Professional Documents
Culture Documents
Oil Core
*Peak Oil*
Oil Core...........................................................................................................................................................................1
Peak Oil – True (Frontline).............................................................................................................................................3
Peak Oil True – XT #1 – Will happen around 2012.......................................................................................................6
Peak Oil True – XT #2 – Alternatives sources can’t solve.............................................................................................7
Peak Oil True – XT #3 – Not fringe science...................................................................................................................8
Peak Oil True – XT #5 / No Reserves.............................................................................................................................9
Peak Oil –Not true (Frontline)......................................................................................................................................11
Peak Oil –Not true / XT #1(a) – Reserves will exist for a while .................................................................................14
Peak Oil –Not true / XT #1(b) – Unconventional sources............................................................................................16
Peak Oil –Not true / XT #2 – Peak Oil is a myth.........................................................................................................17
Peak Oil –Not true / XT #3 – Hubbert’s Model wrong.................................................................................................18
Peak Oil –Not true / XT #4 – New Tech Solves...........................................................................................................20
Peak Oil – No Impact....................................................................................................................................................21
Yes – Prices High.........................................................................................................................................................22
Perception Key to Prices...............................................................................................................................................23
High Prices Inevitable - Frontline.................................................................................................................................24
High Prices Inevitable - Frontline.................................................................................................................................25
High Oil Prices Inevitable XT #1 – China/India..........................................................................................................26
High Prices Inevitable XT #3 – Global Demand..........................................................................................................27
Oil Prices – Russia DA (1nc)........................................................................................................................................28
Russian Economy High.................................................................................................................................................29
High Oil Prices Key Economy......................................................................................................................................31
US-Russian Relations Impact Add-on..........................................................................................................................33
Russia Has Vast Oil Supplies.......................................................................................................................................34
AT: Russia has diversified economy.............................................................................................................................35
Russia production has peaked.......................................................................................................................................36
Alexander Kolyandr, Dow Jones Newswires, July 1 2008 OIL CONGRESS: Russia's Oil Output Has Reached
Plateau -Dep Min..........................................................................................................................................................36
http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080701%5cACQDJON200807010803DOWJONES
DJONLINE000223.htm&&mypage=newsheadlines&title=OIL%20CONGRESS:%20Russia's%20Oil%20Output%2
0Has%20Reached%20Plateau%20-Dep%20Min.........................................................................................................36
MADRID -(Dow Jones)- Russia's oil production will grow only marginally this year and in the near term, Russia's
deputy minister for energy said Tuesday, and has in effect hit a plateau for now........................................................36
"No one should expect that Russia's oil production growth will match the one we've witnessed in the past eight
years," Anatoly Yanovsky said on the sidelines of the World Petroleum Congress.....................................................36
Over that period, Russia's annual oil production grew from 360 million metric tons to just above 490 million tons. 36
"Nothing like that will happen", the official said, adding, that Russia's oil production has hit a plateau which will
remain unchanged until new large fields in Eastern Siberia and offshore come upstream..........................................36
After several years of stable growth, production of oil and gas condensate in Russia dropped 0.3% in the first four
months of this year compared with the same period a year previously, to 161 million tons, or 1.18 billion barrels,
according to the government.........................................................................................................................................36
Russia has diversified...................................................................................................................................................37
Russian economy resilient............................................................................................................................................38
High Oil Prices Bad – Deters Economic Liberalization...............................................................................................39
High Oil Prices Bad – Collapse Russian Democracy...................................................................................................40
High Oil Prices Bad – Causes hyperinflation...............................................................................................................41
High oil prices bad: Hurt Russian Economy ................................................................................................................42
Russia weakness /collapse impact................................................................................................................................43
Renewables (1nc)..........................................................................................................................................................44
High Prices key to Renewables.....................................................................................................................................45
Renewables 2ac.............................................................................................................................................................49
AT Renewables – XT #1 – Not dependent on oil prices...............................................................................................50
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Renewables Fail...........................................................................................................................................................51
Oil Prices – Saudi Arabia DA (1nc)..............................................................................................................................52
Saudi Economy High....................................................................................................................................................53
Link XT / High Oil Prices Key to SA Stability............................................................................................................54
Impact XT / US draw in...............................................................................................................................................55
Saudi Arabia Answers (2AC)........................................................................................................................................56
Saudi Arabia Answers – XT #1 / SA has diversified....................................................................................................57
Saudi Arabia Answers – XT #3 / High Oil Prices= Reforms........................................................................................58
Saudi Arabia Answers – XT #4 / SA funds terrorism...................................................................................................59
Backstopping (1NC).....................................................................................................................................................60
Yes - Renewables..........................................................................................................................................................61
Link XT – OPEC will flood the market........................................................................................................................62
Impact XT – Low oil prices increase dependence........................................................................................................65
No link – OPEC can’t control market with flooding....................................................................................................66
Hedge Funds Collapse (1nc).........................................................................................................................................67
Hedge Funds XT...........................................................................................................................................................68
Oil Prices Fluctuate.......................................................................................................................................................69
High oil prices (bad) = dollar collapse..........................................................................................................................70
High Oil Prices (bad) - Hurt Economy ........................................................................................................................71
High Oil Prices (Bad) – Collapse Democracy (general)...............................................................................................72
AT: Venezuela Oil Prices/Econ DA..............................................................................................................................73
Extend #3- Resources Curse.........................................................................................................................................75
Dependence Bad – Terrorism Module..........................................................................................................................76
Dependence Bad – Causes Terrorism (XT)..................................................................................................................77
Dependence Bad – Oil Shocks Module........................................................................................................................81
Dependence Bad – Causes Oil Shocks (XT)................................................................................................................82
Shocks bad – A2: the economy will bounce back.........................................................................................................83
Strategic Reserves Fail..................................................................................................................................................84
Oil Shocks won’t cause recession.................................................................................................................................85
Dependence Bad – Caspian..........................................................................................................................................88
Dependence Bad – US Hegemony...............................................................................................................................90
Dependence Bad – Middle East Democracy................................................................................................................92
Dependence Good – US Presence in the Caspian.........................................................................................................93
Dependence Good – US Presence in the Caspian.........................................................................................................94
Caspian Defense............................................................................................................................................................95
Dependence Good – Prevents shocks...........................................................................................................................97
Dependence good – terrorism.....................................................................................................................................100
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Michael Klare June 26, 2008 http://www.fpif.org/fpiftxt/5326 End of the Petroleum Age?
We could live with the decline of these great reservoirs if we had some confidence that new reserves were being
discovered all the time to replace all those now reaching the end of their productive life. But this is not the case.
Despite a sharp increase in spending on exploration and development, the rate of new reserve discovery has been falling steadily
for the past 30 years. According to the U.S. Army Corps of Engineers, the last decade in which new discoveries
exceeded the rate of extraction from existing fields was the 1980s. Since then we have been consuming more oil than we have
been finding – a pattern that can only result, eventually, in the complete exhaustion of the world’s known petroleum reserves. Few New Finds
Only one giant field has been discovered in the past 25 years – Kashagan in Kazakhstan’s sector of the Caspian Sea – and it has
turned out to be an unmitigated disaster. With estimated reserves of 7-13 billion barrels of oil and natural gas liquids, Kashagan was originally
expected to come on line in 2005 at a cost of $50 billion. As a result of environmental hazards, government intervention, and disputes among
members of the consortium established to operate the field, it is now scheduled to begin pumping oil in 2011 at the earliest at a minimum cost of
$135 billion. Recently the Brazilian state firm Petrobras has announced an equally large discovery in the deep waters of the Atlantic, some 150
miles off the coast of Rio de Janeiro. Although very promising, the Tupi field will take many years to develop and will require the use of more
costly and advanced technology than any now in widespread use. These new discoveries may add one or two million barrels of
oil per day to existing output in 2015 and beyond, but by that point output from existing fields is likely to be
considerably lower than it is today. Nobody can predict exactly where combined worldwide production will stand at
that time. But more and more analysts are coming to the conclusion that the output of conventional (i.e., liquid)
petroleum will peak at about 95 million barrels per day in the 2010-2012 time-frame and then begin an irreversible
decline. The addition of a few million added barrels from Kashagan or Tupi will not alter this trend.
, ,
Robert L. Hirsch SAIC, Project Leader Roger Bezdek, MISI Robert Wendling MISI February 2005 PEAKING OF
WORLD OIL PRODUCTION: IMPACTS, MITIGATION, & RISK MANAGEMENT
http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf
We know of no comprehensive analysis of how fast the Canadian and Venezuelan heavy oil production might be accelerated in a world
suddenly short of conventional oil. Recent statements by the World
Energy Council (WEC) guided our wedge
estimates:143 • “Unconventional oil is unlikely to fill the gap (associated with conventional
oil peaking). Although the resource base is large and technological progress has been able to bring costs down to
competitive levels, the dynamics do not suggest a rapid increase in supply but, rather, a long, slow growth over several
decades.”
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3. Peak is approaching. Where once peak oil studies were fringe studies now even the most
optimistic and governmental sources agree that the peak will be soon. We must act now to
have a chance
abrupt and revolutionary. The world has never faced a problem like this. Without massive mitigation at least a
decade before the fact, the problem will be pervasive and long lasting.”26 Similarly, the U.S. Army released a major
report of its own in September 2005 stating: The doubling of oil prices from 2003–2005 is not an anomaly, but a
picture of the future. Oil production is approaching its peak; low growth in availability can be expected for the next 5 to 10
years. As worldwide petroleum production peaks, geopolitics and market economics will cause even more significant price increases and security risks. One can only speculate at the outcome from this scenario as world
petroleum production declines.27 Indeed, by 2005 there was little doubt in ruling circles about the likelihood of serious oil shortages and that peak oil was on its way soon or sooner. In its 2005 World Energy Outlook the IEA raised
.” Likewise the
the issue of Simmons’s claims in Twilight in the Desert that Saudi Arabia’s super-giant Ghawar oil field, the largest in the world, “could,” in the IEA’s words, “be close to reaching its peak if it has not already done so
In February 2007
U.S. Department of Energy, which had initially rejected Simmons’s assessment, backtracked between 2004 and 2006, degrading its projection of Saudi oil production in 2025 by 33 percent.28
the U.S. Government Accountability Office (GAO) released a seventy-five-page report on Crude Oil pointedly subtitled:
Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in
Oil Production. It argued that almost all studies had shown that a world oil peak would occur sometime before 2040
and that U.S. federal agencies had not yet begun to address the issue of the national preparedness necessary to face this impending emergency. For the GAO the threat of a major oil shortfall was worsened by the political
risks primarily associated with four countries, accounting for almost one-third of world (conventional) reserves: Iran, Iraq, Nigeria, and Venezuela. The fact that Venezuela contained “almost 90 percent of the world’s proven extra-
“
heavy oil reserves” made it all the more noteworthy that it constituted a significant political risk” from Washington’s standpoint.29 In April 2008, Jeroen van der Ver, CEO of Royal Dutch Shell, pronounced
that “we wouldn’t be surprised if this [easy] oil would peak somewhere in the next ten years.” Due to a combination of factors including production shortfalls and a declining dollar, oil in May 2008 reached over $135 a barrel (it
The same month Goldman Sachs shocked world capital markets by coming
averaged $66 in 2006 and $72 in 2007).
out with an assessment that oil prices could rise to as much as $200 a barrel in the next two years. Western oil interests were particularly
distressed that the first production from Kazakhstan’s Kashagan oil field (considered the largest oil deposit in the world outside the Middle East) was eight years behind schedule due in part to waters frozen half the year. By May 2008
the IEA, according to analysts for the New York Times, was preparing to reduce its forecast of world oil production for 2030 from its earlier forecasts of 116 mb/d to no more than 100 mb/d.30
It was alarm about gasoline prices and national energy security (and no doubt the specter of a world oil peak) that induced the Bush administration in 2006 to take a more aggressive stance in promoting cornbased ethanol production
as a fuel substitute. In 2007, 20 percent of U.S. corn production was devoted to ethanol to fuel automobiles. The price of grain spiked worldwide partly as a result. As environmentalist Lester
R. Brown wrote in his Plan B 3.0: “Suddenly the world is facing a moral and political issue that has no precedent: Should we use grain to fuel cars or to feed people?...The market says, Let’s fuel the cars.”31
4. The technology argument is wrong—no chance that can resolve the peak.
Q.Y. Meng (State Key Laboratory of Petroleum Resource and Prospecting, China University of Petroleum, Beijing) and R.W. Bentley
(Department of Cybernetics, The University of Reading) August 2008 Energy 33 (2008) 1179– 1184 Global oil peaking: Responding to
the case for ‘abundant supplies of oil’
been closed to upstream oil investment, few have been closed to technological improvement. Saudi Arabia, for
example, has applied some of the world’s best oil-extraction technologies. It is true that some of these countries
could increase production if better technology was used, but mainly at the expense of faster depletion after peak. To
expect improved technology to access much extra oil in the short or medium term is mistaken. looked in detail at the reasoning and data
behind the oil peaking calculations. It must be admitted, however, that oil peaking is counterintuitive. As countries past peak such as the US, UK and Norway all show, the resource-limited production peak in a region occurs when
there are still large reserves in the ground, when technology and enterprise are expected to raise the recovery rate of these reserves, when new finds are still occurring, and when there is known to be quite a lot of oil yet to discover. So
The only sure indicator of peak is the quantity of oil that has
to determine if the peak is close it helps little to analyse what is currently happening in an oil region.
already been found (using industry 2P data), the history of when these discoveries occurred (the discovery trend), geological
knowledge on what the rest of the region is likely to yield in new discovery, and sensible estimates on when such discoveries are likely to occur. Such
knowledge of how to predict oil peaking was general some 30 years ago, but largely forgotten in more recent times.
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5. Some dismiss peak oil theory because they believe all their previous oil forecasts were wrong
This isn’t true. Peak oil theorists have consistently been accurate in proving oil production growth
is declining, no more reserves exist and peak will hit around 2010 at current rates.
Q.Y. Meng (State Key Laboratory of Petroleum Resource and Prospecting, China University of Petroleum, Beijing) and R.W.
Bentley (Department of Cybernetics, The University of Reading) August 2008 Energy 33 (2008) 1179– 1184 Global oil peaking:
Responding to the case for ‘abundant supplies of oil’
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Mikael Höök on Wed, 2008-06-25 16:34. Headline news EIA slashes forecast for world oil output by 2010
Source: Upstream Online http://www.peakoil.net/headline-news/eia-slashes-forecast-for-world-oil-output-by-2010
The US Energy Information Administration said crude oil production from non-Opec countries will not be able to
keep up with growing global demand in the next few years, forcing oil consuming nations to rely more on Opec for
supplies. In its long-term energy forecast, the EIA lowered its estimate of non-Opec oil production in 2010 to 51.8
million barrels per day, down 1.1 million bpd from last year's forecast. For the same period, Opec oil output was cut
by just 400,000 bpd to 37.4 million.
Meanwhile, world oil demand in 2010 will be 1.5 million bpd less than previously thought at 89.2 million bpd, due
to higher oil prices, the EIA said.
China will account for almost half the lower oil consumption, with the country's oil use cut 600,000 bpd to 8.8
million bpd, said Reuters.The EIA said its forecast for India's oil demand in 2010 was unchanged at 2.7 million bpd.
Overall, world energy consumption is forecast to grow 50% by 2030, with demand from developing countries rising
85% compared with a 19% increase in industrialised countries, the EIA said.
We are reaching the peak. This will cause shortages of vehicle fuel. Timeframe is as soon
as 2012
Irish Times June 4, 2008 HEADLINE: The growing dilemma of the production of biofuels and their human costs
Put another way, the
rate of oil production is close to reaching its peak and after that, it will slow down and this finite
resource will become scarcer and more expensive. Peak oil, now or in the near future, will cause shortages of
vehicle fuel. The world currently gets through around 30 billion barrels a year, which is about 82 million barrels every day.
Currently, oil prices are closing in on $135 per barrel, and some commentators are predicting that it won't be long before it costs $200.
"There is a 4 per cent decline in production in the major oilfields and this translates into 30 million fewer barrels per day over the next 10
years," says Aleklett. He predicts that overall production could decline as early as 2012, with emerging countries such as China
requiring more oil and being forced to look for imports.
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Q.Y. Meng (State Key Laboratory of Petroleum Resource and Prospecting, China University of Petroleum, Beijing) and R.W. Bentley
(Department of Cybernetics, The University of Reading) August 2008 Energy 33 (2008) 1179– 1184 Global oil peaking: Responding to
the case for ‘abundant supplies of oil’
Maugeri’s third main argument against a near-term peak is that the world contains large quantities of non-
conventional oil, and that these are not usually considered in the ‘oil doomsters’ models. This is not correct. All the
detailed models listed above explicitly include calculations on the rates that the various nonconventional
oils will come on-stream. They find that these rates are not sufficient in total to offset the decline expected in global
conventional oil production. However, it is fair to say that the issue of rate limits to the production of non-
conventional oils and oil substitutes—where these limits include cost, pollution (including CO2) and, crucially,
net-energy rate limits—needs looking at in much more detail. The question is: what would be physically, financially
and energetically possible (and what the CO2 impacts) of a ‘crash programme’ into these alternatives once
conventional oil peaks?
Oil production has peaked in many areas. The production of alternatives to oil can’t make
up for it.
Stephen Holland, Modeling Peak Oil, Energy Policy Energy Journal, 2008, Vol. 29 Issue 2, p61-79
Indeed, oil production in many regions has peaked. After increasing for over 100 years, U.S. annual crude
production peaked in 1970 at3.5 billion barrels of oil and has generally declined since. Brandt (2006) analyzes 139
(potentially overlapping) oil producing regions throughout the world and argues that production in 123 regions
can be reasonably modeled as single peaked and that production in 74 of these regions has
already peaked." Furthermore, production of other resources has also peaked.'" This wide.spread
empirical evidence of production peaking highlights the importance of understanding why
production of an exhaustible resource might peak.
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Matthew R. Simmons. 6-28-08 Matthew R. Simmons is chairman and CEO of Simmons & Company International, an independent
investment bank specialising in the energy industry. He is one of the world's leading experts on peak oil New Scientist HEADLINE: Kicking
the oil habit; Ignore the energy optimists. The odds are that " peak oil " has come and gone, leaving the US to wrestle with its addiction to oil,
argues Matthew R. Simmons
ON 1 February 2006, the day after his state of the union address, President George W. Bush was discussing his 2006 agenda with the press
when he made one of the most far-reaching statements of his presidency. "America," he declared, "must end its dependence on oil. When you're
hooked on oil from the Middle East, it means you've got an economic security issue and a national security issue."
Whether his remarks signalled a belief that global oil supplies were nearing a peak and would then decline is something for energy historians to
argue about. Whatever its basis, it was a remarkable statement. But was Bush right? Based on the best information we have on global oil
supply, there is growing evidence that global production of crude oil actually peaked in 2005, and for the past three
years has struggled to remain at an undulating plateau of some 73 to 74 million barrels a day. Since the world's total
petroleum consumption is about 88 million barrels per day, we currently bridge this gap through the intensive use of liquefied natural gas,
refining processing gains and tapping into the world's oil inventory.
While energy optimists claim that oil is not even close to reaching peak output, their cheerful views are not
substantiated by any solid, verifiable data indicating that significant increases in production are possible. The vast
majority of available information, which includes figures from the most important oilfields, shows a relentless pattern of individual oilfields or
oil basins reaching peak output and then plunging into irreversible decline. In fact, the intensity of the debate about peak oil and when it
might occur has become a roar among oil and gas analysts. With each passing week, more senior industry figures announce that oil supplies
seem incapable of much further growth. The debate about oil supply began in 1956 when M. King Hubbert, chief consultant and geologist with
Shell Development Company, predicted that US oil production would peak around 1970 and decline thereafter. When the US's oil supplies
carried on growing and seemed to be in no danger in the years that immediately followed, most energy experts began to ridicule Hubbert. In
fact, by 1970, when the US's production of oil peaked as Hubbert predicted it would, the event went largely unnoticed. That was until the
second oil crisis, in 1980, which caused the oil price to leap from $17 a barrel to almost $40.
In a panic, virtually all of those who had scoffed at the notion of peak oil suddenly began warning that the oil price was heading to $50
barrel and that by the 1990s it might even reach $200. We now know that these pundits' fears were premature. Oil prices soon plunged because
demand faltered and because oil from three major basins around the world, which had been discovered at the end of the 1960s, finally came on
stream. By 1986, the price had fallen to less than $15 a barrel and an "oil depression" was well under way. Low prices
forced oil companies to cut back on the money they spent maintaining the pipelines and other essential parts of the oil infrastructure and so, by
the time the depression ended, much of the infrastructure that could have helped add sustainable new supplies had begun to rust.
Meanwhile, throughout most of the developing world, low oil prices were considered a blessing: the energy appetites of poor countries
increased dramatically as they struggled to build stronger economies and a better way of life. As oil prices stayed low, demand skyrocketed.
Between 1995 and 2008, global daily oil demand grew by 18 million barrels. This unexpected growth has devoured the world's spare capacity.
To meet the unprecedented demand, drilling activity soared until the very last spare rig was in production. Naturally, this frantic drilling has
served to increase the rate at which the output of mature oil basins declines. Based on the best data on country-by-country oil production, the
chances are high that, in practical terms, sustainable global oil output did indeed peak in 2005. Major new projects
may still occasionally be brought online and they may nudge production slightly above the 2005 "peak", but the odds of growing this
beyond 74 million barrels of crude oil per day are low. The bottom line is that the US must now wean itself off oil
and also help to teach the rest of the world how to successfully and rapidly retreat from its addiction to the stuff.
How well the world does in beating a hasty and forced retreat from oil consumption will very likely determine
whether the remainder of the 21st century will be relatively peaceful. The stakes could not be any higher.
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Little reason to believe we will find additional reserves to save us from the peak – we have
been looking extensively for those for over 30 years
Southern States Energy Board 2006 BUILDING A BRIDGE TO ENERGY INDEPENDENCEAND TO A SUSTAINABLE
ENERGY FUTURE, http://www.americanenergysecurity.org/AES%20Report.pdf, July.
Extensive exploration has occurred worldwide for the last 30 years, but results have been disappointing. If recent
trends hold, there is little reason to expect that exploration success will dramatically improve in the future. This
situation is evident in Figure I-2, which shows the difference between annual world oil reserves additions minus
annual consumption.3 The image is one of a world moving from a long period in which reserve additions were much
greater than consumption, to an era in which annual additions are falling increasingly short of annual consumption.
Recently, many credible analysts have become much more pessimistic about the possibility of finding the huge new
reserves needed to meet growing world demand. Even many of the optimistic forecasts suggest that world oil
peaking will occur in less than 20 years. Various individuals and groups have used available information and
geological estimates to develop projections for when world oil production might peak, and a sampling of recent
projections is shown in Table I-3.
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1. Peak predictions are false. Predictions about shortages since the 1850’s and we still have
plenty. High prices encourage new exploration for reserves and reserves exist. At least 500
years remaining.
Fumento, Senior fellow at Hudson Institute, ’04 [Michael, a senior fellow at Hudson Institute in Washington and a nationally
syndicated columnist with Scripps Howard News Service, Scripps Howard News Service, May 7, "Is oil spigot running dry?",
l/n]
In 1914, the U.S. Bureau of Mines predicted American oil reserves would last merely a decade. In both 1939 and 1951, the Interior Department estimated oil supply at only 13 years.
"We could use up all of the proven reserves of oil in the entire world by the end of the next decade," declared Pres. Jimmy Carter gloomily in 1977.
In fact, the earliest claim that we were running out of oil dates back to 1855 - four years before the first well was drilled.
Still, with gasoline oil prices seemingly rocketing past the moon and towards Mars, and newly-published
books like "Out of Gas: The End of the Age of Oil" and "The End of Oil," it seems fair to ask if the
world's fuel tank needle isn't finally tilting towards "E."
Yet historically prices aren't particularly high. Adjusted for inflation, they're slightly below what they were back in 1950 when we falsely recall gasoline flowing like water. Then the national average was $1.89 in today's dollars,
compared to $1.84 at this writing. In 1981, gas was almost a dollar more per gallon than it is now when adjusted for inflation.
Further, this is not your father's gasoline. Now it's unleaded and reformulated in other ways to burn cleaner. Or, alas, to pander to the gasohol lobby. Oil prices have also almost reached an all-time high when not adjusting for inflation,
approaching $40 a barrel. But again, when adjusted the cost is far less than it was from 1973 to the mid-1980s.
But there's no denying the sharp increase over several years. Are we really just experiencing a short-term spike because of voluntary production cutbacks, political unrest in places like Iraq and Venezuela, and a huge decline in the
value of the dollar?
increased from 677 billion barrels in 1982 to 1,048 billion in 2002, a 55 percent increase. "Proved" means quantities that with reasonable
certainty can be recovered from known reservoirs under existing economic and operation conditions. Meanwhile worldwide consumption increased only 13 percent.
