and market diffusion for a wide range of technologies in different stages of technological
maturity and provision of associated infrastructure. Policies, institutional support, industrial
capacities, and renewable resource base vary widely among countries. We know that 10–20 years
are needed to introduce the diversity of technologies and policy approaches that should be helpful
during this formative stage of the transition to address different public concerns in different
countries and search for best solutions in both a country-specific and a global context.
Which energy mix of clean energy will evolve is highly uncertain. However, the broad based
RD&D and infrastructure investments and commercial scaling up of clean technologies should
narrow choices and reduce costs of substitutes for oil within the next 10–15 years and choices for
new low-carbon vehicles in 20 years. In this evolving process of technology selections and
industrial and policy engagement, the role of emerging economies as major investors in clean
technology and cost-competitive producers will become crucial.
What are the chances that the transformative dynamic towards clean energy is derailed again? A
span of 10–20 years is a long time to introduce competitive choices for clean electricity,
sustainable biofuels, clean hydrogen, alternative power trains, and the necessary infrastructure.
Unforeseen and unforeseeable events will happen over such an extensive time span. Chernobyl
changed the growth of nuclear power, decisively, Fukushima is jolting the nuclear renaissance,
and a meteorite hit may invalidate the climate change threat for a century or more. However, the
probability that a clean energy transition will unfold is very high. First, RD&D and niche market
support has unleashed a wave of scientific interest and technological creativity to explore cleanfuel and end-use alternatives in all scientifically advanced countries. The assumption that
competitive backstop technologies for oil will be ready to be scaled up within the 10–20-year
period is not only plausible but very likely. Second, the institutional and policy support in favour
of clean energy, while highly fragmented and imperfect, is creating vibrant industries with
increasing competitive pressure for all technologies, and sustainability as an overarching core
value. In brief, the trend to slowing oil demand growth appears irreversible in the absence of a
‘black swan event’.
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Can international oil influence the trend through price or quantity strategies, now, before the
decline is imminent? Experience shows that, indeed, consistently cheap oil will slow both
substitution and the development of alternatives. Theoretically, the world's low-cost oil
producers have the capacity to increase output and flood the market for an extended period
of time at low prices, as Sinn with his Green Paradox postulates. Such a major oil price drop
could be passed on to the consumers. But governments and societies committed to clean energy
could also take such an opportunity to internalize the cost of carbon and energy security, keep
consumer petroleum product prices relatively stable, and incentivize the clean energy transition
without large fiscal outlays. Low-cost producers would gain market share, but would not slow the
substitution process. As a corollary, a quantitative strategy to limit crude oil output is likely to
increase the expectation of scarcity and oil prices. Renewed oil price hikes would strengthen
the commitment of governments to develop alternatives to oil and consumers’ willingness to
pay for alternatives and help accelerate market readiness and market opportunities of
backstop technologies for oil.
Warming human caused & leads to extinction—prefer qualified science.
Deibel, Professor of IR at National War College, 7
[Terry L., Foreign Affairs Strategy, 2007, “Conclusion: American Foreign Affairs
Strategy Today Anthropogenic – caused by CO2”]
Finally, there is one major existential threat to American security (as well as prosperity) of a
nonviolent nature, which, though far in the future, demands urgent action. It is the threat of
global warming to the stability of the climate upon which all earthly life depends. Scientists
worldwide have been observing the gathering of this threat for three decades now, and what was
once a mere possibility has passed through probability to near certainty. Indeed not one of
more than 900 articles on climate change published in refereed scientific journals from 1993 to
2003 doubted that anthropogenic warming is occurring. “In legitimate scientific circles,” writes
Elizabeth Kolbert, “it is virtually impossible to find evidence of disagreement over the
fundamentals of global warming.” Evidence from a vast international scientific monitoring
effort accumulates almost weekly, as this sample of newspaper reports shows: an international
panel predicts “brutal droughts, floods and violent storms across the planet over the next
century”; climate change could “literally alter ocean currents, wipe away huge portions of
Alpine Snowcaps and aid the spread of cholera and malaria”; “glaciers in the Antarctic and in
Greenland are melting much faster than expected, and…worldwide, plants are blooming several
days earlier than a decade ago”; “rising sea temperatures have been accompanied by a
significant global increase in the most destructive hurricanes”; “NASA scientists have
concluded from direct temperature measurements that 2005 was the hottest year on record, with
1998 a close second”; “Earth’s warming climate is estimated to contribute to more than 150,000
deaths and 5 million illnesses each year” as disease spreads; “widespread bleaching from Texas to
Trinidad…killed broad swaths of corals” due to a 2-degree rise in sea temperatures. “The world
is slowly disintegrating,” concluded Inuit hunter Noah Metuq, who lives 30 miles from the Arctic
Circle. “They call it climate change…but we just call it breaking up.” From the founding of the
first cities some 6,000 years ago until the beginning of the industrial revolution, carbon dioxide
levels in the atmosphere remained relatively constant at about 280 parts per million (ppm). At
present they are accelerating toward 400 ppm, and by 2050 they will reach 500 ppm, about
double pre-industrial levels. Unfortunately, atmospheric CO2 lasts about a century, so there is no
way immediately to reduce levels, only to slow their increase, we are thus in for significant
global warming; the only debate is how much and how serious the effects will be. As the
newspaper stories quoted above show, we are already experiencing the effects of 1-2 degree
warming in more violent storms, spread of disease, mass die offs of plants and animals, species
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extinction, and threatened inundation of low-lying countries like the Pacific nation of Kiribati and
the Netherlands at a warming of 5 degrees or less the Greenland and West Antarctic ice sheets
could disintegrate, leading to a sea level of rise of 20 feet that would cover North Carolina’s outer
banks, swamp the southern third of Florida, and inundate Manhattan up to the middle of
Greenwich Village. Another catastrophic effect would be the collapse of the Atlantic
thermohaline circulation that keeps the winter weather in Europe far warmer than its latitude
would otherwise allow. Economist William Cline once estimated the damage to the United
States alone from moderate levels of warming at 1-6 percent of GDP annually; severe warming
could cost 13-26 percent of GDP. But the most frightening scenario is runaway greenhouse
warming, based on positive feedback from the buildup of water vapor in the atmosphere that
is both caused by and causes hotter surface temperatures. Past ice age transitions, associated with
only 5-10 degree changes in average global temperatures, took place in just decades, even though
no one was then pouring ever-increasing amounts of carbon into the atmosphere. Faced with this
specter, the best one can conclude is that “humankind’s continuing enhancement of the natural
greenhouse effect is akin to playing Russian roulette with the earth’s climate and humanity’s life
support system. At worst, says physics professor Marty Hoffert of New York University, “we’re
just going to burn everything up; we’re going to het the atmosphere to the temperature it was in
the Cretaceous when there were crocodiles at the poles, and then everything will collapse.”
During the Cold War, astronomer Carl Sagan popularized a theory of nuclear winter to describe
how a thermonuclear war between the Untied States and the Soviet Union would not only destroy
both countries but possible end life on this planet. Global warming is the post-Cold War era’s
equivalent of nuclear winter at least as serious and considerably better supported scientifically.
Over the long run it puts dangers form terrorism and traditional military challenges to
shame. It is a threat not only to the security and prosperity to the United States, but
potentially to the continued existence of life on this planet.
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2nc – impact run
Global warming leads to insecurity & threatens long-term peace – outweighs
the aff
Graves, Politics Reporter, 13
[Lucia, 3/11/13, Huffington Post, “Top U.S. Admiral: Climate Change Biggest
Threat,” http://www.huffingtonpost.com/2013/03/11/climatechange_n_2855007.html, accessed 7/10/13, MC]
Despite renewed threats from nuclear North Korea, missile stockpiling in China and a
standoff between China and Japan over a small string of islands, the head of the U.S. Navy’s
Pacific fleet has declared the greatest threat to long-term peace in the region is climate
change.
Fallout from the shifting global temperature "is probably the most likely thing that is going to
happen ... that will cripple the security environment, probably more likely than the other
scenarios we all often talk about," Navy Admiral Samuel J. Locklear III told the Boston Globe's
Bryan Bender on Friday.
This not from some liberal tree hugger, but from the man who ran the maritime part of
NATO’s war against Libyan dictator Muammar Gaddafi in 2011 and has since been tasked
with responding to the frequent destructive weather events in East Asia and the Pacific Ocean.
"You have the real potential here in the not-too-distant future of nations displaced by rising
sea level," Locklear said. "Certainly weather patterns are more severe than they have been in the
past. We are on super typhoon 27 or 28 this year in the Western Pacific. The average is about 17."
Locklear's comments come after the Department of Defense released a Quadrennial Defense
Review in which it described the shifting global climate as a national security threat and
"accelerant of instability and conflict," placing the burden of response on militaries around the
world.
Nuclear war does not cause extinction—global warming is the existential risk.
Seitz, Harvard & MIT Graduate, 6
[Russell, former Presidential science advisor and keynote speaker at international
science conferences, holds multiple patents, 12/20/06, “The ‘Nuclear Winter’
Meltdown,” http://adamant.typepad.com/seitz/2006/12/preherein_honor.html,
accessed 7/10/13, MC]
"Apocalyptic predictions require, to be taken seriously,higher standards of evidence than do
assertions on other matters where the stakes are not as great." wrote Sagan in Foreign Affairs ,
Winter 1983 -84. But that "evidence" was never forthcoming.'Nuclear Winter' never existed
outside of a computer except as air-brushed animation commissioned by the a PR firm - Porter
Novelli Inc. Yet Sagan predicted "the extinction of the human species " as temperatures
plummeted 35 degrees C and the world froze in the aftermath of a nuclear holocaust. Last year,
Sagan's cohort tried to reanimate the ghost in a machine anti-nuclear activists invoked in the
depths of the Cold War, by re-running equally arbitrary scenarios on a modern interactive Global
Circulation Model. But the Cold War is history in more ways than one. It is a credit to postmodern computer climate simulations that they do not reproduce the apocalyptic results of
what Sagan oxymoronically termed "a sophisticated one dimensional model."
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The subzero 'baseline case' has melted down into a tepid 1.3 degrees of average cooling- grey
skies do not a Ragnarok make . What remains is just not the stuff that End of the World myths are
made of.
Emissions cause ocean acidification—result is extinction.
Parry, Senior Writer for LiveScience, 12
[Wynne, 3/2/2012, Live Science, “Oceans Turning Acidic Faster than Past 300
Million Years,” http://www.livescience.com/18786-ocean-acidificationextinction.html, accessed 7/10/13, MC]
The oceans are becoming more acidic faster than they have in the past 300 million years, a
period that includes four mass extinctions, researchers have found.
Then, as is happening now, increases in carbon dioxide in the atmosphere warmed the planet
and made the oceans more acidic. These changes are associated with major shifts in climate
and mass extinctions.
But while past increases in the atmosphere's carbon dioxide levels resulted from volcanoes and
other natural causes, today that spike is due to human activities, the scientists note. "What we're
doing today really stands out," lead researcher Bärbel Hönisch, a paleoceanographer at Columbia
University's Lamont-Doherty Earth Observatory, said in a news release. "We know that life
during past ocean acidification events was not wiped out — new species evolved to replace those
that died off. But if industrial carbon emissions continue at the current pace, we may lose
organisms we care about — coral reefs, oysters, salmon." [Humans Causing 6th Mass
Extinction]
As the level of carbon dioxide in the atmosphere increases, oceans absorb that carbon
dioxide, which turns into a carbon acid. As a result the pH — a measure of acidity — drops,
meaning the water has become more acidic. This dissolves the carbonates needed by some
organisms, like corals, oysters or the tiny snails salmon eat.
In their review, published Thursday (March 1) in the journal Science, Hönisch and colleagues
found the closest modern parallel about 56 millions ago in what is called the Paleocene-Eocene
Thermal Maximum, when atmospheric carbon concentrations doubled, pushing up global
temperatures. Extinctions in the deep sea accompanied this shift. (The PETM occurred about 9
million years after the dinosaurs went extinct.)
But, now, the ocean is acidifying at least 10 times faster than it did 56 million years ago,
according to Hönisch.
Ocean acidification may also have occurred when volcanoes pumped massive amounts of carbon
dioxide into the air 252 million years ago, at the end of the Permian period, and 201 million years
ago, at the end of the Triassic period, they found. Both are associated with mass extinctions.
"The current rate of (mainly fossil fuel) carbon dioxide release stands out as capable of
driving a combination and magnitude of ocean geochemical changes potentially
unparalleled in at least the last 300 million years of Earth history, raising the possibility
that we are entering an unknown territory of marine ecosystem change," the researchers
conclude in their paper.
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2nc – green military impact
High oil prices spur renewable investment—Key to green DoD.
Neader, National Policy Director of Roosevelt Institute, & GOLDFARB,
Program Director at Americans for Energy Leadership, 12
[Reese & Daniel, Program Director at Americans for Energy Leadership Policy
Fellow at Americans for Energy Leadership Research Assistant at Democratic
Institutions Research Team, 5/7/12, “Big Idea: A Green Energy Offensive From
the Department of Defense,” http://www.good.is/post/big-idea-a-green-energyoffensive-from-the-department-of-defense/, accessed 7/10/13, MC]
How much does it cost the U.S. government to protect our oil supplies? In fiscal terms, between
1976 and 2007 it cost our military $7.3 trillion to patrol the Persian Gulf with aircraft carriers.
Between 2001 and 2006, while thousands of troops lost their lives in Afghanistan and Iraq, the
military—much like average Americans—saw its budget squeezed as oil prices climbed to
record highs. The U.S. economy’s growth has frequently been thwarted by shocks stemming from
rising oil prices.
Those rising prices aren’t going away. The global economy of the 21st century is being defined
by the "Rise of the Rest." Developing countries like China and India are industrializing rapidly
and bringing millions of people out of poverty. The members of this new, global middle class
demanding access to energy are already driving up the cost of fuel. This process makes our
dependence on fossil fuels too expensive.
The Department of Defense has reacted to this challenge by investing in renewable energy
innovation. In the face of growing costs in terms of lives and fuel, our military has developed
a new approach to energy innovation that fundamentally changes the way we think about
energy security. In order to compete economically and preserve our military dominance in
the 21st century, the U.S. military is developing technologies that promote energy ownership:
energy supplies that can be controlled by the user from production to consumption.
The DoD is investing in technologies that can supply self-sustaining units in combat
theaters, from Navy aircraft carriers to forward deployed Marine bases. A focus on
distributed generation, renewable energy, and American-made technologies is becoming
increasingly ingrained in our military’s decision-making, and needs to take a larger role.
While the military’s foremost concern is operational effectiveness, a natural alignment of
national security and economic interests is helping drive commercial innovation with the
potential to spur the creation of American jobs and reduce the federal deficit through a variety of
avenues that should be widened as the DoD doubles down on green energy.
Key to hegemony—laundry list of reasons.
Sussman, president of strategic counseling firm, 12
[Michael, graduate of Interdisciplinary Center, Herzliya, served in the office of the
Critic of International Cooperation in the Canadian House of Commons He is
currently the president of the strategic consulting firm Samuel Sussman Strategic
Consulting Group, 2/9/12, Jpost, “American military spending and oil
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dependency”, http://www.jpost.com/Opinion/Op-Ed-Contributors/Americanmilitary-spending-and-oil-dependency, accessed 7/10/13, MC]
***Gender modified***
One of the most crucial problems facing the United States is whether it will be able to maintain its
strategic interests in the Middle East. It is expected that US defense expenditures will
drastically decrease in the coming six years – official estimates are as high as eight percent,
roughly $477 billion, a significant sum when it comes to defense. It is also projected that the US
will not have the financial means at its disposal to bolster its allies, marginalizing the
potential for Marshall-Plan type subsidies (which totaled $13 billion at the time).
Since the Second World War, military might and financially aiding its allies in the Middle East
have been two of the major methods used by the US to protect its interests. The reality dictated by
the today’s situation is ingenuity: the US will have to be resourceful in projecting (at least the
perception of) its power, and find new ways of supporting its allies. But even that will not be
enough. To mitigate the problem to a manageable level the US must reduce its dependence
on oil.
It is important to clarify what the expected reduction in US military spending means for US
military capabilities.
The US is currently the strongest military in the world; its capabilities are exponentially greater
than those of any other military in the world. That reality is unlikely to change in the near future,
even with the proposed spending cuts.
US military spending accounts for over 43% of global military expenditures. The magnitude of
that sum becomes realizable when compared to China, which ranks second with 7.3%, and
Russia, which ranks third with 3.6%. US military superiority is also evident in the amount of
military equipment at its disposal. The US currently possesses 11 aircraft carriers, whereas the
rest of the world only has eight (China is building one, but it is not expected to be completed until
2015).
What the spending cuts will do, however, is limit the ability of the US to achieve its
objectives in the Middle East; the [power] manpower and machinery to conduct such
operations will no longer be available. For instance, even if the US maintains the largest air
force in the world, it will not have the [power] manpower to conduct the number of
operations that it did in the past.
In recent years, the US has implemented defense policies aimed at countering the problem,
including greater focus on intelligence, special forces units and network-centric warfare. These
options are less costly than all-out war; however, they are not able to fully substitute for
conventional standing forces.
An additional factor is that while aircraft carriers and a well-trained army require time, expertise
and capital to develop, and spy rings and anti-missile technology are less costly, it is therefore
easier for the US’s adversaries to counter these measures with their own spy rings and antimissile defense technology.
It is well known that the reason the Middle East is of particular importance to the US is oil.
The US consumes about 25% of all of the crude oil produced in the world, while producing
less than 9%. A large percentage of US imports comes from Middle Eastern countries, not to
mention the fact that 60% of the world’s known oil resources are in the Middle East. Oil may be
only a commodity, but it is the commodity that fuels US society, from transporting foods and
manufactured goods across the country to powering industries to transporting civilians to work.
At the recent Herzliya Conference former CIA director James Woolsey advocated decreased
dependency on oil. That can be achieved by the use of alternative fuels, including natural gas.
For example, today in Brazil, cars are fueled by ethanol fuel produced from sugarcane. The view
that the US should decrease its reliance on foreign oil is not a new one but given the economic
downturn it is of even more importance.
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America’s policies in the Middle East in the last half century have often been skewed by the
fact that it is beholden to the oil producing regimes. Through incremental decreases in
foreign aid and defense spending, coupled with investment in alternative energy technology
the US can reach a point where it need no longer rely on some of these local regimes and
where it can pursue its true self interest and policies.
The money saved on US defense expenditures in the region could be put toward placing its
military in other regions. For instances, the US plans to expand its operations in Asia. This will be
very difficult to achieve given the defense cuts and its many commitments around the world.
It would also deliver a blow to the oil producing regimes that supply the US, and which are
also among the greatest violators of human rights and sponsors of terrorism. Without
money coming from oil producing countries, Islamist terrorists will suffer a major setback.
As an additional benefit, some of the money saved can go towards strengthening
manufacturing and US industry. With government support, as well as a large domestic market,
the alternative energy industry can become a booming industry in the US – helping to
strengthen its economy. By decreasing dependency on the oil producing regimes in the
Middle East the US will be freer to focus on other core strategic issues, such as increased
Iranian influence, democratization and maintaining security and stability in the region.
The US faces a problem of defense cuts and maintaining its interests. Alternative fuels are
ready to be utilized. The defense spending problem can be eliminated.
Americans should ask themselves why these solutions are not being implemented.
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2nc – turns offshore drilling
Warming causes extreme storms—destroys their offshore drilling
infrastructure
NWF, conservation organization, 11
(National Wildlife Federation, largest member-supported conservation
organization. “Most Extreme Weather and U.S. Energy Infrastructure”
http://www.nwf.org/~/media/PDFs/Global-Warming/ExtremeWeather/Final_NWF_EnergyInfrastructureReport_4-8-11.ashx, accessed 7/8/13,
MC)
The destructive potential of tropical storms in the North Atlantic has increased by about 50
percent since the 1970s. 10 This increase, which primarily reflects longer storm lifetimes and
greater storm intensities, is correlated with an increase of 0.9 to 1.3°F in sea-surface temperatures
in the main development area for tropical storms in the North Atlantic. 11 If carbon pollution
continues unabated over the next century, tropical sea surface temperatures could increase
another 3°F —– three times the warming to date. 12 If this happens, tropical storms are
likely to have wind speeds that are 2 to 13 percent greater —– enough to bump a hurricane
up to the next more severe category —– and to have 10 to 31 percent more precipitation.
Rising sea level will further compound the risk to coastal communities from hurricanes. If
the world follows higher emissions scenarios, sea level is expected to rise by 3 to 4 feet by
2100. 14 To put this in perspective, a two-foot rise in sea level would mean regular inundation for
2,200 miles of major roads and 900 miles of railroads in Maryland, Virginia, North Carolina and
the District of Columbia. 15 When a tropical storm hits, higher sea-level translates into bigger
storm surges that can cause flooding further inland. In addition, the heights of big waves —–
those higher than about 10 feet that are likely to be present during strong storms —– have
already increased by 20 percent along the eastern United States during hurricane season since
the late 1970s, 16 a trend that is likely to continue and pose challenges for offshore
infrastructure.
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2nc – high prices key
Low oil prices kill investment in renewable energy; empirics prove.
Bullis, MIT Technology Review senior editor, 12 (Kevin Bullis, senior editor of
MIT Technology Review for 7 years, awarded a Jefferson Fellowship, articles
widely cited by Wall Street Journal and NPR, 6/26/12, MIT Technology Review,
“Could New Oil Production Cause Oil Prices—And Energy Innovation—To
Collapse?” http://m.technologyreview.com/blog/energy/27966/, accessed 6/19/13,
MC)
A new report out of Harvard suggests that a boom in oil exploration and production—driven
by a surge of investment starting in 2003—might lead to a sharp drop in oil prices. If that
happens, could that kill development of alternatives to oil, as happened when oil prices hit
bottom in the 1990s? Will solar panels, electric cars, and advanced biofuels fade from view?
Three decades ago, high oil prices spurred investment in alternatives. But by the time oil
prices had bottomed-out in the 1990s, much of that research had been abandoned, and promising
technologies didn’t come to market or weren’t made cheap enough to catch on widely. With the
surge in oil prices in recent years, much of that research has been taken up again, and the
trends look good. Solar power is approaching the cost of conventional fossil-fuel power, and
advanced biofuels seem on the cusp of becoming commercial reality. As new energy startups
proliferated, many alternative energy researchers and companies waved away suggestions that oil
might plummet again, causing these technologies to be abandoned once again. The conventional
wisdom has been that high demand from fast-growing economies will keep oil prices high enough
to drive innovation. And concern about climate change will lead to a price on carbon that will
drive new technologies even if oil prices drop.
But interest in climate change seems to have waned, and efforts to put a price on carbon dioxide
emissions have failed in the U.S. and most of the rest of the world. If oil prices also drop due to
overproduction, as the report suggests, what could that mean for technologies such as electric
cars, advanced internal combustion engines, and renewable electricity sources, such as solar
power?
Taking solar power first, things are a bit different now than in the 1970s, at least in the United
States. The oil crisis spurred investment in solar power in part because oil was used to generate a
substantial amount of electricity in the United States. Now the U.S. hardly uses oil at all for
generating electricity, and installing solar panels doesn’t do anything to decrease oil consumption.
Some people don’t know that, and support solar as a way of reducing oil consumption—their
support could fade with high oil prices. Such public support is critical for the solar industry now,
since it relies heavily on subsidies. More importantly, while the U.S. doesn’t use oil for
electricity, much of the rest of the world does. At current oil prices, solar power is cheaper than
electricity from diesel generators, and that’s creating a new markets for solar panels. A drop in
oil prices could hurt the solar industry.
But solar panel prices have been dropping quickly, and some solar companies, such as First Solar,
are staking their business on the prospect that they can soon be competitive in unsubsidized
markets. There’s a race on. If the oil price drops within the next couple of years, that could be a
bad sign for the solar industry. If it drops later, the solar industry may be able to survive on its
own by then, even if it’s hurt some by lower prices.
A drop in oil prices could really hurt advanced biofuels companies, which are struggling to
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get prices low enough to compete with even today’s relatively pricey oil. Low oil prices could
further deteriorate already strained support for advanced biofuels.
And low oil prices could also hurt attempts to sell electric cars, and cars with costly
efficiency improvements.
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2nc – renewables solve warming
Renewables can solve for global warming with proper investment
UCS, 11 (Union of Concerned Scientists, group of scientists and citizens working
to find environmental solutions to the world’s problems, 5/9/11, Union of
Concerned Scientists of the United States, “Renewable Energy Likely to Become
Dominant Climate Change Solution by 2050, U.N. Study Concludes”,
http://www.ucsusa.org/news/press_release/renewable-energy-likely-climatesolution-0539.html, accessed 7/8/13, MC)
"This IPCC report makes it clear that renewable energy has tremendous potential to meet
our energy needs and confront the challenge of climate change. But we must do much more to
scale up clean energy sources," said Rachel Cleetus, UCS climate economist. "Many
renewables are already economically competitive with fossil fuels and nuclear energy,
especially when you take into account all the hidden costs of conventional energy—such as
public health risks, air and water pollution, global warming emissions, and security risks."
In a 2009 analysis titled “Climate 2030: A National Blueprint for a Clean Energy Economy,”
UCS concluded that by adopting a comprehensive package of climate and clean energy policies in
the U.S., renewable sources could provide 25 percent of the nation’s energy supply and 50
percent of electricity generation by 2030. When combined with investments in energy efficiency,
renewable energy, according to the UCS analysis, could help reduce heat-trapping emissions
in 2030 by 56 percent from 2005 levels and save consumers money in every region of the
country.
“To reach a low-carbon global economy by 2050 requires making smart policy choices and
investments today,” said Steve Clemmer, UCS Director of Energy Research and Analysis. “Here
in the U.S. we can make serious progress by building on what the states have already done and
adopt strong national renewable electricity and energy efficiency standards, and a price on
carbon. That’s a sure way to transition to a clean energy economy while driving down costs and
significantly reducing emissions.”
Renewables key to solve warming
Kutscher, National Renewable Energy Lab Scientist, 07 [Charles F., January 2007, American
Solar Energy Society, “Tackling Climate Change in the U.S.”,
http://kansas.sierraclub.org/Wind/Climate_Change.pdf, accessed 7/8/13, PS]
The studies focused on the use of renewable energy in the electricity and transportation
sectors, as these together are responsible for nearly three-quarters of U.S. carbon emissions
from fossil fuels. Goals for renewables are often stated in terms of a percentage of national
energy. Figure 2. Potential carbon reductions in 2030 from energy efficiency and renewable
technologies and paths to achieve reductions of 60% and 80% below today’s emissions
value by 2050. The results of these studies show that renewable energy has the potential to
provide approximately 40% of the U.S. electric energy need projected for 2030 by the Energy
Information Administration (EIA). After we reduce the EIA electricity projection by taking
advantage of energy efficiency measures, renewables could provide about 50% of the
remaining 2030 U.S. electric need. There are uncertainties associated with the values estimated
in the papers, and, because these were primarily individual technology studies, there is
uncertainty associated with combining them. The results strongly suggest, however, that energy
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efficiency and renewable energy technologies have the potential to provide most, if not all, of
the U.S. carbon emissions reductions that will be needed to help limit the atmospheric
concentration of carbon dioxide to 450 to 500 ppm.
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2nc – clean energy now
Investment in clean tech is increasingly strong now—reports prove
Content, Milwaukee Journal Sentinel Journalist,11 [Thomas, 7/12/11,
Milwaukee Journal Sentinel, "Report finds Wisconsin 13th in clean-technology
jobs," http://www.jsonline.com/business/125463128.html, accessed 7/7/13, MC]
Batteries, biofuels and water technology helped rank Wisconsin 13th among the 50 states in
clean-tech jobs nationally last year, according to a new Brookings Institution-Battelle report.
