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The price spikes of the 1970s were followed by big absolute falls in demand and output (see chart). This
was partly because of the recessions and partly because of rising efficiency. Both forces should work again
this time, but to a much smaller extent. The slowdown in the US economy is indeed likely to be
significant. Slowdowns will also occur in western Europe and Japan and even in the emerging world. But the
latter will still grow rapidly. Overall, the world economy – and so world oil demand – is likely to continue
to grow reasonably briskly. Similarly, the improved efficiency of use of petroleum, as people switch to
more efficient vehicles, notably in north America (where the room for doing so is so large), will be offset by
the rising tide of demand for motorised transport in the world’s fast-growing emerging countries. On balance,
it is quite unlikely that aggregate demand for oil will collapse, as it did after the two previous price
spikes, just as it is unlikely that massive net new oil supplies will come on stream in the near future. This
does not mean that prices will remain as high as they are today for the indefinite future: such stability
is improbable. But it means we should expect a sustained period of relatively high prices even if “peak
oil” theorists are proved wrong. If proved right, this would be true in spades.
Gonzaga Debate Institute 2008 8
Scholars Russia/ Saudi Arabia Oil DA
Gasoline prices are higher than ever before, and expected to keep going up. The price of crude oil on the
commodities market keeps breaking records; it closed at $134 a barrel on June 16. Ralph Hassenpflug lives
in Bristol and has been a commodities investor for 23 years. He received his bachelor's degree in Economics
and Psychology from the University of Tours in France. "Speculators and investors driving up prices is an
age old myth," Hassenpflug said. "Wherever there is a buyer in the market, there must be a seller. They
both must agree on the price. Just the fact that I want to buy something will not raise prices. "If we
decided to invest in tomatoes, so we went and bought all the tomatoes from the local grocery stores
every day for a week. In a week we may have driven the price up, but it was because we reduced the
supply of tomatoes in the local area. Once we've bought them, we will need to sell them to get our money
back. Now if we try to sell all the tomatoes at the same time, the price would immediately drop because the
market would be flooded. This is a good parallel to the futures market."
The 13% rise in Brent crude oil in sterling terms during April wasn't driven by speculation, the Bank
of England said in minutes from the last interest-rate meeting. "According to the Bank's market contacts,
speculative purchases did not seem to be the prime cause of the recent increases in the oil price. More
fundamental demand and supply factors had probably been at the root of its steep rise during recent
months, and there remained considerable uncertainty about the oil price outlook," it said. Because there was
little prospect of a significant rise in supply over the next two to three years, oil prices might take longer than
that to fall back.
This is not to argue that speculation has played no role in recent rises in prices. But it is hard to believe
it has been a really big one. True, the dollar price has risen sharply, but that is partly the result of the
decline in the dollar’s relative value (see chart). As I have argued before, if speculation were raising
prices above the warranted level, one would expect to see inventories piling up rapidly, as supply
exceeds the rate at which oil is burned. Yet there is no evidence of such a spike in inventories, as
Goldman Sachs and the IMF point out.
Soaring crude oil prices are not being driven by speculative trading, billionaire oil investor T. Boone
Pickens said on Tuesday. Asked about the role of institutional investors in high prices, Pickens told
reporters on Capitol Hill that he does not "agree that that has anything to do with oil prices ... It's a
global market. It doesn't have anything to do with traders on Wall Street or any place else." Pickens,
who heads BP Capital hedge fund with more than $4 billion under management, also said that increased
oversight of oil markets by the U.S. Commodity Futures Trading Commission (CFTC) represents "a waste of
time."
Gonzaga Debate Institute 2008 9
Scholars Russia/ Saudi Arabia Oil DA
Although financial markets have recently become more active in the commodities markets, and this
may make prices more volatile, there is no conclusive evidence of a speculative impact on prices, as
stocks are stable around normal level and there are currently no signs of high inventories or hoarding.
Other factors can explain the ongoing price rises, in particular the strong increase in demand from
emerging economies, including the oil-producing countries themselves, which has not been matched by an
increase in supply. Given very low elasticity of supply and demand to price changes in the short run,
small disturbances can lead to sharp fluctuations in prices. The Commission will continue to monitor
closely developments in commodity-related financial markets.
Speculators, if they are getting into the market now, are buying short, because they expect prices to fall soon, he
said. "There are not as many speculators in the crude market as there were a year ago. I stopped investing in
crude oil when it hit $80 a barrel," said Hassenpflug. Greater volatility in the market creates more risk, which
drives speculators out, he said. "People stay away because the swings in prices are so huge, you can win or lose
thousands in a single day," Hassenpflug said. "Politicians often like to throw the speculators to the lions,
because it's easiest. If you really want to know why prices are so high, politicians have made many mistakes over
the years," said Hassenpflug. The high fuel prices are due to a lack of supply, because OPEC decided not to
produce to their maximum capacity, Hassenpflug said. That creates an artificial shortage, which causes prices to
become inflated, he said.