What about the future? According to a just-released Energy Information Administration report oil production will continue to
steadily increase until the last year of the projection, which is 2025.
But oil consumption will continue to increase. This will be partly from population growth, albeit growth that's leveling, and partly from worldwide improvements in living
standards that allow people to trade in shoe leather and bicycles for cars. Even so, if consumption continues to increase at an average rate of 1.4
percent a year and not a single new drop is found, we still won't exhaust proved reserves until 2056
according to a 2003 National Center for Policy Analysis (NCPA) report.
Further, the "nice aspect" of high oil prices, if those driving around in gas-slurping SUVs will forgive the term, is that they are the greatest
motivator for discovering and exploiting new reserves.
This includes Canada's oil sands, containing a tar-like substance convertible to oil . These hold an estimated 1.7 trillion barrels of
petroleum, of which 255 billion barrels (equal to the entire proved oil reserves of Saudi Arabia) is currently considered recoverable. Because of reductions in production costs, some of this goop is already being extracted and sold. But
if oil prices remain anywhere near current levels, oil sand development will replace hockey as Canada's national obsession.
Oil sands worldwide could provide more than 500 years of oil at current usage rates, calculates the writer
of the NCPA report, David Deming. He's a professor of geology and geophysics at the University of Oklahoma in Norman.
Five hundred years? Civilization should be so lucky as to consider this a worry.
2. Insiders say that peak oil is a myth. More than twice as much oil exists as what the peak
oil theorists say.
Steve Connor June 11, 2008 Canberra Times (Australia) HEADLINE: Oil shortage myth: insider tells of dodgy calculations
There is more than twice as much oil in the ground as major producers say, according to a former industry adviser who
It is widely assumed that oil production has
claims there is widespread misunderstanding of the way proven reserves are calculated.
peaked and proven reserves have sunk to roughly half of original amounts. But former oil industry man Richard
Pike, who is now chief executive of the Royal Society of Chemistry, said this idea was based on flawed thinking. Current
estimates suggest there are 1200 billion barrels of proven global reserves, but the industry's internal figures
suggest this is less than half of what actually exists. The misconception has helped boost oil prices to an all-time
high, sending jitters through the market and prompting calls for oil- producing nations to increase supply to push
down costs. Dr Pike said there was anecdotal evidence that big oil producers were glad to go along with under-
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reporting of proven reserves to help maintain oil's high price. Part of the oil industry is perfectly familiar with the way oil
reserves are underestimated, but the decision-makers in both the companies and the countries are not exposed to the reasons why proven oil
reserves are bigger than they are said to be," he said. Dr Pike's assessment does not include unexplored oilfields, those yet
to be discovered or those deemed too uneconomic to exploit. The implications of his analysis, based on more than
30 years in the industry,will alarm environmentalists who have exploited the concept of peak oil to press the
urgency of the need to find greener alternatives. "We should not be surprised if oil dominates well into the 22nd
century.
3. Hubbert’s model is the basis for their claims and it’s just wrong. Their claims are just doom-
saying and products of a herd mentality. These predictions are empirically false.
Bailey ‘04 (Ronald, Science Correspondent for Reason Magazine, Feb. 18, “Are We Out of Gas Yet?” Reason Online,
http://www.reason.com/rb/rb021804.shtml)
4. New off-shore drilling tech, new management tech and new synthetic oils will decrease
costs and will solve Peak in Status Quo
Schoen ‘04 (John, MSNBC, “Can Technology Help Find Oil Fast Enough,” 09/23, http://msnbc.msn.com/id/6072980/)
Advances in drilling techniques do hold the promise of further lowering the cost of producing new oil and
extending the industry’s reach. That’s especially true in deepwater offshore fields where many promising
discoveries are turning up. Aside from the huge cost of conventional steel drilling platforms, operations on gigantic rigs are subject
costly interruptions from hurricanes in the Gulf of Mexico and typhoons in the Pacific rim.
“Ten years from now they’re going to become obsolete,” said Barton Smith, an economics professor at Rice University in Houston. “What
they’re moving toward is robotics -- in which you literally have submarine operations. The drilling activity all occurs at the bottom of the ocean.
And these robotics will have all the capabilities of being able to fix anything down there.”
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Long-range communications technology is also helping to cut the cost of managing oilfields -- in some
cases halfway around the world, Smith said.
“With a lot of these oilfields the trick is not just finding the oil and pulling the oil out of the ground,” he said. “But the trick is then -- through vast
pipelines and so forth -- getting it to some deliverable point. And those pipelines require all sorts of types of monitoring. They’re going to monitor
that from Houston.”
Technology is even expanding the definition of oil. Vast deposits of oil shale and tar sands –- formations of oil-
have until recently been uneconomic to produce. But as recovery methods improve,
saturated rock and sand –-
and oil prices rise, production of this so-called “synthetic” oil has increased. New technologies are also being
developed to extract natural gas from coal -– which remains plentiful in the U.S.
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Peak Oil –Not true / XT #1(a) – Reserves will exist for a while
No such thing as peak oil – the world can run on oil for another 200 years.
Neil Reynolds, The Globe and Mail (Canada), "'Peak oil' doomsayers fall silent as reserves grow ever larger"
April 11, 2007 lexis
The "peak oil" hypothesis, relentlessly propounded for decades, holds that the world has passed (or will
momentarily pass) the highest point it can ever reach in oil production - at the halfway mark in the depletion of
global oil resources. It holds that this imminent peak necessarily marks the start of an irreversible decline in
is
production. It holds, in other words, that the end of oil is nigh. The principal problem is that the hypothesis
demonstrably wrong - and is vigorously proven wrong year after year. In 1979, the
"life-index" of global oil reserves was calculated as 35 years - suggesting, superficially, that
known oil reserves could support the current level of production only through 2007. In 2003, after decades of
accelerated production, this index had risen to 40 years. It has now risen further to 45 years - moving us safely
the record-setting oil production last year marked the
through mid-century. Indeed,
umpteenth consecutive year that "peak oil" theorists have found it necessary once
again to run the numbers and once again to postpone the end time of oil. It was in
1989 that Colin Campbell, the prominent Irish champion of "peak oil," proclaimed that the global peak had already
occurred - a declaration he found it expedient, almost immediately, to amend; "peak oil," he said, would instead
occur in 1995. He now opts for 2010. Yet global oil production, since 1989, has risen by 20 per cent (13.8 million
barrels a day), global oil supply by 28 per cent (18.9 million barrels a day). The production records set last year
were significant for a number of other "peak oil" prophets, including Marion King Hubbert himself, the American
geophysicist who devised "peak oil" analysis in the mid-fifties and who accurately predicted that U.S. oil
production would peak in 1979. In 1956, he determined that global oil would peak "in about 50 years" - in other
words, 2006. At the pinnacle, he said, the world would consume 12 Gb of oil a year. In 2004, Mr. Campbell
increased this number, almost doubling it, to 23 Gb. For his part, Texas oilman T. Boone Pickens has held that oil
the world's most comprehensive measure of
would peak at 30 Gb - a level exceeded last year. Yet
oil resources keeps right on growing - higher, yes, but at a faster pace as well.
TrendLines, the Canadian statistical research company, confirms this assertion in its February report on URR -
"ultimate recoverable reserves." In an analysis of optimum reserves, TrendLines concludes that the world's URR is
now increasing, depending on the period you select for comparison, at twice or thrice its historical pace. From
1957 through 2006, it says, URR grew at an average annual rate of 2.4 per cent. From 1979, it grew at an average
annual rate of 4.2 per cent. From 2000, it grew at an average annual rate of 6 per cent. "Peak oil" prophet Mr.
In 2000, the U.S.
Campbell, TrendLines says, has underestimated the actual rise in URR by tenfold.
Geological Service (USGS) calculated that global URR would increase by 2.4 per
cent a year for the foreseeable future - rising from 1,669 billion barrels in 1995 to 3,345 billion
barrels in 2025. (A billion barrels - one Gb - is roughly the amount of oil that the U.S. keeps in its Strategic
Petroleum Reserve.) "Peak oil" proponents dismissed the USGS analysis as impossibly optimistic. As with all
apocalyptic manifestations, peaks must necessarily be imminent. Yet the forecast has proven significantly
Driven by smart technology, global URR now increases each year at
understated.
unprecedented rates. It has now (December, 2006) reached 3,288 Gb, not far off the USGS calculation for
2025. It increased last year by 114 Gb, compared with a historical annual average increase of 47 Gb.
Sustained at this rate for another 20 years, the world's ultimately recoverable oil
could increase by another two-thirds to 5,568 Gb, or three times the resource when
"peak oil" proclamations began. Assuming consumption of 30 Gb a year, this URR could
sustain production for something approaching 200 years. Once again, the end is
not nigh.
Decades of oil and gas in current reserves; and more is being discovered constantly
Wingrove ’04 [Martyn, Lloyd’s List, Issue #58687, Insight & Opinion, June 25, l/n]
WITH oil and natural gas demand continuing to climb, higher this year than anyone predicted, the question of the volumes of reserves is
gaining importance. BP's leading analysts estimate that the world now holds 1.15trn barrels of oil in proven reserves,
which is enough to carry on producing at current levels for 41 years. The picture for natural gas is even rosier with
176trn cu m of proven reserves, which would provide 67 years of production. While there is enough oil to cover
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more than 40 years of production, in both cases the Middle East and former Soviet Union hold the majority of these
resources. This may be good news for these nations, but is less than pleasant for countries heavily dependant on oil
imports. And security of supply will continue to be a major geopolitical issue for perhaps the next four decades, so
political stability in the Middle East will remain important.
"Reserves have grown over time and it is clear that the issue of energy security is driven not by a physical
shortage of supply, but by the challenges of ensuring that there will be sufficient traded oil and gas to meet rising
demand," says BP's group chief executive Lord Browne of Madingley. "On recent trends there appears to be
considerable scope for proved reserves to keep rising in Russia and elsewhere." There is also clear evidence that the
international oil companies, who have only limited access to resources in the Middle East and FSU, need to raise
their exploration levels to find new reserves not held in these regions. "Despite those who say we are about to run
out of oil and gas, the figures in our review confirm there is no shortage of reserves," says Peter Davies, BP's chief
economist.
The British oil major has released its annual Statistical Review of World Energy, providing a timely reminder that
the only issue when it comes to reserves is access. BP's review has incorporated data from national statistics and
other secondary sources to compile the reserves figures. BP's review also provides production, consumption, pricing,
trade movement and refining margin data back for the past 10 years. There are also sections for nuclear power,
hydroelectricity and renewables. On oil reserves, the review shows globally that they have increased by 10%
since 2002, although part of this is through new data gathering work. The figures also include 11bn barrels of
resources in Canadian oil sands that are under active development and a better informed data series for Russia.
"1.15trn barrels represents 41 years of world oil production at current rates," says Mr Davies. "This does not mean
that oil will run out in 41 years time; more oil will inevitably be proved before then while production is
unlikely to be flat of constant." This is in contrast to 1980, when BP's review showed there were only 29 years of
production with 700bn barrels of oil resources. "The world has since produced 80% of the proved reserves of
1980 and we are still left with 70% more reserves than when we started, as a result of exploration success and
new technologies," says Mr Davies.
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Schafersman, Professor of Geology, Miami – Ohio, ’02 (Steven, prof. of geology @ Miami University, Oxford, OH, “Be
Scared; Be Very Scared,” http://www.freeinquiry.com/skeptic/badgeology/energy/commentary.htm)
Next,the doomsayers universally ignore petroleum resources other than oil. Coal and natural gas remain
abundant in the world, and the former can be converted to oil (synthetic fuels) and the latter is now replacing it
on ever greater scales. No one is predicting that these will run out soon. But in addition, oil can be profitably
produced today using modern technologies from oil sands and heavy oil deposits (tar sands), and proven
reserves of these in Canada, Venezuela, and Russia equal or exceed all the crude oil produced until the
present. In addition, liquified natural gas (gas liquids) resources are believed to be enormous and their exploitation only just begun. That leaves
gas hydrates (clathrates) in oceanic sediments and oil shale (actually, kerogen in shale that can be converted to oil). These
petroleum resources are simply colossal, although they cannot be exploited with today's prices or
technology, but that could change. All of the doomsayer arguments rest on the decline in crude oil alone,
and their arguments fail to the extent that other petroleum resources are able to replace oil as an energy
source. Since the amount of these additional petroleum resources is many times greater than the proven
crude oil reserves, the doomsayers' arguments fail quite readily, indeed.
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Ask him about oil, and Dr. Richard Pike has a rather sunny outlook. Oil and gas, he says confidently, will be around well into the next century. Pike can maintain his optimism because he knows something no
one else knows. He believes that a simple mathematical error - the sort made by first-year university statistics students - is causing much of our panic
over a worldwide oil shortage. It's an error that oil companies, riding high on skyrocketing crude prices, may want you to believe. "This might be hard for some of your readers to take," he warns.
With oil at $132 a barrel yesterday, tensions over gas prices are at a boiling point. But listen, he says: at 1.2 trillion barrels, we have grossly underestimated the
world's proven oil reserves. If he's right, we likely have double the amount of recoverable oil that we think we have in the
ground, or perhaps even more.
The argument is attracting attention at a time when many governments are looking for new sources of oil; U.S. President George W. Bush reversed his long-held position against offshore drilling this week.
Skeptics say Pike is just recycling an old argument: that companies underreport reserves on purpose to keep prices up. He claims the problem is more systemic than a few corporations playing with the stats, however.
Pike is an oil industry insider, an engineer by training. An employee of British Petroleum for 25 years, he is now the chief executive of England's Royal Society of Chemistry. He explains the world's most epic math mistake
patiently, like a vaguely bemused schoolteacher going over a problem with a dull student.
He first realized there was a problem two years ago, when he saw alarming discrepancies between figures the oil
industry uses to estimate the world's crude and those used by everyone else. Calculating the amount of oil in a field is notoriously difficult, so companies
issue a probability figure, called their proven reserves, to shareholders and outside bodies. It represents the amount of oil that has a 90 per cent chance of being met or exceeded by the field's actualproduction (giving it its name, P90).
Apparently, no one bothered to let us know that oil companies have long been generating an entirely different number for their own internal use. Not content with the hard certainty of P90, which in practice is almost always exceeded
by a field's output, oil companies use more sophisticated measurements to yield numbers often two or even three times as high, helping them decide things like how many wells they drill. Very often, those higher estimates are more
accurate. Too bad they don't make it into the public domain. Instead, in order to get a picture of how much oil we have left, international organizations often simply add up the conservative, proven reserve estimates for every field in
the world. That's when the real headaches begin. "Because it's a probability-based set of numbers, you can't add them like that," says Pike. "That's completely wrong." Think of estimating oil fields like rolling a pair of dice, Pike says.
If youthrow just one die, the probability that you will roll higher than a one is five out of six. But if you throw two dice, the probability that you will roll higher than two - snake eyes - is not five out of six, it's 35 out of 36, since there
are 36
different possible outcomes of a single throw of two dice. With two dice, you have a five-of-six chance of rolling not a two, but a four. "It's an interesting case where ... one plus one equals four," says Pike.Sooil is at $132 a
on," he muses. Oil companies, particularly those in the Middle East, are happy to let our shoddymath stand if it
helps push crude prices ever higher.
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M. King Hubbert's analysis and curve has been consistently misinterpreted and misapplied by the
doomsayers (for their interpretation, go to http://www.energycrisis.com/hubbert/). Hubbert's curve is not a normal curve, but
a plot of oil production plotted over time; therefore, predictions from statistical tests applied to this curve
are invalid. While Hubbert correctly predicted the peak and decline of U.S. oil production with his curve,
his attempts to do the same with both U.S. natural gas production and world oil production failed . Fisher
points out that a major flaw in using a symmetrical life cycle curve to predict future production is its static
nature: it assumes a known amount of an ultimate resource, and does not allow for resource expansion
due to technological advances or economic demand pressures. Ahlbrandt advocates a production-plateau model of oil
resources rather than the traditional Hubbert curve, because the former better represents the real-world conditions as we understand them now.
Doom-saying claims of peak oil are proven empirically false. This is complex issue but their research is
weak, stemming from the same old model by Hubbert. They can fool editors but the historical record and
better studies show that their model and their pessimistic claims are repeatedly wrong.
Lynch, Director, Asian Energy and Security, Center for International Studies, M.I.T., ‘98
[Michael, download date: 2-15-05, http://sepwww.stanford.edu/sep/jon/world-oil.dir/lynch/worldoil.html ]
In the past two years, a number of articles have appeared warning not only of a new oil crisis, but of the end of the oil era, as oil production inevitably
peaks and declines due to inexorable geological forces. These include "Mideast Oil Forever?" by Joseph J. Romm and Charles B. Curtis and "Heading Off the Permanent Oil Crisis," by James J. MacKenzie, among others.
The profusion of articles on the subject is unfortunate, since the casual reader (and policy-maker) might
conclude that the large number of articles have an equally large amount of research behind them. In truth,
most of these are not actually about oil, but take the assumption that oil scarcity is imminent, especially outside the
Middle East, and nearly all rely on a few pessimistic quotes from oil men, or recent work by one or two
geologists using what is known as a "Hubbert approach." Most notable are the recent publication of the book The Coming Oil Crisis by Colin Campbell and the
March 1998 Scientific American article "The End of Cheap Oil" by Colin J. Campbell and Jean H. Laherrere.
The gist of their argument is that most of the world's oil has already been found, as evidenced by the alleged lack of recent giant discoveries; Middle East reserves have been overstated for political reasons; actual total recoverable
resources are only about 1.8 trillion barrels, not the 2.4 trillion barrels that others have estimated; existing fields will not continue to expand in size and production as others suggest; and most oil producing countries outside the Middle
East are said to be near, if not past, their point of peak production, which occurs when 50% of total oil resources have been produced. Production is predicted to drop off steeply afterwards. Thus, they forecast that "The End of Cheap
Oil" is at hand and prices will be rising shortly. Understanding Forecasts (Good and Bad) These issues are hugely complex. A wide variety of political, economic and geological factors affect oil production, and analysis requires an
enormous amount of data, much of which is either not readily available or is unreliable. Few observers have the capacity to analyze the forecasts of others, let alone make their own forecasts. Thus, as Vannevar Bush realized, when an
expert, particularly with a scientific background, comes forward with detailed work and large quantities of (albeit hidden) data, it gains almost instant respectability, particularly among editors who are not familiar with the subject.
But there are several methods of judging research that don't involve time-consuming or labor-intensive analysis. For one thing, analysts who don't acknowledge either data or research which contradicts their theories are implying they
can't explain inconsistencies or weakness in their work. Because in a complex system like world oil production, there is always some data which can support alternative viewpoints. Dry holes are always being drilled and new fields
are always being found, and citing one or the other to support pessimism or optimism proves nothing.
A better way to test forecast validity is to look at the historical record, and particularly, examine work done by the person making the forecast in
question. In 1992, I did precisely this to improve long-term oil price forecasting. The realization that the previous errors were due to forecasters assuming a 3% per year increase in real oil prices over the long-term made it possible to
produce much more accurate forecasts.
In 1996, I published a piece discussing the various methods which were used to forecast oil supply, and
argued that they, too, were flawed by certain repetitive errors, namely: 1) bias, and especially pessimism,
since nearly every forecast has been too low since 1978, despite relying on price assumptions that were
much too high; 2) similar forecasts for every region, despite different fiscal systems, drilling levels and/or
the maturity of the industry, suggesting omitted variables; 3) misinterpretation of recoverable resources as
total resources by using a point estimate instead of a dynamic variable, growing with technology change,
infrastructure improvements, etc.; so that 4) there is a tendency for all national, regional or non-OPEC
production forecasts to show a near-term peak and decline, which was always moved outward and higher
in later forecasts (the opposite of price forecasts).
As an example, note the behavior of the U.S. Department of Energy's production forecasts for the non-OPEC Third World, a region which, in aggregate, has experienced very little drilling and shows no sign of peaking, causing the
forecasts to be repeatedly revised upwards. I have numerous other such examples, for various countries and regions, as well as the globe. Few, if any, have been too optimistic.
The Case in Question: Campbell
the company Petroconsultants, which both men have been associated with in the past and which
Thus, an examination of the history of forecasts performed by these gentlemen is in order. First,
published Campbell's 1997 book, published a nearly identical forecast in 1986, which showed regional production to 1995, at $25/barrel (equal to about $35/bbl in 1997$). The
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forecast incorrectly put non-OPEC, non-Communist production at 20 mb/d in 1995 and dropping, when in reality it was 28
mb/d and rising. (Figure 2) Figure 3 shows the regional forecasts, normalized to 1986=100 to show the rates of change. Note that all regions peak within the time horizon of the forecast. It is not clear if either Campbell of
Laherrere was involved in producing this forecast, however, they are employing the same database of oil fields, and their results are
suspiciously similar.
Subsequently, Campbell published an article in the December 1989 Noroil which stated that "Most economic forecasts see relatively stable prices over the near future followed by a ramp of modest increase to the end of the century.
But Figure 3 suggests that the slope of declining supply will become a precipice if production is held at present levels, never mind increasing. When that happens, a major leap in prices seems inevitable unless the major
exporting governments exercise deliberate restraint....Shortages seem to be inevitable by the late 1990s, but knowledge of an impending supply shortfall may trigger an earlier price response, as foreseen in the Figure." His figure
shows world oil production (including the Middle East) peaking in the late 1980s, and dropping sharply, from about 58 mb/d to 45 mb/d, with the comment that "Any short-term increase steepens subsequent decline." He also shows
prices rising to the low $20s (about $27 in 1997$) as "increasing probability" with an "anticipated price leap from increased perception of declining reserves, falling non-Middle East production, and falling exports, esp. from USSR."
He predicted this might cause oil prices to reach $50/bbl (about $65 in 1997$) by 1994, then fluctuate around that level to the end of the century.
That same year, my Oil Prices to 2000 was published, taking the contrary view. I argued that most forecasts were too pessimistic about non-OPEC production and predicted that inflation-adjusted prices would fall to 2000, which the
September 1989 Petroleum Economist correctly noted was "heretical". Yet this proved quite accurate, as a comparison of forecasts from that period shows (Figure 4) . (Later figures will compare production forecasts.) Since
Campbell (1989) includes only a graph of his price forecast, it is not shown here, but by the mid-1990s, he showed prices fluctuating around $50/bbl, about 200% too high.
The 1991 Forecast: Deja vu all over again?
Campbell's 1991 book is more illuminating, and damning, since he provides detailed production tables for most countries, including 32 non-Middle East, non-FSU producing countries which account for 36.8 mb/d in 1996. The
aggregate error by 1996 is 7.9 mb/d, or 21.5% of production in those countries, as Table 1 shows. Twenty-four of the forecasts are too low, and eight are too high. An examination of the particular countries' errors is instructive
about their nature.
,
For example, except for Italy, Tunisia and Oman in all of the countries where Campbell's forecast is too high, the upstream sector is controlled by national oil companies. This shows the importance of policy and economics, refuting
the argument that geology alone determines long-term production profiles. If Campbell is said to be projecting possible, not actual production, so that his error on these countries should be disregarded, then it leaves a total "optimistic"
,
error of only 106 tb/d a trivial amount. This demonstrates clearly that his method is biased in a scientific sense, always producing forecasts which will tend to be too low.
the enormous error in countries like Canada and the United States indicates the inability of this
Additionally,
measure to produce accurate results. He argues that these are mature producing areas, where no more giants are to be found and cause surprise increases in oil production, and the oil field
database he employs corrects for the conservative bias due to SEC reserve reporting requirements. Since the oil resources are thus so well-known, the production curve should be extremely accurate. Yet even without any giant field
both countries have outperformed his forecast far beyond levels conceivable to him. If this method
discoveries,
doesn't work in mature regions with high-quality data, it is hardly likely to be reliable elsewhere.
Similarly, the enormous predictive failure in the North Sea shows that extrapolation of discovery size does not produce accurate predictions of either future field size or resource estimates, since the error should be due more to
underestimating new discoveries than pessimism about the role of older fields, as is the case for the U.S.
Finally,considering individual countries in the Third World, his method seems to always generate a bell curve
with imminent peaks for everyone outside the Middle East. Examples include Argentina, Egypt and Malaysia. As Table 1 showed, he was
repeatedly too low for Third World producers, especially those with relatively open upstream investment. In fact, what is remarkable is the similarity between Campbell's 1989,
1991 and 1997/98 forecasts (if one ignores the dates). Always, the peak is imminent. But this precisely conforms to the argument in Lynch
(1996), namely that this method almost always produces a near-term peak, no matter when or where it is applied,
Hubbert method fails because it takes recoverable (not total) resources as fixed, and assumes
Lynch (1996) argued that the
that to be the area under the curve of total production. When the estimate of the area under the curve (resources)
is increased, the entire increase must be applied to future production. This is exactly what is happening with Campbell, as Figure 15 shows. The errors
in his 1991 forecast and the adjustments he has made in his latest work are thus predicted by Lynch (1996). Campbell has not provided an alternative explanation, merely ignored them. And as Figure 18 shows, his forecast is well
outside the mainstream.