The report says about 2.7 million people nationally were employed by the "clean economy"
last year, including nearly 77,000 in Wisconsin. "The clean economy is more than a myth,"
said one of the report's authors, Jonathan Rothwell, senior research analyst at Brookings. "And
it's a significant and growing area of the U.S. economy, especially in the newer technologies
such as solar, wind and biofuels, but also energy-efficiency related segments like the smart grid,
electric vehicle technologies and fuel cells." The first report to look at the clean-tech economy in
100 cities across the country notes that Milwaukee has seen slower-than-average growth in clean
technology in recent years, but it also highlights the region's efforts to expand in two clean-tech
markets: water-efficiency technologies and batteries. The Milwaukee 7 regional economic
development group has established a Water Council and advanced freshwater science research at
the University of Wisconsin-Milwaukee. A similar initiative has been launched in energy storage,
through the Wisconsin Energy Research Consortium and the announcement last week of a
multimillion-dollar partnership between Johnson Controls Inc. and the state's two largest public
universities. "We find that clustering is associated with faster growth in the clean economy from
2003 to 2010, so clusters in the Milwaukee area are apt to boost growth for the relevant
companies and attract more companies that are doing similar work," Rothwell said. "Where
innovation matters - and that's most industries, and not just the clean economy - clustering should
matter." Madison, meanwhile, has seen above-average growth in clean-tech sectors, with
particular strength in biofuels and energy-efficiency products and technologies, according to the
report, prepared for a division of Brookings that focuses on the economies of the nation's
metropolitan areas. Drivers of its green economy include companies such as renewable fuels
developer Virent Energy Systems and the Great Lakes Bioenergy Research Center at UWMadison. Researchers at Brookings used a database compiled by Battelle - the nonprofit
organization that runs national energy research laboratories for the federal Department of Energy
- to develop the report. It measures employment in a variety of fields, tallying up jobs linked to
everything from renewable energy and pollution prevention devices to organic foods and green
consumer products. The report recommends a variety of policy initiatives to help foster growth
of clean-technology businesses but also says the private sector has moved swiftly to shepherd
clean-tech's ascension. From 1995 to 2010, the value of venture capital flowing into cleantech sectors rose from $1 billion to $4 billion. Clean-tech accounted for 17% of all venture
capital dollars invested last year, Rothwell said.
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2nc – clean energy now – Mexico
specific
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Mexico shifting towards renewables now
Daly, Oilprice Chief Analyst, 12 [John, 11 November 2012, “Leading U.S. Oil Supplier
Mexico to Embrace Renewable Energy?” http://oilprice.com/Alternative-Energy/RenewableEnergy/Leading-U.S.-Oil-Supplier-Mexico-to-Embrace-Renewable-Energy.html 7/8/13 EYS]
When two of the leading oil exporters to the U.S. begin considering embracing renewable
power, it is a development that all but the most ardent fossil fuel advocates should notice.
Last month Saudi Arabian Prince Turki Al Faisal Al Saud, told an audience at the Global
Economic Symposium in Brazil that he hoped that Saudi Arabia’s domestic energy needs
might be met entirely by low-carbon energy renewable sources within his “lifetime,” adding
that Saudi Arabia wants to use its vast reserves of hydrocarbons to produce other goods rather
than use them solely for power generation, stating, "Oil is more precious for us underground than
as a fuel source. If we can get to the point where we can replace fossil fuels and use oil to produce
other products that are useful, that would be very good for the world. I wish that may be in my
lifetime” before adding, “but I don't think it will be."
Now Mexico seems poised to follow suit.
At the October Border Energy Forum XIX held in Hermosillo in Mexico’s Sonora state, Mexican
President Felipe Calderón, who leaves office at the end of his six-year term on 1 December, told
his audience of his ambition for Mexico to be using 30 percent energy from renewable
sources by 2020 and 50 percent by 2050, up from its current level of 7 percent. Sonora
Governor Guillermo Padrés opened the conference. Padrés announced that Sonora would soon
host the Centro Mexicano de Innovación en Energía Solar solar research and production facility,
to be staffed by 16 Mexican universities, plus the University of Arizona. In addition, 11 Mexican
technological institutes, 15 research facilities and 19 private companies will participate, including
the multinational Spanish corporation Abengoa S.A. Sonora state has also invested about $25
million to land the solar facility.
The Border Energy Forum now draws an annual crowd surpassing 300, usually evenly divided
between Americans and Mexicans. Border Energy Forum sponsors included: the Texas General
Land Office; the Comisión de Cooperación Ecológica Fronteriza (the Border Environment
Cooperation Commission, COCEF/BECC); the North American Development Bank
(NADB/BDAN); the Energy Council; the U.S.-Mexico Chamber of Commerce; the U.S.-Mexico
Cultural and Educational Foundation; El Gobierno del Estado de Sonora (the Sonora state
government): Secretaría de Economía del Estado de Sonora (the Sonora State Economic
Secretariat); Comisión de Energía del Estado de Sonora (the Sonora State Energy Commission);
Secretaria Técnica del Ejecutivo del Estado de Sonora (the Sonora State Executive Technical
Secretariat); the Center for Legislative Energy and Environmental Research (CLEER); the
Sonora Energy Group Hermosillo; Frontera Renovable S de RL de CV; ABB México, S.A. de
C.V.; López Rubio & Asociados; FRV; Energyas; SolFocus PECOM Electricidad y
Telecomunicaciones; Grupo México; Capín, Calderón, Ramírez y Gutiérrez-Azpe, SC;
Solarscape de México, SA de CV; the U.S. Agency for International Development; the U.S.
Environmental Protection Agency; the U.S.-Mexico Border 2012 Program; Alliance Magazine;
BizNews North Mexico; Círculo Verde; EIN News; Expansion Solutions Magazine; Petróleo &
Energía; Revista RECONVERSION and Palabra Empresarial.
A number of conference participants discussed Mexico’s potential to expand its renewable power
capacity to 12 gigawatts (12,000 megawatts) by 2020. The prediction was made by Pablo
Gottfried Blackmore, a member of the directors council of the Asociación Mexicana de Energía
Eólica (the Mexican Association of Wind Energy), the country's national wind trade group,"
Blackmore said, "Our goal is 12 GW, and the Energy Secretariat already has adopted that
number. Studies we have analyzed seem to agree that there is 20 GW of wind potential in
Mexico that would be competitive with gas prices. It is critical to bring in the small producers
to reach this goal, however."
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Mannti Cummins, the wind energy director for American Shoreline Inc., was even more bullish,
telling his audience, "We should be adding 4,000 MW of capacity over the next four to five years.
This will be the Saudi Arabia of wind."
What makes the development particularly fascinating is its proximity to the U.S., and the
fact that energy became a topic in the recent presidential debates, with the Obama
administration supporting the development of renewable energy, while the Republican
candidate Mitt Romney remained firmly committed to hydrocarbons, coal and nuclear power. In
its “The Romney Plan For A Stronger Middle Class: ENERGY INDEPENDENCE,” released on
22 August, “renewable” energy was mentioned a mere three times in 21 pages.
But some of Romney’s concepts may yet survive, if not in the way the former presidential
candidate intended, particularly its concept of “partnering with our allies Canada and Mexico to
achieve energy independence on this continent.”
And American companies are already taking part in Mexico’s green revolution. The San
Antonio-based North American Development Bank (NADB) director of project development Jose
Ruiz noted, "We can provide 55 percent to 70 percent of the cost of a project, with the rest
coming from equity investors, the EPC contractors and the equipment providers. We have several
more wind projects in the works." Among its other tasks, the NADB is mandated to support
renewable energy development along the U.S.-Mexico border under the terms of the North
American Free Trade Agreement.
So, Romney’s proposed “North American Energy Partnership” may eventually come to pass – but
it will contain a significantly greater renewable energy component than the white paper
envisaged.
And, in the meantime, according to the U.S. Energy Administration, the United States will
continue to import 1.319 million barrels per day of Mexican crude, making it America’s second
largest source of imports.
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a/t: warming doesn’t hurt biod
Squo proves that climate change kills BioD; preventing increasing carbon
emissions is key to mitigate effects.
Hansen, Director of NASA/Goddard Institute for Space Studies, 12
[Dr. James, Dr. Makiko Sato, Physicist at NASA/Goddard Institute for Space
Studies, Dr. Reto Ruedy, analyst at NASA/Goddard Institute for Space Studies,
2012, NASA Goddard Institute for Space Studies and Columbia University Earth
Institute, “Perceptions of Climate Change: The New Climate Dice,”
http://www.columbia.edu/~jeh1/mailings/2012/20120105_PerceptionsAndDice.pd
f, accessed 7/10/13, MC]
Climate change of recent decades is also having effects on animals, birds and insects that are
already noticeable (17, 27, 28). Although species migrate to stay within climate zones in which
they can survive, continued climate shift at the rate of the past three decades is expected to
take an enormous toll on planetary life. If global warming approaches 3°C by the end of the
century, it is estimated that 21-52% of the species on Earth will be committed to extinction
(3). Fortunately, scenarios are also possible in which such large warming is avoided by
placing a rising price on carbon emissions that moves the world to a clean energy future fast
enough to limit further global warming to several tenths of a degree Celsius (29). Such a
scenario is needed if we are to preserve life as we know it.
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a/t: adaption solves
Empirics prove that adaptation doesn’t solve—prefer well warranted
evidence.
Hansen, Director of NASA/Goddard Institute for Space Studies, 12
[Dr. James, Dr. Makiko Sato, Physicist at NASA/Goddard Institute for Space
Studies, Dr. Reto Ruedy, analyst at NASA/Goddard Institute for Space Studies,
2012, NASA Goddard Institute for Space Studies and Columbia University Earth
Institute, “Perceptions of Climate Change: The New Climate Dice,”
http://www.columbia.edu/~jeh1/mailings/2012/20120105_PerceptionsAndDice.pd
f, accessed 7/10/13, MC]
Although extreme heat waves and record floods receive most public attention, we wonder if there
is not also a more pervasive effect of warming that affects almost everyone. Natural ecosystems
are adapted to the stable climate of the Holocene. Climate fluctuations are normal, but the
rapid monotonic global trend of the past three decades, from an already warm level, is 11
highly unusual. The fact that warmer winters have led to an epidemic of pine bark beetles
and widespread destruction of forests in Canada and western United States is well known.
However, as an anecdotal data piece suggesting the possibility of more widespread effects,
consider that several tree species (birch, pin oak, ash, some maple varieties) on the eastern
Pennsylvania property of one of us (JH) exhibit signs of stress. Arborists identify proximate
causes (borers and other pests, fungus, etc.) in each case, but climate change, including longer
summers with more extreme temperature and moisture anomalies, could be one underlying
factor. The tree species in this region have existed for millennia; it is implausible that Native
Americans had to water the birch trees to keep them alive, as is the case at present during
summers with anomalously hot summers.
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a/t: warming not real
Global warming is real—prefer mathematical analysis over their warrantless
claims.
Hansen, Director of NASA/Goddard Institute for Space Studies, 12
[Dr. James, Dr. Makiko Sato, Physicist at NASA/Goddard Institute for Space
Studies, Dr. Reto Ruedy, analyst at NASA/Goddard Institute for Space Studies,
2012, NASA Goddard Institute for Space Studies and Columbia University Earth
Institute, “Perceptions of Climate Change: The New Climate Dice,”
http://www.columbia.edu/~jeh1/mailings/2012/20120105_PerceptionsAndDice.pd
f, accessed 7/10/13, MC]
"Climate dice", describing the chance of unusually warm or cool seasons relative to
climatology, have become progressively "loaded" in the past 30 years, coincident with rapid
global warming. The distribution of seasonal mean temperature anomalies has shifted
toward higher temperatures and the range of anomalies has increased. An important change
is the emergence of a category of summertime extremely hot outliers, more than three
standard deviations (σ) warmer than climatology. This hot extreme, which covered much less
than 1% of Earth's surface in the period of climatology, now typically covers about 10% of the
land area. We conclude that extreme heat waves, such as that in Texas and Oklahoma in 2011
and Moscow in 2010, were "caused" by global warming, because their likelihood was
negligible prior to the recent rapid global warming. We discuss practical implications of this
substantial, growing climate change.
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1nc Russia econ
Declining oil prices destroy Russian econ—devaluation, investor confidence,
inflation.
Shelin, Political Columnist, 12
[Sergey, 4/30/12, Novayagazeta, “Putin Without Oil,”
http://en.novayagazeta.ru/business/52381.html, accessed 7/10/13, MC]
Russia’s economic dependence on the oil trade is not just important, it is critical.
The traditional Prime Minister’s farewell speech delivered to the state Duma by Vladimir Putin
was for the most part, boring with one major exception. He listed various programs, projects and
promises, but never once indicated that they are only feasible if oil prices continue to rise year on
year.
In response to a timid and planted question by a deputy of his own United Russia party, the
president-elect dismissed any link regarding the success of their plans being reliant on future oil
revenue. “All the initiatives I have set forth are in no way dependent on oil or gas revenues…
Even if the price falls to $70 a barrel, we will be able to fulfill all of our commitments to the
Russian people.”
This statement overwhelmingly contradicts the common belief that the Russian economy is
heavily dependent on its oil exports. This view is also misleading. The oil trade is not just
important for Russia, it is vital.
In the first quarter of 2012, the average price of Urals Crude was $117 a barrel; compare that with
Q1 2010 when the price barely touched $70.
In Q1 2012, Russia’s exports totaled $135 billion and imports made up $73 billion, a healthy
margin of $62 billion. However, due to negative balance of payments, services and other
economic parameters the Russian current account stands at a more modest $42 billion. Moreover,
since the net outflow of private capital from Russia for the same three months was $35 billion,
the country’s economy is more or less breaking even.
If oil prices were to fall down to the 2010 mark of $70 a barrel, and along with it other energy
resources that make up more than 70% of all Russian exports, then total revenue would fall by
some $40 billion, from the current $135 billion to $95 billion. In addition, Q1 2010 saw Russian
imported goods totaling $46 billion and export of private capital touching $15billion, 1.6 and 2.3
times lower than today’s figure respectively.
If world oil prices do indeed crash, it is believed that Russians will panic and the country’s
private capital exports will accelerate dramatically. A drop in oil prices will not be matched
by the required cut in imports and to restore fiscal balance the Kremlin will have to decide
whether to raid their foreign reserves or cut their expenditure on imports by half. The result
would lead to a sharp devaluation of the ruble, a drop in consumer confidence and a surge
in inflation.
The result is extinction.
Filger, Huffington Post author, 9
[Sheldon, Former VP for Resource Development at New York’s United Way,
Global Economic Crisis, “Russian Economy Faces Disastrous Free Fall
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Contraction,” http://www.globaleconomiccrisis.com/blog/archives/356, accessed
7/10/13, MC]
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 desperate attempt to
raise cash.
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 dimension that is even more relevant then
the economic context. Despite its economic vulnerabilities and perceived decline from
superpower status, 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 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 that 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.
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2nc impact run
Russian economic decline collapses the global economy and causes civil war
in Russia – that’s Filger
Decline causes Russian lashout—miscalculation, aggression.
Eberstadt, Chair in Political Econ at American Enterprise, 11
[Nicholas, Henry Wendt Chair in Political Economy at the American Enterprise
Institute and a Senior Adviser at the National Bureau of Asian Research, Nov/Dec
2011, Foreign Affairs, “The Dying Bear”, http://www.aei.org/files/2011/11/02/eberstadtthedyingbear_194331985869.pdf, accessed 7/11/13, MC]
Most immediately and dramatically, the decline could lead Russia’s military leaders, aware of
their deficiencies in both manpower and advanced technology, to lower the threshold at which
they might consider using nuclear weapons in moments of crisis. Indeed, such thinking was
first outlined in Putin’s 2000 National Security Concept and was rearmed in Medvedev’s 2009
National Security Strategy. The official Russian thinking is that nuclear weapons are Russia’s
trump card: the more threatening the international environment, the more readily Moscow
will resort to nuclear diplomacy.
For the moment, the Kremlin evidently still believes that its ambitious long-term socioeconomic
plans will not only remedy the country’s demographic woes but also propel Russia into the select
ranks of the world’s economic superpowers. But if Russia’s demographic decline and relative
economic decline continue over the next few decades, as they most likely will, Moscow’s
leaders will be unable to sustain that illusion.
Indeed, once the Kremlin finally confronts the true depths of the country’s ugly demographic
truths, Russia’s political leaders could very well become more alarmist, mercurial, and
confrontational in their international posture. And in the process, Moscow might become more
prone to miscalculation when it comes to relations with both allies and rivals. Meanwhile,
Russia is surrounded by countries whose stability and comity in the decades ahead are anything
but given: for example, Afghanistan, Iran, North Korea, Pakistan, and the Cen- tral Asian
republics. If Russia’s periphery becomes more unstable and threatening at the same time that
Russia’s rulers realize their relative power is waning, the Kremlin’s behavior may well become
less confident—and more risky.
Russia poses the only nuclear existential risk.
Bostrom, Oxford Philosopher, 2
[Nick, March 2002, “Existential Risks Analyzing Human Extinction Scenarios and
Related Hazards,” Published in the Journal of Evolution and Technology, Vol. 9,
http://www.nickbostrom.com/existential/risks.html, accessed 7/11/13, MC]
A much greater existential risk emerged with the build-up of nuclear arsenals in the US and
the USSR. An all-out nuclear war was a possibility with both a substantial probability and
with consequences that might have been persistent enough to qualify as global and terminal.
There was a real worry among those best acquainted with the information available at the time
that a nuclear Armageddon would occur and that it might annihilate our species or permanently
destroy human civilization.[4] Russia and the US retain large nuclear arsenals that could be
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used in a future confrontation, either accidentally or deliberately. There is also a risk that
other states may one day build up large nuclear arsenals. Note however that a smaller nuclear
exchange, between India and Pakistan for instance, is not an existential risk, since it would
not destroy or thwart humankind’s potential permanently. Such a war might however be a local
terminal risk for the cities most likely to be targeted. Unfortunately, we shall see that nuclear
Armageddon and comet or asteroid strikes are mere preludes to the existential risks that we will
encounter in the 21st century.
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Turns econ
Russian economy solves the aff—key to global econ.
Gilman, Prof of Higher School of Econ in Moscow 9
[Martin, former senior representative of the IMF in Russia, 1/16/9, Moscow Times, “Well-Placed
to Weather an Economic Storm,” http://www.moscowtimes.ru/stories/2008/01/16/008.html,
accessed 7/11/13, MC]
Faced with this gloomy global outlook, Russia is well placed to weather the storm. In fact, not
only is the Russian economy likely to decouple largely from a sagging United States and even
Europe, but its continuing boom -- mostly but not solely fueled by high energy revenues -- is
sucking in both consumer and investment goods, and so acting as a motor of world growth.
And the planned $1 trillion public investment program over the next decade should ensure that
the country remains decoupled for years to come.
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2nc oil key to econ
Declining oil prices devastates the Russian economy: they’re barely breaking even now, but
their dependence on oil revenue means decline will trigger investor panic and rapidly kill
off any hope for recovery. That’s Shelin ’12.
Their defense doesn’t apply – it’s a question of how long prices drop
Levine, New America Foundation Fellow, 12
[Bernard L., adjunct professor at Georgetown, 6/19/12, Foreign Policy, “The
Coming Oil Crash,”
http://www.foreignpolicy.com/articles/2012/06/19/the_coming_oil_crash,
accessed 7/11/13, MC]
Given this already-existing revenue gap, one might fairly wonder what would happen if, as
Citigroup's Edward Morse says is possible, prices drop another $20 a barrel for an extended
length of time. Oil economist Philip Verleger's forecast is even gloomier -- a plunge to $40 a
barrel by November. Or finally, what Venezuelan Oil Minister Rafael Ramirez fears -- $35-abarrel prices, near the lows last seen in 2008. In Russia, for instance, "$35 or $40, or even $60 a
barrel, would be devastating fiscally," says Andrew Kuchins of the Center for Strategic and
International Studies. That could damage the standing of President Vladimir Putin, since his
"popularity and authority are closely correlated with economic growth," Kuchins told me in an
email exchange.
With few exceptions, the same goes for the rest of the world's petro-rulers, whose oil revenue
supports vast social spending aimed at least in part at subduing possible dissatisfaction by their
populace. Saudi Arabia can balance its budget as long as prices stay above $80 a barrel, according
to the International Monetary Fund, although projected future social spending obligations will
drive its break-even price to $98 a barrel in 2016.
Of the major petro-states, only Qatar -- with a requirement of about $58-per-barrel to balance its
budget -- appears to have sufficiently disciplined state spending to weather all but the most dire
forecasts.
The biggest uncertainty in the global oil market isn't whether oil prices will drop further -they seem likely to -- but will how long they stay down. In short, how long, and at what scale,
are the petrocracies likely to suffer? This state of affairs is a woeful blow to petro-rulers after
nine years of mostly nirvana. The year 2003 started with oil at about $33 a barrel, after which
prices went mainly up, peaking in July 2008 at $147 a barrel. They bounced back nicely even
after the global financial crisis sent prices plummeting below their 2003 level, to about $31 a
barrel in December 2008. When the Arab Spring unfolded, first Libya and then Iran triggered
worried looks on trading desks in London and New York, and the price spiked to about $128 a
barrel. My mom saw the average price of gas in California rise to $4.36 a gallon. But then the
concern of war between Iran and Israel all-but vanished, and prices since have been on a
seemingly relentless decline.
U.S. market key to Russian oil prices.
Tom, Aarhus University Grad, 12
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[Tom, Employed in Transport (rail and ferrylines), mashine industry, building,
energy and university administration, has a managerial economics from Aarhus
University, 4/3/12, ValueWalk, “60% of Russia’s Revenue From Energy Exports
– Geo-Political Analysis,” http://www.valuewalk.com/2012/04/60-of-russiasrevenue-from-energy-exports-geo-political-analysis/, accessed 7/11/13, MC]
Fact: For the time being 60% of all state revenue in Russia comes from energy export
customs. To some readers this concept of taxing exports is foreign: Export is something you
subsidize, not tax! Well you are right if you are a half way functioning nation, then you would tax
the profits of the oil companies.
But Russia is far from out of the middle ages – administratively speaking – so you tax what you
can get your hands on and you will know quite easily what amounts pass through the pipelines or
are loaded on board tankers – trust me: A super tanker in the gold fish pond is very hard to miss.
So naturally Russia has been doing what they can to make their energy export as independent of
others as they can! They have built:
A pipeline getting operational in Ust-Luga near Sct. Petersburg. This will bypass the need to
transit oil through White Russia. Not that their petty pilfering wasn’t annoying: But if Russia is
gang of thugs, then White Russia is a maximum security penitentiary for the criminally insane.
This project has been muscled through in a very short time
The Nord Stream gas pipeline from Russia to Germany under the Baltic sea, just to make it more
secure. This is being extended into Poland thus securing Poland’s energy supply – which in time
may go the other way – depending on how the oil shale pans out.
The South Stream gas pipeline to Austria – avoiding the Ukraine whose mental stability is also in
doubt.
Expensive? Oh yes; but you don’t muck around with 2/3 of your tax revenue! Very few people
realise just how dependent Russia is on their oil (and gas) exports. Some paint the energy giant
Gazprom OAO (PINK:OGZPY) as the sinister character – but let’s face it: Gazprom OAO is the
Russian taxpayer! The present oil price of around 110 USD/barrel seems to give a balanced
budget. In 2008 with oil prices of 60 USD/barrel the economy dropped with 8%. Twenty odd
years ago I was in a small way involved with prognosticating energy prices long term for an
energy supply company – the various estimates were so diverging, that it absolutely made no
sense. It is a subject where everybody has a considered opinion – if they are ignorant enough.
Let’s face it: It is not “the market” that sets the oil price – or rather the market is being
played by far greater forces.
The USA has more than a little leverage on the oil price due to the country’s strategic
reserves – the size of which is state secret. This gives the perfect opportunity to play the market:
Buying and selling for future delivery will set the price more or less where it is desired – with
no deliveries being made, as those forward positions can be closed any time.
Russian economy depends on high oil prices.
Schuman, TIME Journalist, 12
[Michael, author, journalist for 16 years, former correspondent for Wall Street
Journal, former journalist for Forbes, B.A. in political science from U Penn,
master of international affairs from Columbia University, 7/5/12, TIME Business,
“Why Vladimir Putin Needs Higher Oil Prices,”
http://business.time.com/2012/07/05/why-vladimir-putin-needs-higher-oil-prices/,
accessed 7/10/13, MC]
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
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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 world’s 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 China’s 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 Russia’s dependence on crude has been increasing. About a decade ago, oil and
gas accounted for less than half of Russia’s exports; in recent years, that share has risen to twothirds. Most of all, oil provides more than half of the federal government’s revenues.
What’s 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.
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a/t: dutch disease
Russia isn’t suffering Dutch Disease.
Adomanis, Forbes writer, 12,
Mark, 6/22/12, Forbes, “Is Russia Suffering From Dutch Disease?”
http://www.forbes.com/sites/markadomanis/2012/06/22/is-russia-suffering-from-dutch-disease/,
accessed 7/11/13, MC]
Part of the reason that Russia is not experiencing Dutch Disease (which is something you
would normally expect in a country that has earned such an enormous pile of money from selling
oil and natural gas) is that the world economy has been in turmoil for most of the past 4 years:
there has been a “flight” to quality in “safe” assets and currencies which has surely worked to
weaken the ruble and depress its value. The “new normal” is actually a pretty bizarre state of
affairs, and is characterized by any number of things, such as negative real interest rates on
German Bunds and US treasuries, that ten years ago would have seemed impossible.
Russia’s economy faces an awful lot of risks, and its over-dependence on natural resources is
extremely dangerous, particularly at a time that global growth is slamming to a halt. Buckley is
right that Russia needs to diversify, and that its government will find this process to be an
extremely difficult and complicated one. But, at the present time, one of the very few economic
risks that Russia doesn’t face is Dutch Disease: its currency isn’t overvalued and, if
anything, is actually trending lower against the main reserve currencies.
Slow diversification is inevitable, but sudden transition crashes Russian
econ—triggers their impacts.
Gaddy, Brookings Institution Senior Fellow, 11
[Clifford G., economist specializing in Russia, 6/16/11, RaiNovosti, “Will the
Russian economy rid itself of its dependence on oil?”
http://en.rian.ru/valdai_op/20110616/164645377.html, accessed 7/11/13, MC]
To ask whether the Russian economy will rid itself of its “dependence on oil” is to ask whether
ideology will trump economics. Many people in Russia—including President Medvedev—seem
to believe Russia should de-emphasize the role of oil, gas, and other commodities because they
are “primitive.” Relying on them, they argue, is “degrading.” From the economic point of view,
this makes no sense. Oil is Russia’s comparative advantage. It is the most competitive part of
the economy. Oil and gas are something everyone wants, and Russia has more of them than
anyone else.
It is true that the Russian economy is backward, and that oil plays a role in that backwardness.
But oil is not the root cause. The causes of Russia’s backwardness lie in its inherited
production structure. The physical structure of the real economy (that is, the industries,
plants, their location, work forces, equipment, products, and the production chains in which they
participate) is predominantly the same as in the Soviet era.
The problem is that it is precisely the oil wealth (the so-called oil rent) that is used to support and
perpetuate the inefficient structure. For the sake of social and political stability, a large share of
Russia’s oil and gas rents is distributed to the production enterprises that employ the inherited
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physical and human capital. The production and supply chains in that part of the economy are in
effect “rent distribution chains.”
A serious attempt to convert Russia’s economy into something resembling a modern
Western economy would require dismantling this rent distribution system. This would be
both highly destabilizing, and costly in terms of current welfare. Current efforts for
“diversification” do not challenge the rent distribution system. On the contrary, the kinds of
investment envisioned in those efforts will preserve and reinforce the rent distribution chains,
and hence make Russia more dependent on oil rents.
Even under optimal conditions for investment, any dream of creating a “non-oil” Russia that
could perform as well as today’s commodity-based economy is unrealistic. The proportion of
GDP that would have to be invested in non-oil sectors is impossibly high. Granted, some new
firms, and even entire sectors, may grow on the outside of the oil and gas sectors and the rent
distribution chains they support. But the development of the new sectors will be difficult, slow,
and costly. Even if successful, the net value they generate will be too small relative to oil and
gas to change the overall profile of the economy.
Thus, while it is fashionable to talk of “diversification” of the Russian economy away from oil
and gas, this is the least likely outcome for the country’s economic future. If Russia continues
on the current course of pseudo-reform (which merely reinforces the old structures), oil and gas
rents will remain important because they will be critical to support the inherently inefficient
parts of the economy. On the other hand, if Russia were to somehow launch a genuine reform
aimed at dismantling the old structures, the only realistic way to sustain success would be to
focus on developing the commodity sectors. Russia could obtain higher growth if the oil and gas
sectors were truly modern. Those sectors need to be opened to new entrants, with a level playing
field for all participants. Most important, oil, gas, and other commodity companies need to be
freed from the requirement to participate in the various informal schemes to share their rents with
enterprises in the backward sectors inherited from the Soviet system.
Certainly, there are issues with oil. It is a highly volatile source of wealth. But there are ways to
hedge those risks. A bigger problem is that oil will eventually lose its special status as an
energy source and therefore much of its value. But that time is far off. It will not happen
suddenly. In the meantime, sensible policies can deal with the problems. Otherwise, the
approach should be to generate the maximum value possible from the oil and protect that
value through prudent fiscal policies. Russia should not, can not, and will not significantly
reduce the role of oil and gas in its economy in the foreseeable future. It will only harm itself
by ill-advised and futile efforts to try.
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1nc Russia military modernization
impact
Russia’s military can’t modernize absent high oil prices.
Bennet, UChicago grad, 12
[John T., got MA from the University of Chicago & graduated from Emory
University School of Law, 4/4/12, US News, “Oil Prices Fueling Russia's
Disruption of U.S. Foreign Policy,”
http://www.usnews.com/news/articles/2012/04/03/oil-prices-fueling-russiasdisruption-of-us-foreign-policy, accessed 7/10/13, MC]
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.