Gonzaga Debate Institute 2008 10
Scholars Russia/ Saudi Arabia Oil DA
No doubt some of the recent price rise is due to investors flocking into commodities, which are viewed
as a safe haven in the sagging financial markets. Some of the price rise is also due to the rapidly deflating
dollar. Despite these financial considerations, most of the oil price results from a fundamental
disequilibrium between supply and demand in the oil markets. How did we get into this current mess?
One reason for the current price shock is that Saudi Arabia1 scaled-back crude production by 1
million barrels per day (b/d) between September, 2005 and February, 2007 to 8.6 million b/d. Only since
September, 2007 has the Kingdom started to increase production, which currently sits at 9.2 million b/d in
February, 2008 according to Mr. Ali al-Naimi, Saudi Arabia's oil minister. The OPEC basket price was
$99.16 on March 7th. The longer-term basket price trend is shown in the graph (left) which shows a rise of
about 360% since 2002. Saudi Arabia is pumping less oil and making more money, despite the falling value
of the dollar. If you want to point to a single factor that has contributed the most to oil's steep price rise
since the 1st quarter of 2007, you needn't look further than this—the Saudis and the other OPEC
countries kept oil off the market that winter to prevent an irrational price slide below $50/barrel just
as production in the OECD nations continued its steep decline and other countries, like Russia,
struggled to maintain production levels or put small new increments on-stream. Global supply fell further
short of demand with each passing month and the volatile oil price has gone up ever since.
I don't wish to be rude. Al-Naimi knows a lot more about oil than me. But "fundamentals" are very much
driving the market. And even if we do see more Saudi oil in the coming months, it's unlikely to lower
the price of crude. Oil prices have now risen seven-fold since 2001. Having surged 40 per cent since
January, crude has already notched up 28 record highs this year. Even after falling slightly last week, oil
still stands above $134. And a drop isn't expected soon, with crude for delivery later this year close to $135.
Anyone wanting to understand what's happening should peruse BP's excellent Annual Statistical Review of
World Energy, published last week. It shows the "fundamental" problem - oil demand running ahead of
supply. And that gap is far more likely to widen than to close. In 2007, the review shows, global oil
demand was 85.2m barrels a day, up from 84.2m the year before. Global production, meanwhile, fell
from 81.7m barrels daily, to 81.5m. So, global oil use is accelerating just as production is coming down.
Such price-boosting trends will almost certainly continue. On the consumption side - as is well-know -
the relentless demands of China, India, Indonesia and the other "emerging giants" are unlikely to abate
soon. As these countries continue getting richer, their rapid population growth and escalating fuel use per
head will keep global oil demand spiralling upward.
Gonzaga Debate Institute 2008 12
Scholars Russia/ Saudi Arabia Oil DA
These days when traders see the daily changes of crude oil, more than likely the first factor cited is
whatever the dollar happens to be doing on that particular day. Some have made reference to a “short
the dollar, long commodities” trade in the market, and indeed last week’s frenzied rise in oil prices seemed
to be triggered by a rally in the euro against the dollar, prompted by comments from European Central Bank
President Jean-Claude Trichet. But as the saying goes, there is a difference between correlation and
causation, and those who are hoping for renewed strength in the dollar in coming months as a way to take
the pressure off of commodity prices may be in for a surprise. The correlation between the euro’s strength
against the dollar and rising crude oil prices has definitely increased — but it has never been
particularly strong. Marc Chandler, head of currency strategy at Brown Brothers Harriman, says that the
weekly percentage change in crude oil was correlated with the change in the euro against the dollar
about 20% of the time for the past five years. That’s not that high — better than a totally random
relationship, but hardly conjoined twins. . But over the past six months, the daily change has correlated
40% of the time, and for the past three months, 57% of the time. So what traders are seeing anecdotally is
indeed true — the dollar’s daily movements against the euro has been at odds with oil’s movements 57% of
the time, a reasonably high level of common movement. Such analysis becomes self-fulfilling at times:
witness Friday’s fall-off in the dollar and the $10.75-rise in crude oil, set off by Mr. Trichet. “Trader
behavior has been…the dollar weakens and crude becomes a dollar hedge of choice,” says Howard
Simons, analyst at Bianco Research LLC. “If you want to fight that trade, they’ll let you, but you’ll lose
money.” But Mr. Chandler says the recent correlation is “a fluke,” saying that while the added volatility
in currency markets may be exacerbating movements in crude oil, investors in the two markets aren’t
necessarily keying off each other. He says worries about U.S. economic growth remain the paramount
concern in the currency markets for those selling dollars, and crude oil continues to rise because of world-
wide demand. That isn’t to say that the relationship won’t exist for a bit longer. Investors have made money
betting against the dollar while betting on oil, and this may continue. Still, that doesn’t mean it means
anything, exactly. “You need to be careful with this,” Mr. Chandler says. “There’s a very strong
correlation between the number of churches in a city and the number of mortuaries, but it doesn’t
mean there’s a causal relationship.”