Short-term prices will certainly fluctuate, and we will surely have more oil crises, since they are short-term events. Unfortunately, there is little doubt that the certain failure of the current Cassandras will be forgotten within a few
years and a new round of alarms will be sounded. Hopefully, it will not receive the attention that the current (and previous) ones did, and even more hopefully, most governments and companie s have already learned their lesson from
the tens of billions of dollars wasted when others cried wolf during the 1970s.
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New technologies are developing quickly and will solve the impacts of the peak
Schafersman, Professor of Geology, Miami – Ohio, ’02 (Steven, prof. of geology @ Miami University, Oxford, OH, “Be Scared; Be
Very Scared,” http://www.freeinquiry.com/skeptic/badgeology/energy/commentary.htm)
Now we come to alternative and renewable energy sources--wind, solar, biomass fuels, etc.--and
modern energy
technologies--hybrid gasoline/electrical engines, hydrogen fuel cells, etc.--that are slowly but steadily increasing their
importance in the energy mix of our country. Yes, these are proportionately small now, but they are
increasing faster than most people are aware. In fact, they are increasing so rapidly that many energy experts believe that they
will significantly supplant fossil fuels in specific circumstances in the coming decade. The unit energy per cost factor of these alternative and
renewable energy sources already equals coal and will soon equal petroleum in many cases. Once again , a decline in oil availability
would not significantly affect total energy availability, as other energy sources replace the use of oil. This
will happen naturally now, even before there is a decline in oil availability, since the alternative energy
sources are cleaner and potentially less expensive.
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Bailey ‘04 (Ronald, Science Correspondent for Reason Magazine, Feb. 18, “Are We Out of Gas Yet?” Reason Online,
http://www.reason.com/rb/rb021804.shtml)
If demand for oil begins to outstrip the supply, prices will rise, signaling companies and consumers to use
less, develop new technologies, switch to other fuels, increase their insulation, and so forth. "Demand for energy is going
to move away from heavy hydrocarbons," Lynch predicts. "Coal is first, oil is next." He expects that our old hydrocarbon friends will
be replaced in our affection by natural gas, nuclear, and other forms of energy as those technologies
improve. "It will be much like the transition in the 20th century from coal to oil in the residential heating and transportation sectors or
like the transition from horses to cars," he says. The Oil Age will end, not with a horrific screech leading to
a destructive crash, but with a barely perceptible, well-lubricated, smoothly braked halt, one that is merely
a prelude to moving smoothly and rapidly forward again.
Furthermore, when the peak and decline are reached--as must inevitably occur sometime in the future-- why
shouldn't the decline be
gradual and steady, thus allowing economies to slowly but steadily transition to alternative and renewable
energy resources? The doomsayers predict, again with no or little evidence, that when the decline begins
the price surge will be enormous and chaotic, thus leading to political upsets and territorial wars. The
alarmists apparently believe that there are no buffering effects in national and global economies, such as,
for example, when the supply of oil decreases with a constant demand, the price will rise proportionately,
causing demand to decrease until supply and demand are once again in equilibrium. Of course, some will
experience a decrease in their standard of living, but major depression and war? I don't think so.
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Jason Hau July 5, 2008 HEADLINE: Diesel price crosses $2 mark The Straits Times (Singapore)
Diesel prices have gone up by 80 cents in the last 12 months, a 40 per cent increase and the most among the five main fuel variants at pump
This latest round of price hikes is the 14th since July last year. It comes
stations here.
as crude oil prices reached another record high of $146US.69 ($199S.35) per barrel two days ago.
AFP Oil prices blaze past record 146 dollars Thu Jul 3 2008, 3:35 PM ET
http://news.yahoo.com/s/afp/20080703/bs_afp/commoditiesenergyoilprice_080703193549
Red-hot world oil prices blazed over a record 146 dollars a barrel Thursday in the face of falling US oil reserves,
geopolitical tensions and a weak dollar, traders said. Russian energy giant Gazprom meanwhile forecast that soaring oil prices would "very soon"
hit 250 dollars a barrel. New York's main oil futures contract, light sweet crude for August delivery, leapt to an all-time pinnacle of 145.85 dollars
before a record close at 145.29 dollars, marking a gain of 1.72 dollars from a day earlier.In London, Brent North Sea oil for August delivery
surged to a lifetime peak of 146.69 dollars a barrel after breaching 146 dollars for the first time in earlier trading.The contract subsequently
settled up 1.82 dollars at 146.08 dollars, "Prices rose to set new all-time highs ... supported by a decline in US
crude oil inventories," said Barclays Capital analyst Kevin Norrish.
Oil prices have increased over half since the end of last year
Sun Sentinel Oil prices continue their climb July 3, 2008 http://www.sun-sentinel.com/business/sfl-
flzoilbrief0703sbjul03,0,6414745.story?track=rss
Oil prices shot to a record above $144 a barrel Wednesday as the government reported a bigger-than-expected drop in U.S.
supplies and the threat of conflict with Iran weighed on traders' minds.
The latest spike means a barrel of crude has gone up by about half since the end of last year, when
oil was going for $96 a barrel. Retail gasoline prices climbed to a record of their own in the United States.
Light, sweet crude for August delivery rose as high as $144.32 on the New York Mercantile Exchange shortly after the regular trading session
ended. The contract also notched a closing record, settling at $143.57 — $2.60 above the previous high from a day earlier.
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Perception and Psychology determine oil prices – shifts can be quick and large
Schoen '08 [John W., Senior Producer at MSNBC, "Oil price spike has wide economic impact,"
http://www.msnbc.msn.com/id/24778287/ download date: 7-2-08]
So far, there seems to be enough oil and gasoline to go around: Refineries are still adequately supplied with crude, and gas
stations aren’t running out of fuel. Prices are surging as traders see an increased risk of that happening.
But that so-called panic buying could quickly reverse, sending oil prices sharply lower.
“This is all about psychology, and we are not very good at oil companies about forecasting the
psychology of prices," Jeroen van der Veer, CEO of global giant Royal Dutch/Shell, said on CNBC Thursday. “So
we'd better prepare ourselves for more volatility because if this is psychology, it can change very
quickly.”
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Associated Press, July 6 2008 OPEC chief: Strong demand will keep oil prices up Sun Jul 6, 1:27 PM ET
OPEC chief Chakib Khelil says the world's surging oil prices are not likely to fall.
He says strong market demand, especially from China and India, is one reason prices will stay as high as
they are. But Khelil told a conference on energy in Algiers on Sunday that the steady increases of late "have nothing to do with
supply and demand." Khelil, who serves as Algeria's energy minister, blames the rise on the weak U.S. dollar, the currency that oil is sold in.
2. Oil producers will keep prices high regardless—increased supply won’t depress prices
Seeking Alpha 12-30-2007, (Jim Kingsdale), http://seekingalpha.com/article/58567-what-the-fundamentals-say-
about-future-oil-prices
All this looks right on paper and it may well happen, but I wouldn’t bet on it. I would bet that if prices do fall
sometime soon, maybe after the peak winter demand season, exporters will cut back fairly quickly to try to keep
the price above $80 or so. Further, when prices eventually begin to rise again, perhaps in the Spring or Fall of
2008, exporters will then be slow to raise production, having just experienced lower prices. So I think a possible
reduction in the oil price next year would be shallow and would likely be followed by a counter trend leg up that
will probably bring the price well above $100. My thesis is based in part on the hoarding mindset that now
dominates the oil market and is hardly ever discussed. Exporters (read OPEC, particularly KSA, UAE, Kuwait,
and Venezuela) are now addicted to high and rising oil prices. Their ever increasing cash flows from oil have led to
their making huge future capital commitments; they are not willing to see falling oil prices endanger those
commitments. They also know that due to tight global supplies relatively minor production cuts are sufficient to
raise prices. Finally they now believe that oil in the out years will only get more expensive. Thus near term
production cuts will also be rewarded because the oil not sold now can be sold later for more money. In summary,
exporters today have their hands on a hair-trigger for raising the oil price and they will not hesitate to pull it if the
price falls much below $85. I summarize this series of attitudes on the part of oil exporters as the “hoarding
mindset.” Meanwhile global oil production is now at an historically high level but still does not seem to be able to
satisfy demand. The Saudis and the Iraqis have both managed to increase production by roughly 500,000 b/d
helping to cause the 85 mb/d global production plateau that has existed for nearly two years to be eclipsed during
the past few months; production now seems to be running in excess of 87 mb/d as shown in this chart: Yet the
price of oil refuses to sink. Each time oil goes into the high $80s it seems to bounce right back in the face of tight
inventories. U.S. crude oil inventories keep sinking – they are now the lowest in nearly three years. This is a chart
that indicates the tightness of U.S. oil supplies measured in days of inventory:
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were about $60 or $70 oil.” Oil is not far from its historic inflation-adjusted high, reached in April 1980 in the aftermath of the Iranian revolution. At the time, oil jumped to the equivalent of $101.70 a barrel in today’s
money. For most of the 20th century, as it transformed the modern world, oil was cheap and abundant. Throughout the 1990s oil prices averaged $20 a barrel.
, for example,
Even at today’s highs, oil is cheaper than imported bottled water, which would cost $180 a barrel, or milk, at $150 a barrel. “The concern today is over how will the energy sector meet the anticipated growth in demand over the longer
supply side, we’re seeing it is struggling to keep up. That’s the energy challenge.” More than any other country, China represents the scope of that
challenge. As it turned into a global economic behemoth over the last decade, China also became a major energy user. Its economy has grown at a furious pace of about 10 percent a year since the 1990s, lifting nearly 300 million
people out of poverty. But rapid industrialization has come at a price: oil demand has more than tripled since 1980, turning a country that was once self-sufficient into a net oil importer.
India and China are home to about a third of humanity. People there are demanding access to electricity, cars, and consumer goods and can increasingly afford to compete with the West for access to resources. In doing so, the two
Asian giants are profoundly transforming the world’s energy balance. Today, China consumes only a third as much oil as the United States, which burns a quarter of the world’s oil each day. By 2030, India and China together will
While demand is growing fastest abroad, Americans’ appetite for big cars and large
import as much oil as the United States and Japan do today.
houses has pushed up oil demand steadily in this country, too. Europe has managed to rein in oil consumption through a combination of high gasoline taxes, small cars and
efficient public transportation, but Americans have not. Oil consumption in the United States, where gasoline is far cheaper than in Europe, has jumped to 21 million barrels a day this year, from about 17 million barrels in the early
1990s. If the Chinese and Indians consumed as much oil for each person as Americans do, the world’s oil consumption would be more than 200 million barrels a day, instead of the 85 million barrels it is today. No expert regards that
global demand is expected to rise to about 115 million barrels a day by 2030, a level that
level of production as conceivable. More realistically,
is likely to tax the world’s ability to pump more oil out of the ground. Already, the world is running on a limited cushion
of spare capacity; any interruption in supplies, whether from hurricanes or armed conflict, causes prices to spike.
“We don’t have any shock absorbers,” Mr. Goldstein said. For oil companies, high prices have set off a frenzied search for new sources around the world. After a long lull in investments through
most of the 1990s because of low prices, major oil companies have invested billions of dollars to bring in more supplies. The trouble is that these big new developments take a long time, and companies have been hobbled by higher
costs. The cost of drilling rigs, for example, the basic tool of the trade, has doubled in recent years. Analysts say it will take time, but new supplies will eventually work their way to market. Supplies have also been hampered by
political tension in the Persian Gulf, the war in Iraq, devastating hurricanes in the oil-producing Gulf of Mexico, production difficulties in Venezuela and violence in Nigeria’s oil-rich province. Many of these geopolitical factors have
Recently, in just nine weeks, oil jumped from $75 to $95 a barrel for little
contributed to a political risk premium variously estimated at $25 to $50 a barrel.
apparent reason. “Fifty-dollar-a-barrel oil seems so far away at this point,” said Thomas Bentz, a senior energy analyst at BNP Paribas in New York, citing a
figure that seemed an impossibly high price for oil only a few years ago. “Oil will stop rising when we see demand destruction. We haven’t seen that
yet.”
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Chinese and Indian demand will continue to drive up global oil prices.
Jad Mouawad. "Rising Demand For Oil Provokes New Energy Crisis." The New York TImes. 9 Nov. 2007.
http://www.nytimes.com/2007/11/09/business/worldbusiness/09oil.html?_r=1&oref=slogin&pagewanted=print
With oil prices approaching the symbolic threshold of $100 a barrel, the world is headed toward its third energy
shock in a generation. But today’s surge is fundamentally different from the previous oil crises, with broad and longer-lasting global
implications. Skip to next paragraph Enlarge This Image Hiroke Masuike for The New York Times Traders at the New York Mercantile
Exchange Thursday, where the price for a barrel of crude oil settled at $95.46. Related Times Topics: Oil and Gasoline Just as in the
energy crises of the 1970s and ’80s, today’s high prices are causing anxiety and pain for consumers, and igniting
wider fears about the impact on the economy. Unlike past oil shocks, which were caused by sudden interruptions in
exports from the Middle East, this time prices have been rising steadily as demand for gasoline grows in developed
countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies
grow at a sizzling pace. “This is the world’s first demand-led energy shock,” said Lawrence Goldstein, an
economist at the Energy Policy Research Foundation of Washington. Forecasts of future oil prices range widely.
Some analysts see them falling next year to $75, or even lower, while a few project $120 oil. Virtually no one foresees a return to the $20
oil of a decade ago, meaning consumers should brace for an era of significantly higher fuel costs. At the root of the stunning rise in
the price of oil, up 56 percent this year and 365 percent in a decade, is a positive development: an unprecedented boom
in the world economy. Demand from China and India alone is expected to double in the next two decades as their
economies continue to expand, with people there buying more cars and moving to cities to seek a way of life long
taken for granted in the West.
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High oil prices inevitable. Other countries are driving them because consumption has
actually been decreasing in the US.
Detroit Free Press, “What's driving oil prices” July 6, 2008
Worldwide demand: This, of course, is the biggie -- the centerpiece of all free market economic debates. And there are certainly
indications that demand -- particularly with China and India ramping up their industrial might -- is increasing
worldwide. Problem is, consumption is actually down in the United States, and an economic slowdown affecting nations
around the world should be reducing demand, bringing down prices. That is not happening.
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. Should Russia succumb to internal war, the consequences for the United
these rebellions spread and Moscow responds with force, civil war is likely
States and Europe will be severe. A major power like Russia -- even though in decline -- does not suffer civil war quietly or alone. An embattled Russian Federation
might provoke opportunistic attacks from enemies such as China. Massive flows of refugees would pour into central and western Europe.
Armed struggles in Russia could easily spill into its neighbors. Damage from the fighting, particularly attacks on nuclear plants, would
poison the environment of much of Europe and Asia. Within Russia, the consequences would be even worse. Just as the sheer brutality of the last Russian civil war laid the basis for the privations of Soviet
communism, a second civil war might produce another horrific regime. Most alarming is the real possibility that the violent disintegration of Russia could lead to loss of
control over its nuclear arsenal. No nuclear state has ever fallen victim to civil war, but even without a clear precedent the grim consequences can be foreseen. Russia retains some
20,000 nuclear weapons and the raw material for tens of thousands more, in scores of sites scattered throughout the country. So far, the government has managed to prevent
the loss of any weapons or much material. If war erupts, however, Moscow's already weak grip on nuclear sites will slacken, making weapons
and supplies available to a wide range of anti-American groups and states. Such dispersal of nuclear weapons represents the greatest
physical threat America now faces. And it is hard to think of anything that would increase this threat more than the chaos
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Jason Corcoran and Nick Clark July 1, 2008 The Independent (London) HEADLINE: RUSSIA'S NEW REVOLUTION;
Bankers were thought to be facing tough times after the credit crunch. But in Moscow, where business is booming, Brits are being attracted by
soaring salaries.
Marcus Svedberg, chief economist at East Capital, an asset manager that focuses on Eastern Europe, said: "Ten years ago, the country
was nearly bankrupt; now the economy is dynamic and, despite what is happening elsewhere, the growth has been
accelerating this year." As an illustration of some of the advances in the Russian economy, which is based on its
oil and gas reserves, Mr Svedberg pointed out that GDP in Russia had risen from $271bn in 1998 to $1.6 trillion this
year. At the same time, debt has fallen from 50 per cent of GDP to 3 per cent. Inflation is down from 84 per cent to 10 per cent, while the
interest rate has fallen from 150 percent to 11 per cent.The country now has an oil fund that has so far invested only in AAA-rated bonds. It is
believed that when the mandate is renewed in October, the fund will have a much more aggressive buying strategy.
Scott Bevan June 7, 2008 ABC Transcripts (Australia) HEADLINE: New Russian laws may restrict foreign investment
For Russia's economy is powering along, fuelled by oil and gas money, and with forecasts of GDP (gross
domestic product) growth of about eight per cent this year. Victor Mizin, from Moscow's Institute of Strategic Assessments,
says Russia's leaders want to use the forum to get the message across that their country is good for business.
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Russia’s economy is growing in the status quo primarily because of oil prices
BBC Monitoring Middle East – Political Text of report by Jordanian newspaper Al-Arab al-Yawm on 21 June June 24,
2008 HEADLINE: Russian envoy to Jordan discusses energy cooperation, Iraq
[Interview with Russian Ambassador to Jordan Alexander Kalugin by As'ad al-Azuni; place and date not given: "Moscow Considers
Supplying Jordan with Oil" - the interview is preceded by a short introduction] [Kalugin] Russia under President-elect Medvedev is
continuing its domestic and foreign policies along the same lines as his predecessor, Putin. Recently Russia registered a 7-per cent
annual economic growth, which is a good indicator of the economy's movement. Some officials say that, by the
end of this year, Russia's Gross National Product will take sixth place among world economies. There is the
advanced technology industry, and gas, oil, metal, and timber exports, all of which play an important role in securing national income.
Nowadays, Russia also plays an important role in the manufacturing industry, and we are working to consolidate this, because we believe that
dependence solely on
oil is harmful.
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Russia’s economy is growing but they are in a precarious position. Their economy relies on
oil and a fall in oil prices will collapse their economy
Donald h. Gold Investor's Business Daily June 23, 2008 HEADLINE: Globalization Fuels Brave New World
After a storybook revolution -- from Lech Walesa to the Berlin Wall to Boris Yeltsin facing down the tanks of an attempted putsch -- the
new Russia is in a precarious position. That may sound odd. The RTSI, Russia's benchmark stock index, is among the world's
hottest. But Russia is a one-sector economy, warns Josef Karasin, head of emerging markets at IDEAGlobal in London.
Russia is sitting on vast stores of oil and natural gas. It's the No. 1 gas source for Europe. Sounds great.
What's more, Russia's untapped deposits are the equivalent of low-hanging fruit, Karasin says. That makes its cost of
production far lower than untapped sources in, say, Canada, the U.S. or the North Sea. Or much of the Middle East.
After decades of Communist Party rule, investment in Russian oil exploration, drilling and extraction was sorely neglected. Elsewhere around
the world, the easy-to-get-at oil had already been pumped, refined and burned. So what's the problem? First, Russia has not translated
its energy wealth into a broader base, Karasin says. If oil and gas prices fall, so will Russia's economy -- and the RTSI, which
is like one giant energy ETF. Second, despite the oil -and-gas boon, Russia is an inefficient, heavily regulated economy. "The authorities
have not made any reforms." Karasin said.
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Africa News BYLINE: Ghanaian Chronicle June 10, 2008 HEADLINE: Ghana; Oil, Millionaires And the Poor
Today everyone is talking about making a fortune from the oil yet to be
produced.It is dangerous for us to build our economy from oil alone. Rather we should think of diversifying our
economy away from the oil dependency. Russia and Nigeria have fallen into the oil trap. They have become
lazy riding on the back of oil money.
The plan would would cause a price decline – affecting Russia especially.
Business Week, John Carey ”Taming the Oil Beast” February 24, 2003 lexis
Yet reducing oil use has to be done judiciously. A drastic or abrupt drop in demand could even be
counterproductive. Why? Because even a very small change in capacity or demand ''can
bring big swings in price,'' explains Rajeev Dhawan, director of the Economic Forecasting Center at
Georgia State University's Robinson College of Business. For instance, the slowdown in Asia in the
mid-1990s reduced demand only by about 1.5 million bbl. a day, but it caused oil
prices to plunge to near $10 a barrel. So today, if the U.S. succeeded in abruptly
curbing demand for oil, prices would plummet. Higher-cost producers such as
Russia and the U.S. would either have to sell oil at a big loss or stand on the
sidelines. The effect would be to concentrate power -- you guessed it -- in the hands of Middle Eastern nations,
the lowest-cost producers and holders of two-thirds of the known oil reserves. That's why flawed energy
policies, such as trying to override market forces by rushing to expand supplies or mandating big
fuel efficiency gains, could do harm.
Russian growth is dependant on oil income (A2: Oil Prevents Real growth)
MSNBC News 9/21/2004 http://msnbc.msn.com/id/6063583/
Another big concern: How much the country's economic boom is tied to high oil prices. Russia is expected to
export nearly $76 billion in oil this year, just under half of all exports. “There's this inherent instability that will
always be existing as long as the economy depends excessively on one or two products,” said Christof Ruhl of World Bank,
Russia. The Russian economy has never grown by more than five percent if oil prices are not rising. So, despite and
expanding middle class, a rise in consumerism and a more diverse economy, the fate of Russia remains closely tied to
the outlook for oil.
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Ever since the Iron Curtain came crashing down, American and Russian diplomats have been searching for a special relationship between their
countries to replace Cold War animosity. Security matters have not yielded much. On issues such as the expansion of NATO, stabilizing
Yugoslavia, and the war in Chechnya, Washington and Moscow have sought each other's tolerance more than cooperation. Nor have the two
nations developed much economic interaction, as a result of Russia's weak institutions and faltering economy. Thus, by default, "energy" has
become the new special topic in Russian-American relations.
At a Kremlin summit in May 2002, Presidents George W. Bush and Vladimir Putin pledged to work together to reduce volatility in global
energy markets and promote investment in Russia's oil industry. Soon after, at the first-ever summit of U.S. and Russian oil executives in
Houston, Russia's energy minister, Igor Yusufov, reiterated this goal. The two governments have created a special working group on energy
cooperation, and Russia will host the next commercial energy summit in 2003. In Moscow, especially, the potential of new oil ties has attracted
extensive media coverage and political speculation. For instance, Grigory Yavlinsky, head of Yabloko, one of Russia's leading opposition
parties, has suggested that the United States and Russia could sideline the Organization of Petroleum Exporting Countries (OPEC) as the
arbiter of world oil prices. This enthusiasm is misplaced, however. A collapse of oil prices in the aftermath of an invasion of Iraq may
soon lay bare Washington's and Moscow's divergent interests. Russia needs high oil prices to keep its economy
afloat, whereas U.S. policy would be largely unaffected by falling energy costs. Moreover, cheerleaders of a new Russian-
American oil partnership fail to understand that there is not much that the two governments can do to influence the global energy market or
even investment in Russia's oil sector.
U.S.-Russian cooperation can help the United States to handle some of the most difficult challenges it faces: terrorism, the
proliferation of weapons of mass destruction, tight energy markets, climate change, the drug trade, infectious diseases, and human
trafficking. These problems are more manageable when the United States has Russia on its side rather than aligned
against it.
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Donald h. Gold Investor's Business Daily June 23, 2008 HEADLINE: Globalization Fuels Brave New World
After a storybook revolution -- from Lech Walesa to the Berlin Wall to Boris Yeltsin facing down the tanks of an attempted putsch -- the
new Russia is in a precarious position. That may sound odd. The RTSI, Russia's benchmark stock index, is among the world's
hottest. But Russia is a one-sector economy, warns Josef Karasin, head of emerging markets at IDEAGlobal in London.
Russia is sitting on vast stores of oil and natural gas. It's the No. 1 gas source for Europe. Sounds great.
What's more, Russia's untapped deposits are the equivalent of low-hanging fruit, Karasin says. That makes its cost of
production far lower than untapped sources in, say, Canada, the U.S. or the North Sea. Or much of the Middle East.