Russia is the world's second-largest oil exporter at 5 million barrels a day, and its the ninthleading 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 commodities.
Frances Burwell, vice president of the Atlantic Council, says Russia's 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 muscularity on "Putin's reemergence." The Russian once-and-soon-again president "clearly sees playing the national card
as the strong guy internationally benefits him," she says.
But, make no mistake, bloated national coffers from high oil and gas prices underwrite Putin's
muscle-flexing, experts say.
Putin made a number of big domestic promises during the presidential race, including plans to
usher in sweeping pension and wage hikes. He also put forth "a rather ambitious military
modernization program," Pifer says.
"If oil prices remain high, he might be able to do all of those things," Pifer says. "If prices come
down, however, Putin will have some very tough decisions to make at home ... between guns
versus butter.”
Should oil and gas prices tumble, experts say Putin would likely pick butter.
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"In 2007 when oil was doing well, Putin [as president] could have modernized the Russian
military," says Pifer. Instead, Putin made a number of economic moves, such as the creation of
a rainy day fund that was used during the recent global financial crisis," Pifer notes.
What's more, Putin returns to power with his sharp eyes locked on his opposition, which is
composed of the country's urban, middle-class populations.
Experts agree that Putin would be hard-pressed to break his pension and wage promises in
favor of a few more missiles. But even an economically weaker Russia would likely pick its
spots to block Washington's desires.
Modernization is key to lowering Russian nuclear reliance & deconstructing
perceived threats—Russia will preemptively attack.
Renz, Russian Studies Grad & Thorton, former academic in department of
IR, 12
[Bettina, Rod, both from the University of Nottingham, January/February 2012,
“Russian Military Modernization Cause, Course, and Consequences” Problems of
Post-Communism Volume 59, Number 1, P. 52-54]
The perceived weakness of this triad means that the Kremlin was pleased with the START
agreement of March 2010. The treaty limits favor Moscow in that it does not have to cut any
of its own nuclear warheads or delivery systems—the numbers of ICBMs and warheads in its
own triad are actually below the negotiated caps. Only the United States has had to bring its
numbers down.58 Normally, in the arranging of such international security treaties, negotiating
from a position of military weakness—as Russia was—is not conducive to the ability to drive a
hard bargain. Moscow has been lucky, however, in that Washington seems not to be too
interested in the shape of Russia’s current and future nuclear arsenal. Rather, in terms of
perceived security threats, Washington has its eye more on the terrorist ball than on the Russian
one. Additionally, under START, Russia does not have to reduce the number of its tactical
nuclear weapons. It has more of these than the United States. These are prized and important
assets to Moscow, and they have become even more prized and important as Russia’s
conventional military has become weaker. They are seen more and more as the fallback
option if Russia one day faces some sort of defeat in a conventional conflict—against the likes
of Georgia or China. In the largest Russian military exercise held since the end of the cold
war—conducted recently in the Russian Far East—tactical nuclear weapons (i.e., mines) were
notionally “exploded” as part of the exercise play.59 This fact alone seems to confirm that
Russia’s conventional military weakness has led to a reduction in its nuclear-use threshold.
Conclusion The current modernization in the Russian military is long overdue. Because it is
long overdue, it has to be completed in a rushed, haphazard fashion and against a backdrop of a
military–industrial complex unable to fulfill its role in the process. Traditionally, military
modernization is not achieved lightly, given the bureaucratic inertia and cultural norms that are
always present. When, as in the current situation in Russia, such barriers to change are aided and
abetted by any number of additional problems (not to mention the rampant corruption that is
endemic across all levels of Russian state institutions, including the military), then it must be
expected that Russia’s armed forces will be striving for some time to become truly “modern.”60
In essence, what should have been accomplished as an evolution over many years, and should
have begun during the Yeltsin era, is now being attempted as a revolution in the post–Georgian
war era. As with any revolutionary change, a good deal of disruption and disaffection has been
created. Moreover, the current Russian military is a weakened military. The psychology of the
tsarist/Soviet/Russian military has always been that numbers counted, that mass would
prevail. Numbers inspired confidence, and numbers could deter. But the current Russian military
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is losing numbers while not making up for them by creating smaller, more professional forces
equipped with the requisite technologies. Quality is not replacing quantity. The military is in a
state of flux. Russian politicians and military figures both now lack a genuine confidence in
the armed forces’ ability to deter. This can have two consequences. Either Russia takes large
steps to avoid the possibility of military confrontation by stressing diplomatic solutions to
possible threat scenarios (as the tsarist government did in 1914), or it goes the opposite way,
fearing that if any state is threatening military action against Russia then the hair trigger comes
into operation (Israeli-style). That is, the mentality of the first, preemptive strike becomes
paramount—taking advantage of surprise—and using what assets Russia now has. The
alternative is to take the risk of waiting to be attacked and maybe “losing.” What is clear is that,
with its armed forces currently weakened by the process of change, the sense of vulnerability
generated has led Russia, in classic confirmation of the security dilemma concept, to magnify
the threats it faces, or thinks it faces. Conscious of its vulnerability to threats, real or imagined,
Moscow may begin to look more and more toward the inflexible tool of its tactical nuclear
weapons as its principal defense mechanism. While no one really supposes that such weapons
will be used in any confrontation with the West, the same cannot be said of any possible conflict
with the Chinese. Ironically, Beijing’s military still relies on mass. The best modern military
counter to mass is to employ either PGMs or tactical nuclear weapons. The Russian military has
hardly any of the former but plenty of the latter. Hair triggers and tactical nuclear weapons are not
comfortable bedfellows.
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2nc – brink
Now is the brink
Renz, Russian Studies Grad & Thorton, former academic in department of
IR, 12
[Bettina, Rod, both from the University of Nottingham, January/February 2012,
“Russian Military Modernization Cause, Course, and Consequences” Problems of
Post-Communism Volume 59, Number 1, P. 52-54]
The fact that the cold war never became "hot" can, in many respects, be put down to the degree of
confidence that both superpowers felt in their ability to deter each other through the idea of
mutually assured destruction. This ideaworks: of course, only if the destruction can be more or
less assured. The state of today's Russian nuclear deterrent, however, means that its ability
to provide the requisite degree of destruction is questionable. The nuclear deterrents of the
great powers are traditionally based on a triad. This is a system whereby nuclear weapons can be
delivered by air, land, or sea, thus increasing the chance that a certain number will always reach
their targets. In Russia, the triad system started to break down after the end of the Soviet
Union. The air component of nuclear delivery was neutered by a lack of aircrew training time,
of basic aircraft maintenance, and of replacement programs. On land, the aging silo-based
intercontinental ballistic missiles (lCBMs)-^the SS-lS, SS-19, and S-25—have had their service
lives continually extended. But the static nature of their silos means they will always remain
vulnerable to a US. nuclear first-strike capability.-'0 This is especially true since the accuracy
of U.S. missiles has increased markedly in recent years. In light of these issues, Moscow has put
more faith in developing the mobile (vehicle-mounted), and thus less vulnerable, Topol-MICBM,
and in submarine-launched ballistic missiles (SLBMs). The spending on the SSBNs and the
missiles to be launched from them absorbs some 40 percent of Russia's entire defense budget.
.Although Moscow has always had in place—despite the country's economic woes during the
1990s—abuilding program to produce at least a few new SSBNs to replace boats that were
reaching the end of their operational lives, the rate of construction has been painfully slow. While
one new SSBN has just become operational (the IuriiDolgoruka), there are currently only about
ten of the older SSBNs left. Of these, few now venture far from port on their patrols for fear of
breaking down. An additional problem here has been with the missiles that are slated to be
launched from the new SSBNs. The latest Russian SLBM, the Bulava (based on the Topol-M), is
currently undergoing tests. Early firings of this missile were producing a failure rate of more than
50 percent. Part of the problem here was, again, that the defense industry had not moved on and
that the sector devoted to missile development in particular was suffering from a lack of R&D.-<:
There was talk, indeed, of the whole Bulava program being scrapped, but this would have been
unlikely given that there are no other Russian SLBMs under development." Recent (up to August
2011) tests of the Bulava, however, have been more successful; and even a "salvo launch" (one
immediately after the other) is planned for October 2011. Overall. Russia has reason to be
nervous about the current effectiveness of its nuclear deterrent. While the numbers on paper look
impressive, there is something of the Potemkin village about the whole system. There is a feeling,
moreover, that Russia's nuclear arsenal is not now comprehensive enough to overcome any
potential future U.S. ballistic missile defense (BMD) shield. Such a shield, if built, would
fundamentally undermine Moscow's nuclear deterrence capability and add to a general sense in
Russia that the country is militarily weak.1 Although this is a fear that might have been
manufactured, or at least exacerbated, by Kremlin spin, Russians as a whole do see the single
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biggest threat to their country as coming, not from Chechen' lslamist terrorism but rather from
the proposed U.S. BMD shield." The only way that this shield can be overcome is either by
overwhelming it through a mass launch of Russian missiles—which the country simply does not
have—or by enhancing the capabilities of the missiles it does have: upgrading through
modernization. In this regard, and in announcing the 2009-10 defense budget, Deputy Prime
Minister Sergei Ivanov referred to yet another apriority." ''Priority," he said, "will be given to the
nuclear triad ... it would incur large expenses, but we do not have a choice."56 Putin confirmed
this view in December 2010. In announcing the State Armaments Program for 2011-20. he said,
"the main focus [for military7 spending] should be placed on the strategic nuclear forces."57
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2nc – attempted modernization inev
Modernization is inevitable—absent completion, Russia will preemptively
strike.
Renz, Russian Studies Grad & Thorton, former academic in department of
IR, 12
[Bettina, Rod, both from the University of Nottingham, January/February 2012,
“Russian Military Modernization Cause, Course, and Consequences” Problems of
Post-Communism Volume 59, Number 1, P. 44-54]
In what appears to be something of a root-and-branch discarding of old Soviet strategies and
structures, the country’s armed forces are currently subject to a process of change that will,
if the plan comes to ultimate fruition, leave them smaller, leaner, more deployable, and more
effective in contemporary conflict scenarios. This transformation involves moves from
conscription to professionalism, from mass to mobility, and from low-tech to high-tech. The
head of the Russian armed forces has called the ongoing process “the country’s first serious
military reorganization in the past forty years.”3 The hope within the corridors of the Kremlin
is that Russia will soon have a “new look” military fit for the twenty-first century. To back this
up, spending on the military in Russia is set to increase by some 50 percent over the next three
years.4 These bold moves—both in progress and planned— are, however, being stymied. They
have to face a reality in which new ideas and concepts are meeting the weighty barriers provided
by military conservatism, by a weak industrial base, and by economic reality. Naturally, given
the problems inherent in this transformation, the Russian military will, for a certain period into
the future, be in a state of flux. It will thus be perceived as weaker. Any major transformation
in any military will, at least for a period of time, leave it falling between two stools. As the early
twentieth-century Russian military thinker Anton Kersnovskii put it, “the main difficulty of
military organizational development lies in the dualism of the task: preparing for tomorrow’s war
and at the same time correcting yesterday’s mistakes in case war breaks out today.”5 Russia, with
a military undergoing a lengthy and painful transformation, is already, and will continue to be, a
country feeling vulnerable. Like Israel, another state that feels vulnerable, Russia is more likely
to engage in aggressive and preemptive military action to create that element of surprise that
can overcome its “weakness.” Thus, we may see the Russian military adopting a very
dangerous hair-trigger philosophy.
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2nc – high oil prices key
Oil prices are key to Russian air force modernization.
Lukszo, MA from U of Denver, 11
[Adam J., June 2011, “NUCLEAR DEPENDENCE: THE RUSSIAN
FEDERATION‘S FUTURE RELIANCE ON NUCLEAR WEAPONS FOR
NATIONAL SECURITY,” A Thesis Presented to the Faculty of the Josef Korbel
School of International Studies University of Denver, advised by Jonathan
Adelman, PhD, Columbia University]
State Armaments Modernization Program
The budget for this armaments program is listed as 20 trillion rubles ($650.56 billion) and
almost a quarter, 4.7 trillion rubles ($150.7 billion), is allocated for naval modernization.254
This modernization plan is ―three times more than is allocated in the existing 2007-2015
program. One third of the funding is expected to be provided by 2015. Part of the reason for such
a large budget is the Russian government‘s recognition of graft, corruption, and mismanagement
within defense procurement. ―Various press reports estimate that as much as half of all
procurement money is spent on bribes and other forms of corruption.‖257 Therefore, it is
necessary to provide more funding to overcome the money that ―disappears‖ due to these causes.
The ability to fund this program in its totality assumes that government revenues from oil,
natural gas, and other natural resources will continue which is not guaranteed considering the
volatility of these markets. Overall, SAP 2020 is a very ambitious armaments program and if
successful would go a long way toward modernizing Russian forces and improving the
technical quality of its military equipment. This is critically important due to the obsolete
nature of much of the equipment, in many cases its poor quality, and use past official service
life. All three conventional military branches are slated to receive new equipment. The Air Force
is expected to be the main beneficiary of this new armaments program with the navy and
ground forces considered lesser priorities.258
Modernizing its air force is Russia’s key to deterrence—must continue
investment.
NTI ‘12
[Nuclear Threat Initiative, 3/20/12, Global Security Newswire, “Russia Supplies
Yars, Topol-M ICBM Units to 10 Military Regiments,”
http://www.nti.org/gsn/article/russia-supplies-yars-topol-m-icbm-units-10regiments/, accessed 7/10/13, MC]
“The strategic nuclear forces still remain a reliable guarantor of deterring aggression,” he
said. “Their required numerical strength and the three-component structure have been preserved”
(ITAR-Tass I, March 20).
Serdyukov said a new cruise missile that would be fired from the air is now operational, RIA
Novosti reported. The defense chief on Tuesday offered no additional details about the weapon.
International Institute of Strategic Studies air conflict specialist Douglas Barrie said the air force
missile was probably a conventional iteration of the Kh-55 nuclear cruise missile or an atomically
armed Kh-101 system (RIA Novosti, March 20).
Gonzaga Debate Institute 2013
Brovero/Lundeen
Air force commander Col. Gen. Alexander Zelin said his service could procure as many as 140
Su-34 strategic bomber aircraft, Interfax reported on Monday (see GSN, Feb. 14).
"The figure for Su-34 has already been announced -- 92 aircraft. But overall, the air force will
have 124 of such aircraft, and subsequently up to 140," Zelin told the publication Nezavisimoye
Voyennoye Obozreniye.
The officer reaffirmed plans to entirely retire Russia's Su-24 bomber aircraft in favor of the Su-34
planes by the end of this decade. "We are planning to make it a carrier of other long-range
missiles. Such work is under way, and I think that it is the platform that can solve the problem
of increasing nuclear deterrence forces within the air force strategic aviation," the official
stated. Russia would field the aircraft at Chelyabinsk, Khurba, Krymsk, Lipetsk and Voronezh,
Zelin said, adding "flying groups of 24, 28 and 30 Su-34 aircraft" would be established at the
sites.
Su-24 planes that are still operational are also undergoing updates, Zelin said. "One can say that
the results we obtained for this aircraft are fully satisfactory. We shall continue both upgrading
and cutting numbers of ordinary Su-24s that we still have in service. They, of course, are
completing their service cycle, it is a formidable soldier aircraft that did its job," he said (Interfax,
March 19).
Separately, Russian President Dmitry Medvedev on Tuesday said he is pleased with alterations to
his nation's military, ITAR-Tass reported.
The changes "match modern challenges and can give a response to potential threats against
us," he said.
"Strategic nuclear forces were built up, the common air and space defense system was created
to bring together the troops of air defense, missile defense, early missile warning systems
and outer space control systems," Medvedev noted (ITAR-Tass II, March 20).
Until 2020, Russia would provide "not below 2.8 percent" of its gross domestic product to
military-related enterprises, he said (ITAR-Tass III, March 20).
"By 2015, the share of new armaments must increase to 30 percent, and by 2020 -- to 70 to
100 percent," he said, adding Russia would provide $785.6 billion for the effort (ITAR-Tass IV,
March 20).
Russian deterrence is key to preventing U.S. nuclear attacks—leads to global
apocalypse.
Shavarin, Institute of Political and Military Analysis Director, et al 7
[Major General Alexander Vladimirov, Vice President of the Military Expert Board; Colonel
General Vladimir Yesin, Senior Vice President of the Russian Academy of the Problems of
Security, Defense, and Law; Colonel General Leonid Ivashov, President of the Academy of
Geopolitical Problems; and - Alexander Sharavin, 7/20/7, “Defense and Security,” MC]
Ivashov: Numerous scenarios and options are possible. Everything may begin as a local
conflict that will rapidly deteriorate into a total confrontation. An ultimatum will be sent to
Russia: say, change the domestic policy because human rights are allegedly encroached on, or
give Western businesses access to oil and gas fields. Russia will refuse and its objects (radars,
air defense components, command posts, infrastructure) will be wiped out by guided
missiles with conventional warheads and by aviation. Once this phase is over, an even stiffer
ultimatum will be presented - demanding something up to the deployment of NATO
"peacekeepers" on the territory of Russia. Refusal to bow to the demands will be met with a
mass aviation and missile strike at Army and Navy assets, infrastructure, and objects of
defense industry. NATO armies will invade Belarus and western Russia. Two turns of events
may follow that. Moscow may accept the ultimatum through the use of some device that will help
it save face. The acceptance will be followed by talks over the estrangement of the Kaliningrad
Gonzaga Debate Institute 2013
Brovero/Lundeen
enclave, parts of the Caucasus and Caspian region, international control over the Russian gas and
oil complex, and NATO control over Russian nuclear forces. The second scenario involves a
warning from the Kremlin to the United States that continuation of the aggression will
trigger retaliation with the use of all weapons in nuclear arsenals. It will stop the war and
put negotiations into motion. Yesin: I'm firmly convinced that there will be no war as long as
Russia retains the nuclear deterrent potential. If, however, a war between Russia and the
United States breaks out (a war, not a petty local conflict), then it will end in a global
Apocalypse. Vladimirov: Whatever the scenarios may be, I'm convinced that only one end is
possible - our utter victory. This war will be an undisputable crime against mankind. It may only
end in defeat of the United States of America. How can the Apocalypse be avoided? Sharavin:
We should take care to avoid confrontations with the United States (try as I might, I cannot
perceive a single valid reason for Russia to want a confrontation). And of course, Russia should
concentrate on actual as opposed to virtual development of its Armed Forces. Ivashov: Russia
should restore the might of its army and potential of its defense industry. It should concentrate on
research into and design of new weapons. As for the national military doctrine, it should include a
clause allowing for the use of nuclear arms against a full-scale aggression. Also importantly,
Russia needs allies. Yesin: American ambitions should be firmly countered on the basis of
Russian economic and military might. First and foremost, on the basis of the Russian nuclear
forces. The existence of these forces is a guarantee that there will be no wars between Russia
and the United States.
Gonzaga Debate Institute 2013
Brovero/Lundeen
2nc – air force scenario
Oil prices are key to Russian air force modernization.
Lukszo, MA from U of Denver, 11
[Adam J., June 2011, “NUCLEAR DEPENDENCE: THE RUSSIAN
FEDERATION‘S FUTURE RELIANCE ON NUCLEAR WEAPONS FOR
NATIONAL SECURITY,” A Thesis Presented to the Faculty of the Josef Korbel
School of International Studies University of Denver, advised by Jonathan
Adelman, PhD, Columbia University]
State Armaments Modernization Program
The budget for this armaments program is listed as 20 trillion rubles ($650.56 billion) and
almost a quarter, 4.7 trillion rubles ($150.7 billion), is allocated for naval modernization.254
This modernization plan is ―three times more than is allocated in the existing 2007-2015
program. One third of the funding is expected to be provided by 2015. Part of the reason for such
a large budget is the Russian government‘s recognition of graft, corruption, and mismanagement
within defense procurement. ―Various press reports estimate that as much as half of all
procurement money is spent on bribes and other forms of corruption.‖257 Therefore, it is
necessary to provide more funding to overcome the money that ―disappears‖ due to these causes.
The ability to fund this program in its totality assumes that government revenues from oil,
natural gas, and other natural resources will continue which is not guaranteed considering the
volatility of these markets. Overall, SAP 2020 is a very ambitious armaments program and if
successful would go a long way toward modernizing Russian forces and improving the
technical quality of its military equipment. This is critically important due to the obsolete
nature of much of the equipment, in many cases its poor quality, and use past official service
life. All three conventional military branches are slated to receive new equipment. The Air Force
is expected to be the main beneficiary of this new armaments program with the navy and
ground forces considered lesser priorities.258
Modernizing its air force is Russia’s key to deterrence—must continue
investment.
NTI ‘12
[Nuclear Threat Initiative, 3/20/12, Global Security Newswire, “Russia Supplies
Yars, Topol-M ICBM Units to 10 Military Regiments,”
http://www.nti.org/gsn/article/russia-supplies-yars-topol-m-icbm-units-10regiments/, accessed 7/10/13, MC]
“The strategic nuclear forces still remain a reliable guarantor of deterring aggression,” he
said. “Their required numerical strength and the three-component structure have been preserved”
(ITAR-Tass I, March 20).
Serdyukov said a new cruise missile that would be fired from the air is now operational, RIA
Novosti reported. The defense chief on Tuesday offered no additional details about the weapon.
International Institute of Strategic Studies air conflict specialist Douglas Barrie said the air force
missile was probably a conventional iteration of the Kh-55 nuclear cruise missile or an atomically
armed Kh-101 system (RIA Novosti, March 20).
Gonzaga Debate Institute 2013
Brovero/Lundeen
Air force commander Col. Gen. Alexander Zelin said his service could procure as many as 140
Su-34 strategic bomber aircraft, Interfax reported on Monday (see GSN, Feb. 14).
"The figure for Su-34 has already been announced -- 92 aircraft. But overall, the air force will
have 124 of such aircraft, and subsequently up to 140," Zelin told the publication Nezavisimoye
Voyennoye Obozreniye.
The officer reaffirmed plans to entirely retire Russia's Su-24 bomber aircraft in favor of the Su-34
planes by the end of this decade. "We are planning to make it a carrier of other long-range
missiles. Such work is under way, and I think that it is the platform that can solve the problem
of increasing nuclear deterrence forces within the air force strategic aviation," the official
stated. Russia would field the aircraft at Chelyabinsk, Khurba, Krymsk, Lipetsk and Voronezh,
Zelin said, adding "flying groups of 24, 28 and 30 Su-34 aircraft" would be established at the
sites.
Su-24 planes that are still operational are also undergoing updates, Zelin said. "One can say that
the results we obtained for this aircraft are fully satisfactory. We shall continue both upgrading
and cutting numbers of ordinary Su-24s that we still have in service. They, of course, are
completing their service cycle, it is a formidable soldier aircraft that did its job," he said (Interfax,
March 19).
Separately, Russian President Dmitry Medvedev on Tuesday said he is pleased with alterations to
his nation's military, ITAR-Tass reported.
The changes "match modern challenges and can give a response to potential threats against
us," he said.
"Strategic nuclear forces were built up, the common air and space defense system was created
to bring together the troops of air defense, missile defense, early missile warning systems
and outer space control systems," Medvedev noted (ITAR-Tass II, March 20).
Until 2020, Russia would provide "not below 2.8 percent" of its gross domestic product to
military-related enterprises, he said (ITAR-Tass III, March 20).
"By 2015, the share of new armaments must increase to 30 percent, and by 2020 -- to 70 to
100 percent," he said, adding Russia would provide $785.6 billion for the effort (ITAR-Tass IV,
March 20).
Russian deterrence is key to preventing U.S. nuclear attacks—leads to global
apocalypse.
Shavarin, Institute of Political and Military Analysis Director, et al 7
[Major General Alexander Vladimirov, Vice President of the Military Expert Board; Colonel
General Vladimir Yesin, Senior Vice President of the Russian Academy of the Problems of
Security, Defense, and Law; Colonel General Leonid Ivashov, President of the Academy of
Geopolitical Problems; and - Alexander Sharavin, 7/20/7, “Defense and Security,” MC]
Ivashov: Numerous scenarios and options are possible. Everything may begin as a local
conflict that will rapidly deteriorate into a total confrontation. An ultimatum will be sent to
Russia: say, change the domestic policy because human rights are allegedly encroached on, or
give Western businesses access to oil and gas fields. Russia will refuse and its objects (radars,
air defense components, command posts, infrastructure) will be wiped out by guided
missiles with conventional warheads and by aviation. Once this phase is over, an even stiffer
ultimatum will be presented - demanding something up to the deployment of NATO
"peacekeepers" on the territory of Russia. Refusal to bow to the demands will be met with a
mass aviation and missile strike at Army and Navy assets, infrastructure, and objects of
defense industry. NATO armies will invade Belarus and western Russia. Two turns of events
may follow that. Moscow may accept the ultimatum through the use of some device that will help
it save face. The acceptance will be followed by talks over the estrangement of the Kaliningrad
Gonzaga Debate Institute 2013
Brovero/Lundeen
enclave, parts of the Caucasus and Caspian region, international control over the Russian gas and
oil complex, and NATO control over Russian nuclear forces. The second scenario involves a
warning from the Kremlin to the United States that continuation of the aggression will
trigger retaliation with the use of all weapons in nuclear arsenals. It will stop the war and
put negotiations into motion. Yesin: I'm firmly convinced that there will be no war as long as
Russia retains the nuclear deterrent potential. If, however, a war between Russia and the
United States breaks out (a war, not a petty local conflict), then it will end in a global
Apocalypse. Vladimirov: Whatever the scenarios may be, I'm convinced that only one end is
possible - our utter victory. This war will be an undisputable crime against mankind. It may only
end in defeat of the United States of America. How can the Apocalypse be avoided? Sharavin:
We should take care to avoid confrontations with the United States (try as I might, I cannot
perceive a single valid reason for Russia to want a confrontation). And of course, Russia should
concentrate on actual as opposed to virtual development of its Armed Forces. Ivashov: Russia
should restore the might of its army and potential of its defense industry. It should concentrate on
research into and design of new weapons. As for the national military doctrine, it should include a
clause allowing for the use of nuclear arms against a full-scale aggression. Also importantly,
Russia needs allies. Yesin: American ambitions should be firmly countered on the basis of
Russian economic and military might. First and foremost, on the basis of the Russian nuclear
forces. The existence of these forces is a guarantee that there will be no wars between Russia
and the United States.
Gonzaga Debate Institute 2013
Brovero/Lundeen
Gonzaga Debate Institute 2013
Brovero/Lundeen
1nc Iran aggression impact
[best against Venezuela]
Decreasing oil prices crush Iran’s economy & cause Iranian aggression.
Peters, IR Grad from St. Mary’s University, 8
[Ralph, retired United States Army Lieutenant Colonel 10/29/08, NY Post,
“Bankrupt Rogues: Beware Failing Foes”,
http://www.nypost.com/p/news/opinion/opedcolumnists/item_Sq6rxuaQjf2dV655
mfdh9M, accessed 7/10/13, MC]
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, while Russian markets still hemorrhage. And 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 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 day.
Should oil prices and shares keep tumbling, Russia will slip into polni bardak 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 weapons (or for nuclear secrets sold by
grasping officials). A positive side of the global downturn is that mischief-makers such as Iran
and Venezuela are going to have a great deal less money with which to annoy civilization.
Gonzaga Debate Institute 2013
Brovero/Lundeen
Some analyses calculate that, for Caracas and Tehran to sustain their already-on-life-support
economies, the price of oil needs to stay above $90 a barrel. But average prices will probably
remain below that for at least two years.
Iran and Venezuela may respond very differently to impoverishment, however. Tehran could
turn to regional military aggression in an attempt to keep the population behind the regime
- and may the Lord help Israel, if a dead-broke Iran gets nukes.
On the other hand, even devout Muslim businessmen don't like to go bankrupt. Iran's powerbroker mullahs have relied on the support of the (much bribed) bazaaris, the nation's merchants.
While we obsess about feeble student protests, the bazaaris form the constituency the mullahs
dare not alienate. Regime change may come from within.
By contrast, Venezuela's power is a charade. The regime of Hugo Chavez can't survive without a
constant transfusion of petrodollars. Chavez buys votes - and you can't buy votes with empty
pockets.
Chavez is far more bluster than bravery. Facing empty coffers, his rhetoric will intensify - but
he's not going to invade anyone (he'd lose). And the left-wing regimes that rely on him will have
to find a new sugar daddy.
A bankrupt Chavez won't survive long - he's no Fidel Castro. The question is whether he'd respect
a popular vote that went against him or go out in a splash of blood.
Bottom line on bankrupt enemies: Russia's dangerous; Iran's dangerous, but vulnerable;
Venezuela's just vulnerable . There may be serious trouble ahead.
For now, though, it's satisfying to watch the wicked suffer.