In the past few months, economists and pundits have blamed raging oil prices on a falling value of the
dollar relative to foreign currencies. From a period of December through March, the dollar fell against the
euro and other major currencies as aftershocks of the housing and credit crisis rippled through the US
economy. But today, oil touched $124 dollars a barrel in the face of a rising dollar. According to Nate
Hudgins at The Oil Drum, in the period of time when oil has risen from $106 per barrel to its current
high price, the dollar has rallied from 1.6 to 1.535 dollars per euro. Looking at the price data in this way
lends new clarity for the reasons behind the high price of oil. Such reasons have been well defined by
Peak Oil theorists like Colin Campbell and Kenneth Deffeyes for more than a decade now. But despite
Campbell and Deffeyes sounding the alarm far ahead of the crisis we are in today, it takes the removal of all
other possibilities for energy optimists like CERA's Daniel Yergin to predict $150 oil.
Gonzaga Debate Institute 2008 13
Scholars Russia/ Saudi Arabia Oil DA
Here is a test question for you: The next time you find yourself irritated by the price of gasoline, you need to
remind yourself of how much -- or little -- of that nearly $4 per gallon charge is the oil company's
profit. How much is that profit, anyway? As a frame of reference, start with the amount of profit for
government carved out of the purchase price -- roughly 50 cents per gallon from various taxes
imposed. So what do you think the oil company's profit is? (Assume an integrated major oil company that
even owns the filling station, so we don't have to separate producer, refiner and retailer profit. That is, we
identify profit for the whole oil/gasoline industry out of the purchase price.) Would Big Oil make a profit of
60 cents, 70 cents, $1, $1.50? No. Try 25 cents.That is correct. With an industry-wide average net profit
margin on the retail sale price of about 8 percent, the net profit on your gallon of gas is about a quarter,
give or take a penny or two depending on the size of the oil company. (About 3 cents net goes to an
independently owned station, leaving 22 cents for Big Oil, but the total is still a quarter.) An accurate
understanding of oil industry profit levels dramatizes that it is misguided to accuse the oil industry of
price gouging. Beyond the cited 8 percent profit on sales, the industry's return on investment is right at
the average across all of American industry -- about 25 percent. And these profit indices were much
lower during the recent lean years in the oil business. What of ExxonMobil's "obscene" $40 billion total
profit last year? Isn't it natural for the largest corporation to earn the largest profit? Anything other than that
would be a major upset. Moreover, record profits year after year are the natural order of things in business,
reflecting normal growth. Since the first "oil crisis" of the 1970s, there have been numerous major
federal investigations of alleged oil industry price gouging and price collusion. How many times have
the big oil firms been found guilty of gouging or collusion? The answer: never.
But what about the profits that large oil companies make? Are they not gouging the public? The API
Primer on oil and natural gas (available for free on the API’s website) contains an analysis suggesting
otherwise. Oil and natural-gas revenues are large; there is no question about that. But so are the
industries themselves, and so are the costs involved in providing fuel to consumers. Oil company
profits allow for reinvestment in facilities, technology, and infrastructure. Reports on oil company
profits can be misleading because they focus exclusively on earnings and don’t take into account the
size of the operations. Earnings alone, therefore, do not tell the whole story. Relative to other major
industries, oil company profits are about average, at 8.3 cents for every dollar of sales, compared to the
chemical industry’s 12.7 cents for every dollar of sales, the computer industry’s 13.7 cents and the
pharmaceutical industry’s 18.4 cents for every dollar of sales.