After decades of Communist Party rule, investment in Russian oil exploration, drilling and extraction was sorely neglected. Elsewhere around
the world, the easy-to-get-at oil had already been pumped, refined and burned. So what's the problem? First, Russia has not translated
its energy wealth into a broader base, Karasin says. If oil and gas prices fall, so will Russia's economy -- and the RTSI, which
is like one giant energy ETF. Second, despite the oil -and-gas boon, Russia is an inefficient, heavily regulated economy. "The authorities
have not made any reforms." Karasin said.
Claims that Russia can handle lower prices are based on flawed data – the impact on
Russia’s economy would be massive
Clifford Gaddy and Barry Ickes, The Brookings Institution and The Pennsylvania State University, Eurasian
Geography and Economics, Volume 46, Number 8, December 2005 , pp. 559-583(25)
What is distinctive for Russia, we would argue, is the scale of the informal rent redistribution. Like the part of the iceberg that lies
beneath the surface, the informal rent categories may turn out to be most important in assessing current and future economic and political
developments. To take one example, one frequently hears statements to the effect that a decline in oil prices would have
little impact on the Russian economy. The government’s oil stabilization fund, it is said, absorbs the windfall. The
core budget is sustainable at much lower oil prices. But this line of thinking is based on looking at formal taxes
alone. In fact, we see that the formal taxes and the formal budget are only a part of the picture. Informal rent-sharing
sustains a much broader part of the economy and society. Lower oil prices mean smaller overall rents, and thus
less to be shared among all the categories – not just the part represented by formal taxes.
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Alexander Kolyandr, Dow Jones Newswires, July 1 2008 OIL CONGRESS: Russia's Oil Output Has Reached Plateau
-Dep Min
http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080701%5cACQDJON200807010803DOWJONESDJONLINE000223.ht
m&&mypage=newsheadlines&title=OIL%20CONGRESS:%20Russia's%20Oil%20Output%20Has%20Reached%20Plateau%20-
Dep%20Min
MADRID -(Dow Jones)- Russia's oil production will grow only marginally this year and in the near term, Russia's deputy minister for
energy said Tuesday, and has in effect hit a plateau for now.
"No one should expect that Russia's oil production growth will match the one we've witnessed in the past eight years," Anatoly Yanovsky
said on the sidelines of the World Petroleum Congress.
Over that period, Russia's annual oil production grew from 360 million metric tons to just above 490 million tons.
"Nothing like that will happen", the official said, adding, that Russia's oil production has hit a plateau which will remain unchanged
until new large fields in Eastern Siberia and offshore come upstream.
After several years of stable growth, production of oil and gas condensate in Russia dropped 0.3% in the first four months of this year
compared with the same period a year previously, to 161 million tons, or 1.18 billion barrels, according to the government.
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Low oil prices will not affect Russia - they have shielded themselves from price decline and
diversified their economy.
Belfast Telegraph, Mary Dejevsky, "Russia will not cut oil and gas production, Putin says" September 17,
2007 lexis
Mr Putin was answering questions from foreign Russia-watchers at his summer residence near the southern resort city of Sochi. What had
prompted a response that should reassure Russia's Western customers, at least in the short term, was a comment by a senior official two days
before to the effect that Russia's oil and gas bonanza was almost as much trouble as it was worth. He had said that, while Russia had benefited
hugely from the high energy prices of recent years, these had also created problems. Because the Russian economy simply could
not absorb so much money productively in such a short time, the government had to spend much specialist time
and energy on how best to use it. A proportion goes to the "stabilisation fund", now standing at $130bn, seen as an
insurance against energy prices falling. Another share goes into an "investment fund" for infrastructure projects,
higher pensions and public service salaries. What is left over is invested abroad, much of it in foreign bonds, to be
as safe as possible. Russia's foreign investment policy was, the official said, deliberately"conservative". The official
also said that Russia was looking to invest more in foreign companies, and would already have done so but for what it saw as unwarranted
suspicion of Russia's intentions and closet protectionism on the part of foreign governments. It was in this context that a participant in the
discussion with Mr Putin asked this question: Why, if Russia found administering its new oil and gas wealth so burdensome, did it not consider
cutting production? Keeping the stuff in the ground, he suggested, would have several beneficial effects for Russia. It would raise the world
price, so yielding more money for less effort. It would, assuming no dramatic fall in prices in the near future, guarantee Russia a good income
for many more years. And it would save ministers the time and effort involved in figuring out how to invest its windfall. The question clearly
appealed to Mr Putin. He smiled and described the proposition as interesting, as he seemed to turn it over in his mind. But his response was
categorical. "We will extend and increase production of both oil and gas, and we will do that because global demand
is growing." He said that Russia had no intention of banking on further rises in energy prices. "We remember that
there was a time when coal was the main source of energy, and then all at once the price fell sharply. What good
would come of speculating?" Russia, he said, "wants to behave responsibly" not for its own sake, but because
"harmonious relations" with the rest of the world was as much in the national interest as high energy prices.
Apparently alluding to Western charges that Russia used its position as an energy supplier as a weapon, Mr Putin said that Russia had never "
blackmailed" the world market. He went on: "We are not a member of Opec though we keep a close eye on what it does and one reason is that
we don't have the level of state monopoly over energy production that most Opec countries have."
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A little less than a year ago, August 17 to be precise, the post-Cold War Russian economic experiment imploded. The ruble
collapsed and debt payments to foreigners were frozen. Wall Street lost billions of dollars. Long Term Capital Management, one of the world's
biggest hedge funds, had to be taken over by its bankers. Once burned, international investors yanked their capital out of all emerging markets
— from Latin America to East Asia— causing world interest rates to spike. The global economy teetered on the edge of
depression. But, much to the surprise of most economic pundits, international markets quickly righted
themselves. The Russian economy proved far more resilient than anticipated. And, in retrospect, the events of August,
1998 were little more than a very large bump in the road. The lessons of this "crisis that wasn't" are now clear: Russia is not
too big to fail (the volume of its debts do not dictate special treatment by its creditors); the financial world can cope with such
failure; and the Russian economy can bounce back without much overt help from the West. But the impending $4.5
billion loan to Russia by the International Monetary Fund— reflecting Washington's gratitude for Moscow's help in Kosovo, continued fear of
Russian nuclear proliferation and concern about Russia's internal political stability— demonstrates that Russia still remains too
important for the world to ignore. This contradiction— not too big to fail, but still too big to flounder— highlights the friction
inherent when economic policy is used to further geo-political goals. Up until a year ago, the Clinton Administration argued that aid to Russia
was needed, in part, to avoid global economic collapse. August, 1998 exposed that rationale as a charade. Now American support for assistance
to Russia can only be justified for two reasons: to reinforce Russia's transition to a market economy or as ransom in Moscow's continued
strategic blackmail of the West. Evidence to justify the former is dubious. Its time to own up to the latter. Last summer's fleeting economic
fright reflected Russia's staggering economic collapse. The ruble fell by more than 70 per cent in a couple of weeks. The
economy shrank by 4.3 per cent. Real wages fell 41 per cent. But the crisis was cathartic. "The shock accomplished what
reform was intended to achieve," said Anders Aslund, a senior associate at the Carnegie Endowment for International Peace in
Washington. The banking system now functions better. Barter is declining. Most important, there has been no reversion to
central planning, government-directed lending, industrial subsidies or government reliance on simply printing money.
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David impact
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States News Service June 24, 2008 HEADLINE: AS OIL WEALTH RISES IN EURASIA, DEMOCRACY DECLINES
SIGNIFICANTLY
To coincide with today's release of the Freedom House Nations in Transit 2008 report, three of the study's authors gathered at RFE/RL's
Washington, DC headquarters to discuss one of its key findings - that, as oil and natural gas revenues surge in Russia and
Central Asia, democratic institutions in these countries are eroding significantly. [Read more about the Nations in Transit
2008 Report] "The resource curse is taking root," Freedom House Director of Studies Christopher Walker told the group. "The
growing authoritarianism in oil and natural gas-rich countries such as Russia, Kazakhstan and Azerbaijan is severely
restricting the ability of democratic institutions to operate." According to the report, the regression in Azerbaijan, Kazakhstan
and Russia has occurred systematically and across sectors, including in the areas of electoral process, civil society, independent media and
judicial independence. "Russia's decline in all of the report's categories over the past eight years is dramatic," said Robert
Orttung, the author of the section on Russia and a Senior Fellow at the Jefferson Institute. "For years, Vladimir Putin has been
using oil and natural gas revenues to build up his police forces and consolidate power in such a way that there is no space for
democracy to grow."
Muravchik 2001 (Joshua- Resident Scholar at the AEI, “Democracy and Nuclear Peace” July 14,
http://www.npec-web.org/Syllabus/Muravchik.pdf, Date Accessed 7/29/2006)
That this momentum has slackened somewhat since its pinnacle in 1989, destined to be remembered as one of the most revolutionary years in all
history, was inevitable. So many peoples were swept up in the democratic tide that there was certain to be some backsliding. Most countries'
democratic evolution has included some fits and starts rather than a smooth progression. So it must be for the world as a whole. Nonetheless, the
overall trend remains powerful and clear. Despite the backsliding, the number and proportion of democracies stands higher
today than ever before. This progress offers a source of hope for enduring nuclear peace. The danger of nuclear war was
radically reduced almost overnight when Russia abandoned Communism and turned to democracy. For other
ominous corners of the world, we may be in a kind of race between the emergence or growth of nuclear arsenals and
the advent of democratization. If this is so, the greatest cause for worry may rest with the Moslem Middle East where nuclear arsenals do
not yet exist but where the prospects for democracy may be still more remote.
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RIA Novosti July 4, 2008 HEADLINE: An in-depth look at the Russian press, July 4
Surging oil and gas prices could be even more dangerous for Russia than for Europe. If money is flowing freely
into Russia's economy, Russia will face hyperinflation. "No one has made any estimates yet, but it is obvious that such prices
($250 per bbl of oil and $1,000 per 1,000 cu. m. of gas) will entail double-digit inflation figures, the first one being 'two'," a Russian Finance
Ministry official said. In this situation the best the ministry could do is to channelthe superprofits into the oil and gas reserve fund. However,
unlike Gavrilenkov, the ministry official described these figures as "fantastic." Fuel prices surging to these levels would bring a
global recession which would hit everyone severely, warned Adam Sieminski, Deutsche Bank's economist. Even a growth in gas
prices to $500 is enough to slow down the global economy similar to the early 1980s situation. The IMF estimated each $25 per bbl increment
in the global oil price cuts global GDP by 0.5%, Sieminski said. With average yearly oil prices at $125 per bbl, the global economy will grow
by 3.5% in 2008, and only by 2% if the oil price reaches $200.
Turn- lowering prices key to Russian economy- its the only way to solve inflation
St. Petersberg Times 10/23/2001
THE world's biggest problem at the moment is terrorism, and Russia's is falling oil prices. At least this is the impression one gets from reading
the Russian and international press. Russian media and politicians continue to fret about the impact of a global slowdown on oil prices. Worse,
even financial markets have started to worry and the RTS has recently been falling in parallel with the oil price,
mainly amid worries about Russia's ability to meet future debt repayments. This does not reflect much
consideration of the longer term. While high world energy prices such as were experienced in 2000 may be good
for Russian oil majors and natural-gas monopoly Gazprom, in the longer term they are clearly bad for the rest of
Russia. The explanation is simple. At prices around $26 for a barrel of Urals blend, Russia ran a current-account
surplus of around $46 billion (roughly 18 percent of GDP) in 2000. Such an imbalance is huge by any standards and
either induces a rapidly appreciating real exchange rate or forces the Central Bank to print money on a large scale
to buy up the incoming dollars. The former is poison for Russia's recovering industry and the latter leads to sizeable inflation.
Choosing between these two evils, the Central Bank has so far rightly chosen a small dose of the former, and a good dose of the latter. It will,
however, not be able to maintain this course indefinitely without creating a major inflation problem. Hence, lower oil prices would be a great
boon for the Russian economy.
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Renewables (1nc)
High energy prices leads to development of renewables
Josef Braml is editor-in-chief of the Yearbook on International Relations at the German Council on Foreign Relations (DGAP) in Berlin. The Washington Quarterly • 30:4 pp. 117–130. 2007 Can the United
States Shed Its Oil Addiction?
Cheap crude will short-circuit the push for renewable energy. We've seen this before. The surge in oil
prices that occurred after the 1973 oil embargo didn't last. As prices softened, so, too, did the interest in
solar power, wind power and other technologies. The best hope for the renewable energy sector is a
sustained period of high prices for fossil fuels of all types, from coal to natural gas.
Low-cost oil would increase emissions of greenhouse gases. One can argue all day about what's causing global warming. But if policymakers
want to embrace Kyoto or other anti-warming initiatives, cheap oil is the last thing they should want.
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Hunter, Senior Fellow, Hudson Institute, ’08 [Rod, also former senior director at the National Security Council under President George W. Bush responsible for
international economics, "Opinion: The Market Is Responding to the Oil Shock," July 8, Wall Street Journal http://online.wsj.com/article/SB121547405022734039.html?mod=opinion_main_commentaries download date: 7-8-08]
Yet market
The leaders of the G-8 and of major developing countries will discuss how to respond to energy security and climate change tomorrow. Their first instinct will likely be to propose new regulations.
forces may already be solving these problems, as high oil prices drive a shift away from the polluting,
petroleum-fueled internal combustion engine to cleaner forms of transportation. That's a change worth cheering, even if oil prices are
painful in the meantime. Oil is the United States' principal transportation fuel, and the source of a third of the country's greenhouse gas emissions. Other major countries are similarly
dependent on oil for transportation. As prices have risen, worries about energy security and long-term
climate effects have reached a fever pitch.
History teaches that innovation directed by markets can solve problems such as these. In New York at the end of the 19th century,
horses were the main form of transport – and a major source of pollution. As many as 200,000 horses each produced 15 to 35 pounds of manure per day. Manure piles along the roads and in stables produced vast numbers of flies, an
important vector for infectious diseases such as typhoid fever. Horses became increasingly expensive, thanks to rising prices for hay, oats and the urban land required for stables.
Initially the automobile wasn't much competition for the horse. Then, around the turn of the century, a series of
innovations involving the internal combustion engine and manufacturing (mass production, assembly lines and interchangeable parts) improved performance, reliability and
costs. As car prices fell, the horse, the manure and the "typhus fly" were done for. The same thing may be happening today. This March, American entrepreneur Elon Musk
started production of his electric sports car, the Tesla. This car accelerates from 0 to 60 miles per hour in four seconds, tops out at 125 mph, and has a range of 220 miles. The $110,000 price tag limits the Tesla to the wealthy, but
Recent cost
mass-production models are in the works. General Motors has committed itself to rolling out its electronic vehicle, the Volt, by 2010. Toyota plans a successor to its popular Prius hybrid.
comparisons by Deutsche Bank's auto analysts suggest electric cars will be cheaper to operate than
conventional vehicles. Fuel costs per mile for gasoline-fueled cars are $0.27 in Germany, $0.24 in Britain, $0.17 in Brazil and $0.11 in the U.S., with differences driven by local fuel taxes. For electric
vehicles, the cost per mile is a mere $0.02. Adding in a battery amortized over the life of the car, the cost is still only $0.10. Batteries will be expensive, at least in early years, but electric cars won't need costly engines or complex
transmissions like today's autos.
Cost differentials like those could drive a quick transition to energy-efficient forms of transportation. There
would surely be failures along the way – even Henry Ford had a couple of flops and an encounter with bankruptcy before making it big with the Model T. And it would take a while to replace the existing transportation fleet made up
of cars that last 15 years.
transportation-related greenhouse gas emissions could ease (even coal-fired power plants are better than millions of gasoline-powered autos). As costs
fall, electric vehicles could be adopted in developing countries, amplifying energy security and climate
benefits.
The transition would reduce the world's dependence on regimes run by thugs and theocrats. More than 80% of proven reserves are controlled by national oil companies and Russian firms, which don't operate like normal profit-
maximizing businesses. (Witness Russian threats to turn off gas supplies to Ukraine and Eastern Europe.) High oil prices have corrupted countries with weak institutions and reinforced misbehavior of international miscreants such as
Iran and Venezuela.
regulation (think cap-and-trade), the more scope for undesired consequences. High oil prices, as
unpleasant as they are, are making a lot of alternative energy and transportation technologies look
attractive. The petroleum-powered auto has provided affordable independence to millions for a century,
but has brought its own problems. Innovation and markets could well send the internal combustion engine
and its oil-related worries the way of the horse and buggy.
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High Oil prices spur alternative energy and less use of oil
Yetiv, Professor of political science and international studies, Old Dominion University, '06
[Steve A., "OPINION: America benefits from high oil prices," The San Diego Union-Tribune, February 6, L/N]
From Wall Street to Main Street, people hate high oil prices because they cause economic pain. But like coffee, red wine, and perhaps even chocolate, high oil prices can do some good too. Current energy legislation, which was passed
by Congress and signed by President Bush in August 2005, moved America in the right direction, but it has a core weakness. This legislation, like President Bush's vision of oil independence laid out in his recent State of the Union
speech, fails to do what higher oil prices can accomplish: decrease oil consumption in the transportation sector where 70 percent of oil is used and diminish our dependence on foreign oil. Current energy legislation, and President
Bush's vision, does encourage power sources such as nuclear, coal, solar and wind. But, with the potential partial exception of solar power, they can't run vehicles. Astonishingly, less than one-eighth of that $14.6 billion in energy
legislation actually decreased oil use in transportation.
what can high oil prices do that America's energy policy fails to do? First, sooner or later, high oil prices spur the
In particular,
development of alternative energy resources because they make it more profitable to produce them. The
higher prices go, the more entrepreneurs and companies around the world work to move us beyond the
hazardous petroleum era. Second, the higher oil prices go, the more likely automakers will mass-produce more
efficient, less pricey vehicles. That is precisely what we need to shift the current oil-guzzling paradigm. A
joint report by the Transportation Research Institute's Office for the Study of Automotive Transportation at the University of Michigan and the Natural Resources Defense Council shows that higher oil prices will hurt America's top
automakers by decreasing sales of SUVs and pickup trucks. The report calls on them to make fuel efficient vehicles their top priority to better the country and their bottom line.
Most automakers are experimenting with fuel cell vehicles that run on hydrogen rather than oil. They are also selling 2005 hybrid vehicles that run on an internal combustion engine, as do conventional cars, plus an electric motor.
Depending on the car, they yield between 10 percent and 50 percent better gas mileage than regular vehicles, and far better mileage than the ubiquitous SUV. But hybrids represent a drop in the market bucket, because automakers have
making efficient vehicles on a mass, affordable scale, and sooner rather than later.
Third, high oil prices make consumers less likely to waste gas and more likely to buy hybrids. In Europe, high gas prices -- roughly double that in the United States -- have led to mass adoption of hybrids. Investment banking firm
benefit the environment. Indeed, one study has shown that a broad energy tax on carbon content in fuels would reduce oil use and carbon emissions by over 10 percent. For that matter, vehicles that run on
fuel cells emit only water and heat as waste, and hybrids emit more limited emissions than conventional vehicles. Since carbon emissions cause global warming -- a scientific
fact rather than science fiction -- we should tip our hats to high oil prices, in this respect. Fifth, high oil prices are raising consciousness about the hazards of the oil era. Ninety-three
percent of Americans believe that oil dependence is a serious problem. Although they still act like oil is an entitlement, pricey oil may lead them eventually to put pressure on politicians to move toward greater oil independence, as
higher oil prices are painful. But, over time they can serve the environment,
reflected perhaps in President Bush's speech. Of course,
decrease our dependence on Middle East oil, especially from countries like Iran which uses oil money to build nuclear capability and force us to take
actions that make us less vulnerable when oil starts to dwindle in the future.
In a new study released today, the UN Environment Programme (UNEP) says that investment in the renewable energy
and energy efficiency industries rose more than 60 per cent last year, to nearly $150 billion. UNEP cites the rise
in oil prices as a major cause.
New investment in renewable energy is increasing and the industry is maturing because of
high prices
Thai Press Reports July 4, 2008 HEADLINE: THAILAND WORLD BANK SUPPORTS CARBON-FINANCE PROJECT
IN CHON BURI'S KOH SICHANG DISTRICT
A UN Environment Programme (UNEP) study has shown that new investment in clean energy across the world last
year topped $148US billion (Bt5 trillion), a 60-per-cent increase from 2006, as renewables and energy efficiency attract
fast-growing interest. Growth continues this year on climate-change worries, growing support from world governments, rising oil prices
and ongoing energy security concerns.
"The clean-energy industry is maturing and its backers remain bullish. These findings should empower
governments - both North and South - to reach a deep andmeaningful new agreement by the crucial climate convention meeting
in Copenhagen in late 2009," said Achim Steiner, the head of the UNEP.
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High oil prices are the biggest power driving the fast development of the renewable energy
industry
SinoCast July 8, 2008 HEADLINE: Renewable Energy Becomes Bonanza When Oil Price Flys
The soaring international oil price is becoming the biggest power that drives the renewable energy, like wind,
solar, and biomass energy, to grow up as one of the fastest-developing industries around the world, said Gu Jie,
deputy director of the Investment Promotion Bureau of Ministry of Commerce of China. Mr. Gu points out that China is a big energy consumer
and its demand is increasing rapidly along with the economic and social development. There are enormous investment opportunities
in the renewable energy sector in the country.
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High Oil prices drive conservation efforts and development of alternative energy sources-
only hope to solve global warming
St. Louis Post-Dispatch 2004 GWYNNE DYER, “Higher oil prices may save the planet”, August 24
Some time this week or next, oil is likely to reach $50 a barrel for the first time ever. The price is up by a third since the end of
June, and U.S. prices have set record peaks in all but one of the past 15 trading sessions. This is a good thing.
It's certainly a good thing for the oil producers, who have seen the value of their oil exports eroded by the steady fall in the value of the U.S.
dollar. Even at $40 a barrel, they were getting no more in real terms than they were when oil was trading in the high $20s, but at $50 a barrel
they are actually seeing more money. It's less obviously a good thing for everybody else, but the best things often come in
heavy disguise. This isn't an "oil shock" like in 1980, when the price of oil spiked at the equivalent in today's money of $80 a
barrel after the Iranian revolution and then slid back down after a year or so. It is a "demand shock," which is a much more enduring change.
Thanks mainly to the rapid economic growth of China and India, there is now a market for every barrel of oil that the producers
can pump. Most of the growth in the global economy used to happen in the developed countries, whose economies typically grow at 2
percent or 3 percent a year. Last year, almost half the growth happened in developing nations: China alone added as much demand as the
United States, and India added as much as continental Europe. There is no way that oil production can be expanded fast enough to keep up with
these growing economies. As a result, oil prices will fluctuate much more wildly than before. If Iraqi production is disrupted by the uprising in
southern Iraq, the Deutsche Bank warned recently, "it is not unthinkable that a second disruption (loss of some exports from Russia, for
example) would push prices towards $100." Ever since 2000, the Organization of Petroleum Exporting Countries has tried to keep the price of
oil in the $22-$28 range, cutting production if it fell below that band and increasing output if it climbed above it. It has been well above that
band for six months. "Our ministers realize they need to revise the price band, particularly given the changing value of the dollar," said OPEC
spokesman Abdul al-Khereigi last week -- and speculated that the new band would be $25-$30 or even $26-$32. The price of oil may
never actually fall back that far again. Why is that a good thing? The main reason is global warming, which is
coming on faster and harder than even the pessimists feared. In a system as complex as climate, all sorts of things change in
unpredictable ways when you raise the total amount of heat in the system. Some of the changes we are observing now are very worrisome. It
was assumed, for example, that the rise in global temperature would be canceled out partly by a higher rate of evaporation from the oceans that
produced more cloud cover. Instead, the higher temperatures seem to be burning off the clouds. And recent research suggests that the higher
level of carbon dioxide in the atmosphere is stimulating bacteria that live in peat bogs, greatly increasing the speed with which they dissolve
the peat into more carbon dioxide. If this turns out to be a runaway feedback loop, we are in serious trouble, because the peat bogs of the
Northern Hemisphere contain the equivalent of 70 years' worth of global industrial emissions of carbon dioxide. New calculations suggest that
we may be facing a global temperature rise over the next century not of 10.6 degrees Fahrenheit, which would be bad enough, but as much as
18 to 21 degrees. That would be calamitous, but key players in the world of politics and most of the business world (apart from the insurance
industry) remain in denial. The only short-term hope of slowing the rise in temperature is a steep drop in the use of oil
and gas, and the only thing that is going to make that happen is a steep rise in price. It has happened before.
Alternative energy sources take a long time to build, but energy conservation works relatively quickly: The big oil
price increases of the 1970s caused the industrialized countries to bring in energy conservation measures that cut
global oil consumption drastically. Twenty-five years of profligacy since then means that there is once again huge
scope for rapid gains from conservation. It will only happen, however, if the oil price goes up and stays up.