Iran aggression encourages miscalculation
Lynch, prof of polysci at George Washington University, 11
[Marc, June 2011, “Upheaval: U.S. Policy Toward Iran in a Changing Middle
East”,
http://www.cnas.org/files/documents/publications/CNAS_Upheaval_Lynch_2.pdf,
accessed 7/10/13, MC]
As it struggles to recalibrate its Iran policy, the administration should pay attention to the risk
of an unexpected escalation toward war, which would badly harm U.S. efforts to consolidate
a new regional order. In tinderbox conditions, local incidents, such as the killing of an Iranian
in Bahrain or a rocket hitting Israel from Lebanon, could lead to sudden and rapid conflagration
that could draw in multiple parties. Iran might seek to capitalize on a perceived window of
opportunity through aggressive action, or simply push too far. Particular attention should be
given to Israel’s northern border with Hezbollah, the divided island nation of Bahrain and a
collapsing Yemen as three flashpoints where simmering tensions could explode into broader
regional war. The regional upheavals have clearly increased Israeli security concerns, which
could lead to its lashing out – whether at Gaza, Hezbollah or Iran itself – to address these
perceived threats. Saudi concerns about Iran are also more intense than usual, and developments
on the ground in Bahrain could trigger direct Iranian-Saudi conflict. Iran may test the extent to
which these developments have constrained its rivals, and take provocative steps that trigger
unexpected responses. Hezbollah’s confidence and growing military arsenal com- bined with
Israel’s concerns about the shifting balance of power could combine to produce sudden and
game-changing war.
Goes nuclear
Russell, National Security Affairs Senior Lecturer, 09
Gonzaga Debate Institute 2013
Brovero/Lundeen
[James A., Naval Postgraduate School, Sprint 2009, “Strategic Stability Reconsidered: Prospects
for Escalation and Nuclear War in the Middle East” IFRI, Proliferation Papers, #26,
http://www.ifri.org/downloads/PP26_Russell_2009.pdf, accessed 7/10/13, MC]
Strategic stability in the region is thus undermined by various factors: (1) asymmetric
interests in the bargaining framework that can introduce unpredictable behavior from actors;
(2) the presence of non-state actors that introduce unpredictability into relationships between
the antagonists; (3) incompatible assumptions about the structure of the deterrent
relationship that makes the bargaining framework strategically unstable; (4) perceptions by
Israel and the United States that its window of opportunity for military action is closing,
which could prompt a preventive attack; (5) the prospect that Iran’s response to pre-emptive
attacks could involve unconventional weapons, which could prompt escalation by Israel and/or
the United States; (6) the lack of a communications framework to build trust and
cooperation among framework participants.
These systemic weaknesses in the coercive bargaining framework all suggest that escalation by
any the parties could happen either on purpose or as a result of miscalculation or the pressures
of wartime circumstance. Given these factors, it is disturbingly easy to imagine scenarios under
which a conflict could quickly escalate in which the regional antagonists would consider the
use of chemical, biological, or nuclear weapons.
It would be a mistake to believe the nuclear taboo can somehow magically keep nuclear weapons
from being used in the context of an unstable strategic framework. Systemic asymmetries
between actors in fact suggest a certain increase in the probability of war – a war in which
escalation could happen quickly and from a variety of participants. Once such a war starts, events
would likely develop a momentum all their own and decision-making would consequently be
shaped in unpredictable ways.
The international community must take this possibility seriously, and muster every tool at its
disposal to prevent such an outcome, which would be an unprecedented disaster for the
peoples of the region, with substantial risk for the entire world.
Gonzaga Debate Institute 2013
Brovero/Lundeen
2nc – oil prices key
Oil prices are key to Iranian economy.
Milani, U of South Florida Politics Prof, 11
[Mohsen M., Chair of the Department of Government and International Affairs at
the University of South Florida in Tampa, 10/12/11, “Explaining the Iran-Saudi
rivalry,” http://globalpublicsquare.blogs.cnn.com/2011/10/12/explaining-the-iransaudi-rivalry/, accessed 7/10/13, MC]
Riyadh has used its influence in the energy markets to tame Tehran, lowering oil prices and
attempting to limit foreign investment in Iran's oil and gas industries to cripple its already
ailing economy. Saudi Arabia can easily compensate for lower oil prices by increasing its oil
production and its total oil revenues, but Iran cannot; it lacks the capability to increase its oil
production. With the growing demand for energy in emerging markets, the price of oil has not
fallen much in the recent years and is unlikely to dip sufficiently to harm Iran. Moreover, Saudi
Arabia has had little success in persuading China and India to decrease their involvement in Iran's
energy sector. But a large decrease in oil revenues could have devastating economic
consequences for Tehran.
High prices now are key to Iran’s economy.
Mohamedi, partner of PFC energy, 11
(Fareed, 3/7/11, PBS frontline, “Rising Oil Prices Create Political Cushion for Iran”
http://www.pbs.org/wgbh/pages/frontline/tehranbureau/2011/03/rising-oil-prices-create-politicalcushion-for-iran.html#ixzz1QV14e2E4, accessed 7/10/13, MC]
What impact do higher oil revenues have on Iran economically? Higher oil prices will result in
increased revenues and a bigger national budget, allowing Iran to increase its foreign
exchange reserves. Oil money accounts for about 27 percent of Iran's total revenues, while
crude oil accounts for 83 percent of the total value of exports.
What impact do higher oil revenues have on Iran politically? Higher oil revenues may help the
regime increase its welfare services and thereby improve its political position in the country.
The government has recently implemented a subsidy reform program that compensates price
hikes with cash subsidies to the bulk of the population. More oil revenues can help ensure the
flow of cash handouts, at least in the early stages of implementation. But the government will
need to avoid a spending spree, which can lead to inflation.
Iran has the world's third largest oil reserves and the second largest gas reserves. It is also the
fifth largest global producer of oil, after Saudi Arabia. What role is Iran playing or likely to play
as oil increasingly becomes a factor in the regional crises?
The regional situation and the threat for greater oil supply disruption and oil prices may reduce
the enthusiasm with which Europe and the United States push for an oil embargo on Iran.
Iran's main gas field -- and the world's largest -- is the offshore South Pars field in the Persian
Gulf, a shared field with Qatar. But parts of the field are still under construction. Are the events
in the Gulf a source of concern for Iran when it comes to the development of South Pars? Political
events in the Gulf are unlikely to affect development of the South Pars gas field. The pace of that
development depends on Iran's funding ability and its relations with foreign companies. Iran's
main problem is the declining interest by foreign companies to invest in the South Pars project.
Gonzaga Debate Institute 2013
Brovero/Lundeen
China's CNPC remains the sole non-Iranian company known to be working on the field. CNPC
replaced France's Total, which left in 2009.
Gonzaga Debate Institute 2013
Brovero/Lundeen
a/t: Sanctions Kill Iran
The plan triggers sanctions – Iran relies on high oil prices to avoid the impact
of sanctions
Cal, Christian Science Monitor Writer, 12
[Andres, 1/19/12, Christian Science Monitor, “Europeans fear Iran oil embargo will wreck
economy,” 1/19/12, Christian Science Monitor,
http://www.csmonitor.com/World/Europe/2012/0119/Europeans-fear-Iran-oil-embargo-willwreck-economy/(page)/2, accessed 7/10/13, MC]
Outside the EU, support for the embargo is waning. Japan backtracked on its early support,
with Prime Minister Yoshihiko Noda overruling the finance minister, who initially said Japan
would cut imports.
“We do understand that we need to maintain sanctions, but they must be carried out
effectively,” said Foreign Minister Koichiro Gemba. “What's going to happen if oil prices
surge is that sanctions will not be effective,” Gemba said. The higher oil prices get, the more
money Iran has, while having “an adverse effect not only on the Japanese economy but also the
entire global economy.”
India and China – which import 12 percent and 22 percent of Iranian oil respectively – have also
balked at an embargo for unrelated contractual differences.
If the EU decision is not backed by other major importers of Iranian oil – Japan, China,
India, and South Korea – it will cause only a temporary disturbance while Iran finds new
buyers for the oil that previously went to Europe, says Mr. Tchilinguirian.
Oil prices are key to Iranian growth—sanctions worthless with high oil
prices.
Heydarian, Foreign Policy in Focus contributor, 12
[Richard Javad, an Iranian observer and analyst of developments in the Middle
East, 2/20/12, Tehran Times, “Why Iran can withstand the sanctions,”
http://tehrantimes.com/economy-and-business/95647-why-iran-can-withstand-thesanctions, accessed 7/10/13,MC]
Iran’s strength is its trade surplus, low gross public debt, and relatively large economy
(17th largest in the world), which has benefited from structurally high oil prices in recent
years. Having a low public debt and healthy trade balance means that Iran, at least in the
meantime, can continue to issue bonds and rely on external financing to meet its needs. The
state is at the center of the economy, so issuing government bonds carries little risk of crowding
out the private sector.
Moreover, growing geo-political uncertainty and rising demand for oil has placed an upward
pressure on oil prices. So, Iran can still maintain its economic momentum as long as it
sustains a relatively stable level of oil trade with alternative customers, once the E.U.
embargo comes into effect in June 2012. Despite the sanctions, Iran is still expected to export
around 80 percent of its oil, so the country will still be flushed with significant cash in
coming months.
There are also doubts with regards to the ability and the wisdom of alternative suppliers filling-in
the shoes of Iran. Iran exports around 2.5 billion barrels of oil per day, representing around
70 percent of the Organization for Petroleum Exporting Countries’ (OPEC) spare capacity.
Gonzaga Debate Institute 2013
Brovero/Lundeen
Therefore, replacing Iran’s oil means a razor-thin flexibility in oil supply, further undermining the
stability of global energy markets. With high volatility in energy markets in recent years, the
International Energy Agency (IEA) has already used its strategic reserves in multiple instances in
order to stabilize an increasingly jittery market. High deregulation in commodity markets also
means that speculation and sentiments play a key role in determining oil prices, with any sign of
geo-political uncertainty adding to the risk premiums on oil supply.
Assuming Iran’s oil is totally embargoed, the ultimate threat is the total collapse in energy
markets, and the rise of crude oil to around $250 per barrel, as countries start rationing and
hording oil supplies. This would not only choke-off fragile economies in the North, but it will
also compromise the growth trajectory of many emerging economies, which are already
struggling with declining demand in Europe and America. Iran’s oil is just too indispensable to
global economic stability, and there are no reasonable alternatives in the foreseeable future. No
wonder, Turkey, India, and China will continue to buy Iranian oil, while Korea and Japan will try
very hard to convince America to grant them exemption waivers to continue their Iranian oil
imports.
In retaliation for the E.U. measures, a relatively confident Iran has already threatened to pre-empt
the embargo by cutting-off its oil supply to Europe. Iran’s top European oil customers, from Italy
to Greece and Spain, are the continent’s most fragile economies, thus, any pre-emptive Iranian
measure would be a huge blow to the E.U. economies. A ‘supply-shock’ could further erode
market confidence in troubled eurozone members, driving down credit ratings, which, in turn,
raises borrowing costs. Europe is actually undermining its own stability by targeting Iran.
Ultimately, the sanctions will not be enough to cripple the country. It is doomed to fail and
backfire. The sanctions could at best target around 10 percent of Iran’s economy, but the
country will have all necessary funds to pursue its nuclear ambitions. In fact, the government has
proposed a$443 billion budget for 2012, and it plans to more-than-double military expenditures in
coming months. Therefore, the sanctions are simply hurting the Iranian people and implanting
further distrust towards the West.
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2nc – turns heg
Low oil prices bolster rivaling countries.
Frodl, former Environmental Law Committee Chairman, 9
[Michael G., a tax attorney, former chairman of the Environmental Law
Committee of the Bar Association of Washington, D.C., and an advisor on
emerging risks. He is a cofounder of the Forum for Environmental Law, Science,
Engineering and Finance, June 2009, National Defense, “U.S. Energy Debate
Overlooks Russian, Chinese Postures,”
http://www.nationaldefensemagazine.org/archive/2009/June/Pages/USEnergyDeb
ateOverlooksRussian,ChinesePostures.aspx, accessed 7/10/13, MC]
To most Americans, energy security still means that the United States is sending money to Arab
oil kingdoms and that those dollars are getting into the hands of Islamist terrorists. But in fact the
amount of money we send to Arab regimes is much exaggerated, and Islamist terrorists do
not constitute as great a threat to the United States as would a reconstituted Russian empire
or a new Chinese regime.
Energy security, according to the U.S. thinking, assumes that a “fortress America” at least for
energy is possible and also desirable. Talk from energy experts today is about the United States
stopping imports of foreign oil and gas and so decoupling from global energy markets. Instead,
the nation would rely on wind, solar and wave. Such thinking is about as unrealistic as assertions
from analysts a couple of years ago who claimed that the economies of India and China had
“decoupled” from the United States such that even if the nation suffered a downturn, the rest of
the world economy would still be pulled forward by the two new engines.
Energy isolationism is not a realistic option.
Even if the energy experts were right that imports of foreign oil and gas could be halted, the
United States would still be unsafe. Removing the nation from the global crude oil and
natural gas markets would make those fuels cheap and plentiful for the rest of the world. The
United States would be subsidizing the growth of an all powerful China and other as yet
unidentified rivals. It wouldn’t take long for China to become the world’s biggest national
economy. Perhaps most ironic for those worried about global warming, the new flood of cheap
and plentiful fossil fuels for developing countries would unleash the Co2 that would have been
limited if emitted by the United States under any Kyoto II deal.
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2nc – turns Mexico stability
Instability runs rampant in Mexico absent high oil prices.
Morley, economic analyst on U.S. trade, 08
[Robert, 7/8/8, The Trumpet, “Disorder South of the Border,”
http://www.thetrumpet.com/?q=5309.3600.0.0&preview]
Additionally, since pemex is government-owned, its annual profits are used to cover government
spending as opposed to exploration and development. Instead of creating future revenues, current
revenues subsidize the living standards of the Mexican populace. The state requires pemex to sell
fuel at prices sometimes less than half the market value. This kind of management has virtually
bankrupted the company, despite the fact that oil is trading at over $140 per barrel. In 2006,
pemex was the most indebted oil company on the planet. If not for record-high oil prices, both
pemex and Mexico would have already faced a severe budget crisis. With 40 percent of
government revenues at risk, the whole country could have easily descended into chaos,
with resultant devalued currency, rising interest rates and much higher taxes. Record oil
prices have temporarily plugged the gap left by plunging production levels. But if high oil
prices eventually retreat, Mexico is going to face a huge cash crunch. For now, there are other
serious ramifications. Declining Mexican oil production means that either Mexicans or
Americans will have to do without. With global oil supplies as tight as they are, either decision
will have far-reaching effects. Mexico is left with ugly choices. If it chooses to reduce exports to
America, it will lose its largest source of foreign capital. Consequently, the Mexican trade gap
will soar, government spending will plummet, and the peso will come under intense pressure—
leading to price inflation even more severe than current levels. Yet if Mexico decides to restrict
local supply in order to maintain its foreign income streams, it risks choking off local
commerce by inducing local price spikes and shortages not only of fuel, but also of essential
petrochemical products like lubricants, synthetic fabrics, plastics and fertilizer. A cauldron of
social and political upheaval is bubbling. Mexico’s easy oil days are over. Currently, it looks
like Mexico has decided to limit exports to America, recently announcing a sizeable reduction of
150,000 barrels per day. So America’s easy oil days are ending too.
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2nc – Saudi relations impact
The plan means we buy less from Saudi Arabia – there’s a direct tradeoff –
hurts relations
Krauss, New York Times Business correspondent, 12,
[Clifford, “U.S. Reliance on Oil From Saudi Arabia Is Growing Again”. August 16, 2012.
http://www.nytimes.com/2012/08/17/business/energy-environment/us-reliance-on-saudi-oil-isgrowing-again.html?pagewanted=all]
The United States is increasing its dependence on oil from Saudi Arabia, raising its imports
from the kingdom by more than 20 percent this year, even as fears of military conflict in the
tinderbox Persian Gulf region grow.
The increase in Saudi oil exports to the United States began slowly last summer and has
picked up pace this year. Until then, the United States had decreased its dependence on foreign
oil and from the Gulf in particular.
This reversal is driven in part by the battle over Iran’s nuclear program. The United States
tightened sanctions that hampered Iran’s ability to sell crude, the lifeline of its troubled economy,
and Saudi Arabia agreed to increase production to help guarantee that the price did not skyrocket.
While prices have remained relatively stable, and Tehran’s treasury has been squeezed, the
United States is left increasingly vulnerable to a region in turmoil.
The jump in Saudi oil production has been welcomed by Washington and European governments,
but Saudi society faces its own challenges, with the recent deaths of senior members of the royal
family and sectarian strife in the eastern part of the country, making the stability of Saudi energy
and political policies uncertain.
The United States has had a political alliance with the Saudi leadership that has lasted for
decades, one that has become even more pivotal to Washington during the turmoil of the
Arab spring and rising hostilities with Iran over that nation’s nuclear program. (Saudi
Arabia and Iran are bitter regional rivals.)
The development underscores how difficult it is for the United States to lower its dependence
on foreign oil — especially the heavy grades of crude that Saudi Arabia exports — even
as domestic oil production is soaring . It is a development that has alarmed conservative and
liberal foreign policy experts alike, especially with oil prices and Mideast tensions rising in recent
weeks.
“At a time when there is a rising chance of either a nuclear Iran or an Israeli strike on Iran’s
nuclear facilities, we should be trying to reduce our reliance on oil going through the Strait of
Hormuz and not increasing it,” said Michael Makovsky, a former Defense Department official
who worked on Middle East issues in the George W. Bush administration.
Senior Iranian officials have repeatedly threatened to close the Strait of Hormuz, the narrow neck
through which most Gulf oil is shipped, and the Iranian navy has held maneuvers to back up the
threats. Most analysts say it is doubtful the Iranians would take such an extreme measure because
that would block exports vital to the country’s economy, but the United States Navy has been
preparing for such a contingency.
Many oil experts say that the increasing dependency is probably going to last only a couple of
years, or until more Canadian and Gulf of Mexico production comes on line.
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“Until we have the ability to access more Canadian heavy oil through improved infrastructure, the
vulnerability will remain,” said David L. Goldwyn, former State Department coordinator for
international energy affairs in the Obama administration. “The potential for an obstruction of the
Strait of Hormuz therefore poses a physical threat to U.S. supply as well as a potential price
shock on a global level.”
Obama administration officials said they were not overly worried for several reasons. In the event
of a crisis, the United States could always dip into strategic petroleum reserves; domestic
production continues to climb; and Gulf of Mexico refineries could be adjusted to use higherquality, sweeter crude oil imported from other countries.
“There are going to be tensions in the Middle East whether that oil is going to the United States
or going to somewhere else,” said Adam Sieminski, administrator of the Energy Department’s
Energy Information Administration. “And if oil prices go up because of a problem in the Middle
East, that causes a problem for the world in general and not one that is specific to the United
States.”
In the United States, several oil refining companies have found it necessary to buy more
crude from Saudi Arabia and Kuwait to make up for declining production from Mexico
and Venezuela, insufficient pipeline connections between the United States and Canadian oil
sands fields, and the fallout from the 2010 BP disaster, which led to a yearlong drilling
moratorium in the Gulf of Mexico.
“As refiners, we buy from wherever the supply is readily available and where we can get the best
price,” said Bill Day, a spokesman for Valero Energy, the largest domestic refiner.
Sustained U.S.-Saudi relations are critical to prevent nuclear prolif, regional
instability, and terrorism
Center for Preventive Action, 11 — [Center for Preventive Action, help prevent, defuse,
or resolve deadly conflicts around the world and to expand the body of knowledge on conflict
prevention, F. Gregory Gause III, a professor and chair of the political science department at the
University of Vermont, CFR fellow for Arab and Islamic studies, a PhD in political science from
Harvard University and a BA from St. Joseph's University, 2011 (“U.S.-Saudi Relationship
Increasingly Strained, says CFR Report,” Council of Foreign Affairs, Center for Preventive
Action, Council Special Reports, 12-12-11, Available Online at http://www.cfr.org/saudiarabia/us-saudi-relationship-increasingly-strained-says-cfr-report/p26766, Accessed on July 10,
2013)][SP]
The U.S.-Saudi relationship has become strained by increasing mistrust and
misunderstanding—most recently over Egypt and Bahrain—and gone are the old foundations of
the informal alliance: the Cold War and U.S. operation of Riyadh's oil fields. This is the judgment
of F. Gregory Gause III of the University of Vermont, in Saudi Arabia in the New Middle East.
The two countries can no longer expect to act in close concert, and the United States should
recast the relationship as transactional, one based on cooperation when interests dictate, he
argues.
In this Council on Foreign Relations (CFR) Special Report, Gause says Saudi Arabia is the
"least affected of the major Arab states by the upheavals of 2011." He explores the
foundations of Riyadh's present political stability and concludes that the House of Saud is likely
to remain in place.
Gause goes on to recommend that the United States spend its political capital where it really
matters: preventing the proliferation of nuclear weapons, maintaining regional security, and
dismantling terrorist networks. " If Washington keeps its own priorities in the relationship
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clear and speaks with one voice about them to the Saudis, it should be able to realize those
common interests with Saudi Arabia."
On nuclear nonproliferation:
— Saudi concerns about the Iranian nuclear program "are so intense that they have signaled in
numerous ways that—without saying it directly—they would feel it necessary to obtain their
own nuclear deterrent if faced with an Iranian nuclear capacity."
— "Washington needs to make clear to the Saudis that a proliferation decision by them
would fundamentally change their relationship with the United States, destabilize the
region, and ultimately reduce their own security."
— "Riyadh would, in all probability, support an American military strike against Iranian nuclear
facilities, allowing U.S. forces access to Saudi facilities if needed (though without any publicity)
and upping oil production to try to calm markets in the immediate aftermath, if Washington chose
that path. But the Saudis would also blame the United States for any Iranian counterstrike."
— "A steady U.S. policy of pressure on Iran, organized at the international level, regarding the
nuclear issue might not be seen as enough by the Saudis, but is the only practical and long-term
solution to this difficult situation."
On regional security:
— "Saudi worries about Iran, voiced regularly to U.S. officials, should be met with the response
that political dialogue across sectarian lines in Bahrain and Iraq would reduce the Iranian ability
to meddle in the Arab world."
— "If Riyadh would like to coordinate with Washington on regime change policy in Syria,
Washington could ask for help on Iraq as part of its larger shared goal of regional stability. A new
Saudi-U.S. initiative on Yemen could be made contingent on a Saudi promise to ratchet
down the sectarian rhetoric."
On counterterrorism:
— "Cooperation in the counterterrorism field has improved dramatically in the decade since
the 9/11 attacks and the mutual suspicions that followed."
— "If Saudi authorities do not act on intelligence leads from the United States on terrorist
financing in a reasonable time, Washington should not hesitate to move itself, publicly, against
Saudi citizens who are funding al-Qaeda and other jihadist groups through its own legal system
and international legal channels."
"There is arguably no more unlikely U.S. ally than Saudi Arabia: monarchical, deeply
conservative socially, promoter of an austere and intolerant version of Islam, birthplace of Osama
bin Laden and fifteen of the nineteen 9/11 hijackers," notes Gause. But, despite these
differences, "the two countries have generally agreed on important political and economic
issues and have often relied on each other to secure mutual aims."
Nuclear war
Edelman, Center for Strategic and Budgetary Assessments Distinguished
Fellow, et al. 11 — [Eric Edelmen, a Distinguished Fellow at the Center for Strategic and
Budgetary Assessments; he was U.S. Undersecretary of Defense for Policy in 2005-9, ANDREW
F. KREPINEVICH is President of the Center for Strategic and Budgetary Assessments., EVAN
BRADEN MONTGOMERY is a Research Fellow at the Center for Strategic and Budgetary
Assessments, 2011 (“The Dangers of a Nuclear Iran,” Foreign Affairs, January/February,
Available Online at http://www.foreignaffairs.com/articles/67162/eric-s-edelman-andrew-fkrepinevich-jr-and-evan-braden-montgomer/the-dangers-of-a-nuclear-iran, Accessed on July 12,
2013)][SP]
There is, however, at least one state that could receive significant outside support: Saudi Arabia.
And if it did, proliferation could accelerate throughout the region. Iran and Saudi Arabia have
long been geopolitical and ideological rivals. Riyadh would face tremendous pressure to respond
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in some form to a nuclear-armed Iran, not only to deter Iranian coercion and subversion but also
to preserve its sense that Saudi Arabia is the leading nation in the Muslim world. The Saudi
government is already pursuing a nuclear power capability, which could be the first step along a
slow road to nuclear weapons development. And concerns persist that it might be able to
accelerate its progress by exploiting its close ties to Pakistan. During the 1980s, in response to the
use of missiles during the Iran-Iraq War and their growing proliferation throughout the region,
Saudi Arabia acquired several dozen css-2 intermediate-range ballistic missiles from China. The
Pakistani government reportedly brokered the deal, and it may have also offered to sell Saudi
Arabia nuclear warheads for the css-2s, which are not accurate enough to deliver conventional
warheads effectively.
There are still rumors that Riyadh and Islamabad have had discussions involving nuclear
weapons, nuclear technology, or security guarantees. This "Islamabad option" could develop in
one of several different ways. Pakistan could sell operational nuclear weapons and delivery
systems to Saudi Arabia, or it could provide the Saudis with the infrastructure, material,
and technical support they need to produce nuclear weapons themselves within a matter of
years, as opposed to a decade or longer. Not only has Pakistan provided such support in the past,
but it is currently building two more heavy-water reactors for plutonium production and a second
chemical reprocessing facility to extract plutonium from spent nuclear fuel. In other words, it
might accumulate more fissile material than it needs to maintain even a substantially expanded
arsenal of its own.
Alternatively, Pakistan might offer an extended deterrent guarantee to Saudi Arabia and deploy
nuclear weapons, delivery systems, and troops on Saudi territory, a practice that the United States
has employed for decades with its allies. This arrangement could be particularly appealing to both
Saudi Arabia and Pakistan. It would allow the Saudis to argue that they are not violating the npt
since they would not be acquiring their own nuclear weapons. And an extended deterrent from
Pakistan might be preferable to one from the United States because stationing foreign Muslim
forces on Saudi territory would not trigger the kind of popular opposition that would accompany
the deployment of U.S. troops. Pakistan, for its part, would gain financial benefits and
international clout by deploying nuclear weapons in Saudi Arabia, as well as strategic depth
against its chief rival, India.
The Islamabad option raises a host of difficult issues, perhaps the most worrisome being how
India would respond. Would it target Pakistan's weapons in Saudi Arabia with its own
conventional or nuclear weapons? How would this expanded nuclear competition influence
stability during a crisis in either the Middle East or South Asia? Regardless of India's reaction,
any decision by the Saudi government to seek out nuclear weapons, by whatever means, would be
highly destabilizing. It would increase the incentives of other nations in the Middle East to pursue
nuclear weapons of their own. And it could increase their ability to do so by eroding the
remaining barriers to nuclear proliferation: each additional state that acquires nuclear weapons
weakens the nonproliferation regime, even if its particular method of acquisition only
circumvents, rather than violates, the npt.
Were Saudi Arabia to acquire nuclear weapons, the Middle East would count three nuclear-armed
states, and perhaps more before long. It is unclear how such an n-player competition would
unfold because most analyses of nuclear deterrence are based on the U.S.- Soviet rivalry
during the Cold War. It seems likely, however, that the interaction among three or more
nuclear-armed powers would bemore prone to miscalculation and escalation than a bipolar
competition. During the Cold War, the United States and the Soviet Union only needed to
concern themselves with an attack from the other. Multipolar systems are generally considered
to be less stable than bipolar systems because coalitions can shift quickly, upsetting the
balance of power and creating incentives for an attack.
More important, emerging nuclear powers in the Middle East might not take the costly steps
necessary to preserve regional stability and avoid a nuclear exchange. For nuclear-armed
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states, the bedrock of deterrence is the knowledge that each side has a secure secondstrike capability, so that no state can launch an attack with the expectation that it can wipe out its
opponents' forces and avoid a devastating retaliation. However, emerging nuclear powers might
not invest in expensive but survivable capabilities such as hardened missile silos or
submarinebased nuclear forces. Given this likely vulnerability, the close proximity of
states in the Middle East,and the very short flight times of ballistic missiles in the region,
any new nuclear powers might be compelled to "launch on warning" of an attack or even,
during a crisis, to use their nuclear forces preemptively. Their governments might alsodelegate
launch authority to lower-level commanders, heightening the possibility of miscalculation
and escalation. Moreover, if early warning systems were not integrated into robust commandand-control systems, the risk of an unauthorized or accidental launch would increase further still.
And without sophisticated early warning systems, a nuclear attack might be unattributable or
attributed incorrectly. That is, assuming that the leadership of a targeted state survived a first
strike, it might not be able to accurately determine which nation was responsible. And this
uncertainty, when combined with the pressure to respond quickly, would create a
significant risk that it would retaliate against the wrong party, potentially triggering a
regional nuclear war.