Gonzaga Debate Institute 2008 14
Scholars Russia/ Saudi Arabia Oil DA
Contrary to popular belief, oil companies do not control the price of gasoline, nor are they "gouging"
consumers. Nonetheless, they have become whipping posts. After all, someone must be blamed for the
ever-increasing price of oil. In an attempt to rationally discuss the issue, I share the following facts:
According to Energy Information Administration figures from 2007, crude oil makes up about 58% of
what we pay for gas. This consists of finding the crude oil, getting it out of the ground, transporting it
to the refinery, maintaining a reserve capacity of crude oil and profit (back to the evil word "profit"
later). Refining the crude oil makes up another 17%. This consists of producing special blends of gasoline
to meet clean air mandates, transporting the gasoline to the stations and profit. Another 10% is added at the
retail level for operational and marketing costs and profit. And finally, about 15% goes to federal and state
taxes. It is not the fault of oil companies that their product faces what economists refer to as "inelastic"
demand. When the price of gas goes up, we do consume less. However, our reduction falls by a smaller
percentage than the percentage increase in price, leading to increased profits (assuming costs are constant).
This is simply a function of a free market. Punishing oil companies is perverse logic. Slapping on a
windfall profits tax will indeed cause gas consumption to fall (as the tax is passed on to the consumer);
however, beware of the unintended side effects. Lower oil demand will lead to lower oil prices, which in turn
will lead to higher consumption, thereby reducing the incentive to find alternative energy sources. The
ultimate irony is that while oil companies earn about 8 to 10 cents per dollar of sales, the state of
Wisconsin earns 32.9 cents for every gallon of gas sold and the federal government takes another 18
cents. So who is gouging whom? Thus, state and federal government receive more than 50 cents a
gallon for doing nothing. At least oil companies are producing the gas, creating jobs, paying taxes and
searching for alternative sources of fuel. Oil companies spend billions of dollars on alternative fuel sources.
So taxing their profits simply reduces their incentive to continue doing so. We have placed oil companies
between a rock and a hard place. We would not find ourselves in this pickle if we allowed them to drill in
the Arctic National Wildlife Refuge and/or made it easier for them to build more refineries. We demand
lower gas prices, yet we stand in the way of any potential solution. Then we turn around and curse the oil
companies, accusing them of collusion. Not a single investigation has produced any credible evidence of
price gouging, yet we insist oil executives testify in front of Congress for policies created by Congress!
Any time Congress messes with the laws of supply and demand, things get worse.
Gonzaga Debate Institute 2008 15
Scholars Russia/ Saudi Arabia Oil DA
Oil Bears often cite the fact that the US consumer is “cutting back” on gasoline consumption due to
higher prices. While this may be true, the cut back is minimal at best. The latest EIA report shows the
US consuming 9.343 million barrels of gasoline a day, down from last year’s 9.404 figure. That’s a
whopping 0.65 %. Crude oil demand is expected to drop slightly in the US in 2008 by about 190,000 barrels
per day (the US currently consumes over 21 million barrels of oil per day). However, this decrease has been
more than offset by increased demand outside of North America. Chinese demand alone has increased by
400,000 barrels per day in 2008. Overall, global demand for oil is projected to rise 1.2 million barrels per day
in 2008.
Gonzaga Debate Institute 2008 16
Scholars Russia/ Saudi Arabia Oil DA
This possibility of renewable energy being developed autonomously is very important, Scheer believes,
because there is a natural competition between conventional energy and renewable energy; and
conventional energy businesses enjoy tremendous political and economic influence. Individual CEOs of
conventional energy companies may be personally very sympathetic to the need for renewable energy,
and companies such as BP and Shell may invest in renewable energy subsidiaries as a kind of 'hedge'
against the day when fossil fuels will no longer be available at affordable prices. But the boards of
directors and executives of conventional energy companies must act to protect the interests of their
shareholders. And their shareholders' interest is protected by making sure that the investments made in
conventional energy facilities are recovered through depreciation expense, and a return on their investment,
over the forty or fifty year useful life of such facilities. In Scheer's view, there will never be a time when the
investments in conventional energy facilities are fully depreciated and recovered by investors. If renewable
energy facilities are developed as rapidly as Scheer believes is necessary, shareholders of the supplanted
conventional energy facilities will inevitably bear the cost of their stranded investments. Scheer argues
that this realization motivates conventional energy companies to delay the development of renewable energy
as long as possible, or promote its development very slowly over a long period of time. Scheer says that
renewable energy advocates must recognize that for their efforts to succeed, investments in
conventional energy must be severely curtailed.
Alternative energy investments will tradeoff with investments in the oil industry
Blakeway 08 (Darrell, RedOrbit
[http://www.redorbit.com/news/business/1390122/energy_autonomy_getting_serious_about_renewable_energy/]
Energy Autonomy: Getting Serious About Renewable Energy/ May 17, 2008)
Scheer says that the breakthrough to a renewable energy future cannot happen until enough people break out
of the 'prison' of One- dimensional' thinking about conventional energy. What is required, he believes, is a
new structure of energy usage, which can only come into being alongside the current structure-and
which replaces the latter, step by step, until it finally makes the old system superfluous. Scheer believes
that conventional energy will not ultimately finance a new regime that puts it out of business. Only when
investment decisions for renewable energy are made independently of the conventional energy business
will there be serious economic competition from renewable energy that can facilitate disengagement
from the existing energy institutions.