Renewable companies live on the margins – even small price changes could wipe them out
Smart Money '07[By Rob Wherry, Smart Money is an investment website and a joint venture between Dow Jones & Company, Inc. and Hearst SM Partnership."Alternative-Energy Funds Could Offer High-
Powered Returns," June 21, http://www.smartmoney.com/fundinsight/index.cfm?story=20070621&hpadref=1%29 download date: 7-8-08]
Wind power and other forms of alternative energy — solar, hydro, geothermal, biomass — are quickly coming into vogue across the globe
thanks to record high oil prices, shrinking reserves and world-wide demand that is expected to increase 50%
by 2030, according to the International Energy Agency. What has also given them some attention is that these sources are now at the
heart of profitable businesses. That hasn't always been the case. Clean Edge, an industry research firm, anticipates biofuels, wind, solar and fuel cells will
generate $217 billion in industry wide revenues by 2016, up from $56 billion in 2006. Even the typical American has changed his perception: A survey by Calvert, a socially-responsible investment firm, found that 85% of the 1,094
people that they polled thought putting money into alternative energy was a good way to protect the environment and make money, too. Add all that up and you have a decent investing opportunity. You could spend your time reading
over analyst reports on alternative-energy companies — what little there are on these thinly-traded firms — looking for a diamond in the rough. But a smarter option is to scoop up the shares of one of the growing number of mutual
and exchange-traded funds that specialize in this field. As always, though, be prepared for sector funds like these to experience dramatic ups and downs. And we would suggest only building a 5% or smaller position in this niche. The
Many alternative-energy companies are small firms that are barely profitable. Lose a few
concerns here are numerous.
customers or fail to make a piece of technology work and it could be lights out. Alternative-energy
investors not only need to be aware of the price of a commodity like oil — the higher it goes the more
attractive managing solar and wind farms becomes — but also others like corn, a chief ingredient in
ethanol.
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Renewables 2ac
1. Renewable development is not dependent on high oil prices
Environment News Service, 6-21-07, http://www.ens-newswire.com/ens/jun2007/2007-06-21-04.asp
While the report finds that high oil prices have driven investors into the renewable energy market, UNEP
Executive Director Achim Steiner says many investors are choosing renewables regardless of oil prices. "One of
the new and fundamental messages of this report is that renewable energies are no longer subject to the vagaries of
rising and falling oil prices - they are becoming generating systems of choice for increasing numbers of power
companies, communities and countries irrespective of the costs of fossil fuels, said UNEP Executive Director
Achim Steiner, introducing the report Wednesday.
2. Economic damage and slow rate of conversion prevents a shift to renewables from high
prices
David Goodstein, Physicist and Vice Provost at California Institute of Technology, 2004, Out of Gas, pg. 32
Once past Hubbert’s peak, as the gap between rising demand and falling supply grows, the rising price of oil may
make those alternative fuels economically competitive, but even if they are net energy positive, it may not prove
possible to get them into production fast enough to fill the growing gap. That’s called the rate-of-conversion
problem. Worse, the economic damage done by rapidly rising oil prices may undermine our ability to mount the
huge industrial effort needed to get the new fuels into action.
(some affs may also be able to read renewables fail/transition now bad cards)
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Science Letter July 8, 2008 HEADLINE: INTEGRITY INTERNATIONAL; Integrity International Launches Renewable
Energy Staffing Division
"While business ideas in the renewable energy field will work and fail, we project that the job opportunities will
grow dramatically in the near term," Ahumada said. "Even without the recent spike in oil prices, the pressure to
increase renewable energy is strong and will continue to grow."
Hill ’06 Oil Daily September 22, 2006 Friday SECTION: FEATURE STORIES LENGTH: 571 words HEADLINE:
Renewables Risk Losing Momentum With Oil Price Drop BYLINE: Katherine Hill, New York
In contrast, an oil price drop would have little impact on the solar sector, according to Noah Kaye of the Solar
Energy Industries Association. Likewise, the wind sector would be largely unaffected. The only risk they face from
an oil price drop is that investor could drop off, as the general concept of renewables would not generate as much
buzz in a climate of low oil prices as they do today. Otherwise these industries would remain healthy -- demand
currently exceeds supply both for solar photovoltaics and wind turbines.
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Renewables Fail
Renewables won’t catch on – 4 reasons
(wind; solar) (fossil fuels are getting cheaper, vulnerable to price swings, politically vulnerable, skittish investors)
Paul Roberts, energy expert and writer for Harpers,2004, The End of Oil, pg. 201-2
Other problems become more apparent when we look more closely at cost. Although wind and solar are getting
cheaper, proponents often overlook the fact that their competitors are also getting cheaper and will continue to do
so. Just as fuel cells must compete with a constantly improving internal-combustion engine, wind and solar will
have to battle with gas- and coal-fired technologies that will grow more efficient and less expensive and less
polluting by the year. Renewables are also extremely vulnerable to energy price swings: if gas prices were to come
down, for example, wind and solar power would lose much of their cost advantage. Renewables are politically
vulnerable, as well: if wind or solar were to lose their government subsidies, the current boom in new installations
would come to a screeching halt: the mere threat of such a loss has many potential investors looking elsewhere.
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Cheap Oil brings Saudi instability, overthrow, collapse, civil war, and U.S intervention
Bryce ’07 [Robert Bryce lives in Austin, Texas and managing editor of Energy Tribune. He is the author of Cronies: Oil, the Bushes, and the Rise of Texas, America's Superstate. Petroleumworld does not necessarily
share these views. "The Politics of Cheap Oil," Petroleumworld News 01/28/07, Editor's Note: This commentary was originally published by CounterPunch, January 17, 2007. Petroleumworld reprint this article in the interest of our
readers. http://www.petroleumworld.com/SF07012801.htm download date: 7-8-08]
A long period of cheap petroleum could result in instability in key countries in the Middle East. This runs
directly counter to the neocon gospel. If the U.S. could, magically, be energy independent, Friedman and his fellow
travelers claim that global crude prices will collapse. That will mean, according to Friedman, that the rulers of
repressive oil-rich countries would be forced to "open up their economies and their schools and liberate their
women." He might be right. Or he could be disastrously wrong. And if that instability does occur, A.F.
Alhajji, an energy economist and professor of economics at Ohio Northern University, says "the West cannot
turn a blind eye to such conflicts." Indeed, the U.S. could not stay on the sidelines if a key ally like Saudi
Arabia or Kuwait were to get embroiled in a nasty internal conflict due to an economic crisis caused by low
prices. Just to drive that point home, Gaffney and Woolsey and their ilk love to bash the Saudis. Would they be
happier, if, thanks to their push for energy independence and cheap oil, Saudi Arabia's king, Abdullah, who is a
moderate and a staunch ally of the U.S., were to be deposed and replaced by a group of Wahhabi clerics
who hate the U.S. as well as everything modern?
A Saudi collapse spreads in the Mideast and collapses the global economy
Robert Baer, former CIA field officer in the Middle East, Sleeping With the Devil, 2003, pg. 206-7
Not all the wishing and hoping in the world will change the basic reality of the situation, which is as follows: The industrial world is dependent
on the oil reserves of the Islamic world and will be for decades to come, whether it’s the already developed reserves of the largely Arab states
or the soon to be developed reserves of Central Asia. Of the Islamic oil states, none is more critical than Saudi Arabia, because
(a) it sits on top of the largest proven reserves; (b) it serves as the market regulator for the entire global petroleum industry; and (c) it
has the money, the polit¬ical will, and the religious zeal to pursue control of the Arab Peninsula and Central Asia. Of all the oil-
consuming states, none consumes more than the United States, none enjoys anything like the most-favored-nation
status that the U.S. enjoys with the Saudis, and thus none is more dependent on Saudi oil to fulfill its appetite and
to keep doing so at a compliments-of-the-house rate. If Saudi Arabia tanks, and takes along the other four dysfunc¬tional
families in the region who collectively own 60 percent of the world’s proven oil reserves, the industrial economies are going down
with it, including the economy of the United States of America.
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Ian Bremmer, Winter 2007 Ph.D. in Political Science, Stanford, The National Interest HEADLINE: In the Right Direction
A state's relative prosperity determines its baseline for stability. If North Korea suddenly struck oil, it would become more
stable at every point along the curve, because it would have more resources with which to artificially reinforce stability at every given level
of openness. If oil prices suddenly crashed to $20 per barrel, Saudi Arabia would become considerably less stable. But
the basic relationship between stability and openness (the shape of the curve) remains the same whether the entire
curve is rising or falling.
High oil prices are key to temper social unrest and terrorism in countries like Saudi Arabia
Leonardo Maugeri, ENI SPA's senior vice-president of corporate strategies and international relations, senior
fellow at the World Economic Laboratory at MIT, a senior fellow at the Foreign Policy Association, and a member
of the executive council of the Center for Social Investment Studies, degree in petroleum economics and a PhD in
international political economy,, 12/15/2003, Oil & Gas Journal
This policy has few alternatives, particularly for the great Persian Gulf producers, since their economics remain heavily oil-
based while their demography has dramatically changed. Countries such as Saudi Arabia have doubled their population in 12
years. Sixty percent of the gulf countries' population is less than 21 years old. This demographic explosion has created
expectations and frustrations to which stagnant and monocultural economies cannot give a credible answer. Only sustained oil revenues
allow these countries to temper social unrest by preserving huge social assistance programs. Gulf countries' oil
revenues are already much lower today than 20 years ago, and cheap oil prices mean a dramatic dip in per capita
oil income. Therefore, frustration and violent revolt may erupt whenever the minimum needs for living are
endangered by decreasing oil prices, particularly among people who already live in poverty and cannot permit
themselves the luxury of hoping for a different future. Clearly, fundamentalism today -- like socialist pan-Arabism of
yesterday -- is finding fertile ground in these hopeless people. Indeed, this is the cause of its strength and its
diffusion.
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Impact XT / US draw in
US will defend and protect saudi regieme from any threats, internal or external
Michael T. Klare (Professor of World Security Studies at Amherst) 2001 Resource Wars the New Landscape of
global conflict p. 75
The third scenario that dominates U.S. military planning is an internal threat to the Saudi monarchy. Protection of
the Saudi regime has heen a basic feature of U. S. security policy since 1945, when President Roosevelt met Ibn
Saud and assured him of America's support.54 At the core of this arrangement is a vital but unspoken quid pro
quo: ill return for protecting the royal family against its enemies, American companies will be allowed unrivaled
access to Saudi oil fields. To defend the monarchy against its external opponents, the United States has fought a
war against Iraq and conducted the military buildup described above. Increasingly, however, internal defense is
becoming I he greater priority.55
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1. Saudi Arabia has diversified their economy and can stay on a growth path even if oil
prices decline.
Arsene Aka Global Insight August 2, 2007 HEADLINE: Fitch Raises Outlook for Saudi Arabia's Sovereign Foreign Currency
Significance: A sharp decrease in international oil prices remains the main risk facing the kingdom. However, during the current oil boom,
Saudi Arabia has used part of its oil-revenue windfall to build up assets overseas, which could be drawn upon if
global energy prices falter in the future. With global oil demand expected to remain strong over the next two years, the sovereign's
creditworthiness seems relatively secure. Meanwhile, Saudi Arabia has made good progress in promoting the non-oil sector.
Despite a fall in oil production in 2006, the economy expanded robustly, on the back of strong growth in the non-
oil sector.
Still, Saudi economic reforms do merit attention. The UNCTAD report came roughly two weeks after a World
Bank report, Doing Business 2008, described Saudi Arabia as the world's seventh fastest reforming economy. It
also stated that the country had joined the ranks of the top 25 countries worldwide in terms of the ease of doing
business.
3. High oil prices have allowed Saudi Arabia to reform its economy
Erlend Paasche Saudi Arabia's economic liberalization Wednesday, December 12, 2007
http://www.speroforum.com/site/article.asp?id=12974
According to conventional wisdom, high oil prices would render economic reform in oil-rich countries a poor
chance of success with increases in state income lessening the pressure for such change. In a time of sky-high oil
prices, Saudi Arabia proves that conventional wisdom sometimes misses the mark.
Saudi oil export revenues constituted a meager US$34.3 billion in 1998, but rose to US$46.8 billion in 1999 and
US$65.5 billion in 2002. SABB, one of the kingdom's largest banks, projects oil revenues of US$165 billion this
year. Even though the Saudi state has thus gradually gained access to a greatly increased volume of external rent, it
has somewhat paradoxically loosened its tight grip on the economy, opened up its markets for privatization and
foreign investment and actively strengthened its private sector.
Compounding this problem, the huge money flows into the region from oil purchases help finance terrorist
networks. Saudi money provides critical support for madrassas with virulent anti-American views. Still worse, diplomatic efforts to
enlist Saudi government help in choking off such funding, or even to investigate terrorist attacks, are hampered by
the priority we attach to preserving Saudi cooperation in managing world oil markets.
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Saudi Arabia made a substantial improvement this year moving up 37 places. Saudi
authorities have implemented a wide range of
economic reforms over the past few years to diversify the economy away from oil and create employment
opportunities for Saudi nationals. Saudi Arabia's recent economic reforms have received wide acknowledgement
from international organisations. Saudi Arabia ranked the twenty third out of 178 countries and the first among Arab countries on the ease
of doing business report for 2008 published by International Finance Corporation, a member of the World Bank Group.
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Arsene Aka Global Insight August 2, 2007 HEADLINE: Fitch Raises Outlook for Saudi Arabia's Sovereign Foreign Currency
While maintaining Saudi Arabia's long-term foreign and local currency Issuer
Default Rating (IDR) at A+, Fitch Ratings upgraded the kingdom s outlook from
stable to positive on 31 July. The agency pinned the improvement on high international oil prices, increased transparency,
the favourable business environment, recent improvements in security and less political uncertainty.
High global oil prices have given rise to large current-account and budget surpluses, which in turn have led to lower
domestic debt, increased international reserves, an increased net public external creditor position, and
an increase in both private and public investments in infrastructure.
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Oil dependency forces the U.S. to support oil regimes that oppress their citizens. As a result, other states and the
citizens of oppressive oil regimes see the U.S. as their real enemy. It isn't surprising that Osama bin Laden's first
Fatwah was against the U.S. for stationing troops in Saudi Arabia to protect the oppressive Saudi Royal Family. U.S.
oil dependency also strengthens worldwide Islamist terror campaigns as funding for these groups comes primarily
from Middle Eastern Islamic charities, located primarily in Saudi Arabia. Because of oil dependency, we both
motivate the terrorists and provide the money to fund their attacks on us. American oil dependency also strengthens other
states opposed to American foreign policy interests, such as Venezuela and Russia. Foreign policy options are further reduced
when other oil importing countries, such as China, block our UN Security Council resolutions targeted at their sources of oil. This
has already occurred in regard to Sudan and Myanmar.
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Backstopping (1NC)
The Associated Press, Business News “Renewable energy use to grow rapidly”. December 5, 2006. Lexis.
Energy markets will shift further toward alternative sources in the coming years, driven primarily by higher prices
for traditional fossil fuels and recently enacted public policy, according to a Department of Energy report released
Tuesday. But despite rapid growth projections for renewable sources, as well as expectations for a nuclear
renaissance, the department's Energy Information Administration (EIA) predicted in its annual energy outlook that
oil, coal and natural gas will still account for the same 86 percent share of the U.S. energy market in 2030 that they
did in 2005. Total energy demand is anticipated to grow 1.1 percent annually between now and 2030.
B. OPEC will flood the market with oil, lowering prices if renewables become an
immediate threat, making it impossible for them to compete
Salon.com October 22, 2007 BYLINE: Amanda Griscom Little interview with U.S. Rep. Tom Tancredo, R-Colo HEADLINE:
Tancredo pushes for more nuclear energy R&D
Would you fund R&D for emerging technologies like wind and solar? Yes, and it can be broader than that. It can be R&D into
biotechnology and biofuels. There are two reasons I am willing to do that: One, the national-security thing. The other is that we have OPEC,
so there isn't truly a free market. You have to have some degree of government involvement in this
because the OPEC nations can and do control the market to a certain extent. When emerging technologies become a
threat to oil, OPEC can [ flood the market with oil], driving the price down to make it impossible to compete,
and that new technology goes down the toilet.
C. Turns the case- renewable will flop and dependency will increase
Maugeri 2003 (Leonardo, oil and gas journal, Time to debunk mythical links between oil
and politics, lexis)
In short, the world is not running out of oil, and there's no current problem of oil security in today's world market.
However, the problem is that many Western observers speak about "oil security" when what they have in mind is
"stable and cheap oil supplies," thus confusing two very different things -- a confusion that usually stems from
public hysteria when oil prices soar; then, when prices drop, oil matters are completely forgotten. Few remember
that in 1998-99, when oil prices plummeted below $ 10/bbl, the general refrain was "bad for oil companies and
producing countries, good for everyone else." No one spoke about problems such as oil security, energy alternatives
to oil, etc., back then.
Hysteria aside, cheap oil has always been and remains a curse for industrialized countries and the most elusive
enemy of oil security. It hampers any possibility of dealing with new energy alternatives to oil -- which are all very
expensive -- or with the development of new oil regions. It maintains Western habits -- and particular those of the
US -- of not promoting any form of energy-saving. Finally, it increases consumer dependence on a limited group of
countries with the lowest production costs, which today still are those in the Persian Gulf. However, cheap oil is a
curse for them too.
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Yes - Renewables
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OPEC controls prices. They will lower prices in response to alternative energy exploration.
Steve Yetiv June 24, 2008 HEADLINE: Calculating peak oil's due date The Virginian-Pilot(Norfolk, VA.)
In the past, OPEC, and especially Saudi Arabia, have often increased oil production to try to prevent prices from
rising high enough to trigger alternative energy exploration; a Western political backlash; and the ire of the gendarme of the
Persian Gulf -- the United States. When I visited OPEC headquarters in May 2003, OPEC researchers underscored how
the organization was keeping the price of the OPEC oil basket around $22-$28 per barrel (roughly $25-$31 on the New
York Mercantile Exchange). OPEC succeeded in doing so more than 80 percent from June 2001 to June 2003.
Threat of alternative energy means OPEC will respond with slowing supply then flooding
the market driving down prices
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McCarthy 2007 (shawn, OPEC warns of fall in oil demand, the globe and mail, lexis)
OPEC ministers are increasingly concerned about growing momentum among consuming countries to find ways to
reduce oil demand, and warn they may respond by limiting supply growth.
As the U.S. Senate prepared to debate legislation aimed at slashing gasoline consumption by 20 per cent from
forecast demand in 10 years, Saudi Arabia's Oil Minister Ali al-Naimi said the drive to conserve fuel could slow
investment by members of the Organization of Petroleum Exporting Countries.
Producers worry about a repeat of the mid-1980s, when sky-high prices triggered a slump in demand and a flood of
new supply into the market, eventually driving down crude prices to rock bottom levels.
Saudi Arabia, the world's largest oil exporter, is expanding its production capacity to 12.5 million barrels per day,
from 11.3 million, but Mr. al-Naimi said further expansion plans could be shelved.
"Our feeling now with this thrust and push for conservation, efficiency and the use of alternatives is that we
probably need not go beyond 12.5 million barrels per day," he said.
New alternative energy sources will cause OPEC to flood the market
Kolle 2007 Despite rising prices, OPEC appears to be in no rush to raise its output targets,
http://nwitimes.com/articles/2007/09/08/business/business/doc7e79bb33cb7ec6f28625734f00723bfd.txt)
" If you remember what happened in the 1970's (look it up if you don't) you will find the biggest fear OPEC has. It is
that oil prices will go up and stay high long enough to fuel investment into conservation and alternative energy
sources to the point that a critical mass is reached and the need for their oil is greatly diminished or replaced by
other energy sources they don't control. That's exactly what started happening in the 1970's and it took OPEC
opening up the tap to make oil cheap again over a decade to reverse the trends. The result was that interest in
conservation and alternative energy waned and investments dried up in the face of cheap oil again. We are once
again nearing that point and you can expect to see OPEC flood the market again if they see us getting serious with
conservation and alternative energy sources that compete with, or worse yet, actually replace demand for their oil.
OPEC walks the fine line between price and demand and wants to keep us hooked up to their oil like a bunch of
junkies on drugs while making as much money as possible... "
Increased renewable means OPEC will flood the market- they fear loss in profits
Phil 2007 (http://www.philforhumanity.com/The_End_of_Cheap_Oil.html, the end of cheap oil)
However, the oil cartel, called OPEC, is keeping a very close eye on the costs of these alternative sources of energy.
Because of greed, OPEC tries to regulate the supply of oil to ensure the highest price of oil while also limiting
interest in developing alternative sources of energy. This is a delicate balance, since the costs of other sources of
energy are much more chaotic than oil and especially since OPEC does not regulate the large oil reserves of the
United States of America or Russia.
In most countries of the world, cartels are illegal, since they use their monopolies to fix the prices of their goods. In
other words, cartels artificial control supply and demand of any product to maximum their profits with no regard to
actual supply and demand of a free market. Yet OPEC only has a semi-monopoly on the supply, and therefore the
price, of oil. However, this is enough of a reason why other countries need to stop being dependent on expensive oil
and develop other sources of energy. Preferably, countries should invest only in pollution free power sources.
Therefore, the cost of oil will remain forever high, unless other sources of energy have a sudden price drop so that
they are significantly cheaper than oil. Only at that point in time would OPEC flood the world with a large supply of
cheap oil in an attempt to bankrupt any competition.
Clean-fuel executives know they can't avoid every risk. OPEC could flood the market with cheap oil. Big-oil
companies could jump into the renewable-fuels business, pushing smaller players aside in the process. (The former
British Petroleum is now BP Plc, and brands itself as "Beyond Petroleum.") Or, they could take their massive cash reserves and
buy alternative-power technologies -- and then let them wither.
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Not everyone at Johannesburg was pleased by such talk. Whereas European states would gain from such a
commitment to renewables (most wind-powered technology, for example, is manufactured in Europe), other
countries saw the proposal as an economic disaster. Diplomats from OPEC oil states, for example, made it clear
that they regarded any measure to boost renewable energy as a direct threat to their own market share. Delegates
from developing nations, meanwhile, complained that such a commitment might reduce available supplies of
cheap hydrocarbon energy, which many poorer nations now depend on.
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Second, OPEC no longer has anywhere near the spare capacity necessary to flood the world market. In fact, due to
the meteoric rise in global demand for oil, I doubt OPEC has the capacity to cause even a significant drop in the
price of oil. Thirdly, technology and regulatory protections in every aspect of oil, gas, and mining have matured
impressively since the early 1980's. Those advances not only make oil shale development much more viable, but
they also ensure much better protections for the environment.
It's the kind of thing he could do here at home." And Tory Alan Duncan blasted: "The idea that Opec can just go like that and
flood the market with oil and bring the price down shows Gordon Brown does not understand global markets." The
summit was arranged after oil doubled in a year to hit a record $140 per barrel two weeks ago, sending prices rocketing so high at UK
forecourts that gangs of thieves are draining lorry fuel tanks across the country.
There was an excellent article by Jim Kingsdale this weekend on the coming end of OPEC. You are probably
thinking why would OPEC disappear when their control over oil prices is so strong. Unfortunately that is no longer
true. OPEC has lost control over prices and that was the main reason the organization was formed in 1960.
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productive capacity by OPEC over the past 20 years as well as a hesitancy by the oil majors to invest because they have been
upstream
hurt by prior oil price collapses. This time they are reluctant to step up with new drilling programmes and instead have collected their rent cheques as prices continue to appreciate. They make
money by maintaining a business-as-usual approach. Rather than using profits to expand exploration and production budgets, many have been returning money to shareholders through increased dividends and stock buy-backs.
Expect more great quarters for the majors and a rise in their stock prices. Many securities analysts have been slow to grasp this fundamental change i.e. the lack of new investment except for some independent drillers who’s
activities are unlikely to do much to quench the increased demand . Led by the US and China once again, oil demand promises more of the same in
2005. Due to these market driven factors, the funds are scaling up their oil trading operations; particularly in Europe and Asia as well in North
America. In the US, the latest play by the investment banks and hedge funds is to buy physical oil and gas reserves in the ground. This
action has not only pushed out the forward curve and created greater open interest in the back months on the NYMEX WTI contract, but also suggests that higher
prices through 2010 are to be the order of the day. What our research has also demonstrated is that the hedge funds are now investing in the
energy complex in growing numbers and with a longerterm viewpoint. They are, and always have been, involved in distressed asset securities – both debt
and equity – but now increasingly seem to be taking a longer-term view with respect to these investments. This has been evidenced by the funds flexing their shareholder muscle at
British Energy and in other situations. Buying oil and gas reserves in the ground is just part of a picture in which hedge funds are acquiring assets across the energy value
chain in the upstream, midstream and downstream energy sectors. The global oil markets have now reached a new
plateau in oil prices. The majors have been slow to react to this phenomenon, but are now studying the longe -term price affects. Another factor that has brought hesitancy to stepping up oil and gas drilling by
the majors is that other commodity prices have also increased this year which has ballooned their exploration and production budgets this year and next. What is different this time in the energy complex is that the entire
sector is benefiting by higher prices. We see higher prices in the upstream, downstream oil and gas markets but also a bull market in tankers, storage and every conceivable part of the energy
supply chain. That has never happened before. Usually, when the upstream is making money, downstream refining is losing money. It wasn’t so long ago (only two years) that refining margins were
depressed. Today they are robust.