Most existing nuclear powers have taken steps to protect their nuclear weapons from
unauthorized use: from closely screening key personnel to developing technical safety
measures, such as permissive action links, which require special codes before the weapons can be
armed. Yet there is no guarantee that emerging nuclear powers would be willing or able to
implement these measures, creating a significant risk that their governments might lose control
over the weapons or nuclear material and that nonstate actors could gain access to these
items. Some states might seek to mitigate threats to their nuclear arsenals; for instance, they
might hide their weapons. In that case, however, a single intelligence compromise could leave
their weapons vulnerable to attack or theft.
Meanwhile, states outside the Middle East could also be a source of instability. Throughout
the Cold War, the United States and the Soviet Union were engaged in a nuclear arms race that
other nations were essentially powerless to influence. In a multipolar nuclear Middle East, other
nuclear powers and states with advanced military technology could influence-for good or ill-the
military competition within the region by selling or transferring technologies that most local
actors lack today: solid-fuel rocket motors, enhanced missile-guidance systems, warhead
miniaturization technology, early warning systems, air and missile defenses. Such transfers could
stabilize a fragile nuclear balance if the emerging nuclear powers acquired more survivable
arsenals as a result. But they could also be highly destabilizing. If, for example, an outside power
sought to curry favor with a potential client state or gain influence with a prospective ally, it
might share with that state the technology it needed to enhance the accuracy of its missiles and
thereby increase its ability to launch a disarming first strike against any adversary. The ability of
existing nuclear powers and other technically advanced military states to shape the
emerging nuclear competition in the Middle East could lead to a new Great Game, with
unpredictable consequences.
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a/t: econ turn
Oil prices are in the “Goldilocks zone” now — lowering the price collapses
the economy
Tverberg, Fellow of the Casualty Actuarial Society, 13 — [Gail Tverberg, an
freelance journalist who writes about oil depletion, natural gas depletion, water shortages, climate
change and its impacts on the financial system, M. S. from the University of Illinois, Chicago in
Mathematics, and is a Fellow of the Casualty Actuarial Society and a Member of the American
Academy of Actuaries, 2013 (“Low Oil Prices Lead to Economic Peak Oil,” Our Finite World, 421-13, Available Online at http://ourfiniteworld.com/2013/04/21/low-oil-prices-lead-toeconomic-peak-oil/, accessed July 12, 2013)][SP]
We have all heard the story about oil supply supposedly rising and falling for geological reasons.
But what if the story is a little different from this–oil production rises and falls for economic
reasons? If this is the issue, it doesn’t really matter how much oil is in the ground. What matters
is if economic conditions are “right” for continued and rising extraction. I have shown in previous
posts that oil prices that are too high are a problem for oil importers while oil prices that are too
low are a problem for oil exporters. As a result, oil prices need to be in a Goldilocks zone, or we
have serious problems, of one sort or another.
As long as the price of oil keeps rising, there is at least some chance the amount of oil
extracted each year will keep rising, because more oil resources will become economic to
extract. The real problem arises when oil price falls back from a price level it has held, as it
has done recently, and as it did back in July 2008. Then there is a real chance that investment
will become non-economic, and because of this, oil production will fall.
Oil prices play multiple roles:
High oil prices encourage extraction from more difficult locations, because the higher cost
covers the additional extraction costs.
High oil prices allow exporters to have adequate money to pacify their populations, even if
their oil exports have been declining, as they have been for many exporters.
High oil prices allow funds for investment in new oil fields, as old ones deplete.
High oil prices tend to put oil importing countries into recession, because it raises the costs of
goods and services produced, without raising the salaries of the workers. In fact, there is evidence
that high oil prices lower wages (both directly and through lower workforce participation).
High oil prices make countries that use large amounts of oil less competitive with countries that
use less fuel in general, and less oil in particular.
When oil prices decline, it is evidence that Items 4 and 5 above are outweighing Items 1, 2, and
3. This tips the scale in the direction of a fall in oil production.
Debt also affects oil prices. As long as investors have faith that businesses can make money,
despite high oil prices, they will continue to borrow to expand their businesses. This
additional debt helps drive up demand for goods and services of all kinds, including oil, so
oil prices rise. Also, if consumers are able to borrow increasing amounts of money, this also
drives up demand for goods that use oil, such as cars. But once the debt bubble bursts, it is easy
for oil prices fall very far, very fast, as they did in 2008.
If we look at the 2008 situation, oil limits were very much behind the overall problem, even
though most people do not recognize this connection. It was the fact that oil limits eventually led
to credit limits that caused the system (including oil prices) to crash as it did. High oil prices led
to debt defaults and bank write offs, and eventually led to a huge credit contraction in economies
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of the developed world. This credit contraction affected not just oil demand, but demand for other
energy products as well.
The problems of the 2008 period were never really solved: the lack of growth in world oil supply
remains, and this lack of growth in world oil supply continues to hold back world economic
growth, particularly in developed countries. We recently have not been feeling the effects as
much, because with deficit spending, the problems have largely moved from the private sector to
the government sector.
The situation remains a tinderbox, however. The financial situation is propped up by ultra-low
interest rates, continued government deficit spending, and Quantitative Easing. In a finite world,
debt growth cannot continue indefinitely. But if debt growth permanently stops, and switches
to contraction, we would end up in an even worse financial mess than in 2008. In fact, such a
change would very likely to would lead to a contraction of “Limits to Growth” proportions.
High Oil Prices do not collapse the economy — empirically proven
Hamilton, Economics Ph.D. from Berkeley, 12 — [James D. Hamilton, Professor of
Economics, University of California, San Diego, a Ph.D. in economics from the University of
California at Berkeley, 2012 (“Thresholds in the economic effects of oil prices,” Econbrower, 919-12, Available Online at http://www.econbrowser.com/archives/2012/09/thresholds_in_t.html,
Accessed on July 12, 2013)][SP]
As U.S. retail gasoline prices once again near $4.00 a gallon, does this pose a threat to the
economy and President Obama's prospects for re-election? My answer is no.
The graph below plots average U.S. gasoline prices, adjusted for inflation, over the last decade.
This is now the fourth time we've been near the $4 threshold. It first happened in June 2008,
again in May 2011, and again in April of this year. In fact, on each of those previous 3 occasions
the average U.S. retail price of gasoline was higher than it is today.
The first time something like this happened in 2008, it was quite a jolt to consumers and to
the economy. In fact, the U.S. is still in the process of adjusting to that shock 4 years ago.
The vehicles that many Americans were driving at the time just don't make sense if you have to
pay $60 or more every time you visit the gasoline station. Even so, you don't get rid of the old
gas-guzzler right away, but make sure you change when you buy a new one. The average fuel
economy of new U.S. cars purchased has been steadily increasing since 2008.
Total vehicle miles traveled also takes time to adjust, as people change their home, job locations
and other habits.
The initial adjustments associated with that process were quite disruptive to the economy.
For example, sales of light trucks and SUVs manufactured in North America plunged in the first
half of 2008, and the hit to the auto sector made an important contribution to the first year of the
Great Recession. Sales of this category for August of this year were still 20% below the average
August value over 2003-2007.
By contrast, sales of lighter cars are now back up near their historical average, allowing the
auto sector to be able to make a solid contribution to recent U.S. economic growth.
It's also interesting to look at how the response of consumer sentiment to gasoline prices has
changed over time. The blue line in the graph below shows the same real gasoline price series
plotted in Figure 1 above, except now drawn on a negative scale (shown on the right-hand axis);
that is, the lower the blue line, the higher the price of gasoline. I plot it this way to highlight its
relation to consumer sentiment, shown in black and labeled on the left-hand axis. When real
gasoline prices first reached $3.50/gallon in 2005, consumer sentiment plunged sharply. When it
happened again in 2006, the response was more modest, and on the third time in 2007, it didn't
seem to faze consumers. It was only when gasoline prices went on from there to make new highs
in 2008 that we saw sentiment plunge again.
By the second time gas threatened $4/gallon in the spring of 2011, the memory of 2008 had
receded somewhat, and consumer sentiment fell sharply. It was much more muted when the same
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thing happened again just one year later. And right at the moment? Consumers seem to be
shrugging it off. Nobody is surprised this time, having seen the same thing twice before over the
last year and a half. Many of the adjustments people are making today were in fact set in motion 4
years ago.
There is quite a bit of empirical support for the claim that the second or third time oil
prices move back near a previous high, the economic disruption is significantly less than the
first time; see for example the evidence and literature reviewed in my 2003 Journal of
Econometrics paper (ungated version here) and two recent surveys [1], [2].
$4/gallon? Been there, done that.
Benefits to cheap oil offset by negative effects.
Tseng, MPA from Columbia University, 12
(Nin-Hai, Staff writer, 6/5/12, CNN, “The downside of cheap oil,”
http://finance.fortune.cnn.com/2012/06/05/the-downside-to-cheapoil/?iid=SF_F_Lead, accessed 7/10/13, MC)
Cheaper gas would normally be a welcome relief, but there are several downsides at play.
Declines in oil and gas have signaled a weaker economy in the U.S. and across the globe.
And while paying less to fill up the tank will mean extra savings for U.S. consumers, it's
questionable how much those savings will boost overall confidence and translate into more
spending.
Oil prices recovered some this week, but sharp declines in May still hover over the market. On
Friday, oil plunged nearly 4% after a bleak report on U.S. jobs growth and slowing manufacturing
activity in China raised worries about a slowing global economy and softer demand for oil. Gas
prices hadn't fallen below $3.60 a gallon since mid-February, but over the weekend, the national
average dropped to $3.585 a gallon. At a few stations in South Carolina and Virginia, prices fell
just under $3 a gallon.
Nationwide, gas prices hovered at $3.61 a gallon on Tuesday, down 18.2 cents from last month
and 16.2 cents lower than last year. Brent crude, used to price international oil, is struggling to
stay above $80 on the New York Mercantile Exchange -- earlier this year it was going for more
than $100 a barrel.
Economists watch gas prices closely, as they consider anything above $4 a gallon the point at
which costs start crimping consumer spending, which largely drives the U.S. economy. As a rule
of thumb, about $1.2 billion in extra spending is typically generated for every one-cent per gallon
decline for the year, says Chris Lafakis, economist at Moody's Analytics who specializes in
energy and financial markets. But such savings may not be enough to offset the world's
economic malaise that has also driven oil prices lower.
For one, Greece could leave the euro any week now as European leaders struggle to find a
solution to its debt crisis. In China, the latest signs point to a slower growing economy. And
evidence is building that the U.S. economy has entered a soft patch. All this has unnerved
investors, who've increasingly questioned the strength of demand for oil and other energyrelated products.
Analysts predict gas prices will likely stay subdued at least through the summer, but it's
uncertain if that will be enough to make consumers feel any better about spending more.
Low oil prices hardly help the economy—consensus among leading economists.
Plumer, econ reporter, 12
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[Brad, 6/25/12, Washington Post, “Cheap oil won’t save the world’s economy,”
http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/06/25/cheap-oil-wontsave-the-worlds-economy/, accessed 7/10/13, MC]
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 it’s not nearly enough to solve the world’s problems.
“Cheaper oil may cushion the fall in demand, particularly in the U.S., where the passthrough 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 by quite a bit in the months ahead. That will
put a little more money in the pockets of drivers. But that’s not enough of a boost to
overcome all the other problems in the world.
High oil prices are positively correlated with a growing economy
Burrows, MarketWatch journalist, 12 — [DAN BURROWS, a veteran of Aol's
DailyFinance, SmartMoney and MarketWatch from Dow Jones, covers the markets and economy
with an eye toward investing for the long haul, 2012 (“Why higher oil and gas prices are good
news,” CBS, MoneyWatch, 2-28-12, Available Online at http://www.cbsnews.com/8301505123_162-57386508/why-higher-oil-and-gas-prices-are-good-news/, Accessed on July 12,
2013)][SP]
With oil topping $108 a barrel in New York trading and gas above $4 a gallon in some states,
soaring energy prices appear to be the biggest current risk to the economic recovery and
rally in stocks. But Liz Ann Sonders, chief investment strategist at Charles Schwab (SCHW),
says those fears are overblown .
As much as speculators look to be inflating gas prices by betting on increased tension in the
Middle East, Sonders says most of the gains are a result of a pickup in economic activity.
"In fact, much of the increase in energy prices since their October 2011 lows can be explained
by the resurgence in the global economy," Sonders writes in new note to clients. "To a lesser
degree the increase derives from fear about supply disruptions due to tensions in Iran and
Syria."
And in what should be comforting news to investors, since the Federal Reserve cut short-term
interest rates to near zero in late 2008, the stock market (a leading economic indicator) and oil
prices have been positively correlated, notes Sonders. See the chart, courtesy of Charles
Schwab, below:
At some point, a continued surge in energy prices would be a risk to Sonders' optimistic market
and economic outlook, but at this stage it's not a deal-breaker for the recovery, she says. "For
one thing, in the past century, the real price of gasoline has spent almost all its time between $2
and $4 (in current dollars), and we're within that range today," writes Sonders.
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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 are good for the economy — empirically proven
Smith, UNC Public Economics and Government Assistant Professor, 12 —
[Karl Smith, Assistant Professor of Public Economics and Government at the School of
Government at the University of North Carolina at Chapel Hill, 2012 (“Oil and the Structural
Recession,” Modeled Behavior, 2-16-13, Available Online at
http://modeledbehavior.com/2012/02/16/oil-and-the-structural-recession/, Accessed on July 12,
2013)][SP]
Nothing had or has me doubting the basics of the Smith/Yglesias growth thesis than this chart.
That smack down looks awful structural. It looks like something happened to driving big time.
The only reason I persisted in making aggressive calls on auto sales was because I just couldn’t
think of a convincing narrative about this as permanent structural. There were many candidates, I
don’t have time to go through, but none of them really convinced me.
This has to be temporary I thought – even if its an age of driving shift thing – that’s not
permanent.
If its just cash constrained households economizing on trips and businesses economizing on
shipping then we are going to see a roar back and that means huge auto sales. Depending on
the speed of convergence 20 Million SAAR would not be crazy. Note we are at 14.2 now.
The thing is a roar back will also mean very rapid increases in gasoline consumption which
in turn means much higher prices. What does that mean for the recovery. Three very quick
factors
1) Higher gas prices shunt consumer funds towards Oil Producing countries who then send the
funds to US Treasuries. This is effectively a monetary contraction because lending does not
increase– no change in interest on reserves. Yet, Treasury buying increases, this implies that
excess reserves go up. This is contractionary for the economy.
Importantly this does not require the Fed to tighten. No action on the Feds part is passive
tightening in the face of higher gas prices because the funds go straight to T-Bills. Its as if
consumers are just saving more.
2) Higher gas prices cause effective depreciation rate of cars to go up. Old cars now even
more costly to maintain. Natural rate of interest rises. Unconstrained consumers willing to
dig deeper to buy new more fuel efficient cars. This is expansionary for the economy.
3) Higher gas prices cause more investment in oil and gas exploration, a change over from
heating oil to natural gas in some plants, major oil and gas infrastructure projects. Think of
it as raising the marginal productivity of energy extraction, distillation and distribution
capital. Natural rate rises. This is expansionary.
Now I am not sure how these three shake out. I really have no handle on (2) and though I am
reading up on (3) I cannot yet give an opinion on the size of the energy sector expansion we could
see.
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a/t: consumer spending
Oil prices don’t affect consumer spending.
Lahart, WSJ staff reporter, 11
[Justin, Wall Street Journal staff reporter, 3/1/11, Wall Street Journal, “Fed Sees
Recovery Picking Up,”
http://online.wsj.com/article/SB1000142405274870461550457617213351790172
2.html, accessed 7/10/13, MC]
One of the Federal Reserve's top officials offered an upbeat assessment of the U.S.
economy's ability to weather the recent rise in oil prices, saying that the recovery is gaining
momentum and policy makers so far see no reason to curb their efforts to stimulate growth.
"We may be much closer to establishing a virtuous circle in which rising demand generates
more rapid income and employment growth, which in turn bolsters confidence and leads to
further increases in spending," Federal Reserve Bank of New York President William
Dudley said Monday at a gathering at New York University's Stern School of Business. But
he suggested the economy probably has a long way to grow before inflation becomes a
problem.
The comments from Mr. Dudley, who is vice chairman of the Fed committee that sets shortterm interest rates, come at a time when recent reports have shown stronger consumer
spending, rising manufacturing demand and improved confidence. The Commerce
Department reported Monday that personal income rose a full percentage point in January
from December, as the cut in Social Security taxes boosted paychecks. Consumer spending
grew a muted 0.2%—likely the temporary effect of a bout of cold weather.
The missing piece has been stronger jobs growth. But improved labor-market indicators,
such as a drop in the number of people filing for unemployment claims, suggest "that
employment growth will increase considerably more rapidly in the coming months," said
Mr. Dudley. Economists surveyed by Dow Jones expect Friday's report to show the
economy added 200,000 jobs in February, as hiring rebounded after January's snowstorms.
Still, it would take a substantial rise in employment for inflation to become a problem, Mr.
Dudley said. He estimated that the unemployment rate would have to slip down to between
6% and 7% before workers could demand the kind of wage increases that would fuel
worrisome rises in prices. That is higher than the level of unemployment that has sparked
inflation in the past, but still well below recent levels. Economists estimate the
unemployment rate edged up to 9.1% in February from 9% in January.
Mr. Dudley noted, though, that the recent increase in energy and other commodity prices
merits greater vigilance.
Unrest in the Middle East and North Africa has pushed oil prices higher this year, and
recently those increases have begun to show up in the price of gasoline. The Energy
Information Administration reported that regular gasoline averaged $3.38 a gallon at the
pump Monday, up from $3.19 a week earlier. As it cuts into Americans' ability to buy other
items, the increase in fuel costs could slow the economy.
Commodity prices could also create higher inflation, Mr. Dudley said, if they start to feed
through into higher prices for other items. But he said that it was also important that the
Fed not overreact to the recent price increases, recognizing that some of them are likely to
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be temporary and that commodities represent a relatively small part of overall U.S.
inflation measures.
Through January, at least, inflation remained tame. The Commerce Department said that
its "core" index of consumer prices, which excludes food and energy, rose 0.1% from a
month earlier, putting it up just 0.8% compared with a year earlier. That's below the Fed's
informal inflation target of just under 2%. Overall prices, including food and energy, rose
0.3% on the month, and were up 1.2% compared to a year earlier.
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***Aff***
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2ac – prices low now
Oil prices are falling now — U.S. increased production
Philips, Bloomberg Businessweek associate editor, 7/3/13 — [Matthew Philips, an
associate editor for Bloomberg Businessweek, 2013 (“Why Are Pump Prices Falling as Oil Goes
Up?,” Bloomberg, Businessweek, Markets and Finance, 7-3-13, Available Online at
http://www.businessweek.com/articles/2013-07-03/why-are-pump-prices-falling-as-oil-goes-up,
accessed on July 10, 2013)][SP]
Gasoline prices have been falling across most of the U.S. for weeks and are now at their
lowest level since January, according to data from the U.S. Energy Information
Administration. That might seem like an oddity heading into Fourth of July weekend, when
motorists hit the road, but over the last decade prices have been more likely to fall leading up to
July 4.
During the five-week period between Memorial Day and July 4, gasoline prices have dropped in
six of the last 11 years, including the previous four straight, by an average of 6 percent. The
biggest decline happened last year, when the national price of regular gasoline dropped 9.4
percent between Memorial Day and the first week of July, from $3.67 a gallon to $3.35. As of
July 1, a gallon of regular gas costs an average of $3.49.
What’s interesting about this year is that the decline in gasoline prices arrives as domestic
oil prices rise. On Wednesday the price of a barrel of West Texas Intermediate broke $100 for
the first time since September 2012. That’s partly because U.S. crude that’s been landlocked
in the middle of the country is finally making it to refining hubs along the coasts. U.S.
refiners are now processing 16 million barrels of crude per day, more than at any time since
July 2010.
According to numbers released by the EIA on Wednesday, demand for gasoline last week
jumped to 9.29 million barrels per day, the first time it’s been above 9 million since last
August. Even with higher demand, the U.S. has a 24-day supply of gas, slightly above the
average over the last 15 years. The U.S. is now sitting on about 223 million barrels of gas.
That big gasoline stockpile, plus long-term demographic trends suggesting Americans will be
driving fewer miles in the coming years, has some analysts forecasting lower prices through
the rest of 2013. “I’m gonna go out on a limb and say that prices will fall through the second
half of the year,” says Tom Kloza, senior energy analyst at GasBuddy.com. “Prices will
wobble a bit, but with all that crude we’re refining, combined with flat to falling demand,
we should not see any sort of apocalyptic rise in gasoline prices through the rest of the
year.”
Unless, of course, there’s a big hurricane.
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1ar – prices low now
Non-unique — Oil prices will fall in the status quo
González, Wall Street Journal Houston Bureau Chief, 4/13/13 — [ÁNGEL
GONZÁLEZ, Houston Bureau Chief at Dow Jones Newswires, graduated from UC Berkeley,
2013 (“Drivers Can Expect Break On Summer Gas Prices,” The Wall Street Journal, 4-13-13,
Available Online at
http://online.wsj.com/article/SB10001424127887324010704578416863830404372.html,
Accessed on July 10, 2013)][SP]
HOUSTON—U.S. drivers may finally reap the benefits of the North American oil boom this
summer—albeit only a little.
The U.S. Energy Information Administration forecast this past week that prices for regular
gasoline will average $3.63 a gallon this summer, a six-cent drop from the summer of 2012. The
projected level is higher than today's cost, but prices typically rise during the summer, the peak
driving season.
The expected drop this summer compared with last year is due in part to lower demand, as
cars become more efficient. But it also reflects a continuing moderation in the global cost of
crude, a trend driven by growth in oil production from hydraulic fracturing of shale
deposits in the U.S., analysts say.
Next year, analysts with Raymond James predict that Brent crude from the North Sea, a
global benchmark for crude prices that typically mirrors U.S. fuel prices, will drop to $85 a
barrel, about $20 lower than it recently has traded. That could translate to a 50 cent-per-gallon
break at the pump. Other analysts also predict a moderation in crude-oil prices, and the
growth in U.S. oil supply amid tepid demand is "really starting to get the market's
attention," said Richard Hastings, an analyst with Global Hunter Securities LLC.
On Friday, Brent settled at a nine-month low of $103.11 a barrel on concerns about over-supply,
a $1.16 drop.
Where are gas prices going? Down, surprisingly. Gas costs 30 cents a gallon less now than it
did a year ago. For now, however, the relief is slight, with fuel prices still not far from their
record levels. The national average for a gallon of regular gasoline on Friday stood at $3.56,
down seven cents from the previous week, and 35 cents below the price a year ago, according to
AAA.
Gas prices are low now — our evidence is predicative
Fahey, Associated Press energy reporter, 7/5/13 — [Jonathan Fahey, AP reporter
covering energy -- oil, natural gas, coal, nuclear, wind, solar, biofuels -- and other major business
news, 2013 (“Summer gas prices coming down fast,” The Associated Press, the Seattle Times, 75-13, Available online at
http://seattletimes.com/html/businesstechnology/2021323897_summergaspricesxml.html,
Accessed on July 10, 2013)][SP]
NEW YORK — Gasoline prices are on a summer slide, giving drivers a break as they set out
for the beach and other vacation spots for the Fourth of July.
The national average for a gallon has fallen for 21 days straight and is now below $3.50 for
the first time since February. The reason: Oil prices have been relatively stable, and refineries
are turning out more gasoline after completing springtime maintenance.
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The drop may be interrupted temporarily because oil prices spiked Wednesday on fears the
turmoil in Egypt would disrupt the flow of crude in the Mideast. Analysts, however, don’t
expect a sharp increase at the pump, because global oil supplies are ample and U.S.
refineries are producing plenty of gas.
The national average price of a gallon is $3.48, according to AAA, OPIS and Wright Express.
That is 16 cents below its post-Memorial Day high of $3.64 on June 10.
In the Seattle-Bellevue-Everett area, AAA posted an average $3.82 per gallon, down from $3.96 a
month ago.
For much of the nation, the slide has been gradual. But for some drivers, especially in the
Midwest, it has been a roller-coaster ride. Prices shot up there early last month because of
refinery maintenance work and a fire, then plunged after the refineries ramped back up.
Patrick Francis, who owns a used-car lot in Toledo, Ohio, filled up his Volvo for $2.89 per gallon
over the weekend as he was preparing for a family trip to Hilton Head, S.C. Just three weeks
earlier, he was paying more than $4.
“I feel blessed,” he said. “It’s like a miracle.”
Tom Kloza, chief oil analyst at GasBuddy.com, predicted the national average will hover
between $3.30 and $3.60 for the rest of the summer.
That would be somewhat lower than the last two summers, when gasoline prices spent part of
the season above $3.70 per gallon.
Oil prices shot up Wednesday above $101 per barrel, the highest since May 2012, as the crisis in
Egypt deepened. Egypt is not a major oil producer but controls the Suez Canal, a major shipping
lane for Middle Eastern crude.
While analysts are not expecting a resulting surge in gasoline prices, they could rise quickly if the
Mideast unrest does disrupt oil supplies. Gas could also climb if a hurricane threatens the heart of
the refining industry along the Gulf Coast.
This year’s early summer decline, while welcome, is smaller than the seasonal drops of the last
two years, when gas prices also fell between Memorial Day and Independence Day. Gasoline is
15 cents more expensive than it was last year at this time.
Gas prices typically rise in late winter or early spring when refineries perform maintenance and
switch from making winter blends to the more complex summer blends required for clean-air
rules.
When the nation’s refineries aren’t operating at full strength, supplies drop and prices rise.
Once the maintenance is done, output rises and prices fall.
“When refineries go down it can create immediate and severe havoc,” Kloza said. “It’s a very
shallow distribution system, quick to fill and quick to empty.”
That’s what happened in the Midwest earlier this year. A fire broke out at a Marathon refinery in
Detroit in late April while maintenance was under way at an Exxon Mobil refinery in Joliet, Ill.,
and a BP refinery in Whiting, Ind.
Prices soared above $4 per gallon in parts of Ohio, Michigan, Wisconsin and Indiana.
As the refineries recovered, prices quickly fell. By July 3, Ohio prices were $3.33.
Regional spikes and plunges are likely to happen more often in coming years.
The number of U.S. refineries has shrunk by a quarter since 1993 to 143, but the nation’s refining
capacity has grown 18 percent since then. The remaining refineries are getting bigger, so if
one goes down, it’s a bigger shock to the system.
Some drivers will be paying a little more because of higher gasoline taxes that went into effect
July 1.
California and Maryland taxes rose 3.5 cents per gallon, Connecticut’s climbed 4 cents, and
Wyoming’s 10 cents. Virginia drivers are getting a break — gas taxes there are falling 6.4 cents.
Gasoline taxes account for the biggest difference in pump prices for drivers.
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Local, state and federal taxes vary from nearly 70 cents per gallon in New York, California and
Hawaii to half that in Missouri, New Jersey, Oklahoma, South Carolina and Virginia, according
to the American Petroleum Institute, the industry’s chief lobbying group.
Oil price are low now — more refineries are opening
The Associated Press 6/28/13 — [The Associated Press, 2013 (“Oil: Pump prices keep
falling; oil drops below $97,” The Associated press, Tulsa World, Available Online at
http://www.tulsaworld.com/article.aspx/Oil_Pump_prices_keep_falling_oil_drops_below_97/201
30628_501_0_NEWYOR967569?subj=298, Accessed on July 10, 2013)][SP]
The average price for a gallon of gasoline fell by 6 cents from Monday through Friday, to a
two-month low of $3.51 per gallon. The average fell at least a penny in 48 states, with only
Hawaii prices gaining a fraction and Idaho's staying flat. The steepest declines were in Indiana
(15 cents) and Michigan (14 cents).
A number of refineries that suffered outages in the Midwest in the past month or so
returned to operation, easing a shortage of gasoline and dropping prices. The average price
has fallen 40 cents in both Michigan and Wisconsin since June 1.
Meanwhile, the price of oil fell Friday for the first time this week, and it finished the second
quarter of the year with a slight loss.
Benchmark oil for August delivery fell 49 cents to end at $96.56 per barrel on the New York
Mercantile Exchange. For the April-June quarter, oil slipped 67 cents, although it rose 11 percent
from a low of $86.68 on April 17.
The decline at the gas pump is good news for drivers as the July Fourth holiday approaches. Most
should pay less than on Memorial Day, when gas averaged about $3.65. But this year's June
swoon isn't as large as last year's — by Independence Day in 2012, the average price was $3.34.
Brent crude, which is used to set prices for oil used by many U.S. refineries to make
gasoline, fell 66 cents to $102.16 a barrel.