Gonzaga Debate Institute 2008 19
Scholars Russia/ Saudi Arabia Oil DA
The longer-run supply and demand characteristics of the oil market are thus crucial determinants of
future price trends. First, estimates of the longrun non-OPEC price elasticity of supply vary from a low of
0.1 to a relatively high 0.6. Second, the elasticity of non-OPEC supply may be nonlinear insofar as at a
certain point the oil price would be pushed up sufficiently to encourage investment to promote the
production of (ample) non-conventional oil in other countries or alternative backstop technology, such
as the liquefaction of other plentiful fossil fuels. For example, the cost of extraction of oil from tar sands in
Canada has fallen considerably over past decades, and expectations of a sustained high oil price may
trigger investment in expanding such activity. Third, higher prices induce investment in (non-reversible)
energy-saving technology or substitution between fuels, tending to make the price elasticity of demand
for oil asymmetric.
President Bush touted his support for clean energy investment in America during his State of the Union
speech in January. However, he put forward an economic stimulus package that didn't include extension of
the renewable energy tax credits. The Senate Finance Committee attached a one-year extension to the
package, hoping to get support from the full Senate, which is slated to vote on the package soon. "The lack of
extension of the tax credit has already changed our investment plan for 2008," says Julie Blunden,
SunPower's vice president for public policy and corporate communications. "We would love to deploy
technology here, but if we don't have long-term visibility in market development, we will have to go
somewhere else." A vote for renewable energy became a vote against oil companies. It went like this:
Republicans and Democrats both agreed to fund renewable energy, giving tax credits to boost the
young industries. It would cost roughly $800 million in tax credits for solar and $600 billion for wind and
other alternative energy projects over 10 years. But someone would have to pay. To the Democrats, the
answer was simple: Use money from the oil industry tax credits, which are estimated at three times what
renewable energy receives. But that wasn't going to work. President Bush had threatened to veto legislation
that dipped into oil company tax credits. And one vote short of overriding a Republican-led filibuster on the
issue, Congress caved and passed an energy bill that left out solar and wind tax credits. It also made no
mention of renewable energy standards that would have mandated a certain percentage of electricity to come
from renewable energy sources. It's these tax credits that have helped the renewable energy markets prosper
for the last few years, giving homeowners about $2,000 for installing solar, for starters. Commercial projects
get even more generous credits, helping to produce major solar installation projects for companies such as
Google. But these credits are set to expire at the end of 2008, and unless Congress approves some extension
soon, solar and wind power development will slow. "What happened with the energy bill was really tough to
swallow," says Mike Hall, president of Borrego Solar Systems, a Berkeley-based solar company. "Support
for renewable energy will probably have to come at the expense of coal, oil and natural gas. It is hard to
win a political battle against the combined interests of the fossil fuel industries."
Gonzaga Debate Institute 2008 20
Scholars Russia/ Saudi Arabia Oil DA
Oil companies, you see, are a pretty conservative lot. They make gobs of money, and the financial equations
they operate by are fairly straightforward: It costs $X dollars to get oil out of the ground and you can sell it
for $Y dollars. If Y is more than X, you're happy. But because energy prices are so notoriously volatile,
energy companies have learned that they need a cushion between X and Y to make sure they aren't
caught up if the price of oil suddenly plummets. After all, if you started developing a resource that is
profitable at $70/barrel, and the price of oil falls to $30/barrel, you're out of luck. In fact, you're out
billions of dollars: it costs a huge amount of money and takes a huge amount of time for new energy projects
to come online. Because of this, the planning decks - the exploration and development guidelines at the oil
majors - have been slow to adapt to the high price of crude. A few years ago, they were still planning for
$20/barrel oil. In recent years, that's crept up to $35-$45/barrel. But if Margerie's comments are reflective of
the industry, that number could creep significantly higher... and soon. What would that mean? It would mean
all of the marginal projects will soon get a lot more attention. It will mean that oil sands and even oil shale
might finally see their day in the sun. It will mean that big energy companies will start looking into
alternative fuels and strategies, and will look for new ways to do things like liquify natural gas (which
is getting downright cheap these days) and gasify coal.