B. Even a small hedge fund collapse would ripple through the financial world and cause a
massive credit collapse
Henry C.K. Liu, chairman of a New York-based private investment group and writes for The Asia Times, 19 Sept 2006, “The Coming Showdown” <http://archives.econ.utah.edu/archives/a-
list/2006w38/msg00010.htm>
A major showdown is shaping up between hedge funds, investment banks and commercial banks. Unlike LTCM, whose trouble was
one fund being too big to exit without massive loss, the current Achilles heel is the proliferation of funds all imitating each other, with aggregate sums
that defies orderly liquidation. Instead of one big fat man on a small row boat, no matter which side he moves, the boat overturns, we now have three thousand guys all moving
together from side to side on a ferry boat in a storm, each move rocking the boat harder until its capsizes. The
investment bank power houses are looking to make a killing from the demise of the hedge funds on the theory that someone's loss is
someone elses' gain in any market. The do this by having more capital than any one single hedge fund. The commercial banks are looking to high profits from trading
credit derivatives derived from the debts. The game is a three-legged stool that needs a cooperative symbosis among the three components to stay afloat. When anyone of
the three starts to seek gains at the expense of the other two, the game implodes and quickly transforms into a
game of survival of the earlier exit, which in financial terms is a systemic rout. When the hedge fund industry
loses $100 billion, that money goes to the parties betting against them, which are the investment banks. The flow
of funds is intermediated by commercial bank loans. The hedge fund investors as a group loses $100 billion and the investment bank share holders get $100 billion less
investment bankers' take. No big deal in the macro picture. The trouble is leverage. Most hedge fund strategies rely on leverage to reap high
profit and a loss of over 10% can be fatal, leaving the other two components in the game with uncollectable
collectables. And the meltdown begins with margin calls that distorts the flow of funds. The housing bubble burst, while a heavy
load, is not going to be the straw that will break the camel's back. The straw will be the hedge funds.
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Hedge Funds XT
Hedge funds have upwards of 145 billion invested in crude oil
Wall Street Journal, January 3 2008
<http://online.wsj.com/article/SB119930154139162791.html?mod=googlenews_wsj>
While finding oil in the ground has been getting harder, it became a lot easier to buy oil on paper. The New York Mercantile
Exchange started round-the-clock electronic trading of its main crude benchmark in September 2006, and improved access to previously
restricted energy-trading markets. Financial institutions created new vehicles for making bets on the price of oil without
having to manage futures holdings. It was the Nymex where the historic $100-a-barrel price was recorded yesterday at 12:09 p.m.
EST. That was the price in a single floor trade of the benchmark February crude-oil futures contract. A Nymex spokeswoman said the trade was
legitimate. The benchmark price settled at $99.62, up $3.64. The ease of trading has helped attract a flood of new money. Oil
markets were once dominated by physical traders -- firms that needed to take delivery of the crude oil to run through refineries or trade with
partners. Most of the new market entrants have no interest in ever taking delivery of a barrel of oil. The new money comes from
hedge funds seeking profits in sharp oil-price moves, pension funds seeking diversification and a hedge against inflation, and Wall
Street commodity desks risking their own capital. The number of oil-futures bets outstanding on Nymex has quintupled since
2001. Because oil has been rising at the same time, the dollars at stake in the main oil-futures benchmark, not
including options, rose from roughly $7 billion in 2001 to more than $145 billion, calculates Ben Dell, energy analyst at Sanford C.
Bernstein & Co.
Hedge market stumble causes global econ collapse as investors rush capital away from the
US
Rex Nutting, writer for MarketWatch, July 26, 2007 “Subprime could create global crisis, economist says”
<http://www.marketwatch.com/news/story/economist-world-one-hedge-fund-
collapse/story.aspx?guid=%7BC9E3B6A4-A22E-43D2-BA2A-EC4A8F61D2E4%7D>
"Unlike the financial crisis of a decade ago, however, global capital would likely flow away from U.S. markets, not
to them, as the genesis for the crisis lies within the U.S. financial system." After Bear Stearns was forced to write off the value of two large
hedge funds that had invested heavily in securities backed by subprime debt, it could take just one more "Bear-like event" for the financial
system to freeze up, "If there's another major hedge fund that does stumble, that could elicit a crisis of confidence and
a global shock," Zandi said. The potential "is quite high," he said. He gave it a one-in-five chance. Zandi said global
financial conditions have been supported by strong growth and substantial liquidity, supercharged by
"unprecedented risk tolerance." But that's changing. Global liquidity is drying up, with central banks tightening. And risk is being re-
priced.
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MacDonald '08 [Elizabeth, Fox Business Network stocks editor, "Part Two: Oil Speculators vs Supply and Demand," July 1,
http://emac.blogs.foxbusiness.com/2008/07/01/part-three-oil-speculators-vs-supply-and-demand/ download date: 7-7-08]
And a key driver is the strength of the US dollar. Since oil is traded in dollars, the plunging value of the
US dollar likely has traders scrambling, as the amount earned from future oil sales may get slammed as
the dollar loses real value.
Oil prices have been on a roller-coaster ride this year, sensitive to all kinds of events, ranging from a weak US dollar
to a single comment made by a politician to a prediction by investment bank Morgan Stanley.
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The high and rising price of oil does, however, contribute to the decline of the dollar, because the
increasing cost of oil imports widens the United States’ trade deficit. In 2007, the US spent $331
billion on oil imports, which was 47% of the US trade deficit of $708 billion dollars. If the price
of oil had remained at $65 a barrel, the cost of the same volume of imports would have been only
$179 billion, and the trade deficit would have been one-fifth lower.
Mead 2004 (Walter Russell- Senior Fellow at Council on Foreign Relations, “America's STICKY Power,” Foreign Policy, Mar/Apr)
Similarly, in the last 60 years, as foreigners have acquired a greater value in the United States-government and private bonds, direct and portfolio private investments-
the ruin of the dollar
more and more of them have acquired an interest in maintaining the strength of the U.S.-led system. A collapse of the U.S. economy and
would do more than dent the prosperity of the United States. Without their best customer, countries including China and
Japan would fall into depressions. The financial strength of every country would be severely shaken should the United
States collapse. Under those circumstances, debt becomes a strength, not a weakness, and other countries fear to break with the United States because they need its
market and own its securities. Of course, pressed too far, a large national debt can turn from a source of strength to a crippling liability, and the United States must
continue to justify other countries' faith by maintaining its long-term record of meeting its financial obligations. But, like Samson in the temple of the Philistines, a
collapsing U.S. economy would inflict enormous, unacceptable damage on the rest of the world. That is sticky power with a
vengeance. The United States' global economic might is therefore not simply, to use Nye's formulations, hard power that compels others or soft power that attracts the
rest of the world. Certainly, the
U.S. economic system provides the United States with the prosperity needed to underwrite its
security strategy, but it also encourages other countries to accept U.S. leadership. U.S. economic might is sticky
power. How will sticky power help the United States address today's challenges? One pressing need is to ensure that Iraq's econome reconstruction integrates the
nation more firmly in the global economy. Countries with open economies develop powerful tradeoriented businesses; the leaders of these businesses can promote
economic policies that respect property rights, democracy, and the rule of law. Such leaders also lobby governments to avoid the isolation that characterized Iraq and
Libya under economic sanctions. And looking beyond Iraq, the allure of access to Western capital and global markets is one of the few forces protecting the rule of
law from even further erosion in Russia. China's rise to global prominence will offer a key test case for sticky power. As China
develops economically, it should gain wealth that could support a military rivaling that of the United States; China is also
gaining political influence in the world. Some analysts in both China and the United States believe that the laws of history mean that
Chinese power will someday clash with the reigning U.S. power. Sticky power offers a way out. China benefits from
participating in the U.S. economic system and integrating itself into the global economy. Between 1970 and 2003, China's gross
domestic product grew from an estimated $106 billion to more than $1.3 trillion. By 2003, an estimated $450 billion of foreign money had flowed into the Chinese
economy. Moreover, China is becoming increasingly dependent on both imports and exports to keep its economy (and its
military machine) going. Hostilities between the United States and China would cripple China's industry, and cut off supplies of
oil and other key commodities. Sticky power works both ways, though. If China cannot afford war with the United States, the United States will have an increasingly
hard time breaking off commercial relations with China. In
an era of weapons of mass destruction, this mutual dependence is
probably good for both sides. Sticky power did not prevent World War I, but economic interdependence runs deeper
now; as a result, the "inevitable" U.S.-Chinese conflict is less likely to occur.
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Schoen '08 [John W., Senior Producer at MSNBC, "Oil price spike has wide economic impact,"
http://www.msnbc.msn.com/id/24778287/ download date: 7-2-08]
As dire forecasts about runaway oil prices become reality, it’s impossible to know how much higher they’ll go. But the
impact
of the price surge already is being widely felt. And if prices go much higher, the damage to the U.S.
economy will be deeper and wider than the fallout from the run-up so far.
Oil prices have doubled in the past year and have shot up nearly 50 percent since January to a record $135 a barrel. Much of the
rise appears to be driven by speculators betting that tight supplies — or outright shortages — will push prices even higher.
Consumers — already hit with rising prices and flat wages — are being stretched further. As the Memorial
Day weekend kicks off the summer driving season, gasoline prices are at record levels, reaching a national average above $3.83 a
gallon. Some analysts predict the average will break past $4 as early as next week. In some parts of the country, prices are already
closing in on $5.
“We're already in a mild recession,” said Lakshman Achuthan, an economist at the Economic Cycle Research
Institute. “I think if we go towards $150 (a barrel), we start talking about something worse than a mild
recession.”
The surge in oil prices is hitting some parts of the economy harder than others. Companies that use lots of oil have already been
hurt; the recent surge will only make matters worse.
Airlines have been struggling to make a profit, even as they cut jobs and flights. American Airlines became the
latest to announce it was tightening its belt another notch, saying Thursday that it plans to shrink capacity by as much as 12
percent and cut thousands of jobs.
To offset the rapid rise in jet fuel prices, the airline also said it plans to start charging passengers $15 to check the first bag of
luggage for each passenger. United Airlines said it’s considering a similar move. The carriers already charge $25 for a second
bag.
“(Higher oil prices are) going to send some smaller airlines into bankruptcy," said Nick van den Brul, an airline
analyst at the French investment bank, Exane BNP.
Surging gasoline prices are further dampening sales at U.S. carmakers, whose product lines are more
heavily oriented toward higher-profit, lower-mileage trucks and SUVs than their foreign competitors.
Ford Motor Co. said Thursday it’s cutting production by 15 percent in the second quarter of this year and another 15 to 20 percent
in the third quarter. Ford now says it won’t hit its target of getting back in the black by next year and may have to lay off more
workers and close more plants.
Higher Oil Prices pushes Fed Reserve to raise interest rates, and that brings economic
slump
Schoen '08 [John W., Senior Producer at MSNBC, "Oil price spike has wide economic impact,"
http://www.msnbc.msn.com/id/24778287/ download date: 7-2-08]
The threat of higher inflation makes life even more complicated for policymakers at the Federal Reserve,
who have been slashing rates for nearly a year to try to offset the fallout from the housing slump and
turmoil in the credit markets.
The surge in oil prices could force the Fed to reverse course and begin raising rates — before the benefits
of those rate cuts have had time to take hold. Minutes of the Fed's April policy meeting, released Wednesday, indicated
that the central bank could start raising rates in the fall.
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Oil wealth also corrodes democratic institutions. This dynamic is not inevitable, but it is widespread. A growing body of
scholarly work explores this topic, concluding that oil wealth is strongly associated with corruption and authoritarian rule.7
A few examples underscore this trend. Bahrain, the Persian Gulf country with the smallest oil reserves, was also the
first to hold free elections.8 As oil prices climbed in recent years, both Vladmir Putin and Hugo Chavez moved away
from democratic institutions and toward more authoritarian rule. In Nigeria, oil abundance contributes to widespread
corruption.
Diamond 1995 (Larry- Senior Research Fellow at the Hoover Institute, Promoting Democracy in the 1990s,
1995)
This hardly exhausts the lists of threats to our security and well-being in the coming years and decades. In the former Yugoslavia nationalist
aggression tears at the stability of Europe and could easily spread. The flow of illegal drugs intensifies through increasingly powerful
international crime syndicates that have made common cause with authoritarian regimes and have utterly corrupted the institutions of tenuous,
democratic ones. Nuclear, chemical, and biological weapons continue to proliferate. The very source of life on Earth,
the global ecosystem, appears increasingly endangered. Most of these new and unconventional threats to security are
associated with or aggravated by the weakness or absence of democracy, with its provisions for legality,
accountability, popular sovereignty, and openness.
LESSONS OF THE TWENTIETH CENTURY
The experience of this century offers important lessons. Countries that govern themselves in a truly democratic
fashion do not go to war with one another. They do not aggress against their neighbors to aggrandize themselves or glorify their
leaders. Democratic governments do not ethnically "cleanse" their own populations, and they are much less likely to face ethnic
insurgency. Democracies do not sponsor terrorism against one another. They do not build weapons of mass destruction to use on or to
threaten one another. Democratic countries form more reliable, open, and enduring trading partnerships. In the long run they offer better and more
stable climates for investment. They are more environmentally responsible because they must answer to their own citizens, who organize to
protest the destruction of their environments. They are better bets to honor international treaties since they value legal obligations and because
their openness makes it much more difficult to breach agreements in secret. Precisely because, within their own borders, they respect competition,
civil liberties, property rights, and the rule of law, democracies are the only reliable foundation on which a new world order of international
security and prosperity can be built.
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1. Venezuela’s economic growth is slowing and terrible despite high oil prices.
Patricia I. Vasquez, Washington International Oil Daily June 13, 2008 HEADLINE: Venezuela Economy Slows Despite Oil Prices
Venezuela 's leftist President Hugo Chavez has announced a package of measures intended to jump start the economy and rein in escalating
inflation. The initiative follows a sharp drop in economic growth and a slump in investment expenditure during the first quarter of
2008. Venezuela 's economic growth slowed down to a year-on-year rate of 4.8% in the first quarter of 2008 from
8.5% in the fourth quarter of 2007, despite skyrocketing oil prices. The inflation rate during the first five months
of this year has been estimated at 12%, and is expected to rise to around 30% by the end of the year. Chavez,
unveiling the economic stimulus package on Wednesday, said Venezuela 's oil revenues should reach $75 billion this year. He
suggested that $100 per barrel is "a fair price" for crude oil, somewhat lower than crude's recent trading range of $130 to $140.
The stimulus package announced by the president included a commitment to increase government spending, which slowed down in the first
half of the year in an effort to dampen inflation. The National Assembly has already approved $9.6 billion in additional spending, on top of the
$64 billion already contained in the national budget for this year. Off-budget government spending is likely to increase
substantially this year, according to a report by investment bank Credit Suisse. Most of this spending will be channeled through state oil
company Petroleos de Venezuela (PDV) and the national development fund known as Fonden . On Wednesday, Chavez announced the creation
of a $1 billion fund to finance joint public-private projects in strategic sectors such as food, agriculture and manufacturing as well as increases
in subsidies and a debt relief package for agricultural producers. The president invited the private sector to invest in Venezuela , offering tax
breaks and looser foreign exchange controls as incentives. Caracas is seeking to reverse a spectacular drop in direct investment. According to
the Central Bank, Venezuela had net investment outflow of $1.7 billion during the first three months of 2008.
Thanks to oil exports, which constitute 90% of Venezuela 's revenues, the country had a positive current account balance of $10 billion during
first quarter of 2008. However, Venezuela 's overall balance of payments, which records imports and exports and movements of capital,
showed a negative balance for the quarter of $3.8 billion due to capital flight.
There is much skepticism about the private sector response to Chavez's call for new investment commitments, mainly due to his
interventionist style of managing the national economy.The government has taken control of cement, electricity and telecommunications
companies and has confiscated private lands. Earlier this year it ordered the nationalization of steel company Sidor , which is owned by
the Argentine-Italian conglomerate Techint . In the oil and gas sector, PDV took control of four multibillion-dollar projects in the Orinoco
heavy oil belt from six Western oil companies: Total, Statoil , BP, Chevron, Exxon Mobil and ConocoPhillips. The takeover of the Orinoco
projects came after the government unilaterally turned 32 service contracts with private companies into joint venture companies controlled by
PDV. "If you were an investor, would you risk bringing in your capital to Venezuela ? ... No," said economist Ana
Maria Di Leo of Caracas-based economic think tank Veneconomia . A lack of new investment, capital flight and price
controls has resulted in increased imports of goods. Economists estimate that the government spent some $4.3 billion on imports
of consumer goods last year.
2. Empirically, Venezuela's economy would have grown 14% more over 20 yrs without oil
production
Federal Bank of Dallas May/June 2004 http://www.dallasfed.org/research/swe/2004/swe0403d.pdf
How much was oil to blame for slow Venezuelan growth and declining per capita income? While with the Center for
International Development at Harvard University, Jeffrey Sachs and Andrew Warner estimated that during 1970–90,
Venezuela’s real GDP would have grown an average 0.77 percent faster per year without oil than with it.4 By the
end of this period, GDP would have been 14 percent higher if Venezuela had not been an oil-exporting country.
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3. Dependence on Venezuela oil is an example of the resource curse- non resource filled
countries always grow faster
Federal Bank of Dallas May/June 2004 http://www.dallasfed.org/research/swe/2004/swe0403d.pdf
Most media coverage characterizes Venezuela’s political strife as either a situation that would not have materialized had someone other than
Chavez been elected or as a struggle between rich and poor. Individual players certainly shape Venezuela’s political battles. And struggles
between the rich and poor are a crucial issue. However, these factors are symptoms of a larger phenomenon that the technical
economics literature calls the “resource curse.” The resource curse literature conflicts with the conventional idea that natural
resource wealth contributes to economic expansion. According to this literature, abundant natural resources impose economic and
political distortions that retard economic growth in the long run, even though they can produce short-run booms.
In Venezuela’s case, the resource is oil. An important observation by resource curse economists is that a positive relationship
generally does not exist between a nation’s natural resources and other forms of economic wealth. Much more
telling, resource-rich countries grow slower on average than resource poor countries. The term on average is a
conservative one. In fact, very few resource-rich countries grow as fast as the average resource-poor country.
4. The problem is the leadership / the Chavez regieme has generated less oil income then
any other venezuelan leader
Venezuelaanalysis.org 7/7/2004
the government of President Hugo
July 7, 2004—According to a report issued by the Venezuelan Finance Minister Tobias Nobrega,
Chavez has received significantly lower oil revenues than the previous five Venezuelan administrations. “It is false
that the government of President Chavez has received fiscal oil revenues that are superior to those of previous governments,” said Nobrega.
The report specified that, “The Bolivarian government has received 26% of the oil revenues obtained by the Carlos
Andres Perez administration; 35% of the revenues of Luis Herrera Campins, 56% of the revenues of Jaime Lusinchi, 49% of the
revenues of the second period of Carlos Andres Perez, and 85% of the revenues received by the last administration of Rafael Caldera,” based
on real per capita terms
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Oil dependence lies behind the jihadist threat – not as the only cause, but as an important one. For example, according to Brent
Scowcroft, National Security Adviser at the time of the first Gulf War, “…what gave enormous urgency to [Saddam’s invasion of Kuwait] was
the issue of oil.”5 After removing Saddam from Kuwait in 1991, U.S. troops remained in Saudi Arabia where their presence bred great
resentment. Osama bin Laden’s first fatwa, in 1996, was titled “Declaration of War against the Americans Occupying the Land of the Two Holy
Places.”
Today, deep resentment of the U.S. role in the Persian Gulf remains a powerful recruitment tool for jihadists. That
resentment grows not just from the war in Iraq, but from the U.S. relationship with the House of Saud, the presence of U.S. forces throughout the
region and more. Yet the United States faces severe constraints in responding to this resentment. With half the world’s proven oil
reserves, the world’s cheapest oil and the world’s only spare production capacity, the Persian Gulf will remain the
indispensable region for the global economy so long as modern vehicles run only on oil. To protect oil flows, the
U.S. policymakers will feel compelled to maintain relationships and exert power in the region in ways likely to fuel
the jihadist movement.
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With the price of oil over $125 a barrel and U.S. gasoline prices hovering around $4 a gallon, high energy costs have been a top news
headline lately. Though the economic effect of these surging prices has been most prominently noticed, the high cost of oil dependence
extends far beyond that. Today I have a policy briefing at FDD's web site analyzing the geopolitical implications of our dangerous
dependence on foreign oil -- including the impact this has on our war-on-terror policies. An excerpt:
[T]he impact of oil dependence on terrorism extends beyond the financial windfall it entails for terrorist groups and
the ideology that drives them: terrorists also understand that our oil dependence is our greatest strategic
vulnerability.
Although Osama bin Laden initially declared Saudi Arabia's oil resources off limits as a military target because they were "a great Islamic
wealth," his thinking on the matter shifted as he came to understand how much the U.S.'s fortunes were tied to its access to cheap oil. In a mid-
December 2004 audiotape, he instructed al-Qaeda operatives: "One of the main causes for our enemies' gaining
hegemony over our country is their stealing our oil; therefore, you should make every effort in your power to stop
the greatest theft in history of the natural resources of both present and future generations, which is being carried
out through collaboration between foreigners and [native] agents. . . . Focus your operations on it [oil production],
especially in Iraq and the Gulf area, since this [lack of oil] will cause them to die off [on their own]."
Since then, other prominent voices within al-Qaeda have affirmed the group's desire to strike the oil supply. In a December 2005 video, Ayman
al-Zawahiri stated: "I call on the holy warriors to concentrate their campaigns on the stolen oil of the Muslims, most of the revenues of which go
to the enemies of Islam." Sawt al-Jihad, Al Qaeda in the Arabian Peninsula's online magazine, noted in February 2007 that "cutting oil supplies
to the United States, or at least curtailing it, would contribute to the ending of the American occupation of Iraq and Afghanistan."
Actual terrorist targeting has made clear that this is not empty rhetoric.... Indeed, former CIA agent Robert Baer warned back
in 2003 that tactics in which al-Qaeda already had a demonstrated proficiency could succeed in taking a great deal of Saudi oil off the market
instantaneously. He stated that "a single jumbo jet with a suicide bomber at the controls . . . would be enough to bring the world's oil-addicted
economies to their knees" if crashed into a major offshore loading facility.
Following such an attack, the substantially reduced worldwide supply of oil would be joined by an inflated risk
premium. While it is difficult to determine the ceiling for oil prices if such a scenario unfolded, Sawt al-Jihad may
have been correct: diminished access to the military's lifeblood could spell doom for the U.S. ventures in
Afghanistan and Iraq.
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Until we decrease our dependence on foreign oil, we will never be able to win the war on
terrorism. Al Qaeda is currently increasing attacks in the oil sector – now is the key time to
act
Alon Ben-Meir, Middle East Project Director at the World Policy Institute, New York and professor of
International Relations at New York University, June 21, 2004
To prevent a new catastrophic terrorist attack and ultimately defeat terrorism, the next administration must develop
a comprehensive strategy comprised of 10 distinct domestic and international policy agendas that must be acted on simultaneously. A
national energy-independence strategy is the second of the 10 policy agendas. A growing consensus in the United States on the need
to enact and fund an energy-independence plan as our future national security interests may depend on it. Successive Democratic and
Republican administrations have failed to develop a national energy strategy to free us from dependency on outside sources. In the wake
of
recent terrorist attacks in Saudi Arabia and Iraq, now would be an opportune time to develop a comprehensive
strategy that will free us from foreign oil within the next eight to 10 years, a time frame considered doable by many industry experts.