In other energy futures trading on the Nymex:
— Heating oil fell 1 cent to $2.88 a gallon.
— Natural gas fell 2 cents to $3.57 per 1,000 cubic feet.
— Wholesale gasoline rose 1 cent to $2.75 a gallon.
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1ar – a/t: supply link
Oil prices will fall- demand is lower, plus US/Canada are producing more.
DeCapua writer for Voice of America 7/12/13
[Joe, 7/12/13, Voice of America, “OPEC Sees Oil Demand Decline Again”,
http://www.voanews.com/content/opec-oil-demand-12jul13/1700720.html,
accessed 7/12/13, ALT]
Demand for crude oil from OPEC countries is expected to decline again next year, as
independent producers, especially the United States, increase their supplies. Times are
gradually changing for OPEC, the Organization of Oil Exporting Countries. Its own surveys
show how the global market is shifting as oil production increases.
“They calculate supply from non-OPEC producers and they calculate global demand and as a
result they calculate what’s left of the pie for OPEC. The problem is what’s left of the pie is
shrinking next year because supply from independent producers – in particular the United
States, but not only – is rising faster than demand. So, essentially that leaves less of the
market for OPEC next year,” said Richard Swan, editorial director for global oil news at Platts, a
leading provider of information on energy, petrochemicals, metals and agriculture.
OPEC estimates demand for its crude oil next year will be around 29.6 million barrels a
day. Swan said that’s about one million barrels a day below current production.
“Which is potentially problematic for them. It implies that at current production rates they’re
over-supplying the market,” he said.
The most important thing for OPEC, he said, is the price of barrel of oil.
“It’s the single figure which determines their export revenues and actually is the main contributor
their budget, so that their governments have revenues in order to spend money. Now the price of
oil has been very steady, so they’re happy with that.”
However, Swan said OPEC is not as happy when it looks at other factors.
“If they look without the price, the actual supply/demand fundamentals are not great because
they’ve got this boom in production going on coming out of the shale oil in the United States and
also the heavy oil sands in Canada and these kinds of developments. They’re going up so fast that
they’re talking all of the incremental demand in the market. So that market share argument is not
great for OPEC, but as long as the price is over a hundred dollars they’ll be happy,” he said.
Non-OPEC production is expected to significantly rise next year by about 1.2 million
barrels a day. The U.S. and Canada will produce nearly all of that. The U.S. oil boom is due
in large part to the hydraulic fracturing technique, commonly called fracking. It pumps
chemicals underground to fracture shale formations, releasing more natural gas and oil. The
industry says the method is safe for the environment, but critics say it can poison drinking water.
Projection for oil demand is down, production up— tar sands.
McQuaile and Swann, writers for Platts, 7/10/13
[Margaret and Richard, McGraw Hill Financial, 7/10/13, “OPEC sees demand for
its crude falling again next year”, http://www.platts.com/newsfeature/2013/oil/opec/index, accessed 7/12/13, ALT]
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Against this, total oil demand in OECD countries is expected to decline to 45.38 million b/d,
down 210,000 b/d from 45.6 million b/d in 2013.
This marks a slowdown in the rate at which oil demand is falling in the OECD after an expected
contraction of 380,000 b/d in 2013.
On the supply side, non-OPEC production is expected to rise by 1.14 million b/d to reach
55.06 million b/d next year, following growth of 980,000 b/d in 2013.
The majority of the supply growth stems from the continued rapid development of tight oil
and oil sands deposits in the US and Canada, with North America as a whole accounting for
710,000 b/d of the increase.
US oil production is expected to rise by 560,000 b/d next year to reach 11.33 million b/d.
Smaller increments in non-OPEC production are expected to come from Latin America and
the Former Soviet Union, OPEC said.
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2ac oil DA
OPEC maintains high prices
Levi, David M. Rubenstein senior fellow, 12 [Michael, July/August 2012, “Think
Again: The American Energy Boom”
http://www.foreignpolicy.com/articles/2012/06/18/think_again_the_american_energy_boom?wp_
login_redirect=0 7/10/13 EYS]
"We Can Drill Our Way Out of High Prices."
Don't bet on it. Some people claim that unleashing U.S. oil and gas resources would slash the
price of crude. Who can forget the cries of "Drill, Baby, Drill!" that saturated airwaves during the
2008 presidential campaign? Others insist that, because oil is priced on a global market, increased
U.S. output wouldn't move the needle. Even Douglas Holtz-Eakin, the top economist for John
McCain's 2008 presidential campaign, has written, "Domestic action to increase production
will not lower gas prices set on a global market."
The precise truth lies somewhere in between. If U.S. producers were able to massively ramp
up output, the ultimate impact would mostly boil down to one big question: How would
other big oil producers (mainly the Saudis and the rest of OPEC) respond to a surge in U.S.
supplies?
To stop prices from falling, they could cut back their output in response to new U.S.
production, much as they've tried to in the past. That's essentially what happens in the
much-cited projections by the Energy Information Administration. In one recent exercise, for
example, it looked at what would happen to gasoline prices if U.S. oil production grew by about a
million barrels a day. The net impact was a mere 4 cents a gallon fall. Why? All but a sliver of the
increase in U.S. output was matched by cutbacks in the Middle East, leaving oil prices barely
changed.
Even if OPEC fails, marginal costs ensure high prices
Mackenzie, Financial Times editor, 12 [Kate, May 02, 2012 “Marginal oil production
osts are heading towards $100/barrel”
http://ftalphaville.ft.com/blog/2012/05/02/983171/marginal-oil-production-costs-are-headingtowards-100barrel/ 7/10/13 EYS]
Bernstein’s energy analysts have looked at the upstream costs for the 50 biggest listed oil
producers and found that — surprise, surprise — “the era of cheap oil is over”:
Tracking data from the 50 largest listed oil and gas producing companies globally (ex FSU)
indicates that cash, production and unit costs in 2011 grew at a rate significantly faster than the 10
year average. Last year production costs increased 26% y-o-y, while the unit cost of production
increased by 21% y-o-y to US$35.88/bbl. This is significantly higher than the longer term cost
growth rates, highlighting continued cost pressures faced by the E&P industry as the incremental
barrel continues to become more expensive to produce. The marginal cost of the 50 largest oil
and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line
with historical average CAGR growth. Assuming another double digit increase this year,
marginal costs for the 50 largest oil and gas producers could reach close to US$100/bbl.
While we see near term downside to oil prices on weaker demand growth, the longer term
outlook for higher oil prices continues to be supported by the rising costs of production.
This is important because, as Bernstein analyst Neil Beveridge and colleagues note, the cost of
producing marginal barrels of oil plays a big role in determining oil prices.
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We’d add that the expectations of said costs also play a big role, but that’s another story… and
anyway, the Bernstein team argue their point pretty strongly with this chart:
Also, this research obviously only covers non-Opec producers, and it mostly excludes Russia too.
Given Saudi Arabia’s role as the “swing producer”, how are the ex-Opec, ex-Former Soviet
Union marginal oil production costs so correlated to Brent prices?
Bernstein argues that it’s because they are, basically, more costly:
While OPEC plays a key role in influencing price through production quotas, in the long run
we believe that it is the marginal cost of non-OPEC production which sets the oil price. As
global demand has surged over the past decade the marginal cost of production and oil prices
have increased, as the industry has venture to increasingly higher cost (smaller, deeper fields) and
more marginal regions (deep water, high arctic) to produce the incremental barrel of oil.
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1ar marginal costs
High oil prices inevitable – marginal cost of production
Sreekumar, Motley Fool writer, 13 [Arjun, 1/29/13 “Why Oil Prices Are Likely to
remain high” http://www.fool.com/investing/general/2013/01/29/why-oil-prices-are-likely-toremain-high.aspx 7/10/13 EYS]
Last year was a good year for oil. The price of Brent crude, the global benchmark for oil,
remained above $100 per barrel for most of the year. But now, as a new year kicks off, people
want to know whether oil prices are headed higher or lower.
It's certainly an important question. Not just for oil companies, but for consumers and other
businesses as well. While it's true that commodity prices are virtually impossible to predict with a
high degree of accuracy, there is compelling evidence that oil prices should remain high.
Or, to look at it a different way, there is good reason to believe that they are at least unlikely to
fall below a certain threshold level. Let's take a closer look at why.
Determinants of the price of crude oil
The price of Brent crude reached a three-month high last week, bolstered by a string of optimistic
global economic data and geopolitical concerns about North African oil supply in the wake of a
terrorist attack in Algeria. ICE March Brent crude rose to nearly $114 a barrel on Friday and
started off this week at levels above $113 a barrel.
Brent prices have risen nearly 2% since the start of the year, as recently released economic data
from the U.S., China, and the eurozone have instilled a renewed sense of optimism about the
global economy. Concerns about North African supply, as well as reduced production from Saudi
Arabia, have also contributed to the slight increase in prices.
While there are a host of factors that impact crude oil prices, such as global supply and
demand fundamentals, geopolitical risk, speculation, and monetary policy, marginal
production costs have proven to be a remarkably accurate indicator of the price of oil. In
fact, according to a note by Bernstein Research, the marginal cost of production is "the most
important factor driving oil prices over the long run."
The relationship between the price of oil and the marginal cost of oil production, which refers to
the expenses associated with producing the last barrel, is well documented. For instance,
between 2001 and 2010, the average annual price of Brent increased 228%, while marginal
production costs among the world's 50 biggest public oil companies rose 229%, according to
calculations by Bernstein Research.
It boils down to the incentives facing oil companies. If the cost of producing that last barrel of
oil exceeds the price they can get for it, they have no financial motivation to produce it.
Herein lies the first major clue as to the future direction of oil prices – production costs have
risen sharply in recent years, which, some argue, has effectively placed a floor below the price
of oil.
Spike in production costs
The Bernstein Research note analyzed production costs for the 50 biggest publicly traded oil
producers and found that cash, production, and unit costs in 2011 increased at a rate much higher
than the 10-year average.
Specifically, they found that production costs in 2011 rose 26% year over year, while the unit
costs of production rose by 21% year over year, coming in at $35.88 per barrel. Among the 50 oil
producers surveyed, the marginal cost of production rose 11% year over year, coming in at a
whopping $92 per barrel in 2011.
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Energy companies are well aware of this development and have been doing everything they can
to protect themselves, including major initiatives to lower costs. For instance, Halcon Resources
(NYSE: HK ) is planning dramatic cost reductions in 2013 to help offset the relatively high
operating costs of its mature producing assets.
Meanwhile, Kodiak Oil & Gas (NYSE: KOG ) has already seen a dramatic reduction in
operational expenses through improved fracking techniques, which has led to a sharp decline in
the number of days taken to drill a well. And LINN Energy (NASDAQ: LINE ) , through watermanagement initiatives, has benefited from major expense reductions in its Granite Wash and
Permian Basin operations.
Why productions costs have risen
The reason production costs have increased so sharply has to do with changes in the marginal
source of supply. A few decades ago, U.S. oil producers could easily extract oil for under $20 a
barrel, but those days are long gone. As fields of so-called "easy oil" have quickly been
depleted, energy companies have been forced to venture out of their comfort zone and into new
and harsh terrain in the pursuit of black gold.
For instance, Royal Dutch Shell is hoping to drill for oil off the coast of Alaska – a plan that has
received intense scrutiny and opposition by environmental groups, as well as the CEO of Total.
Similarly, ExxonMobil (NYSE: XOM ) and Statoil (NYSE: STO ) are planning to explore for
oil in the harsh Arctic waters near Russia.
These examples are illustrative of a major shift in global oil supply and suggest that the world is
becoming increasingly reliant on unconventional sources of oil, such as shale and deepwater.
While these unconventional sources hold vast promise in terms of the quantity of potentially
recoverable hydrocarbon resources, they are accompanied by exorbitantly high costs due to the
need for more technologically sophisticated equipment.
Final thoughts
Because oil prices are determined at the margin, the net impact of this shift toward
unconventional sources has been upward pressure on crude prices. Despite media coverage
suggesting that oil companies are raking in more cash than they know what to do with, the
evidence suggests that high marginal production costs are taking their toll on even the most
expertly managed operators.
All evidence votes aff
Herron, WSJ, 12 [James, May 22, 2012, “Oil Price Likely to Stay Buoyed by Marginal
Costs”, http://online.wsj.com/article/SB10001424052702303610504577418081105218276.html
7/10/13 EYS]
However, many industry observers say the price of oil is unlikely to fall far below current
levels for long, because the cost of producing every last barrel of oil needed to meet demand
has risen so high.
"Costs are still at a very high level because of the complexity of marginal fields," said Pierre
Sigonney, chief economist at French oil company Total SA. "We don't expect oil prices to go
much below $100 a barrel."
The marginal cost of oil production, defined as the cost of pumping the last and most expensive
barrel required to satisfy demand, is fundamentally linked to long-term oil prices. If the oil
price falls below the marginal cost, there is no incentive to produce that last barrel of oil, so
demand will remain unsatisfied until consumers are willing to pay more.
The close relationship between the two was demonstrated from 2001 to 2010, when the
average annual price of international oil benchmark Brent crude rose 228%, while analysts at
Bernstein Research estimate the marginal production cost of the world's 50 largest listed oil
companies increased 229%.
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In 2011, the marginal cost of oil production was $92.26 a barrel for the 50 largest listed oil and
gas companies and will reach $100 a barrel next year if it continues to follow the long-term
trend, said Bernstein in a research note.
Costs are rising because much of the extra oil added to world supply has come from more
technically challenging areas such as deep water or the Arctic, Bernstein said. This has led to "a
combination of higher material costs and reduced productivity per well," it said.
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1ar – high prices inev
Global oil prices will not plunge — 7 distinct reasons
Helman, Forbes, 13 [Christopher, 4/29/2013, “7 Reasons Why Oil Prices Won't Plunge”
http://www.forbes.com/sites/christopherhelman/2013/04/29/7-reasons-why-oil-prices-wontplunge/ 7/10/13 EYS]
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
shale-cracking techniques perfected in the U.S. will be exported to the likes of China and Russia,
and it looks like the world’s oil demand will be easily met for years to come.
So it’s 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
It’s 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 with 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.
There’s 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.
Europe’s 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 they’ll 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
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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 there’s 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 don’t 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.
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2ac – a/t: backstopping internal
US controls prices more than Saudi Arabia- fracking.
Smith Forbes 7/01/13
[Karl, 7/1/13, Forbes Online Magazine, “Yes Virginia, US Oil Production Can
Influence Global Prices”,
http://www.forbes.com/sites/modeledbehavior/2013/07/01/yes-virginia-us-oilproduction-can-influence-global-prices/, accessed 7/12/13, ALT]
There are a couple of ways to tackle this. One is to note that the US produces roughly the same
amount of Petroleum Liquids (a bigger category than crude oil) as Saudi Arabia. Yet,
conventional wisdom had been that Saudi Arabia more or less controlled the global price of
oil and gasoline by altering how much it supplied to the markets. If the Saudis cut production oil
prices, went up. If the ramped up production then oil prices went down. How can this be if they
control roughly the same market share as the US?
The answer is that the price of oil is determined not by the overall amount of oil produced
and consumed but by whether slightly more oil is being produced than consumers want to
buy or slightly less. If slightly more is being produced then stockpiles will rise larger and
larger over time. Stockpiles can’t keep growing forever and as they build larger and larger,
vendors become eager to sell and cut the price. Similarly, as stockpiles shrink closer to zero,
vendors become nervous that they will run out and raise the prices.
Folks can tack as much or as little cynicism about price gouging and manipulation, as there
wont determines. Anyway you slice it, however, the fundamental limit here is that when the tanks
are full you cannot accept deliveries and when the tanks are dry you cannot sell to consumers.
Price has to change to keep those boundaries from being hit.
So, the US doesn’t have to produce so much oil that it radically expands global
production. It just has to produce enough to tilt the tanks towards filling up, rather than
emptying out.
If we go to the charts, it looks like that is exactly what is happening. Below is the daily price of
oil produced in the Central US, West Texas Intermediate (WTI) in blue and the oil used by East
Coast refineries, Brent Crude.
The two follow each other closely until about 2011. The US fracking boom had started well
before then. However, that’s when oil started to pile up at Cushing, OK. The price of oil is pushed
around by many factors but its fair enough to say that the price of WTI (blue line) continued to
sink throughout most of 2011 as the storage depots in Cushing, Oklahoma became increasingly
close to full capacity.
In late 2011 Enbridge announced plans to reverse one its pipelines that moved oil from the
Texas coast to Cushing. Reversing the flow direction of a pipeline is no small matter, and the
announcement helped ease concern that Cushing would hit capacity. As a result the blue line rose
close to the red line again.
However, US production kept going and the Enbridge reversal was not enough. Over time the
gap between WTI and Brent opened up again. Only recently, have it begun to close. Yet, this
time its closing the other way. Brent is coming towards WTI. The result is that consumers are
seeing a reduction in prices, related to the US supply boom.
Lets add gas prices to our chart and zoom in. The green line is the price of gasoline (minus 49
cents for the average US tax.) With a bit of a delay and some diversions due to refinery outages,
the green line follows the red line. The price of gasoline is determined by the price of Brent.
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And, since the beginning of this year the price of gasoline has slowly been coming down,
even though the price of WTI has barely changed. In the coming weeks the price of gasoline is
likely to fall even more. There are currently some refinery outages in California and gasoline
moves with a delay. This will save consumers money at the pump, and its happening as the price
of Brent converges on to the price of WTI.
What that implies is that US production is beginning to set the world price and the price
that consumers pay. The US is in economists terms – the marginal producer. This state of
affairs may not last long. The Saudis may attempt reassert their role. Demand in Asia could
pick up beyond what US production can meet, etc.
However, its not clear that this will happen. Asian growth is weakening. Iranian oil
production is limited by sanctions. Both factors complicate the Saudis attempts to control
prices. The landscape could continue to shift in this direction. As it does, price will increasingly
be set by the marginal producer and the marginal producer righ,t now, is US fracking
operations.
No capacity for backstopping
Saxena, Puru Saxena Wealth Management founder, 11 [Puru, Jul 18, 2011 “An
Epic Energy Crunch, Global Crude Oil Demand Exceeds Production”
http://www.marketoracle.co.uk/Article29323.html 7/10/13 EYS]
The majority of the world’s developed economies are growing at a sluggish pace, yet the
price of NYMEX crude is trading around US$100 per barrel. Interestingly, the price of
Brent Crude (the price most nations pay) is even higher!
You may recall that during the last oil spike in 2008, world governments blamed those wily
speculators. Therefore, in order to diminish speculation, the authorities banned leveraged
‘long’ oil exchange traded funds.
It is notable that a few months ago, the price of NYMEX crude (once again) spiked to US$115
per barrel and this caused the politicians to panic. This time around, the governments could
not blame the speculators so, a few days ago, they decided to dump 60 million barrels of
crude on the market from their strategic petroleum reserves. This ‘oil pour’ created a lot of
sensational headlines in the media and caused the price of crude to drop sharply. However,
this decline proved to be short-lived and the oil price bounced right back up again.
Political manipulation notwithstanding, the truth is that the fundamentals for petroleum are
wildly bullish and all the governments put together will not succeed in suppressing the price
of oil. According to the International Energy Agency, the world is likely to consume 89.3
million barrels of liquid fuels per day in 2011 (Figure 1) and in May, global production came
in at 87.68 million barrels per day. Thus, you can see that output is failing to keep up with
rising worldwide consumption and the 60 million barrels ‘oil pour’ represents less than a single
day’s usage!
Bearing in mind the fact that global usage of liquid fuels will only increase in the future, one does
not need to be a rocket scientist to figure out that the world will need to raise its production.
So, in this editorial, we will evaluate whether the oil producing nations will be able to rise to the
challenge.
When reviewing crude’s supply picture, it is important to realise that several oil producing
regions are already past their peak flow rates and have entered an irreversible decline. For
instance, it is no secret that the North Sea, Mexico, Indonesia and a host of other areas are
past their prime. In terms of future production growth, all eyes are now fixated on OPEC
which claims to have almost 5 million barrels per day of spare capacity. Nobody really
knows whether OPEC is capable of increasing production by such a large amount but Saudi
Arabia keeps insisting that it can ramp up daily output by approximately 3.5 million barrels
(Figure 2).
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Now, given the fact that the vast majority of Saudi Arabia’s super-giant oil fields are extremely
old, one has to wonder whether the nation is capable of boosting production. According to some
reports, Saudi Arabia is struggling to maintain its current flow rates and in a desperate
attempt to maintain reservoir pressure, it is pumping huge amounts of water into its ageing
oil fields.
More importantly, we are of the view that Saudi Arabia has grossly overstated its oil reserves
and it is extremely unlikely that the nation has 270 billion barrels of petroleum. After all,
the Saudi reserves have never been audited and a recent report by WikiLeaks suggests that
the Saudis have inflated their oil bounty by 40%!
The proof of the pudding is in the eating and when one reviews Saudi oil production data, it
becomes clear that despite all the rhetoric, its flow rate is in decline! Figure 3 shows that
Saudi oil production reached a high in 2004 and ever since, it has been heading south.
If Saudi Arabia is indeed sitting on humungous oil reserves and it has the ability to raise output,
why has production failed to climb above the level recorded seven years ago?
Now some may argue that the Saudis are deliberately keeping a lid on production, but we have a
different view. Call us sceptics, but we believe that Saudi Arabia is already stretched to the
limit and will find it hard to increase production.
Unfortunately, if Saudi Arabian oil production is close to its peak, then the world simply
cannot produce more crude. Furthermore, when you take into account the ongoing depletion
in the world’s existing oil fields, it becomes clear that the world is heading into an epic
energy crunch.
Under these circumstances, we believe that the price of oil will appreciate considerably and
the impending surge will cause the next worldwide recession. However, as long as the global
economy is expanding, the oil bull will charge ahead and it is likely that the all-time high
recorded in 2008 will be left in the dust. Accordingly, we are maintaining our overweight
investment position in upstream energy companies, oil services firms and nuclear energy plays.
Although we are aware that nuclear energy is currently out of favour and many are unsure about
its future, we are convinced that there is no Plan B. With the finite supply of liquid fuels, the
world will need to generate more electricity and nuclear energy is the only viable option. Sceptics
may want to note that if France can generate over 75% of its power from nuclear energy and do
so without any accidents, then the rest of the world can surely do the same. It is notable that with
the exception of Germany, most other nations are going ahead with their nuclear programs and
this is good news for the sector. In summary, we view the panic fueled sell off in the nuclear
sector as a great opportunity for the patient investor
Alt cause—Iran prolif
Energy Digital, 11 [28 June 2011, OilPrice.com, “Saudi Arabia Using Oil as an Economic
Weapon Against Iran” http://oilprice.com/Energy/Crude-Oil/Saudi-Arabia-Using-Oil-as-anEconomic-Weapon-Against-Iran.html 7/10/13 EYS]
Saudi Arabia and Iran have been in a bitter dispute over the last several weeks. Iran successfully
blocked an effort by OPEC nations to release excess oil reserves into the market to ease high
prices and stabilize the world economy. In response, Saudi Arabia decided to act against
OPEC and release its own reserves. In no uncertain terms, a bitter feud is brewing between
the two oil-rich nations, and Saudi Prince Turki Al-Faisal has stated that the country is in such
fear of what may happen if Iran succeeds in attaining nuclear weapons capabilities, that it is
considering flooding the market with oil to bankrupt Iran’s government and halt nuclear
ambitions.
In a meeting with U.S. and British servicemen at a U.K. airbase, the prince claimed that Saudi
Arabia does not want Tehran to attain nuclear weapons, to the extent that the Saudis are
willing to completely open their oil reserves to bankrupt Iran. “We could almost instantly
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replace all of Iran’s oil production,” stated the prince. This would equate to roughly 4 million
barrels per day.
However, if such an action were to occur, there would of course need to be a naval blockade of
Iran’s fleet of oil tankers, which Iran would inevitably view as an act of war. However, this
seems like an unlikely and rather dangerous scenario. What is more likely to occur is a continued
increase in supply coming from Saudi Arabia despite OPEC’s disapproval. The effect will be a
prolonged cut into Tehran’s oil profits.
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1ar – no capacity
Saudi can’t backstop
Real Clean Energy 12 [May 29, 2012 “OPEC's Spare Capacity Is at Lowest Since 2008”
http://www.realclearenergy.org/charticles/2012/05/29/opec_spare_capacity_lowest_since_2008_1
06572.html 7/10/13 EYS]
OPEC's spare crude oil production capacity is at the lowest level since 2008, according to
figures from the Energy Information Administration. Excess capacity has been declining
steadily since the last quarter of 2009 but is still nowhere near as low as it was from 2003 to the
end of 2008.
The blue bars on the graph indicate OPEC spare capacity, with the scale in millions of barrels on
the left. Capacity is now 2.4 million barrels, down from 4.5 million in the last quarter of 2009 but
well above the low point of less than 1 million barrels in 2004. The red line indicates the WTI
crude oil price with the scale on the right, running from zero to $140 a barrel in 2010 prices. The
price is now near $100 a barrel, the highest since 2009 but well below the peak of $123 in 2008.
Low spare capacity is usually associated with high prices and vice versa, although there is no
clear cause and effect. What low capacity does mean is that prices become inelastic as
countries are unable to respond to supply squeezes, increased demand or unanticipated
world events by ramping up production. Nearly all the world's spare capacity is in OPEC
countries and most of that is in Saudi Arabia.
EIA defines spare crude oil production capacity as potential oil production that could be brought
online within 30 days and sustained for at least 90 days, consistent with sound business practices.
This does not include oil production increases that could not be sustained without degrading the
future production capacity of a field.
What the current moderately low spare capacity indicates is that the world is on a tightrope
with the uncertainty over the Iranian boycott. Prices are now high and there is not too
much spare capacity available to bring them down. But the situation is not as bad as it was in
2008, when tight supplies sent oil over $120 a barrel.
Reserves overstated
Vidal, Guardian editor, 11 [John, 8 February 2011, “WikiLeaks cables: Saudi Arabia
cannot pump enough oil to keep a lid on prices”
http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks 7/10/13
EYS]
The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough
reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh
show.
The cables, released by WikiLeaks, urge Washington to take seriously a warning from a
senior Saudi government oil executive that the kingdom's crude oil reserves may have been
overstated by as much as 300bn barrels – nearly 40%.
The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on
global demand and tensions in the Middle East. Many analysts expect that the Saudis and their
Opec cartel partners would pump more oil if rising prices threatened to choke off demand.
However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil
monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US
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diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not
be reached.
According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach
an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global
oil production would have hit its highest point. This crunch point is known as "peak oil".
Husseini said that at that point Aramco would not be able to stop the rise of global oil prices
because the Saudi energy industry had overstated its recoverable reserves to spur foreign
investment. He argued that Aramco had badly underestimated the time needed to bring new oil on
tap.
One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible
that Saudi reserves are not as bountiful as sometimes described, and the timeline for their
production not as unrestrained as Aramco and energy optimists would like to portray."
It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for
exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are
recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.
"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as
much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a
steady output in decline will ensue and no amount of effort will be able to stop it. He believes
that what will result is a plateau in total output that will last approximately 15 years followed by
decreasing output."
The US consul then told Washington: "While al-Husseini fundamentally contradicts the
Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook
demand that his predictions be thoughtfully considered."
Seven months later, the US embassy in Riyadh went further in two more cables. "Our mission
now questions how much the Saudis can now substantively influence the crude markets over the
long term. Clearly they can drive prices up, but we question whether they any longer have the
power to drive prices down for a prolonged period."
A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia
may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a
year over the next decade as a result of population and economic growth. As a result it will need
to double its generation capacity to 68,000MW in 2018," it said.
It also reported major project delays and accidents as "evidence that the Saudi Aramco is
having to run harder to stay in place – to replace the decline in existing production." While
fears of premature "peak oil" and Saudi production problems had been expressed before, no US
official has come close to saying this in public.
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2ac – a/t: warming
High prices don’t lead to alternative transition
Khavari, University of Bremen Ph. D in economics, 12 [Farid A, April 11, 2012,
“THE FINAL CRASH – THE END OF U.S. DOMINANCE IN 2013 – Part Three – Substitution
of Crude Oil – The Overlooked Links” http://investmentwatchblog.com/the-final-crash-the-endof-u-s-dominance-in-2013-part-three-substitution-of-crude-oil-the-overlookedlinks/#iGWQPBPlT0JIK0Kq.99 7/10/13 EYS]
But a closer analysis shows that a series of steps and considerations must be taken to initiate
efficient substitution of crude oil with alternative energy sources; rising price is just one of
many factors even if, in some cases, it turns out to be an important one. Here are a few scenarios
related to the first assumption:
• Let’s say the Organization of the Petroleum Exporting Countries (OPEC) abruptly set the
price of crude oil at $1,000 or even $2,000 per barrel. The substitution theory assumes that
substituting crude oil with other energy sources could be done easily and immediately or, at
least, over a relatively short period of time. Unfortunately, this is not true because sufficient
amounts of immediate alternatives are lacking. Not only would substitution not take place;
even worse, the world economy (which depends heavily on oil) would collapse overnight if a
serious oil shortage occurred or if oil was withdrawn for political or economical reasons. The
result would be an economic disaster of unimaginable magnitude. If crude oil stopped flowing
because of high prices, few people would be able to afford it, as with the 2008 oil price increase.