Governments have a major role to play in supporting innovative R&D and in helping new technologies
to surmount some daunting barriers. Government, industry and consumers will have to work hard together
Improved energy efficiency also reduces the need for investing in energy supply
Investing in alternative energy will tradeoff with investments in the oil market
Syed 08 (Raiyan, John Adler for Congress [http://www.adlerforcongress.com/node/19] Adler and Emanuel Outline
Plan to Lower Gas Prices, Create New Jobs and Businesses/ May 29, 2008)
"President Bush once famously acknowledged that America was addicted to oil. But over the last seven
years, President Bush and the Republican Congress have refused to help end that addiction. When the
Democratic Congress took decisive action to invest in alternative energy sources, President Bush and his
Republican rubberstamps tried to block our progress every step of the way," said Chairman Emanuel.
"President Bush and Congressional Republicans have made it clear that their priority is subsidizing the
big oil companies with billions in taxpayer dollars instead of bringing down energy prices for New
Jersey families.
Gonzaga Debate Institute 2008 21
Scholars Russia/ Saudi Arabia Oil DA
Beyond consumer behavior and legislation, high oil prices are also causing changes in investors'
strategies. As a sign of the times, Solarfun Power Holdings (NASDAQ: SOLF) was trading nearly five
million more shares than Exxon Mobil (NYSE: XOM) in early trading today. And US Geothermal Incl
(AMEX: HTM) and Quantum Fuel Systems (NASDAQ: QTWW) were among the top 25 big movers
across all exchanges. Naturally, oil stocks responded positively as well. It is, after all, their bread and butter
that is rising in price. But the takeaway here is that high oil means you can take handsome profits from
other energy sectors as well. Who wouldn't want that? You can have your proverbial cake and eat it
too. And Solarfun has been some pretty delicious cake! Since recommending it to my Alternative Energy
Speculator readers in March, we've seen gains in excess of 200%, as the stock soared from under $10 to over
$28. Check it out: Of course, Solarfun isn't the only big alternative energy winner. The portfolio boasts ten
other double-digit winners as well. But we're just getting started. As the price of oil continues to rise, so to
will the bottom line of the Alternative Energy Speculator, which already stands at 26%. The open
positions are only headed higher and new investment recommendations are constantly being added.
Lastly, it is important to recognize that aggregate investment levels for each technology are, and should
be, consistent with the development status of that technology. More mature technologies will naturally see
higher levels of investment than technologies earlier in the development cycle. The technologies included
here are at different stages in their development cycle as indicated by relative expenditure. The distribution
of investments can be expected to shift as different technologies mature or market conditions change
Gonzaga Debate Institute 2008 22
Scholars Russia/ Saudi Arabia Oil DA
Assume that a treaty will lead to increased international funding of technology developments, which in turn
implies a likelihood that a new energy technology will be developed. Assume that the alternative
technology, once developed, implies a constant marginal energy cost, lower than the (assumed constant)
cost of extracting fossil fuels. (3) Fossil fuels will then become redundant once the new technology is
adopted, and no more fossil fuels will be extracted from then on. (4) We assume that the time it takes to
develop such a technology is stochastic, modeled in a very simple way, as exponentially distributed with
constant parameter [lambda](with expected period until development equal to 1/[lambda]). One so far
overlooked implication of such a scenario is that the prospect of developing a new and more efficient energy
technology will affect incentives of fossil-fuel producers to extract and market the resource, in both the short
and the longer run. In the model, dealt with in Sections 2-3 below, we assume that the fossil-fuel market is
competitive on a global scale, there is no market uncertainty, and there is initially a zero probability of
developing an alternative technology replacing fossil fuels. The initial resource price (prior to any technology
treaty) can then be shown to evolve according to the so-called Hotelling rule, whereby the growth rate for the
real resource price (net of extraction cost) equals the real rate of interest, r, in the economy. (5) In Section 2
below we first show that, when the technology treaty is in place, the equilibrium price and extraction
path for the resource will both shift as a result. Along the new price path, the net resource price will grow
at the higher rate r+[lambda]. The entire resource price path shifts down, resulting in a higher volume of
extraction at any given date until the resource is fully extracted, or until the new technology is developed.
Intuitively, when fossil-fuel producers are made aware of an increased likelihood that their resource
may become redundant within a limited future time period, the incentive will be to extract it more
quickly. For a given demand function directed toward fossil fuels, with global fossil-fuel demand a
decreasing function of the price, this must mean a lower market price of fuel
The only real way to lower gas prices is to lower demand for gas and oil over a long period of time. This
would work, since the U.S. consumes 25% of the world's oil. This has increased over the last 20 years,
from 15 million barrels per day (bpd) to 20.7 million bpd. A concerted effort might convince commodities
traders, who have driven up oil prices 25% in the first quarter of 2008, that oil was a bad investment, thus
allowing oil prices to return to pre-bubble levels.