Current events in the Middle East and increasing gasoline prices are reminders, not only of our vulnerability, but of our shortsightedness and
negligence regarding our most critical national security concern. It is baffling that the U.S., with all its human, technological, natural, and
economic resources continues to depend on Middle-Eastern oil, making itself hostage to the turmoil in the region and to the whims of oil-
producing rulers. Because of our dependency on Mideast oil -- of which two-thirds of the world's reserves are located there -- we
may find ourselves in a crippling crisis. We import more than 55 percent of our domestic oil consumption. Besides
undermining our national security, this dependency adds tens of billions to a trade deficit already exceeding $1/2 trillion
a month. Since the 1973 oil embargo, Americans have spent $7 trillion more for oil products due to OPEC's regulation of production. Under the
pretext of the war on terrorism, Iraq was invaded at a cost of more than $200 billion -- and our expenditures are still rising -- when, in fact, the
administration was motivated largely by oil considerations. Al-Qaida has long since discovered that America's dependency on
oil is a major vulnerability that can be exploited to the detriment of both the United States and its major oil suppliers, especially
Saudi Arabia. The series of bombings in that nation, beginning in May 2003 and continuing up to the most recent violence in Riyadh and
the spree of killings of foreign contractors, including the attack in Khobar, signal a deliberate escalation of violence, with a focus
on the oil industry. Al-Qaida's determination to undermine the Saudi regime is based on a four-part strategy: to shake the kingdom's
economic base, demonstrate the government's vulnerability and subservience to the United States, spread fear to force foreign nationals out,
and capitalize on public discontent to develop a much broader resistance movement. Even now the Saudi government is in denial and has
ignored the gathering threat. It has failed to come to grips with the magnitude of the problem. Fearing further public alienation, unwilling to
heed the cries of the nation's young people (70 percent of the population age 25 or under) for greater openness, and freedom and terrified of
losing control of the country, the Saudi regime is still reluctant to take sweeping actions against the militants. The government now finds itself
in a bind. A battle for the people's hearts, minds, and beliefs is underway, perhaps marking the beginning of a revolution with profound
consequences not only for the future stability of the kingdom and the region but also for the supply of oil. The situation in Saudi Arabia is a
foreshadowing of what could become the reality for other Arab oil-producing nations, a reality that should give pause to the next administration
when it comes to continuing our dependence on Arab oil. The U.S. predicament is multiplied because our addiction to cheap
oil has blurred our thinking. As we watch another American being beheaded in the Middle East, we must ask ourselves: how much
longer can we continue to delude ourselves and pursue the same failed policy of merely trying to kill or capture
terrorists (albeit necessary) rather than dealing with the root causes of terrorism itself?
Oil dependency forces the U.S. to support oil regimes that oppress their citizens. As a result, other states and the
citizens of oppressive oil regimes see the U.S. as their real enemy. It isn't surprising that Osama bin Laden's first
Fatwah was against the U.S. for stationing troops in Saudi Arabia to protect the oppressive Saudi Royal Family. U.S.
oil dependency also strengthens worldwide Islamist terror campaigns as funding for these groups comes primarily
from Middle Eastern Islamic charities, located primarily in Saudi Arabia. Because of oil dependency, we both
motivate the terrorists and provide the money to fund their attacks on us. American oil dependency also strengthens other
states opposed to American foreign policy interests, such as Venezuela and Russia. Foreign policy options are further reduced
when other oil importing countries, such as China, block our UN Security Council resolutions targeted at their sources of oil. This
has already occurred in regard to Sudan and Myanmar.
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Dependence On Oil Provides Direct Support To Our Enemies And Threatens The Peace: Rising Oil Prices Provide
Massive Infusions Of Wealth To Some Of The World's Most Repressive Dictatorships. Oil wealth enriches bad
actors in the world that support terrorism, finances the brutal repression of women in the Middle East, and supports
criminal syndicates in our own hemisphere. Iran Alone Earned $66 Billion From Oil Sales to Others Last Year. This
wealth encourages Iran to finance terrorists, threaten Israel, and defy international efforts to prevent it from
developing nuclear weapons. This wealth also allows Iran to suppress its own long-suffering population. The
Formation Of The OPEC Cartel And The Oil Embargo Of The 1970s Demonstrated Our Vulnerability. At the time of
the oil embargo, we imported roughly one third of our oil. Today, we import almost two-thirds. Since 1973, the
United States has gone from importing 6 million barrels of oil a day to 12 million barrels per day with petroleum
payments comprising 41 percent of the U.S. trade deficit ($293 billion of $759 billion).
Compounding this problem, the huge money flows into the region from oil purchases help finance terrorist
networks. Saudi money provides critical support for madrassas with virulent anti-American views. Still worse, diplomatic efforts to
enlist Saudi government help in choking off such funding, or even to investigate terrorist attacks, are hampered by
the priority we attach to preserving Saudi cooperation in managing world oil markets.
US oil dependence spurs terrorism – decreasing dependence addresses the root cause
Cornell Daily Sun, March 4, 2004
David Dunford, former U.S. Ambassador to Saudi Arabia and Oman; David Driesen, associate professor at Syracuse University College of
Law; and Max Martina, managing director at the Alternative Energy Institute spoke Wednesday in Myron Taylor Hall at Cornell University in a
panel presentation entitled "U.S. Foreign Oil Dependence: Is Alternative Energy the Forgotten Weapon in the War on
Terrorism?" The lecture was sponsored by the Clark Fund for the Middle East and the Cornell Law School Environmental Society.
Moderator Steven Diamond introduced the three panel participants before turning the podium over to Dunford. "There is a new crisis each day.
We have to address a different perspective -- can an alternative energy policy help?" asked Diamond. Dunford, who was first to speak,
explained the current Middle Eastern political state and U.S. energy consumption's effect on the region. "We must approach the subject and
look at the U.S. interest in the Middle East, and what effect our consumption has on the economic policy of other
countries," he said. He then mapped out what he believes are America's ultimate interests: counter-terrorism, oil, Israel, democracy and
human rights. With regard to oil, "U.S. and Saudi Arabia production is roughly equivalent," said Dunford. He continued, "U.S. consumption is
one-fourth the world consumption. The Saudi Arabia policy is to keep us hooked. The price of oil now is $36.60 per barrel -- it is a timely
moment to talk about alternative energy." Dunford then moved on to the subject of the Middle East. He considered the question of the effect of
oil on producers. Economically, oil production leads to the "dutch disease," a complicated chain of events resulting in economic stagnation.
Despite income increases from oil, "Middle East qualities of life don't go up as fast as you'd expect. The government is authoritarian, and much
of oil revenues go to the military. Oil gives government a vacation from economics and politics," said Dunford. He then discussed the subject
of Islam and terrorism. "We want to keep the peace process in play [in Israel] ... but I am not sure energy conservation will help," he
said. As for globalization, Dunford said, "the spread of U.S. values, culture and lifestyle produces a powerful backlash.
Terrorism becomes to them the equalizing factor." Dunford concluded by saying, "Reducing our dependency on fossil
fuels is good. To reduce terrorism, we have to find the root of terrorism, and I believe it runs though Jerusalem and the
Arab/Israeli conflict."
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Oil dependence prevents us from ever overcoming terrorism and destroys our leadership
and the global economy – 6 reasons – Simply decreasing our dependence on oil is key to
solve.
Alon Ben-Meir, Middle East Project Director at the World Policy Institute, New York and professor of
International Relations at New York University, June 21, 2004
An energy-independence strategy is not a luxury; it is of a paramount importance and a critical part of a comprehensive
strategy we must urgently pursue to defeat international terrorism. Here is why: First, dependence on oil-producing
countries compels us to protect their governments in order to maintain political stability, no matter how corrupt, rigid,
and undemocratic they may be. As long as we continue to be perceived as the protector of undemocratic regimes and as
long as the prospects for real reform remain elusive, we will continue to suffer the disdain and hatred of the region's masses. If
these perceptions remain unchanged, we will be the target of choice for al-Qaida, whose public support in Saudi Arabia, for
example, is currently higher than 50 percent and whose main agenda there is to destabilize the country. As long as we remain beholden to the
oil-producing states, we compromise our strategic interests and limit our policy choices in the region, thereby severely impeding our
chances of ever winning the war on terrorism. Second, as long we remain dependent on Arab oil, we can count on
al-Qaida to even more systematically target anything related to oil -- for example, in Saudi Arabia, its oil facilities, both to
undermine the U.S. economy and weaken the Saudi government's economic power base, which is oil. Perhaps even more important, frequent
attacks will have a devastating psychologically effect throughout the region and on oil-consuming countries impacting not
only other industries but also their stock markets. To be sure, the future economic stability of the Western hemisphere and Japan
will be put in jeopardy. Third, to protect the supplies of Middle-Eastern oil, the United States may sooner rather than later
find itself once again acting unilaterally, further alienating the global community, especially in the Arab and Muslim worlds.
Our experience in Iraq has demonstrated the high price to be paid for acting unilaterally; we have undermined our relations with much of the
international community and precipitated a serious schism within the international system that is unhealed to this day. It is not an unbelievable
scenario that a future major disruption in oil supplies could tempt the U.S. to act preemptively or take other
extraordinary measures to protect its national interests. But the Iraq debacle has shown the folly of such responses, and a
repetition must be avoided. Another confrontation with our Western allies will only deepen the current rift, further impeding our war on
terrorism outside the Middle East. What we must take from our experience in Iraq is that protecting oil supplies in the future may increasingly
become politically and militarily untenable. Fourth, few people doubt that either the first Gulf war in 1990-91, or the war in
Iraq to oust Saddam Hussein, would have occurred had it not been for our continued dependence on Middle-Eastern oil.
Time and again, we have placed our men and women in uniform in harm's way and spent hundreds of billions to protect our oil interests in that
region. The tragedy is that our soldiers have died in Iraq for oil -- not for the freedom of the Iraqi people, as the administration would like us to
believe. There are billions of people in Africa and Asia subjected to lives of perpetual misery, and we have not lifted a finger to free them from
the bondage of corrupt regimes. Fifth, our dependence on Arab oil often forces us to operate according to the whim of
the oil-producing nations; under the best of circumstances, this makes us vulnerable to the needs and greed of their
governments. In addition, our dependency, and the often the cozy relationships we cultivated with the leaders of countries like Saudi Arabia
continue to prevent us from committing to a real energy-independence strategy. That is, as long as these governments keep the price
of a barrel of oil relatively low, we will do very little to develop alternate energy sources. Leave it to fragile regimes like
those of the Saudis and other OPEC nations to manipulate oil prices, hold families "hostage" at the gas pump, and keep the levers controlling
oil flow in their hands, all to inhibit us from acting independently in our own national interest. Finally, our dependence on oil makes it
impossible to change the perception of the Arab and Muslim masses about America and its goals in the region. The U.S. efforts in Iraq and elsewhere in the Middle East to promote democracy
and freedom are seen as nothing more than smokescreens to hide our real agenda, the exploitation of Arab oil and wealth for our sole benefit. There is not much that the United States can say
or do to change these perceptions as long as we depend on Arab oil and continue to be perceived as less than even-handed in dealing with the Israeli-Palestinian conflict. Our actions and
policies in the Middle East, especially the war in Iraq and its aftermath, enforce rather than dilute such beliefs. To be sure, if we continue to support current Arab despotic regimes, the hatred
Terrorism, as the most forceful way of expressing that resentment
and scorn toward America felt by the Arab masses will not only continue unabated but grow.
toward us, will continue to escalate. The sooner we become less reliant on Middle-Eastern oil by adopting a specific and
comprehensive energy plan, the sooner we can develop a more independent policy to deal with terrorism and other regional issues.
The development of such a policy does not mean that we need to abandon oil as a tradable commodity like any other industrial or
natural resource that we can buy and sell; it means that we no longer depend on it for our survival. Only when oil loses its potency as a
resource on which our entire economic national security depends will we take from al-Qaida the ability to threaten our national interests by using oil as a weapon against us. There is a
legitimate discussion among various government agencies and energy experts about the kind of energy plan that could best serve our nation's needs. But the bill the administration sent to
Congress, which failed to pass it, was based largely on the old premise of generating greater supplies of fossil fuel, while providing few incentives for the domestic development of renewable
energy -- the technology for which has existed for years. The Senate rejected the president's energy bill because, among other things, it made oil and gas drilling into the dominant use of
public lands, weakened the Clean Air Act, would have given billions of dollars to polluting coal, oil, and nuclear industries, failed to decrease our oil dependence, and contained no incentives
We must acknowledge that increasing the supply of fossil fuel is not the answer to our energy
for fuel-efficient cars.
problems. We must change our national psychological disposition from that of relying on fossil fuel.
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Mead 92 [Walter Russel, fellow, Council on Foreign Relations, New perspectives quarterly, summer pp. 28]
What if the global economy stagnates - or even shrinks? In that case, we will face a new period of
But what if it can't?
international conflict: South against North, rich against poor. Russia, China, India - these countries with their
billions of people and their nuclear weapons will pose a much greater danger to world order than Germany and
Japan did in the '30s.
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U.S. dependence on oil imports imposes a huge economic penalty that is not reflected in the retail price of gasoline.
It is a penalty that costs jobs, drains investment capital, and increases the nation's defense burden, and it is a cost the
U.S. cannot pay forever. Numerous analyses of these hidden costs have been conducted in recent years and the
bottom line is that the economic penalty is enormous. There are at least three major elements that comprise this
burden: Military expenditures specifically tied to defending Persian Gulf oil, the cost of lost employment and
investment resulting from the diversion of financial resources, and the cost of the periodic "oil shocks" the nation
has experienced – and will likely continue to experience. For example, these costs have been estimated to exceed
$300 billion annually, and they are rising: • Expenditures associated with defending the flow of Persian Gulf oil
exceed $50 billion annually.1 • The loss of economic activity resulting from the diversion of financial resources is
even larger. Direct economic losses are estimated at nearly $40 billion annually and indirect losses at $125 billion,
for an annual total of more than $160 billion. This loss of economic activity results in a loss of 830,000 jobs in the
U.S. and a loss of $15 billion in tax revenues and royalty payments to the federal, state and local governments.
America imports about 60% of the oil it consumes. In 2005 U.S. oil imports totaled approximately $250 billion, or
$680 million per day. That figure is fast approaching $1.0 billion per day. The direct and indirect costs to the U.S.
economy have been estimated to total about $300 billion per year. U.S. dependence on crude oil and refined product
imports imposes an enormous economic penalty that is not fully reflected in the retail price of gasoline, diesel fuel,
and jet fuel. It is the penalty of lost jobs, drained investment capital, and an increased national defense burden. The
U.S. cannot pay this $300 billion (and rising) cost forever. When all of these elements are considered, they raise the
"real" price of imported oil to well over $100 per barrel of crude. This translates into a pump price for gasoline of
over $5.00 per gallon, or nearly $100 to fill an average gas tank.
Dependence on oil makes US vulnerable to oil supply loss --multiple threats exist
Southern States Energy Board in 6
The American Energy Security Study, http://www.americanenergysecurity.org/leg_brief.html.
Tightening oil markets and near record high prices have brought America’s oil vulnerability back into focus.
Hurricane Katrina recently demonstrated how quickly oil supply disruptions can impact the country. More serious
supply disruptions will likely occur in the future, caused again by natural forces like Katrina, or by terrorist acts, or
purposeful rationing by the OPEC cartel and rogue nations such as Iran and Venezuela.
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Ann Bordetsky, Roland Hwang Anne Korin Deron Lovaas and Luke Tonachel SECURING AMERICA
Solving Our Oil Dependence Through Innovation http://www.nrdc.org/air/transportation/oilsecurity/plan.pdf
Copyright 2005 by the Natural Resources Defense Council.
In addition to sustained high prices, a tight marketplace makes for a greater probability of price spikes in
response to fears of supply disruptions because of terrorism or other causes. Oil price spikes, according to
economist Philip Verleger, have cumulatively sapped 15 percent of our economy’s growth resulting in $1.2
trillion in direct losses.9 While some have argued that our economy is less effected by oil shocks than it
was 30 years ago due to lower petroleum intensity—the amount of oil used per unit of GDP—America’s
economy is still highly vulnerable because of our high levels of imports, the global nature of the oil
markets, and interdependence of today’s worldwide economies.10
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Victor ’08 [David G. Victor, Professor at Stanford Law School, Director of the Program on Energy and Sustainable Development at Stanford University, and an Adjunct Senior Fellow at the Council on Foreign
Relations. SARAH ESKREIS-WINKLER was Research Associate in National Security at the Council on Foreign Relations in 2006-7. "In the Tank: Making the Most of Strategic Oil Reserves," Foreign Affairs, July/August 2008
http://fullaccess.foreignaffairs.org/20080701faessay87405/david-g-victor-sarah-eskreis-winkler/in-the-tank.html download date: 7-7-08]
Since the Arab oil embargo of the early 1970s, the United States has spent nearly $50 billion (in today's dollars) to build and maintain a huge strategic stockpile of crude oil. Stored in underground salt domes along the coasts of
Louisiana and Texas, the U.S. Strategic Petroleum Reserve (SPR) now holds more than 700 million barrels of oil. Other major oil importers -- notably European countries and Japan -- have spent heavily to accrue their own reserves,
and many are evaluating whether they should build even larger ones. In his January 2007 State of the Union address, President George W. Bush urged increasing the country's stocks to 1.5 billion barrels in the near future. With the
price of crude oil likely to continue to rise above $100 per barrel, the venture could cost between $70 billion and $100 billion. Congress has authorized boosting the SPR to one billion barrels but has not yet appropriated the necessary
funds. (And in May, motivated by high oil prices and election-year politics, it temporarily blocked efforts by the Bush administration to keep filling the SPR.) After the military resources spent to keep oil supplies flowing reliably from
the Persian Gulf and other significant oil-producing regions, the SPR is the United States' costliest investment in energy security.
The theory behind the effort is that a well-coordinated system of oil stocks can buffer the country against
foreign and domestic shocks to the world oil market. Strategic reserves allow governments to relieve the pressure of unexpected interruptions in oil supplies by releasing some of
their stocks on the market. They can help the governments of oil-importing countries dampen the effects of crises in oil-exporting regions or along critical supply routes, such as the Strait of Hormuz, through which about one-third of
all the world's oil exports pass. Strategic reserves reduce dependence on pivotal suppliers prone to using oil as a bargaining chip when the market is tight, such as Iran and Venezuela. And they may reduce (at least a bit) the massive
revenues that flow to oil exporters such as Russia, helping to make them less formidable troublemakers. Thus, in theory, oil reserves are an important tool of both economic and foreign policy.
In practice, however, strategic stocks can only boost energy security when they are handled properly. And
on that front, the track record of most states with large holdings is discouraging. Most countries have
opaque and unreliable procedures governing when their governments can fill the stocks and when they
can release the oil. Washington, among other governments, makes decisions about stocking and using oil
based on an outdated vision of the oil market. When the United States and other countries first built their oil caches, several major oil firms and the main oil-exporting countries
controlled the reliability and the pricing of oil supplies because they held most of the world's excess production capacity. Today's market, by contrast, has little excess capacity, and supplies are priced in commodity markets dominated
markets, even though effective management would mean offering reliable supplies in a crunch without
undermining the enormous benefits of market speculation at other times. Bigger reserves could help
improve U.S. energy security, but until the U.S. government better manages its strategic oil, spending up
to $100 billion to double the SPR -- already the world's largest and costliest system of oil caches -- would be a tremendous waste of money.
Such an effort would be warranted only if Washington radically reformed its approach to the United States' reserves and coordinated it with those of the rest of the world. Most important, the United States should shift control over its
oil reserves from the president (and his political appointees in the Department of Energy and the State Department) to an independent oil reserve board. Presidential discretion, once thought to lend flexibility to the system and make
the SPR a powerful foreign policy tool, now has the opposite effect. Presidential control has politicized decisions about the reserves, especially as most U.S. presidents have proved unable to move nimbly and credibly with the
commodity markets.
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High oil prices will not cause a global recession; At the worst it will just slow growth. The
US isn’t as dependent on oil.
NPR.ORG October 31, 2007 http://www.npr.org/templates/story/story.php?storyId=15816615
In the past, the oil shocks were caused by a lack of supply — the OPEC embargo in 1973, the Iranian revolution in 1979, the
Iran-Iraq war in 1980. Today, prices are soaring because of increased demand. Also, high oil prices are blamed for sparking
global recessions in 1973 and 1980, but that's not likely to happen this time, most economists say. For one thing,
Americans, on average, earn more money and spend less on energy than they did 30 years ago.
Overall, the U.S. economy is significantly less dependent on oil — and, in fact, on all forms of energy. In 1981, the
country devoted nearly 14 percent of its overall gross domestic product to energy, according to the Energy Information
Administration. By 2006 that number had fallen to about 9 percent.
"We're in much better shape than we were 30 years ago," says Lester Lave, a professor of economics at Carnegie-
Mellon University. High oil prices are like a headwind that slows the economy, he says, and that headwind is about
half as strong as it was in the 1970s.
The days of rising oil prices alone threatening to knock out the economy may be over.
At more than $93 a barrel, oil prices are at or near all-time highs, even when adjusted for inflation.
Yet the economy has so far withstood the impact of rising crude. By contrast, the last time crude prices were this
high, in the early 1980s, the economy tanked.
It's not like oil no longer matters, but it's clear the the energy economy has changed dramatically. Efficiency gains,
higher prices driven by demand - not supply - a more diverse energy mix and the fact that people simply make more
money means that energy no longer pulls the overall economy like it used to.
"The effect is more muted now," said Chris Lafakis, an associate economist at Moody's Economy.com, an economic
consultancy. "The economy is more prepared for it."
Although oil prices hit US$80, the inflation, unemployment and recession that supposedly follow oil-price shocks
are nowhere on the macroeconomic radar screen. If the economy goes into a tailspin, it will be in response to bad
news in the housing market, not the oil market. The lesson to be derived from this is pretty clear: While oil-price spirals are certainly
nothing for consumers to celebrate, the health of the economy is not held hostage to oil markets.
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No oil shock; Economies are better adapted to changes and will adjust
Kansas City Star Online October 29, 2007
In recent years, the U.S. and world economies have typically shrugged off oil price increases. By contrast, oil price
increases are a major part of the conventional story of the economic turmoil of the 1970s. Why the difference? We
economists do not have a complete answer, but we have some clues. … The economy is far more energy-efficient
today than it was in the past, in part because economic activity is based more on services and less on manufacturing.
[We have] flexible labor markets, better monetary policy, and a bit of luck.
Oil prices only have 2/3 of the effect they used to on the economy
Cherry Creek News, “Economist sees US better withstanding high oil prices - Peak oil”, Jan 31, 2008,
http://www.thecherrycreeknews.com/content/view/2359/2/
Blanchard and a
In a paper titled "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?"
colleague show how changes in U.S. and global economic policies have reduced the impact of oil price shocks. Co-
written with Jordi Gali of the Center for International Economic Research in Barcelona, the work was published as an MIT Economics
Working Paper. Blanchard, the Class of 1941 Professor of Economics, is a former MIT economics department head and widely published
author whose articles on economics appear regularly in U.S. and French media. He discussed his research on oil shocks during a recent
interview with the MIT News Office. Q: Four price-doubling oil shocks have occurred in 35 years-1973, 1979, 1999 and now. How have
economic reactions differed? A: In the 1970s, there were two sharp recessions and sharply higher inflation. This time around, the economy has
remained strong, and inflation has barely bulged. Q: What's behind the differences? Why was 1973 so different from 2007? A: In the 1970s, the
adverse effects of oil price increases were compounded by other adverse shocks-a sharp slowdown in productivity growth and large increases
in the price of raw materials. In the 2000s, the effects of oil price increases have been partly offset by other shocks, this
time favorable-sustained productivity growth and strong Asian growth, for example. Q: Higher oil prices make dramatic
news, yet your research indicates oil actually affects the U.S. economy less than it did 35 years ago. Why is that? A: Those previous large
increases in the price of oil did their job: they led to decreased demand. The share of oil and gas in U.S. production
and consumption today is roughly two thirds of what it was in the 1970s. Thus, any given increase in the price of
oil has only two-thirds of the impact it had then.
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Oil price rise does NOT hurt economy – diversification and recent history show resilience
Baker ’07 [David R., Chronicle Staff Writer, “BUBBLING CRUDE NOT SUCH A BUST,” San Francisco Chronicle,
Section: Business, Final Edition, October 17, L/N]
High oil prices used to inspire dread among economists and panic on Wall Street. But not anymore. Prices have been rising steadily for two months, hitting a record of $87.61 per barrel Tuesday on the New York Mercantile Exchange.
Economists aren't thrilled to see such high prices, because paying more for fuel can hurt corporate profit and pinch consumer spending. But they've watched oil prices climb for years without killing the economy. Listen to them fret
about a possible recession, and they're more worried about the mortgage crisis than about oil.
Same with the stock markets. Stocks have been rising for about two months, just like oil, although they slipped on Monday and Tuesday. Traders may be starting to worry about fuel prices eating into company earnings, but so far, it
hasn't shown.
Anyone old enough to remember the 1970s knows it wasn't always this way.
Back then, spiking oil prices tipped an already stumbling economy into recession. Unemployment lines followed gas lines.
So why hasn't that happened now?
The economy doesn't depend on oil as much as it once did. Some factories that relied on oil in the 1970s
have closed, their jobs shipped overseas. Others switched fuels, burning natural gas to generate power.