Unless oil was substituted with an alternative energy source, the world economy would collapse.
On the other hand, rising oil prices would not trigger an automatic substitution process as most
people assume. In other words, we must initiate the substitution process regardless of whether
we are to become oil independent. It does not matter if the efforts toward oil independence
come from domestic or foreign sources. Rising oil prices will not start the market mechanism for
substitution of crude oil unless we implement an aggressive energy policy.
• Suppose crude oil prices rose gradually and permanently. Even so, effective substitution would
not occur unless the country implemented a rigorous energy policy to substitute crude oil with
alternative energy sources and technologies. The belief that rising oil prices would accelerate
substitution is not realistic even in a fully functioning market economy, which serves as a
basic assumption. If oil prices rise, the demand for crude oil decreases as long as the possibility of
substitution exists. Decreasing prices influence the substitution process; at the same time, energy
consumption rises so that oil prices, in the end, fluctuate cyclically with an upward tendency. In
other words, rising oil prices would have a limited effect, at best, on crude oil substitution from a
microeconomic standpoint if companies or private households (because of cost comparisons)
prefer one energy source over another. However, from a macroeconomic perspective, rising oil
prices would not initiate an effective substitution process. When oil prices keep rising, the
demand for oil drops; as a result, the price of oil drops. This process will continue
indefinitely unless oil substitution occurs: the market price mechanism (in which oil prices
increase when the demand exceeds supply and decrease when the supply exceeds demand) does
not apply to oil. Therefore, we must implement oil substitution without any expectation from the
market price mechanism. During 2008, oil prices rose from about $25 per barrel to $160 and then
dropped down to $60. Similarly, gasoline prices went up $1 per gallon to $4.80 and then fell back
to $2.50.
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Warming won’t cause extinction
Barrett, Columbia natural resource economics professor, 7 [Scott, 2007, “Why
Cooperate? The Incentive to Supply Global Public Goods” p. 5 7/10/13 EYS]
First, climate change does not threaten the survival of the human species.5 If unchecked, it
will cause other species to become extinction (though biodiversity is being depleted now due to
other reasons). It will alter critical ecosystems (though this is also happening now, and for
reasons unrelated to climate change). It will reduce land area as the seas rise, and in the process
displace human populations. “Catastrophic” climate change is possible, but not certain.
Moreover, and unlike an asteroid collision, large changes (such as sea level rise of, say, ten
meters) will likely take centuries to unfold, giving societies time to adjust. “Abrupt” climate
change is also possible, and will occur more rapidly, perhaps over a decade or two. However,
abrupt climate change (such as a weakening in the North Atlantic circulation), though
potentially very serious, is unlikely to be ruinous. Human-induced climate change is an
experiment of planetary proportions, and we cannot be sur of its consequences. Even in a worse
case scenario, however, global climate change is not the equivalent of the Earth being hit by
mega-asteroid. Indeed, if it were as damaging as this, and if we were sure that it would be
this harmful, then our incentive to address this threat would be overwhelming. The challenge
would still be more difficult than asteroid defense, but we would have done much more about it
by now
6 degree warming inevitable
AP 9 [Sept . 24, 2009, Associated Press, “Six Degree Temperature Rise by 2100 is Inevitable:
UNEP” http://www.speedy-fit.co.uk/index2.php?option=com_content&do_pdf=1&id=168
7/10/13 EYS]
WASHINGTON - Earth's temperature is likely to jump six degrees between now and the
end of the century even if every country cuts greenhouse gas emissions as proposed,
according to a United Nations update.
Scientists looked at emission plans from 192 nations and calculated what would happen to global
warming. The projections take into account 80 percent emission cuts from the U.S. and
Europe by 2050, which are not sure things.
The U.S. figure is based on a bill that passed the House of Representatives but is running into
resistance in the Senate, where debate has been delayed by health care reform efforts.
Carbon dioxide, mostly from the burning of fossil fuels such as coal and oil, is the main cause of
global warming, trapping the sun's energy in the atmosphere. The world's average temperature
has already risen 1.4 degrees since the 19th century.
Much of projected rise in temperature is because of developing nations, which aren't
talking much about cutting their emissions, scientists said at a United Nations press conference
Thursday. China alone adds nearly 2 degrees to the projections.
"We are headed toward very serious changes in our planet," said Achim Steiner, head of the
U.N.'s environment program, which issued the update on Thursday. The review looked at some
400 peer-reviewed papers on climate over the last three years.
Even if the developed world cuts its emissions by 80 percent and the developing world cuts
theirs in half by 2050, as some experts propose, the world is still facing a 3-degree increase by
the end of the century, said Robert Corell, a prominent U.S. climate scientist who helped
oversee the update.
Corell said the most likely agreement out of the international climate negotiations in Copenhagen
in December still translates into a nearly 5-degree increase in world temperature by the end of the
century. European leaders and the Obama White House have set a goal to limit warming to just a
couple degrees.
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The U.N.'s environment program unveiled the update on peer-reviewed climate change science to
tell diplomats how hot the planet is getting. The last big report from the Nobel Prize-winning
Intergovernmental Panel on Climate Change came out more than two years ago and is based on
science that is at least three to four years old, Steiner said.
Global warming is speeding up, especially in the Arctic, and that means that some top-level
science projections from 2007 are already out of date and overly optimistic. Corell, who
headed an assessment of warming in the Arctic, said global warming "is accelerating in ways that
we are not anticipating."
Because Greenland and West Antarctic ice sheets are melting far faster than thought, it
looks like the seas will rise twice as fast as projected just three years ago, Corell said. He said
seas should rise about a foot every 20 to 25 years.
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1ar – no impact
No impact to warming—takes forever and adaptions solves
Mendelsohn, Yale environmental studies professor, 9 [Robert O, 2009, “Climate
Change and Economic Growth”
http://siteresources.worldbank.org/EXTPREMNET/Resources/4899601338997241035/Growth_Commission_Vol4_Globalization_Growth_Ch12_Climate_Change_Ec
onomic_Growth.pdf 7/10/13 p. 286 EYS]
These statements are largely alarmist and misleading. Although climate change is a serious
problem that deserves attention, society’s immediate behavior has an extremely low
probability of leading to catastrophic consequences. The science and economics of climate
change is quite clear that emissions over the next few decades will lead to only mild
consequences. The severe impacts predicted by alarmists require a century (or two in the case
of Stern 2006) of no mitigation. Many of the predicted impacts assume there will be no or
little adaptation. The net economic impacts from climate change over the next 50 years will be
small regardless. Most of the more severe impacts will take more than a century or even a
millennium to unfold and many of these “potential” impacts will never occur because
people will adapt. It is not at all apparent that immediate and dramatic policies need to be
developed to thwart long‐range climate risks. What is needed are long‐run balanced responses.
Experts agree
Hsu, Live Science writer, 10 [Jeremy, July 19, 2010 “Can Humans Survive?”
http://www.livescience.com/culture/can-humans-survive-extinction-doomsday-100719.html
7/10/13 EYS]
His views deviate sharply from those of most experts, who don't view climate change as the
end for humans. Even the worst-case scenarios discussed by the Intergovernmental Panel on
Climate Change don't foresee human extinction.
"The scenarios that the mainstream climate community are advancing are not end-ofhumanity, catastrophic scenarios," said Roger Pielke Jr., a climate policy analyst at the
University of Colorado at Boulder.
Humans have the technological tools to begin tackling climate change, if not quite enough yet to
solve the problem, Pielke said. He added that doom-mongering did little to encourage people to
take action.
"My view of politics is that the long-term, high-risk scenarios are really difficult to use to
motivate short-term, incremental action," Pielke explained. "The rhetoric of fear and alarm that
some people tend toward is counterproductive."
Searching for solutions
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One technological solution to climate change already exists through carbon capture and storage,
according to Wallace Broecker, a geochemist and renowned climate scientist at Columbia
University's Lamont-Doherty Earth Observatory in New York City.
But Broecker remained skeptical that governments or industry would commit the resources
needed to slow the rise of carbon dioxide (CO2) levels, and predicted that more drastic
geoengineering might become necessary to stabilize the planet.
"The rise in CO2 isn't going to kill many people, and it's not going to kill humanity,"
Broecker said. "But it's going to change the entire wild ecology of the planet, melt a lot of ice,
acidify the ocean, change the availability of water and change crop yields, so we're essentially
doing an experiment whose result remains uncertain."
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1ar – inevitable
Warming’s irreversible
Solomon, NOAA atmospheric chemist, et al. 10 [Susan, John S. Daniel, NOAA
research scientist, Todd J. Sanford, Union of Concerned Scientist climate scientist, Daniel M.
Murphy, NOAA chemical research scientist, Gian-Kasper Plattner, IPCC scientist, Reto Knutti,
climate physics professor, and Pierre Friedlingstein, climate professor, August 31, 2010,
“Persistence of climate changes due to a range of greenhouse gases”
http://www.pnas.org/content/107/43/18354.abstract Vol: 107, no: 43, 7/10/13 EYS]
Carbon dioxide, methane, nitrous oxide, and other greenhouse gases increased over the course of
the 20th century due to human activities. The human-caused increases in these gases are the
primary forcing that accounts for much of the global warming of the past fifty years, with carbon
dioxide being the most important single radiative forcing agent (1). Recent studies have shown
that the human-caused warming linked to carbon dioxide is nearly irreversible for more than
1,000 y, even if emissions of the gas were to cease entirely (2–5). The importance of the ocean
in taking up heat and slowing the response of the climate system to radiative forcing changes has
been noted in many studies (e.g., refs. 6 and 7). The key role of the ocean’s thermal lag has also
been highlighted by recent approaches to proposed metrics for comparing the warming of
different greenhouse gases (8, 9). Among the observations attesting to the importance of these
effects are those showing that climate changes caused by transient volcanic aerosol loading
persist for more than 5 y (7, 10), and a portion can be expected to last more than a century in the
ocean (11–13); clearly these signals persist far longer than the radiative forcing decay timescale
of about 12–18 mo for the volcanic aerosol (14, 15). Thus the observed climate response to
volcanic events suggests that some persistence of climate change should be expected even for
quite short-lived radiative forcing perturbations. It follows that the climate changes induced by
short-lived anthropogenic greenhouse gases such as methane or hydrofluorocarbons (HFCs)
may not decrease in concert with decreases in concentration if the anthropogenic emissions of
those gases were to be eliminated. In this paper, our primary goal is to show how different
processes and timescales contribute to determining how long the climate changes due to various
greenhouse gases could be expected to remain if anthropogenic emissions were to cease.
Advances in modeling have led to improved Atmosphere-Ocean General Circulation Models
(AOGCMs) as well as to Earth Models of Intermediate Complexity (EMICs). Although a detailed
representation of the climate system changes on regional scales can only be provided by
AOGCMs, the simpler EMICs have been shown to be useful, particularly to examine phenomena
on a global average basis. In this work, we use the Bern 2.5CC EMIC (see Materials and Methods
and SI Text), which has been extensively intercompared to other EMICs and to complex
AOGCMs (3, 4). It should be noted that, although the Bern 2.5CC EMIC includes a
representation of the surface and deep ocean, it does not include processes such as ice sheet losses
or changes in the Earth’s albedo linked to evolution of vegetation. However, it is noteworthy that
this EMIC, although parameterized and simplified, includes 14 levels in the ocean; further, its
global ocean heat uptake and climate sensitivity are near the mean of available complex models,
and its computed timescales for uptake of tracers into the ocean have been shown to compare well
to observations (16). A recent study (17) explored the response of one AOGCM to a sudden stop
of all forcing, and the Bern 2.5CC EMIC shows broad similarities in computed warming to that
study (see Fig. S1), although there are also differences in detail. The climate sensitivity (which
characterizes the long-term absolute warming response to a doubling of atmospheric carbon
dioxide concentrations) is 3 °C for the model used here. Our results should be considered
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illustrative and exploratory rather than fully quantitative given the limitations of the EMIC and
the uncertainties in climate sensitivity.
One Illustrative Scenario to 2050. In the absence of mitigation policy, concentrations of the three
major greenhouse gases, carbon dioxide, methane, and nitrous oxide can be expected to increase
in this century. If emissions were to cease, anthropogenic CO2 would be removed from the
atmosphere by a series of processes operating at different timescales (18). Over timescales of
decades, both the land and upper ocean are important sinks. Over centuries to millennia, deep
oceanic processes become dominant and are controlled by relatively well-understood physics and
chemistry that provide broad consistency across models (see, for example, Fig. S2 showing how
the removal of a pulse of carbon compares across a range of models). About 20% of the emitted
anthropogenic carbon remains in the atmosphere for many thousands of years (with a range
across models including the Bern 2.5CC model being about 19 ± 4% at year 1000 after a pulse
emission; see ref. 19), until much slower weathering processes affect the carbonate balance in the
ocean (e.g., ref. 18). Models with stronger carbon/climate feedbacks than the one considered here
could display larger and more persistent warmings due to both CO2 and non-CO2 greenhouse
gases, through reduced land and ocean uptake of carbon in a warmer world. Here our focus is not
on the strength of carbon/climate feedbacks that can lead to differences in the carbon
concentration decay, but rather on the factors that control the climate response to a given decay.
The removal processes of other anthropogenic gases including methane and nitrous oxide are
much more simply described by exponential decay constants of about 10 and 114 y, respectively
(1), due mainly to known chemical reactions in the atmosphere. In this illustrative study, we do
not include the feedback of changes in methane upon its own lifetime (20). We also do not
account for potential interactions between CO2 and other gases, such as the production of carbon
dioxide from methane oxidation (21), or changes to the carbon cycle through, e.g., methane/ozone
chemistry (22).
Fig. 1 shows the computed future global warming contributions for carbon dioxide, methane, and
nitrous oxide for a midrange scenario (23) of projected future anthropogenic emissions of these
gases to 2050. Radiative forcings for all three of these gases, and their spectral overlaps, are
represented in this work using the expressions assessed in ref. 24. In 2050, the anthropogenic
emissions are stopped entirely for illustration purposes. The figure shows nearly irreversible
warming for at least 1,000 y due to the imposed carbon dioxide increases, as in previous work.
All published studies to date, which use multiple EMICs and one AOGCM, show largely
irreversible warming due to future carbon dioxide increases (to within about ± 0.5 °C) on a
timescale of at least 1,000 y (3–5, 25, 26).
Fig. 1 shows that the calculated future warmings due to anthropogenic CH4 and N2O also persist
notably longer than the lifetimes of these gases. The figure illustrates that emissions of key nonCO2 greenhouse gases such as CH4 or N2O could lead to warming that both temporarily exceeds
a given stabilization target (e.g., 2 °C as proposed by the G8 group of nations and in the
Copenhagen goals) and remains present longer than the gas lifetimes even if emissions were to
cease. A number of recent studies have underscored the important point that reductions of nonCO2 greenhouse gas emissions are an approach that can indeed reverse some past climate
changes (e.g., ref. 27). Understanding how quickly such reversal could happen and why is an
important policy and science question. Fig. 1 implies that the use of policy measures to reduce
emissions of short-lived gases will be less effective as a rapid climate mitigation strategy than
would be thought if based only upon the gas lifetime.
Fig. 2 illustrates the factors influencing the warming contributions of each gas for the test case in
Fig. 1 in more detail, by showing normalized values (relative to one at their peaks) of the
warming along with the radiative forcings and concentrations of CO2, N2O, and CH4. For
example, about two-thirds of the calculated warming due to N2O is still present 114 y (one
atmospheric lifetime) after emissions are halted, despite the fact that its excess concentration and
associated radiative forcing at that time has dropped to about one-third of the peak value. Two
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factors contribute to the differences between decreases in concentrations of greenhouse gases and
persistence of the resulting warming, discussed further below: (i) Radiative forcing may not
simply follow concentration because of optical depth effects (for CO2 and CH4), and (ii)
warming may not match decreases in radiative forcing because of climate inertia, particularly due
to the ocean.
Triggers their impacts
ANI 10 [March 20, 2010, Asian News International citing Charles H. Greene, Cornell Earth and
atmospheric science professor, “IPCC has underestimated climate-change impacts, say scientists”
http://news.oneindia.in/2010/03/20/ipcchas-underestimated-climate-change-impactssayscientis.html 7/10/13 EYS]
According to Charles H. Greene, Cornell professor of Earth and atmospheric science, "Even if all
man-made greenhouse gas emissions were stopped tomorrow and carbon-dioxide levels
stabilized at today's concentration, by the end of this century, the global average temperature
would increase by about 4.3 degrees Fahrenheit, or about 2.4 degrees centigrade above preindustrial levels, which is significantly above the level which scientists and policy makers
agree is a threshold for dangerous climate change."
"Of course, greenhouse gas emissions will not stop tomorrow, so the actual temperature increase
will likely be significantly larger, resulting in potentially catastrophic impacts to society unless
other steps are taken to reduce the Earth's temperature," he added.
"Furthermore, while the oceans have slowed the amount of warming we would otherwise have
seen for the level of greenhouse gases in the atmosphere, the ocean's thermal inertia will also
slow the cooling we experience once we finally reduce our greenhouse gas emissions," he said.
This means that the temperature rise we see this century will be largely irreversible for the
next thousand years.
"Reducing greenhouse gas emissions alone is unlikely to mitigate the risks of dangerous
climate change," said Green.
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1ar – no oceans impact
Oceans resilient
Kennedy, Environmental science professor, 2 [Victor S, 2002, Pew Center on Global
Climate, “Coastal and Marine Ecosystems and Global Climate Change: Potential Effects on US
Resources” http://www.c2es.org/docUploads/marine_ecosystems.pdf p. 25 7/10/13 EYS]
There is evidence that marine organisms and ecosystems are resilient to environmental change.
Steele (1991) hypothesized that the biological components of marine systems are tightly
coupled to physical factors, allowing them to respond quickly to rapid environmental
change and thus rendering them ecologically adaptable. Some species also have wide genetic
variability throughout their range, which may allow for adaptation to climate change.
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2ac – Russian impact
No impact to Russian economy
Blackwill, Council of Foreign Relations Senior Fellow, 9 [Robert D, 2009, RAND,
“The Geopolitical Consequences of the World Economic Recession—A Caution”
http://www.rand.org/content/dam/rand/pubs/occasional_papers/2009/RAND_OP275.pdf p. 5
7/10/13 EYS]
Now on to Russia. Again, five years from today. Did the global recession and Russia’s present
serious economic problems substantially modify Russian foreign policy? No. (President
Obama is beginning his early July visit to Moscow as this paper goes to press; nothing
fundamental will result from that visit). Did it produce a serious weakening of Vladimir
Putin’s power and authority in Russia? No, as recent polls in Russia make clear. Did it reduce
Russian worries and capacities to oppose NATO enlargement and defense measures eastward?
No. Did it affect Russia’s willingness to accept much tougher sanctions against Iran? No. Russian
Foreign Minister Lavrov has said there is no evidence that Iran intends to make a nuclear
weapon.25 In sum, Russian foreign policy is today on a steady, consistent path that can be
characterized as follows: to resurrect Russia’s standing as a great power; to reestablish Russian
primary influence over the space of the former Soviet Union; to resist Western eff orts to
encroach on the space of the former Soviet Union; to revive Russia’s military might and power
projection; to extend the reach of Russian diplomacy in Europe, Asia, and beyond; and to oppose
American global primacy. For Moscow, these foreign policy first principles are here to stay,
as they have existed in Russia for centuries. 26 None of these enduring objectives of Russian
foreign policy are likely to be changed in any serious way by the economic crisis.
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1ar – no impact
No impact to Russian economic collapse
Friedman, Stratfor, 9 [George, 7/27/9 “The Russian Economy and Russian Power”
http://www.stratfor.com/weekly/20090727_u_s_policy_continuity_and_russian_response 7/10/13
EYS]
Russia has been an economic wreck for most of its history, both under the czars and under the
Soviets. The geography of Russia has a range of weaknesses, as we have explored. Russia's
geography, daunting infrastructural challenges and demographic structure all conspire against it.
But the strategic power of Russia was never synchronized to its economic well-being.
Certainly, following World War II the Russian economy was shattered and never quite came
back together. Yet Russian global power was still enormous. A look at the crushing poverty -but undeniable power -- of Russia during broad swaths of time from 1600 until Andropov arrived
on the scene certainly gives credence to Putin's view.
The problems of the 1980s had as much to do with the weakening and corruption of the
Communist Party under former Soviet leader Leonid Brezhnev as it had to do with intrinsic
economic weakness. To put it differently, the Soviet Union was an economic wreck under
Joseph Stalin as well. The Germans made a massive mistake in confusing Soviet economic
weakness with military weakness. During the Cold War, the United States did not make
that mistake. It understood that Soviet economic weakness did not track with Russian
strategic power. Moscow might not be able to house its people, but its military power was
not to be dismissed.
What made an economic cripple into a military giant was political power. Both the czar and
the Communist Party maintained a ruthless degree of control over society. That meant Moscow
could divert resources from consumption to the military and suppress resistance. In a state run
by terror, dissatisfaction with the state of the economy does not translate into either policy
shifts or military weakness -- and certainly not in the short term. Huge percentages of gross
domestic product can be devoted to military purposes, even if used inefficiently there.
Repression and terror smooth over public opinion.
The czar used repression widely, and it was not until the army itself rebelled in World War I that
the regime collapsed. Under Stalin, even at the worst moments of World War II, the army did not
rebel. In both regimes, economic dysfunction was accepted as the inevitable price of strategic
power. And dissent -- even the hint of dissent -- was dealt with by the only truly efficient state
enterprise: the security apparatus, whether called the Okhraina, Cheka, NKVD, MGB or KGB.
From the point of view of Putin, who has called the Soviet collapse the greatest tragedy of
our time, the problem was not economic dysfunction. Rather, it was the attempt to
completely overhaul the Soviet Union's foreign and domestic policies simultaneously that led
to the collapse of the Soviet Union. And that collapse did not lead to an economic
renaissance.
Biden might not have meant to gloat, but he drove home the point that Putin believes. For Putin,
the West, and particularly the United States, engineered the fall of the Soviet Union by policies
crafted by the Reagan administration -- and that same policy remains in place under the Obama
administration.
It is not clear that Putin and Russian President Dmitri Medvedev disagree with Biden's analysis -the Russian economy truly is "withering" -- except in one sense. Given the policies Putin has
pursued, the Russian prime minister must believe he has a way to cope with that. In the short run,
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Putin might well have such a coping mechanism, and this is the temporary window of opportunity
Biden alluded to. But in the long run, the solution is not improving the economy -- that would
be difficult, if not outright impossible, for a country as large and lightly populated as Russia.
Rather, the solution is accepting that Russia's economic weakness is endemic and creating a
regime that allows Russia to be a great power in spite of that.
Such a regime is the one that can create military power in the face of broad poverty, something
we will call the "Chekist state." This state uses its security apparatus, now known as the FSB, to
control the public through repression, freeing the state to allocate resources to the military as
needed. In other words, this is Putin coming full circle to his KGB roots, but without the
teachings of an Andropov or Gorbachev to confuse the issue. This is not an ideological stance; it
applies to the Romanovs and to the Bolsheviks. It is an operational principle embedded in
Russian geopolitics and history.
Counting on Russian strategic power to track Russian economic power is risky. Certainly, it
did in the 1980s and 1990s, but Putin has worked to decouple the two. On the surface, it
might seem a futile gesture, but in Russian history, this decoupling is the norm. Obama
seems to understand this to the extent that he has tried to play off Medvedev (who appears less
traditional) from Putin (who appears to be the more traditional), but we do not think this is a
viable strategy -- this is not a matter of Russian political personalities but of Russian geopolitical
necessity.
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2ac – Iran impact
Multiple barriers to Iranian aggression
Savyon, Iranian Media Project director, 11 [Ayelet, July 4, 2011, “Iran's Defeat in the
Bahrain Crisis: A Seminal Event in the Sunni-Shi'ite Conflict”
http://www.memri.org/report/en/0/0/0/0/0/0/5424.htm#_ednref6 7/10/13 EYS]
Despite its image as a looming superpower, which revolutionary Iran has sought for years to
cultivate, its actual policy reveals a deep recognition of its weakness as a representative of the
Shi'ites, who constitute a 10% minority in a Sunni Muslim region. Historically persecuted over
centuries, the Shi'ites developed various means of survival, including taqiya – the Shi'ite principle
of caution, as expressed in willingness to hide one's Shi'ite affiliation in order to survive under a
hostile Sunni rule – and passivity, reflected in the use of diplomacy alongside indirect
intimidation, terrorism, etc.
The ideological change pioneered by the founder of the Islamic Revolution in Iran, Ayatollah
Ruhollah Khomeini – who transformed the passive perception characteristic of the of the Shi'a
(which was based on the legend of the martyrdom of Hussein at the Battle of Karbala) into an
active perception of martyrdom (shahada)[26] – is not being carried out by Iran. Tehran is
refraining from sending Iranian nationals to carry out martyrdom operations, despite its
years-long glorification of this principle. It is also not sending Iranians to Gaza, either on aid
missions or to carry out suicide attacks – and this despite the fact that regime-sponsored
organizations are recruiting volunteers for such efforts.
Moreover, it appears that the Shi'ite regime in Iran is utilizing the legend of Hussein's
martyrdom solely for propaganda purposes, in order to glorify its own might and
intimidate the Sunni and Western world. Such intimidation is in keeping with Shi'ite tradition,
as a way to conceal Tehran's unwillingness to take overt military action against external
challenges.
Tehran's defeat in the Bahrain crisis reflects characteristic Shi'ite restraint, stemming from
recognition of its own weakness in the face of the vast Sunni majority. The decade during which
Iran successfully expanded its strength and power exponentially via threats and creating an image
of superpower military strength has collapsed in the Bahrain crisis; Iran is now revealed as a
paper tiger that will refrain from any violent conflict. When it came to the crunch, it
became clear that the most that Iran could do was threaten to use terrorism or to subvert
the Shi'ite citizens of other countries – in keeping with customary Shi'ite behavior – and these
threats were not even implemented.
It can be assumed that the Sunni camp, headed by Saudi Arabia, is fully aware of the political and
military significance of Iran's weakness and its unwillingness to initiate face-to-face conflict. This
will have ramifications on both the regional and the global levels.
In addition to having its weakness exposed by the Bahrain situation, Tehran has also taken
several further hits to its prestige and geopolitical status. These include: the popular
uprisings in Syria against the regime of Syrian President Bashar Al-Assad, weakening the
Tehran-Damascus axis; post-revolutionary Egypt's refusal to renew relations with Iran; and
the fact that the E.U. was capable of uniting and leading a military attack against the regime of
Libyan leader Mu'ammar Al-Qadhafi as well as its refusal to renew the nuclear negotiations with
Tehran based on Iran's demands. All this, added to the serious internal rift between Iranian
Supreme Leader Ali Khamenei and his long-time ally Iranian President Mahmoud
Ahmadinejad, have today left the Iranian regime in clearly reduced circumstances.
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Turn—high oil prices destabilize Iran
Naghshineh-Pour, financial analyst, 8 [Amir, October 15, 2008, “A Review and
Analysis of Iran's Current Economic Status” http://mpra.ub.unimuenchen.de/13313/1/MPRA_paper_13313.pdf p. 4-5 7/10/13 EYS]
“Dutch disease is an economic concept that tries to explain the apparent relationship between
the exploitation of natural resources and a decline in the manufacturing sector combined
with moral fallout. The theory is that an increase in revenues from natural resources will deindustrialize a nation’s economy by raising the exchange rate, which makes the
manufacturing sector less competitive and public services entangled with business interests.”11
Injecting sudden foreign exchange revenues in the economic system forms the phenomenon
of Dutch disease in a country. There are two main consequences for a country with Dutch
disease: loss of price competitiveness in its production goods, and hence the exports of those
goods; and an increase in imports.12 Both cases are clearly visible in Iran.
The flow of capital into real property instead of manufacturing and service industries is one
of the clear signs of this economic disease. Real estate as a non-tradable good has increased in
value many fold because of limited supply and overvaluation of the toman (Iranian currency).
This has also caused some real estate owners to convert their tomans into foreign currencies
and take their profits out of Iran. Furthermore, overvaluation of the toman because of rising
oil prices and hence rising government expenditures has resulted in massive imports of
cheaper goods (compared to the ones produced in Iran) to keep up with high demands.
Investments in various industrial and service sectors have become uneconomical. Many
production units and factories produce only a fraction of their capacity, because their products
cannot compete with similar foreign counterparts. Simply put, Dutch disease has led Iran’s
economy to a real estate bubble and impeded industrial growth and competition in global
markets.