Gonzaga Debate Institute 2008 23
Scholars Russia/ Saudi Arabia Oil DA
In oil, western governments are notable for their lack of much leverage on supply, although as big
consumers they could have a large impact on demand. But changing demand requires changing the
way the economy uses energy, and those changes hinge on the innovation and application of new
technologies.
Large scale adoption of solar and other renewable technologies, coupled with the implementation of strong
regulations encouraging the conversion of transportation systems to plug-in hybrid and electric vehicle
technology, will reduce the demand of fossil fuel significantly. The price of fossil fuel would drop to
much lower levels and materially reduce the balance of payment deficit, and economic drain on many
economies. These economic benefits attained by the substitution of renewable energy should find some way
of positively entering into the renewable energy pricing system.
Renewable energy is energy that is regenerative or, for all practical purposes, virtually inexhaustible. It
includes solar energy, wind energy, hydropower, biomass (derived from plants), geothermal energy (heat
from the earth), and ocean energy. Renewable energy resources can supply energy for heating and cooling
buildings, electricity generation, heat for industrial processes, and fuels for transportation. The increased use
of renewable energy could reduce the burning of fossil fuels (coal, petroleum, and natural gas),
eliminating associated air-pollution and carbon dioxide emissions, and contributing to national energy
independence and economic and political security.
These price increases are important to creating more elasticity in the demand for oil. If governments fix
the price of gasoline at below market levels, when demand increases there and supply remains constant,
the price can only go up. In economic terms, this creates a demand curve that is almost vertical. Small
increases in demand with fixed supply can create huge price increases. By passing through the increased
price to consumers, demand will be reduced and price will find a new equilibrium point at a lower price
point. Could this create a short term top in the price of oil? Longer term, higher oil prices are going to
cause consumers to seek ways to decrease their consumption. Buying smaller cars is one way to decrease
fuel consumption. Consumers are already shunning big pickup trucks and SUVs. It will take time for this
‘demand destruction’ to work its way through the economy. Demand destruction also includes switching
to alternative energy sources over the long term such as natural gas, coal, and electricity for cars. In
economic terms, the short term demand is not very elastic. In the longer term of years, it is much more
elastic. The supply of energy is also not very elastic in the short term, but much more elastic in the long term.
It takes a long time to find and produce oil.
Gonzaga Debate Institute 2008 24
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The timing of a conference this week in Germany to promote the use of alternative energy resources
could not have been better. The four-day conference in the city of Bonn -- called "Renewables 2004" -- was
planned back in 2002 to follow from the World Summit on Sustainable Development held in Johannesburg
that year. The organizers, however, could not have foreseen the recent turmoil on world oil markets that
has seen oil prices shoot to 20-year highs, rising to over $40 a barrel. This run-up in prices has given
renewed urgency to efforts to harness the sun, the wind, and the seas to reduce dependence on oil.
Fossil fuels are non-renewable and supplies are finite. Reserves still exist but are being continually
depleted. For instance, peak oil production is anticipated within this decade, whereas many of the most
accessible coal seams have already been extracted. The development of renewable energy sources would
reduce our reliance on what is a diminishing supply of fossil fuels.
Gonzaga Debate Institute 2008 25
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Increasing America’s use of renewable energy sources will also help address supply in future years by
providing a more diverse energy portfolio. Cellulosic ethanol has great potential to not only lower our
gas prices, but also our food prices as we move away from corn-based ethanol. Udall has been a strong
supporter of this critical R&D, much of it done in Colorado at the National Renewable Energy Lab.
Gonzaga Debate Institute 2008 26
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New commodities market analysis by Merrill Lynch & Co., Inc. proves the point the Center for American
Progress has been making for a while now—that the boom in biofuels production is reducing the cost of
oil around the world. That conclusion may seem improbable given the dramatic run up in oil prices
over the past five years. But the analysis by Merrill commodities market strategist Francisco Blanch (as
reported today by the Wall Street Journal) says that:“Oil and gasoline prices would be about 15 percent
higher if biofuel producers weren't increasing their output. That would put oil at more than $115 a
barrel, instead of the current price of around $102. U.S. gasoline prices would have surged to more
than $3.70 a gallon, compared with an average of a little more than $3.25 today.”
Gonzaga Debate Institute 2008 27
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Link- Hydrogen=Investments
Hydrogen power requires large investments
International Energy Agency 05 ([http://www.iea.org/textbase/npsum/etp.pdf] Summary and Policy
Implications/ 2005)
The use of hydrogen from low-carbon or zero-carbon sources in fuel-cell vehicles could practically
decarbonise transport in the long run. But a switch to hydrogen will require huge infrastructure
investments.