In addition, this week's records follow three years of rising petroleum prices. As oil passed milestone after
milestone - $45 per barrel, then $55, then $65, then $75 - businesses learned to plan for high prices.
So did drivers. Americans have adjusted to paying more for gasoline, no matter how much they resent it.
California's average gasoline price rose 14 cents in the last month, and now stands at $3.07 for a gallon of regular, according to
the AAA auto club.
Many economists now say only sudden, steep changes in oil and gasoline prices pose much danger. As long as the change is
predictable, the economy can probably handle it. Besides, the world has now endured several years of oil
prices that were once considered lethal.
"The price went all the way to $75, and that didn't cause a recession, so should we be scared when it hits
$85?" said James Hamilton, professor of economics at UC San Diego. "I don't see another $5 in the price
of oil as the straw that broke the camel's back."
There's also a question of whether this week's record prices will last.
The petroleum bull market has created its own upward momentum. Speculative investors are filling the market with money. And they keep seeing reasons to bid the price higher. This week's primary cause: threats that Turkey could
attack Kurdish rebels taking refuge in northern Iraq, possibly threatening the flow of Iraqi oil. Each tidbit of negative news feeds the bulls.
"A lot of it is momentum," said Peter Beutel, president of the Cameron Hanover energy risk management firm. He says the price could hit $90 per barrel. "It's not 'buy low and sell high.' It's 'buy high and sell higher,' " Beutel said.
Five years ago, prices hovered in the $30 range. They'd been there - or lower - for years. But starting in 2004, they began climbing, driven upward by fighting in the Middle East and China's fast-growing need for fuel.
They are now about as high as they've ever been. Adjusted for inflation, oil peaked at roughly $92 per barrel in 1981, after the start of the Iran-Iraq War. The current bull market isn't far from hitting that mark.
As prices rose during the last three years, the economy occasionally wobbled but never tanked. That
resilience in the face of high prices shows just how much the American economy has changed since the
1970s. Energy-hungry industries such as manufacturing have shrunk. Services and retail sales have
expanded.
In addition, this decade's petroleum price increase has different root causes than the classic oil shocks of the 1970s and early 1980s.
The earlier price spikes followed sudden disruptions in the supply of oil, such as the 1973 Arab embargo of oil sent to the United States for its support of Israel. Prices eased when the crude started flowing again. Now, however, prices
are being driven up by rising demand throughout the world. Oil is still available, in other words, but more countries are paying top dollar to get it.
When oil prices hurt economies, demand falls. This drives prices down again.
Middle East Online. "Oil Prices Fall By Two Dollars." 6 Aug. 2007. http://www.middle-east-
online.com/english/?id=21675
World oil prices fell by two dollars on Monday on expectations that energy demand may weaken because of
economic troubles in the United States, analysts said. New York's main futures contract, light sweet crude for delivery in September,
slumped by 2.03 dollars to 73.45 dollars per barrel. The contract had soared to a historic high of 78.77 dollars last Wednesday on news of
sliding crude stockpiles in the United States, the world's biggest consumer of energy. In London on Monday, the price of
Brent North Sea crude for September delivery shed 1.97 dollars to 72.78 dollars per barrel. "Oil prices have fallen back from record
highs as weak non-farm payrolls and unemployment figures in the US on Friday once again undermined (economic)
confidence, which has already been knocked by the subprime mortgage crisis," Sucden analyst Michael Davies said.
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No other major power is capable of matching the United States when it comes to the global deployment of
military power in the pursuit or protection of vital raw materials. Nevertheless, other powers are beginning to
challenge this country in various ways. In particular, China and Russia are providing arms to oil and gas producers
in the developing world and beginning to enhance their military capacity in key energy-producing areas.
Much the same process is under way in Central Asia, where China and Russia cooperate under the auspices of the
Shanghai Cooperation Organization (SCO) to provide arms and technical assistance to the military forces of
the Central Asian "stans"--again competing with the United States to win the loyalty of local military elites. In the
1990s Russia was too preoccupied with Chechnya to pay much attention to this area, and China was likewise consumed with other priorities, so
Washington enjoyed a temporary advantage; in the past five years, however, Moscow and Beijing have made concerted efforts to
gain influence in the region. The result has been a far more competitive geopolitical environment, with Russia
and China, linked through the SCO, gaining ground in their drive to diminish US influence. These and other
efforts by Russia and China, combined with stepped-up US military aid to states in the region, are part of a
larger, though often hidden, struggle to control the flow of oil and natural gas from the Caspian Sea basin to
markets in Europe and Asia. And this struggle, in turn, is but part of a global struggle over energy.
Securing our oil supply will inevitably lead to low level conflicts in which escalates to a US-
Russia war.
Klare 2008 (Micheal T. Klare, The Nation’s defense correspondent, is professor of peace and world security studies at Hampshire
College. “The New Geopolitics of Energy” The Nation. New York: May 19, 2008. Vol. 286, Iss. 19; pg. 18)
The great risk is that this struggle will someday breach the boundaries of economic and diplomatic competition and
enter the military realm. This will not be because any of the states involved make a deliberate decision to provoke a
conflict with a competitor--the leaders of all these countries know that the price of violence is far too high to pay for any conceivable
return. The problem, instead, is that all are engaging in behaviors that make the outbreak of inadvertent escalation
ever more likely. These include, for example, the deployment of growing numbers of American, Russian and Chinese
military instructors and advisers in areas of instability where there is every risk that these outsiders will someday be
caught up in local conflicts on opposite sides. The danger, of course, is that the great powers will be sucked into
these internal conflicts. This is not a far-fetched scenario; the United States, Russia and China are already providing
arms and military-support services to factions in many of these disputes. The United States is arming government forces in
Nigeria and Angola, China is aiding government forces in Sudan and Zimbabwe, and so on. An even more dangerous situation prevails
in Georgia, where the United States is backing the pro-Western government of President Mikhail Saakashvili with
arms and military support while Russia is backing the breakaway regions of Abkhazia and South Ossetia. Georgia
plays an important strategic role for both countries because it harbors the Baku-Tbilisi-Ceyhan (BTC) pipeline, a
US-backed conduit carrying Caspian Sea oil to markets in the West. There are US and Russian military
advisers/instructors in both areas, in some cases within visual range of each other. It is not difficult, therefore, to conjure up
scenarios in which a future blow-up between Georgian and separatist forces could lead, willy-nilly, to a clash
between American and Russian soldiers, sparking a much greater crisis.
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Energy competition in the Caspian is the most likely scenario for a major power nuclear
war
Blank in 2000 Steven J. Blank is the Douglas MacArthur Professor of Research at the U.S. Army War College and has been an Associate
Professor of Russia/Soviet Affairs at the Strategic Studies Institutes. “US Military Engagement with Trancaucasia and Central Asia,” Strategic
Studies Institute, June, http://carlisle-www.army.mil/usassi/welcome.htm.
Russia’s drive for hegemony over the Transcaucasus and Central Asia therefore led those states and interested
foreign powers to an equal and opposing reaction that has blunted the Russian drive. Baku, Erevan, Tashkent,
Astana, and Tbilisi, to a greater or lesser degree, are seeking a Western counterbalance to Moscow, which the West,
especially Ankara and Washington, are all too happy to provide.68 Central Asia has also turned to China, the
United States, and Iran in energy and economics, is exploring forms of regional cooperation, and has begun to build
its own national militaries to escape from Russia’s shadow. Apart from expanded trade and commercial relations and
support for infrastructural projects beyond the energy and pipeline business, Turkey trains Azerbaijani troops and
provides economic-political assistance to Georgia and Azerbaijan. Other Western powers, especially France and
Great Britain, also display a rising regional profile. Washington’s burgeoning military-political-economic
involvement seeks, inter alia, to demonstrate the U.S. ability to project military power even into this region or for
that matter, into Ukraine where NATO recently held exercises that clearly originated as an anti-Russian scenario.
Secretary of Defense William Cohen has discussed strengthening U.S.-Azerbaijani military cooperation and even
training the Azerbaijani army, certainly alarming Armenia and Russia.69 And Washington is also training Georgia’s
new Coast Guard. 70 However, Washington’s well-known ambivalence about committing force to Third World
ethnopolitical conflicts suggests that U.S. military power will not be easily committed to saving its economic
investment. But this ambivalence about committing forces and the dangerous situation, where Turkey is allied to
Azerbaijan and Armenia is bound to Russia, create the potential for wider and more protracted regional conflicts
among local forces. In that connection, Azerbaijan and Georgia’s growing efforts to secure NATO’s lasting
involvement in the region, coupled with Russia’s determination to exclude other rivals, foster a polarization along
very traditional lines.71 In 1993 Moscow even threatened World War III to deter Turkish intervention on behalf of
Azerbaijan. Yet the new Russo-Armenian Treaty and Azeri-Turkish treaty suggest that Russia and Turkey could be
dragged into a confrontation to rescue their allies from defeat. 72 Thus many of the conditions for conventional war
or protracted ethnic conflict in which third parties intervene are present in the Transcaucasus. For example, many
Third World conflicts generated by local structural factors have a great potential for unintended escalation. Big
powers often feel obliged to rescue their lesser proteges and proxies. One or another big power may fail to grasp the
other side’s stakes since interests here are not as clear as in Europe. Hence commitments involving the use of
nuclear weapons to prevent a client’s defeat are not as well established or apparent. Clarity about the nature of the
threat could prevent the kind of rapid and almost uncontrolled escalation we saw in 1993 when Turkish noises about
intervening on behalf of Azerbaijan led Russian leaders to threaten a nuclear war in that case. 73 Precisely because
Turkey is a NATO ally, Russian nuclear threats could trigger a potential nuclear blow (not a small possibility given
the erratic nature of Russia’s declared nuclear strategies). The real threat of a Russian nuclear strike against Turkey
to defend Moscow’s interests and forces in the Transcaucasus makes the danger of major war there higher than
almost everywhere else. As Richard Betts has observed, The greatest danger lies in areas where (1) the potential for
serious instability is high; (2) both superpowers perceive vital interests; (3) neither recognizes that the other’s
perceived interest or commitment is as great as its own; (4) both have the capability to inject conventional forces;
and, (5) neither has willing proxies capable of settling the situation.74 Russian perceptions of the Transcaspian’s
criticality to its interests is tied to its continuing efforts to perpetuate and extend the vast disproportion in power it
possesses relative to other CIS states. This power and resource disproportion between Russia and the smaller states
of the Transcaspian region means that no natural equilibrium is possible there. Russia neither can be restrained nor
will it accept restraint by any local institution or power in its pursuit of unilateral advantage and reintegration. 75
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Josef Braml is editor-in-chief of the Yearbook on International Relations at the German Council on Foreign Relations
(DGAP) in Berlin. The Washington Quarterly • 30:4 pp. 117–130. 2007 Can the United States Shed Its Oil Addiction?
If the United States continues its overreliance on fossil fuels, it will become increasingly dependent on producing
nations that are unstable and that pose a risk to its interests and could come into conflict with other consumer states.
Although the United States can still count on Canada and Mexico, which are its two most important petroleum providers, its tense
relationship with Venezuela illustrates the challenges in securing energy resources even in its own backyard, let
alone the Middle East and other volatile areas. Some observers of petropolitics go as far as to describe an “axis of
oil” (Russia, China, and eventually Iran) at work that is “acting as a counterweight to American hegemony”
and will deprive the United States of its oil supplies and strategic interests.6 The Persian Gulf, another region the
United States used to dominate, has become very volatile and unreliable in terms of delivering energy resources.
This region will continue to be vital to U.S. interests in reliable oil supply for at least the next two decades.7 The U.S.–
Saudi Arabian relationship in particular is well rooted in bilateral economic and political ties. The Saudi monarchy possesses the world’s largest
oil reserves and is one of the United States’ main suppliers of oil. U.S. energy dependence, however, undermines the U.S. National Security
Strategy’s aim of fighting terrorism by demanding meaningful political reform from authoritarian regimes to become more democratic and market
oriented.8 Through interventions in the markets, Saudi Arabia has helped the United States to stabilize the price of oil, allowing
oil consumers to enjoy relatively steady prices from the mid-1980s to 2003. Nevertheless, because oil production has not kept pace with increased
worldwide demand for oil, especially from the United States and China, there has been a sharp increase in the price of oil over the past three
years.
oil access is the most important factor for sustained American hegemony.
Dr. Flynt Leverett is Senior Fellow and Director of the Geopolitics of Energy Initiative at the New America
Foundation. He is also a visiting professor of political science at the Massachusetts Institute of Technology and a
principal of Strategic Energy and Global Analysis, LLC. Previously, he served in government as senior director for
Middle East affairs at the National Security Council, on the Secretary of State’s Policy Planning Staff, and as senior
analyst at the Central Intelligence Agency, January 10, 2007. Testimony “The Geopolitics of Oil And America’s
International Standing” Committee on Energy and Natural Resources United States Senate,
http://www.newamerica.net/files/070110leverett_testimony.pdf
Mr. Chairman, Senator Domenici, members of the Committee, thank you for the opportunity to speak with you about the global oil balance and
its implications for America’s national security and foreign policy.1 In my view, the most profound challenges to America’s global
leadership during the next quarter century are not posed by the risk of strategic failure in Iraq, further proliferation
of weapons of mass destruction, or the growth and consolidation of extremist forces in the Islamic world. Rather,
the most profound challenges to U.S. preeminence during the next 25 years flow from the strategic and political
consequences of ongoing structural shifts in global energy markets, especially the global oil market. Most notably,
cooperation between China and Russia on energy matters is bolstering Sino-Russian cooperation on strategic
issues, effectively creating a Sino-Russian “axis of oil” as the principal counterweight to America’s global
hegemony.
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US is vulnerable to major oil exporters. These countries get to exert undue control over
our foreign policy decisions
Energy Security Leadership Council, Recommendations to the Nation on Reducing U.S. Oil
Dependence December 2006 http://www.secureenergy.org/reports/ESLC_Oil_Report.pdf
Reduced U.S. oil dependence will help mitigate the power that major oil exporters can exert over
U.S. foreign policy both directly and through their ability to coerce other importing nations. While
some may argue that the various exporting nations are too diverse to forge an effective
monopoly
and, moreover, too dependent on petro-dollars to contemplate lasting embargoes, the fact is that
America has adversaries who are ready to make economic sacrifi ces of their own in order to achieve
goals contrary to U.S. interests. Whether or not future embargoes are probable, they are clearly not
impossible, and for this reason the U.S. must prepare to deter the use of oil as a “weapon.” Our nation
is at risk, and it is time for serious action.
Energy Security Leadership Council, Recommendations to the Nation on Reducing U.S. Oil
Dependence December 2006 http://www.secureenergy.org/reports/ESLC_Oil_Report.pdf
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Ann Bordetsky, Roland Hwang Anne Korin Deron Lovaas and Luke Tonachel SECURING AMERICA
Solving Our Oil Dependence Through Innovation http://www.nrdc.org/air/transportation/oilsecurity/plan.pdf
Copyright 2005 by the Natural Resources Defense Council.
There is ample evidence that economic conditions are not the only element of a terrorist friendly climate
in the Middle East. Prodigious oil supply can undermine democracy as well. Oil riches in the developing
world have been linked to centralization of state power, difficulties in developing free societies, and the
funding of incitement and terrorist networks.39 The situation has complicated U.S.-Saudi relations so much
so that the commission included a specific recommendation in its report aimed at healing the relations:
“The problems in the U.S.-Saudi relationship must be confronted, openly. The United States and Saudi
Arabia must determine if they can build a relationship that political leaders on both sides are prepared to
publicly defend – a relationship about more than oil…”40
As summarized in a Foreign Affairs article, “It is…increasingly clear that the riches from oil trickle
down to those who would do harm to America and its friends. If this situation remains unchanged, the
United States will find itself sending soldiers into battle again and again, adding the lives of American men
and women in uniform to the already high cost of oil….”41 Therefore, reducing U.S. oil dependence could
indirectly support the development of democracy, or as one columnist wrote: “Shrink the oil revenue and
[Middle Eastern countries] will have to open up their economies and their schools and liberate their women
so that their people can compete. It is that simple.”42
Byman 2003 (Daniel- Assistant Professor in the Security Studies Program at Georgetown, International Security
28.1, p51-52)
Democracy's greatest advantage for the United States, however, may be in making the Persian Gulf region more pacific.
Since the British withdrawal from the gulf more than thirty years ago, war and revolution have plagued the region. Mature democracies are
far less likely to fight each other, suggesting that peace may be more likely in a democratic future. It is important to
note, however, that Iran's democracy is limited at best, while the gulf states remain in essence family-run autocracies, despite recent moves
toward power sharing. Thus the finding that democracies seldom war with each other may be of limited relevance to
the gulf today, though the installation of a democracy in Iraq might be a positive first step toward a broader,
region-wide peace.
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The process of reconstructing Russia’s influence in Asia gained in intensity after September 11, 2001, because of
Russia’s importance in the antiterrorist coalition and strong political factions in Afghanistan (especially after the
defeat of the Taliban) and the surrounding region. Russia’s most important entry point for the future is its position in
the south of the CIS in Central Asia and the southern Caucasus. This is the region that will decide Russia’s
superpower potential. So far, as a result of traditions and weak economic tools, Russia has been building its
influence in this region by playing on weaknesses and local conflicts. This destabilizes the region and hinders its
development, but this policy seems to be successful in the short term. In the longer term, it may have catastrophic
results beyond the region. The great threat for this policy after September 11, 2001 is strong military, political and
economic engagement on the part of the United States (and the European Union in the economic sphere) in Central
Asia and the Caucasus. This calls into question Russia’s monopoly, gives a geopolitical alternative for the region,
strengthens the independence of the new states, and encourages growth in terms of regional stability. These
opposing tendencies—U.S. involvement in Russia’s sphere of influence and growing role of Russia in the coalition,
Russia’s particular influence in Central Asia and Afghanistan with Russia flexibility in Moscow-Washington
relations—create a completely new style of policy for Russia in the south of the CIS. Thanks to its position in the
region, Russia has become an important player in global (Asiatic) policy and a kind of partner and ally for the
United States. Though thus far it is symbolic, the breaking of Russia’s monopoly in Central Asia by the United
States seems to be a good price to pay for the change in Russia’s position, particularly as Moscow has been keeping
fairly tight control of political processes in the region. Russia’s biggest problem will be keeping these political
instruments and finding solutions for the region’s social, economic, and cultural problems.
As the antiterrorist coalition has expanded, the new era of U.S. involvement in the south of the CIS has become fact.
Never before has the United States had a direct military presence here. This creates both enormous opportunities
and enormous dangers. The presence of the United States in the region seem inevitable: a state that wants to play
the role of a superpower cannot allow itself to be absent from a place where the influences of the greatest power of
Asia (at once partners and rivals of the United States) clash, four of which have nuclear weapons (Russia, China,
Pakistan, and India). This is especially true as Pakistan, hitherto the linchpin of U.S. support, is undoubtedly
experiencing immense internal tensions that threaten destabilization with far-reaching results beyond the region’s
borders. Thus, it becomes key to provide enormous and constant support—both political and economic—for
building independent and efficient states in the region. U.S. involvement also seems beyond debate in a region
where the Islamic fundamentalism that given birth to terrorism plainly has perfect conditions for development (both
in Afghanistan and Tajikistan, the entire Fergana Valley, and the Northern Caucasus, Chechnya, and Dagestan). The
problems that accompany (and frequently precede) fundamentalism include uncontrolled trade in drugs and arms, as
well as problems both social and humanitarian (such as refugees). Despite its rhetoric, Russia is not able to solve
these problems, and even seems to generate them (considering the example of Chechnya, and indirectly Tajikistan).
The current Russia-centered defense system therefore requires fundamental revision; otherwise problems will
snowball out of control.
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Caspian Defense
Central Asian countries will check great power domination—they balance influence
Brian G. Carlson, an M.A. student at the Johns Hopkins University School of Advanced International Studies,
Spring 2007, Journal of Public and International Affairs, “The LimiTs of sino-Russian sTRaTegic PaRTneRshiP in
cenTRaL asia,” http://www.princeton.edu/~jpia/, p. 175
Finally, a Sino-Russian partnership in Central Asia is likely to be lim- ited by the Central Asian countries’ desire to
play the great powers off against each other in order to preserve their sovereignty. This tendency can be seen in
Kazakhstan’s “multi-vectored” foreign policy (Tokayev 1997; Tokayev 2006; Blank 2005; Olcott 2002, 50),
Uzbekistan’s entreat- ies to both Russia and China following the souring of relations with the United States,
Kyrgyzstan’s delicate balancing act in which it joined the SCO declaration but reaffirmed U.S. access to the base
at Manas airport, Tajikistan’s close relations with the United States, and Turkmenistan’s stubborn neutrality.
Russia has been unable to create an effective collective security orga- nization under the CIS because no Central
Asian country is willing to trade its sovereignty for protection by Moscow (Olcott 2005a, 187). Nor do these
countries wish to endure a crippling economic dependence on Moscow that limits their sovereignty. For example,
Kazakhstan has sought multiple export routes for its energy resources in order to prevent a Russian monopoly
(Christoffersen 1998, 26-28).
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Central Asian security affairs have become much more complex than during the original nineteenth-century great
game between czarist Russia and the United Kingdom. At that time, these two governments could largely dominate
local affairs, but today a variety of influential actors are involved in the region. The early 1990s witnessed a
vigorous competition between Turkey and Iran for influence in Central Asia. More recently, India and Pakistan have
pursued a mixture of cooperative and competitive policies in the region that have influenced and been affected by
their broader relationship. The now independent Central Asian countries also invariably affect the region's
international relations as they seek to maneuver among the major powers without compromising their newfound
autonomy. Although Russia, China, and the United States substantially affect regional security issues, they cannot
dictate outcomes the way imperial governments frequently did a century ago. Concerns about a renewed great game
are thus exaggerated. The contest for influence in the region does not directly challenge the vital national interests of
China, Russia, or the United States, the most important extraregional countries in Central Asian security affairs.
Unless restrained, however, competitive pressures risk impeding opportunities for beneficial cooperation among
these countries. The three external great powers have incentives to compete for local allies, energy resources, and
military advantage, but they also share substantial interests, especially in reducing terrorism and drug trafficking. If
properly aligned, the major multilateral security organizations active in Central Asia could provide opportunities for
cooperative diplomacy in a region where bilateral ties traditionally have predominated.
Fortunately, the fact that Central Asia does not represent the most important geographic region for any external great
power also works against the revival of a traditional, geopolitical great-game conflict. Russia, China, and the United
States have strong reasons to cooperate in the region. Although each country has extensive goals in Central Asia, the
resources they have available to pursue them are limited, given other priorities. As long as their general relations
remain nonconfrontational, Moscow, Beijing, and Washington are unlikely to pursue policies in a lower priority
region such as Central Asia that could disrupt their overall ties. Most often, they will find it more efficient and
effective to collaborate to diminish redundancies, exploit synergies, and pool funding and other scarce assets in the
pursuit of common objectives. Unfounded fears or overtly competitive policies could undermine these opportunities
for cooperation and should be avoided.
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"The presence of US troops in the region has nothing to do with the security of Arabs, but it is in the framework of Washington's
greed to access oil reservoirs in the region," he stressed. "Our Arab brothers well understand this reality," he said.
Al-Sharaa underlined that Arabs know very well that the United States is in need of oil and is the world's largest oil
consumer, adding that the US therefore intends to dominate the oil rich Persian Gulf region.
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The salience of oil in the US policy can be gauged from the fact that it has unleashed forces of war in the Middle
East to control its oil reserves. The Middle East not only has the world's largest oil reserves but also the
cheapest to produce. If the Middle East did not have the major energy reserves of the world, then
policymakers today wouldn't care much about it. If we read every strategic
document regarding the Middle East produced by Washington for decades, it stresses oil as the major
factor behind the importance of the area. In the early 1930s, US companies obtained a foothold in
Saudi Arabia.Dependence on oil from the Middle east also explains our need to send troops to
that area
Reducing our oil dependence will eliminate our reason for sending our troops there
George Heitmann, Special to The Morning Call – Freelance Morning Call (Allentown, Pennsylvania) May 13, 2008 HEADLINE:
Focus on energy efficiency, not energy independence
Sen. John McCain, addressing an approving audience, has indicated that his energy independence plan, by reducing our reliance upon
Middle East oil, will eliminate future needs for sending U.S. troops into that troubled area. Some
observers, such as Chris Matthews of "Hardball," have taken his remarks as a gaffe, revealing his acceptance of Alan Greenspan's expressed
"inconvenient truth" that the Iraqi war is about oil. Of course, the Middle East is important because of oil, and Israel. Whatever the proximate
cause of the Iraqi war, a fundamental reason for U.S. interest in the Middle East is oil. That should not
come as surprise to any thinking person.
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