One of the main factors that plays an important role in creating this condition is foreign exchange
policy. Since 1999, when oil prices began their ascent, the Iranian government has stubbornly and
irrationally kept the exchange rate in a narrow range with the US dollar (T850 to T950), while
domestic expenses have increased many times and the inflation rate has been above US and
global inflation rates by at least 15% per year.8 Hence, as mentioned earlier, the Iranian
currency is grossly overvalued thereby making Iranian products much more expensive than
foreign products. Based on this fact, Iranian export products have lost their competitive
power in global markets and by the same token they are unable to compete with similar
imported goods. In these conditions, the government has resorted to imposing illogical and
improper import tariffs to combat excessive imports and to increase domestic product
competitiveness and in return has prevented both domestic and foreign investments. Currently,
many of export products receive heavy subsidies from the government in order to compete
with similar foreign products.
By adopting correct and rational foreign exchange policy, for example, devaluation of the
toman against foreign currencies based on the inflation rate and the GDP growth, exports of many
production goods will become economical and as a result many foreign products will lose their
competitiveness against similar Iranian products. This will certainly lead to an increase in the
country’s revenue, domestic employment, foreign currency savings, and domestic and
foreign investments (because domestic products will become economical) along with a
decrease in real estate speculation, speculative price hikes, and capital flight to other
countries. By current estimate, capital flight to other countries has been around $250 to $300
billion in the past few years.13
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Iran isn’t a threat
Luttwak, Prospect writer, 7 [Edward, May 26, 2007, “The middle of nowhere”
http://www.prospectmagazine.co.uk/magazine/themiddleofnowhere/#.Ud4XoPmTjK0 7/10//13
EYS]
Now the Mussolini syndrome is at work over Iran. All the symptoms are present, including
tabulated lists of Iran’s warships, despite the fact that most are over 30 years old; of combat
aircraft, many of which (F-4s, Mirages, F-5s, F-14s) have not flown in years for lack of spare
parts; and of divisions and brigades that are so only in name. There are awed descriptions of the
Pasdaran revolutionary guards, inevitably described as “elite,” who do indeed strut around as if
they have won many a war, but who have actually fought only one—against Iraq, which they lost.
As for Iran’s claim to have defeated Israel by Hizbullah proxy in last year’s affray, the
publicity was excellent but the substance went the other way, with roughly 25 per cent of the
best-trained men dead, which explains the tomb-like silence and immobility of the once
rumbustious Hizbullah ever since the ceasefire.
Then there is the new light cavalry of Iranian terrorism that is invoked to frighten us if all
else fails. The usual middle east experts now explain that if we annoy the ayatollahs, they will
unleash terrorists who will devastate our lives, even though 30 years of “death to America”
invocations and vast sums spent on maintaining a special international terrorism department have
produced only one major bombing in Saudi Arabia, in 1996, and two in the most permissive
environment of Buenos Aires, in 1992 and 1994, along with some assassinations of exiles in
Europe.
It is true enough that if Iran’s nuclear installations are bombed in some overnight raid, there is
likely to be some retaliation, but we live in fortunate times in which we have only the irritant
of terrorism instead of world wars to worry about—and Iran’s added contribution is not
likely to leave much of an impression. There may be good reasons for not attacking Iran’s
nuclear sites—including the very slow and uncertain progress of its uranium enrichment effort—
but its ability to strike back is not one of them. Even the seemingly fragile tanker traffic down
the Gulf and through the straits of Hormuz is not as vulnerable as it seems—Iran and Iraq
have both tried to attack it many times without much success, and this time the US navy
stands ready to destroy any airstrip or jetty from which attacks are launched.
As for the claim that the “Iranians” are united in patriotic support for the nuclear programme, no
such nationality even exists. Out of Iran’s population of 70m or so, 51 per cent are ethnically
Persian, 24 per cent are Turks (“Azeris” is the regime’s term), with other minorities comprising
the remaining quarter. Many of Iran’s 16-17m Turks are in revolt against Persian cultural
imperialism; its 5-6m Kurds have started a serious insurgency; the Arab minority detonates
bombs in Ahvaz; and Baluch tribesmen attack gendarmes and revolutionary guards. If some 40
per cent of the British population were engaged in separatist struggles of varying intensity,
nobody would claim that it was firmly united around the London government. On top of this,
many of the Persian majority oppose the theocratic regime, either because they have become
post-Islamic in reaction to its many prohibitions, or because they are Sufis, whom the regime now
persecutes almost as much as the small Baha’i minority. So let us have no more reports from
Tehran stressing the country’s national unity. Persian nationalism is a minority position in a
country where half the population is not even Persian. In our times, multinational states
either decentralise or break up more or less violently; Iran is not decentralising, so its
future seems highly predictable, while in the present not much cohesion under attack is to
be expected.
Turkey contains Iran
Akhlaghi, Foreign Policy Association writer, 10 [Reza, September 4, 2010, “Turkish
Geopolitical Ascendancy and the Iranian Decline”
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http://foreignpolicyblogs.com/2010/09/04/turkish-geopolitical-ascendancy-and-the-iraniandecline 7/10/13 EYS]
With the global economy struggling to re-surface from a deep and self-inflicted recession, the
international geo-political order is locked in a lengthy transformation for what appears to be a
multi-polar world. In this new and yet-to-be-shaped global geo-political order, there are
emerging economies that aim to leverage their rising economic power and turn them into
geo-political and geo-energy assets.
Turkey is one such power. Faced with a complex geo-political and energy environment in its
region and an economy increasingly integrated into the global trade system, Turkey is executing
on a newly developed, grand foreign policy doctrine. This doctrine is bent on harmonizing the
country’s power axes with a new geo-politic and geo-energy environment in its region and
beyond.
The new emerging Turkish foreign policy and geo-strategic doctrine is putting Iran on the
periphery and contributing to Tehran’s decline in its ability to exert leadership in the
region. Equipped with a new foreign policy doctrine and a well-established private economic
sector, Turkey is deeply cognizant of its emerging strategic advantages over Iran and will
leverage these advantages by further strengthening its ties with the Muslim world and
filling the void where Iran is seen as a destabilizing force. These efforts by Turkey are
poised to effectively strip Iran of its ability to exert political and economic influence in the
region.
Regional cooperation solves
Hadar, CATO Institute research fellow, 11 [Leon T, July 1, 2011”Saving US Mideast
Policy”, http://www.cato.org/publications/commentary/saving-us-mideast-policy 7/10/13 EYS]
To some extent, the recognition that the United States has lost some of its ability to determine
strategic outcomes in the Middle East has already encouraged regional powers to reassess the
wisdom of free riding on American power. Saudi Arabia, together with its partners in the Gulf
Cooperation Council (GCC), has deployed troops to Bahrain to provide support to the regime and
is heading the efforts to stabilize Yemen. Meanwhile, France, a major Mediterranean power, and
Britain have played a leading role in the military operation in Libya to protect their interests in
the region. Turkey has been asserting more forcefully its role as a regional power in multiple
ways.
Indeed, contrary to the warning proponents of U.S. military intervention typically express, the
withdrawal of American troops from Iraq and Afghanistan would not necessarily lead to more
chaos and bloodshed in those countries. Russia, India and Iran — which supported the Northern
Alliance that helped Washintgon topple the Taliban — and Pakistan (which once backed the
Taliban) all have close ties to various ethnic and tribal groups in that country and now have
a common interest in stabilizing Afghanistan and containing the rivalries.
A similar arrangement could be applied to Iraq where Turkey, Saudi Arabia and Iran
share an interest in assisting their local allies and in restraining potential rivals — Shiites,
Sunnis, Kurds and Turkmen — by preventing the sectarian tensions in Iraq from spilling into
the rest of the region.
Hence, Turkey has already been quite successful in stabilizing and developing economic ties
with the autonomous Kurdish area of Iraq while containing irredentist Kurdish pressures
in northern Iraq and southern Turkey and protecting the Turkmen minority. And Turkey, together
with Saudi Arabia and Iran, has played a critical role toward forming a government in Baghdad
that recognizes the interests of Shiites, Sunnis, and Kurds.
The United States should take part in any negotiations leading to regional agreements on
Afghanistan and Iraq, a process that could also become an opportunity to improve the relationship
with Iran. Such an approach has the potential to demonstrate that regionalism, as opposed to
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American hegemonism, could be more beneficial to U.S. interests as well as to the
governments and people of the Middle East and Central Asia.
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a/t: Saudi relations impact
Relations impact empirically denied
Bronson, Washington Post, 6 [Rachel, May 21, 2006, “5 Myths About US-Saudi
Relations” http://www.washingtonpost.com/wpdyn/content/article/2006/05/19/AR2006051901758.html 7/10/13 EYS]
A major reason for the close ties between the two nations was their common Cold War fight
against communism. Both countries worried about the Soviet Union, and that solidified their oil
and defense interests, and minimized differences. In hindsight, by supporting religious zealots in
the battle against communism, the two countries contributed to the rise of radical Islamic
movements.
2 The 9/11 hijackers undermined otherwise strong U.S.- Saudi ties.
Actually, things were never that smooth. Historians refer to the "special relationship"
established when Saudi Arabia's King Abdel Aziz and President Franklin D. Roosevelt met
in 1945. But since then the relationship has endured oil embargoes, U.S. restrictions on
arms sales to Saudi Arabia, and tensions around Israel and Palestine. Dissension permeates
the entire history of U.S.-Saudi relations.
Since the end of the Cold War, relations have become particularly fraught, with the 9/11
attacks being the most recent issue. Oil, defense and some regional interests keep the countries
together, but both sides have made clear that the relationship is less special today. In 2005,
Rice stated that "for 60 years . . . the United States pursued stability at the expense of democracy
in this region here in the Middle East -- and we achieved neither."
Oil not key
Palmquist, Pacific Standard writer, 8 [Matt, August 26, 2008, Pacific Standard citing
Rachel Bronson, former director of Middle East studies at the Council on Foreign Relations, ”The
Inconvenient Alliance” http://www.psmag.com/politics/the-inconvenient-alliance-4304/ 7/10/13
EYS]
With gas prices climbing past $4 a gallon, the media, Congress and the public are blaming oil
companies and questioning U.S. energy policy, particularly vis-à-vis Saudi Arabia, the world’s
leading oil exporter. And, indeed, the story of the complex relationship between the United
States and the kingdom has in recent years often been viewed through the dark prism of
petroleum. When you scan the rather jaded titles of recent books on the subject — from Sleeping
With the Devil: How Washington Sold Our Soul for Saudi Crude, by former Central Intelligence
Agency case officer Robert Baer, to America’s Kingdom: Mythmaking on the Saudi Oil Frontier,
by University of Pennsylvania political scientist Robert Vitalis — the conclusion is plain: Oil is
the binding force in the unique, uncomfortable U.S.-Saudi alliance, which has been so polluted by
profit and political quid pro quos that it’s unclear where the true power lies.
In these times of $125-a-barrel oil, though, the more accurate lens for looking at the SaudiAmerican relationship may be inside Rachel Bronson’s book, Thicker Than Oil: America’s
Uneasy Partnership With Saudi Arabia, issued in 2006 to short but generally positive reviews and
now out in paperback. Bronson, formerly the director of Middle East studies at the Council on
Foreign Relations and now vice president for programs and studies at the Chicago Council on
Global Affairs, presents a comprehensive history of the United States’ far-from-consistent policy
toward Saudi Arabia and argues against the conventional wisdom that oil forms the basis of
relations. Instead, Bronson suggests, it was primarily the shared (and expensive) commitment
to resisting communism, whenever and wherever Moscow-backed beliefs seemed to spread,
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that aligned America and Saudi Arabia. In Bronson’s analysis, the end of the Cold War and
the disappearance of common communist enemies created a void between the two countries,
which has been increasingly filled and exploited by the forces of religious extremism and
terrorism.
No Saudi prolif
Lippman, US-Saudi relations specialist, 11 [Thomas, August 5, “Saudi Arabia’s
Nuclear Policy – Lippman” http://www.susris.com/2011/08/05/saudi-arabia%E2%80%99snuclear-policy-lippman/ 7/10/13 EYS]
It is highly unlikely, however, that Saudi Arabia would wish to acquire its own nuclear
arsenal or that it is capable of doing so. King Abdullah’s comments should not be taken as a
dispositive statement of considered policy. There are compelling reasons why Saudi Arabia
would not undertake an effort to develop or acquire nuclear weapons, even in the unlikely event
that Iran achieves a stockpile and uses this arsenal to threaten the Kingdom.
Money is not an issue — if destitute North Korea can develop nuclear weapons, Saudi Arabia
surely has the resources to pursue such a program. With oil prices above $90 a barrel, Riyadh is
flush with cash. But the acquisition or development of nuclear weapons would be
provocative, destabilizing, controversial and extremely difficult for Saudi Arabia, and
ultimately would be more likely to weaken the kingdom than strengthen it. The kingdom has
committed itself to an industrialization and economic development program that depends on
open access to global markets and materials; becoming a nuclear outlaw would be fatal to
those plans.
Pursuing nuclear weapons would be a flagrant violation of Saudi Arabia’s commitments
under the Nuclear Nonproliferation Treaty (NPT), and would surely cause a serious breach
with the United States. Saudi Arabia lacks the industrial and technological base to develop
such weapons on its own. An attempt to acquire nuclear weapons by purchasing them, perhaps
from Pakistan, would launch Saudi Arabia on a dangerously inflammatory trajectory that could
destabilize the entire region, which Saudi Arabia’s leaders know would not be in their country’s
best interests. The Saudis always prefer stability to turmoil. Their often-stated official
position is that the entire Middle East should become an internationally supervised region free
of all weapons of mass destruction.
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a/t: Russia mil mod
Russia will continue modernization even if oil prices drop
Zakheim, former Undersecretary of Defense, 9 [Dov S, March 2009, Foreign Policy
Research Institute, “Security Challenges Arising from the Global Economic Crisis”
http://www.fpri.org/enotes/200903.zakheim.securityeconomiccrisis.html 7/10/13 EYS]
Russia has not nearly the same economic relationship with the United States as China, and little
economic leverage to speak of. But Russia has become increasingly assertive on the
international scene. The cyber bullying of Estonia in May 2007, the August 2008 invasion of
Georgia , the naval exercises with Venezuela in the Caribbean in November, and the successful
pressure on Kyrgyzstan to close the American airbase at Manas all point to a Moscow that is
determined to recover its former superpower status and to do so at the expense of the
United States and its allies.
Russia cannot yet be called an adversary, and there are many areas where American and Russian
interests converge, most notably countering international terrorism and Islamic extremism.
Nevertheless, its international behavior is troubling, and even if its oil revenues fail to meet
projected levels (Moscow’s budgets assumed $70/barrel, far higher than current prices), it might
still choose to continue the military modernization program it recently began.
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a/t: Russia econ
High oil prices increases likelihood of Russian economic crash
Englund, Washington Post, 11 [Will, March 21, 2011 “Increase in oil revenue amid unrest
in Arab world gives Russia some breathing room” http://www.washingtonpost.com/wpdyn/content/article/2011/03/10/AR2011031001553.html 7/10/13 EYS]
But with increased oil revenue also comes the danger of complacency. Bureaucrats, defense
contractors, pensioners and workers in construction and finance all stand to gain from the money
coming in, along with the oil companies. But the cash also feeds corruption, encourages
increased financial opacity and discourages attempts to shake up the system - all of which
could spell trouble for Russia down the road.
"All of the dominant groups in Russia get a share of the increased oil revenue," said Alexander
Auzan, an economist and adviser to Medvedev. "Yet it contradicts their long-term interests."
Largest oil producer
It's a powerful prop for the status quo - which Auzan and others say is unsustainable.
But as Sergei Guriev, head of the New Economic School in Moscow, pointed out, any change is
going to involve a cost for someone, so why take the risk if the money is flowing in?
Russia is currently the world's largest oil producer. When the price last spiked, in 2007,
Moscow was flooded with money and people close to Putin were suggesting that Russia was
genuinely self-sufficient and had no need to engage more deeply with the West. The
economic crisis the following year brought that talk to an abrupt end, and Medvedev began
pushing for a Western-oriented program of modernization and diversification away from
dependence on energy exports.
The Kremlin moved to stimulate the economy in 2008 by increasing government salaries and
hiking pensions by 35 percent. Now it is stuck with those increases. With oil revenue providing
40 percent of the Russian budget, the Gaidar Institute for Economic Policy here has calculated
that at any price less than $105 a barrel the government will be in the red.
That tempers any inclination toward hubris, said Daniel Treisman, a political scientist at UCLA
who follows Russian developments. The Kremlin was looking at a difficult financial crunch, with
parliamentary elections coming late this year and a presidential election next March, so the timing
of this rise in revenue is more a relief than a goad to aggressive behavior. "We don't need high
prices," said Leonid Grigoriev, an economist and former World Bank adviser. "We need good
relations, a long-term market and reasonable prices," which he put in the $70-to-$90 range.
Russia will not turn its back on the West, by any means, he said. But, especially in an election
year, its leaders may be more vocal in pointing up differences with the West. In 2010, Russia had
enough problems at home that it was actively trying to avoid them abroad; now, with money to
address domestic issues, that caution may not be so evident.
Treisman, like many others, did not think much would ever come of Medvedev's modernization
plans - it's not the sort of change, he said, that can be ordered from the top down. But the oil
bulge makes the Westernization of the Russian economy less likely. It helps big companies which, Grigoriev said, already dominate the economy to a much greater extent than in other
developed countries - and it hurts small ones, where jobs and creativity tend to be nurtured.
Information technology firms, with high labor costs, will suffer, Guriev said, and they are
central to Medvedev's vision for the future of Russia.
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a/t: turns Mexico
Mexican oil insurance means no price drops
Blas, Financial Times, 12 [Javier, September 25, 2012, “Mexico hedges against oil price
slide” http://www.ft.com/intl/cms/s/0/ab402292-072e-11e2-92b500144feabdc0.html#axzz2YezlUmv3 7/10/13 EYS]
Mexico has bought protection against the impact of the global economic slowdown, in effect
insuring its crude oil exports at about $80-$85 a barrel for next year.
But for the first time since the Latin American country started to hedge its oil exports in the early
1990s through derivatives contracts, Mexico has engineered a series of contracts that means
the country would be partly exposed to low oil prices if the West Texas Intermediate
benchmark dropped much below $60 in 2013.
Mexico has traditionally spent large amounts of money buying put options, contracts giving
the right to sell at a predetermined price at a specified time.
But market participants told the Financial Times that the country has also bought some socalled put-spreads for 2013. The financial structure provides Mexico with protection
against prices dropping to a certain level, in this case $80-$85, but partly exposes it if prices
drop beyond another point, in this case roughly $60 a barrel.
“Mexico in effect is saying that oil prices could not drop for any sustained period below the
$60 a barrel level because some producers would cut output,” a senior commodities banker
said. “The hedge is more sophisticated than in the past.”
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No link – offshore drilling
Increased drilling will not affect oil prices — empirically proven
Walsh, TIME International senior editor, 11 — [Bryan Walsh, senior editor for TIME
International, 2011 (“Debunking a Few Myths About Oil and Gas Prices,” TIME, Science,
Ecocentric, 5-6-11, Available Online at http://science.time.com/2011/05/06/debunking-a-fewmyths-about-oil-and-gas-prices/, Accessed on July 8th, 2013)[SP]
…it’s not like it would make much difference. Every time gas prices start climbing, the “drill,
baby, drill” chorus kicks in. We heard it back in 2008, and we’re hearing it again. Sounds
good. More oil should equal lower prices. Except that’s not quite the case . As this helpful
little analysis from EIA shows, even expanded offshore production will do very little to
reduce gas prices. But you don’t need fancy math—the reality is that while the U.S. consumes
about a quarter of the world’s oil, we have less than 2% of total remaining reserves. Oil is a
fungible commodity, meaning there’s really no way to ensure that the oil we produce here,
stays here. Instead, any additional production would be absorbed and digested by the global
oil markets, with little difference in prices at the pump.
That doesn’t mean there’s no benefit to additional domestic production. As Michael Levi of the
Council on Foreign Relations has written, more domestic production means more domestic
jobs and economic growth, and reduces the current account deficit that we’re all supposed to be
worried about. Does that mean we should drill every orifice in the country? No, for fairly obvious
environmental and safety reasons. (And we shouldn’t forget, the U.S. still has one of the biggest
domestic oil production industries in the world, even with large parts of the nation’s coastal
waters still off-limits to drilling.) But while environmentalists are right that expanded drilling
will do little to reduce prices, and that the best way to attack oil dependence is through
efficiency and investment in alternative fuels, domestic production should still have a place in
energy policy. But we’re not drilling our way out of this one.
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2ac – econ turn
Lower oil prices key to saving the economy
Dolan, Reuters, 12 [Mike, July 3, 2012, “Oil price slide—easy come, easy go?”
http://blogs.reuters.com/globalinvesting/2012/07/03/oil-easy-easy-come-easy-go/ 7/10/13 EYS]
One of the very few positives for the world economy over the second quarter — or at least for
the majority of the world that imports oil — has been an almost $40 per barrel plunge in the
spot price of Brent crude. As the euro zone crisis, yet another soft patch stateside and a
worryingly steep slowdown in the BRICs all combined to pull the demand rug from under the
energy markets, the traditional stabilising effects of oil returned to the fray. So much so that by
the last week in June, the annual drop in oil prices was a whopping 20%. Apart from putting more
money in household and business purses by directly lowering fuel bills and eventually the cost of
products with high energy inputs, the drop in oil prices should have a significant impact on
headline consumer inflation rates that are already falling well below danger rates seen last
year. And for central banks around the world desperate to ease monetary policy and print money
again to offset the ravages of deleveraging banks, this is a major relief and will amount to a green
light for many — not least the European Central Bank which is now widely expected to cut
interest rates again this Thursday.
Of course, disinflation and not deflation is what everyone wants. The latter would disastrous for
still highly indebted western economies and would further reinforce comparisons with Japan’s 20
year funk. But on the assumption “Helicopter” Ben Bernanke at the U.S. Federal Reserve and his
G20 counterparts are still as committed to fighting deflation at all costs, we can assume more
easing is the pipeline — certainly if oil prices continue to oblige. Latest data for May from the
OECD give a good aggregate view across major economies. Annual inflation in the OECD area
slowed to 2.1% in the year to May 2012, compared with 2.5% in the year to April 2012 – the
lowest rate since January 2011. While this was heavily influenced by oil and food price drops,
core prices also dipped below 2% to 1.9% in May.
JP Morgan economists Joseph Lupton and David Hensley, meantime, say their measure of global
inflation is set to move below their global central bank target of 2.6% (which they aggregate
across 26 countries) for the first time since September 2010.
After peaking at 3.9%oya in September 2011, global inflation is expected to dip to 2.4%oya this
month. If our top-down model is correct, global consumer price inflation could slide to just 2.1%
by year-end, 0.5%-pt lower than both our forecast and central bank targets. The risks are most
skewed to the downside for the developed markets (DM), where consumer prices are more
sensitive to moves in oil prices.
The JPM economists say this modeled outcome undercuts their own house forecast and if
the model is correct, this could accelerate monetary easing by central banks and boost
consumer spending.
In response to this sharp boost to purchasing power, global consumer spending should accelerate
in 2H12. Indeed, based on its historical relationship with oil prices, global consumer goods
spending looks set to accelerate to one of the strongest gains in over a decade.
Jim O’Neill, chairman of Goldman Sachs Asset Management, is also keen to flag the
potential boost from oil prices and in a series of slides on the world economy he points out
that the more important 5-year forward price of oil — which is less prone to spot market
volatility — has fallen below its 200-day moving average.
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As I have argued all year, I would rather trust the 5-year price than the spot price, and it is
now below its own moving average. This has to be good news for anyone, other than those
long crude oil.
[insert impact]
Data proves –
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1ar – high prices kill econ
high oil prices will collapse our economy
Chanel and Spencer, Institute for Sustainable Development and International
Relations research fellows, 12 [Lucas and Thomas, May 23, 2012, “Greasing the Wheel:
Oil’s Role in the Global Crisis”, http://www.theoildrum.com/node/9201 7/10/13 EYS]
Between January 2002 and August 2008, the nominal oil price rose from $19.7 to $133.4 a
barrel. This led to a large increase in oil revenues for oil exporters and a deterioration of the
current account for oil importers (Figure 1). Between 2002 and 2006, net capital outflows from
oil exporters grew by 348%, becoming the largest global source of net capital outflows in 2006
(McKinsey 2007).
Capital outflows from oil exporters therefore played an important role in the global
liquidity glut during the build-up to the US subprime crisis. Analysis of direct capital flows is
hampered by the lack of reporting transparency and the use of foreign financial intermediaries.
Indirect recycling also took place, i.e. direct oil-revenue investment in a given financial market
led to corresponding knock-on flows towards the ultimate net borrower. Nonetheless, analysis
from the US Federal Reserve suggests that “…most petrodollar investments [found] their way to
the United States, indirectly if not directly” (Federal Reserve Bank of New York 2006). In short,
the US was the ultimate net borrower, in order to finance its growing current account deficit.
Such capital flows were invested in US treasuries, corporate bonds, equities, and asset
markets. In turn, this placed downward pressure on US interest rates and helped fuel
further borrowing. Quantifying the specific contribution of oil-revenue inflows is difficult.
Nonetheless, oil revenues do seem to have reduced US interest rates (see IMF 2006 for a
discussion). In sum, the direct and indirect recycling of oil revenues was a factor in the global
liquidity glut that helped to fuel the US subprime mortgage crisis.
Bursting the bubble
Oil prices also played a role in eventually bursting the US subprime bubble. As we document
in a recent working paper (Spencer et al. 2012), this occurred via a number of channels which are
difficult to disentangle. It is also next to impossible to identify the threshold of mortgage
delinquencies, which led to the meltdown in the subprime market and then global financial
markets. Nonetheless, one can examine the individual channels through which oil prices
contributed:
• Direct impacts on discretionary spending. Between 2002 and 2008, average household
expenditure on gasoline rose 120%, from $1,235 to $2,715, or by 2 percentage points of overall
household expenditure (CES 2011). For (poorer) suburban households this effect was even more
pronounced. In 2003, the average suburban household spent $1,422 a year on gasoline, which
rose to $3,196 in 2008 (Freilich et al. 2010). Kaufman et al. (2010) show, using VAR analysis,
that rising household energy prices constrained household budgets and increased mortgage
delinquency rates, once other factors are controlled for.
• Indirect impacts of interest rate increases. The federal fund rate rose from 1% in May 2005 to
5.26% in March 2007. A quick read of the Fed’s Monetary Policy Reports shows the recurring
importance of energy price concerns in the Fed’s decisions to raise the fund rate. Annual
mortgage repayments for an average household increased by 33% between 2004 and 2007 (CES
2011).
A number of contextual factors also interacted with the oil price increase to potentially worsen
vulnerabilities:
Gonzaga Debate Institute 2013
Brovero/Lundeen
• Labour market interactions. Peersman and Van Robays (2009) show that the inflationary impact
of the oil price shock from 2004-8 was reduced in the US due to the structure of the labour
market. Producers used a strong bargaining position to pass the cost burden onto consumers
through a reduction in real wages. Thus, while second-round inflationary impacts were mitigated,
this was at the expense of a decline in real wages. This had negative impacts on aggregate
demand (see below), and constrained household budgets.
• Distributional impact of energy prices. Energy price shocks have strong distributional effects,
mostly impacting energy expenses of suburban households and low-income households spending
a greater income share on energy. Subprime mortgage loans were also concentrated on poorer
households, leading to a confluence of risk factors.
• Maladapted urban planning. Between 1969 and 2001, the annual average distance driven per
licensed driver increased 90%, from 5,411 to 10,244 miles per year (NHTS 2009). The heavy
reliance on personalised vehicle transport increased oil price risk exposure among US
households.
• Fuel inefficiency of the vehicle fleet. Sivak and Tsimhoni (2009) show that the fuel efficiency
of the US vehicle fleet barely improved from 1991 to 2006, increasing from 16.9 to 17.2 miles
per gallon. The figures for Europe are 31.2 in 1991 and 35 in 2006.
Finally, increasing oil prices had an impact on aggregate demand. This operates via a
number of channels – reduced discretionary income, increased precautionary savings, and
operating cost effects, whereby consumers are deterred from purchasing energy-intensive
goods, and reallocation effects. In particular, the auto sector played an important role in
transmitting the shock. Between the peak in 2003 and the last pre-crisis year, 2007, household
expenditure on vehicle purchases fell 13%. Expenditure on more energy-intensive, domestically
produced autos likely fell further, as indicated by Edelstein and Kilian (2009). The decline of the
US auto sector was an important contributing factor in tipping the US into recession in 2007Q4,
although there was clearly a mutually reinforcing interaction between the recessionary slide,
which began in 2007Q3, and the subsequent further decline of the auto sector in 2008.