Gonzaga Debate Institute 2008 28
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The scientific project HyWays funded by the EU's research program has found that introducing hydrogen
into the energy system would reduce the total oil consumption by the road transport sector by 40%
between now and 2050. Substantial barriers have first to be overcome, ranging from economic and
technological to institutional barriers, and actions must be taken as soon as possible. Following a series of
more than 50 workshops the project has produced a Roadmap to analyze the potential impacts on the EU
economy, society and environment of the large-scale introduction of hydrogen in the short- and long- term, as
well as an action plan detailing what needs to be done for this to take place. The report is published as the
Member States are due to give their approval of a new €940m public/private research partnership for the
development of hydrogen and fuel cells.
Gonzaga Debate Institute 2008 29
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Another important dimension is the need to achieve a stronger supply response to rising prices. This
brings me to the topic of this session-how to foster investment in the oil sector. Policies aimed at improving
investment in the oil sector have taken on new urgency. Oil is a critical input at every stage of the
production and distribution of goods and other commodities. Thus, measures to increase the supply of
oil and improve stability in oil markets should have a salutary effect on other commodity prices as well
as the global economy more broadly.
Against this background, increased investment in the oil sector has a crucial role to play in improving
the supply-demand balance and bringing greater stability to the market. In recent years, capital
expenditures have begun to rise more rapidly, as one would have expected, given price developments.
However, research by IMF staff shows that this has translated into only modest increases in capacity.
Specifically, while nominal oil investment grew by about 60 percent during 2002-06, in real terms
investment remained broadly unchanged over this period.
Gonzaga Debate Institute 2008 31
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Among the most frequent new targets are speculators. Oil retailers, oil producers, many Democrats and
even some Republicans say that people who buy oil as an investment are causing much of the price
increase. "These Wall Street traders have pushed the economy to the brink of disaster," said Dan Gilligan,
president of the Petroleum Marketers Assn. of America, a business trade group for gasoline retailers. Exxon
Mobil officials have told lawmakers that more than half the price of a barrel of oil can be attributed to
speculation.
The new participants, investors and speculators, to the world’s two trillion dollar-a-year oil market are
hastening the adjustment process that has become so urgent with the virtual elimination of the world
supply buffer. With the demand from the investment community, oil prices have moved up sooner than
they would have otherwise. In addition, there has been a large increase in oil inventories. In response to
higher prices, producers have increased production dramatically and some consumption has been scaled
back. Even though crude oil productive capacity is still inadequate, it too has risen significantly over the past
two years.
Gonzaga Debate Institute 2008 32
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The behaviour of oil prices has received special attention in the current environment of rapid rises and
marked increase in oil price volatility. It is widely believed that high oil prices can slow economic growth,
cause inflationary pressures and create global imbalances. Volatile oil prices can also increase uncertainty
and discourage much needed investment in the oil sector. High oil prices and tight market conditions have
also raised fears about oil scarcity and concerns about energy security in many oil importing countries.
Gonzaga Debate Institute 2008 33
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The supply/demand argument for higher oil prices has some merit. "Name another commodity that
has gone up two-and-a-half times in three-and-a-half years and the world hasn't found a way to make
more of it," says Byron Wien, chief investment strategist at Pequot Capital Management. "The world isn't
finding oil fast enough to replace the 3% to 4% that gets pumped every year."
That’s why today’s prices are so high: the extra cost of oil doesn’t much affect demand and in some
countries actually impedes supply. Looking globally, the demand and supply curves are nearly vertical in
slope, which is why small shifts magnify into large swings in prices. (Private money amplifies those
fundamental forces, not least because oil and food commodities are now investment vehicles - with other
markets performing so poorly and the outlook for higher commodity prices, these investments have come
rushing in).
In the short run, the low price elasticities of global demand and non-OPEC supply make oil prices highly
sensitive to supply and demand shifts. Price volatility, compounded by geopolitical tensions, raises
uncertainty about underlying price trends may depress oil exploration. OPEC’s excess capacity is
currently the lowest in three decades, providing little cushion to raise supply in the event of unexpected
oil market disruptions.
Energy market projections are subject to considerable uncertainty, and oil price projections are
particularly uncertain. Small shifts in either oil supply or demand, both of which are relatively
insensitive to price changes in the short to mid-term, can necessitate large movements in oil prices to
restore the balance between supply and demand. To address uncertainty about the oil price projections in
the AEO2006 reference case, two alternative cases posit world oil prices that are consistently higher or lower
than those in the reference case. These high and low price cases should not be construed as representing the
potential range of future oil prices but only as plausible cases given changes in certain key assumptions.
Gonzaga Debate Institute 2008 34
Scholars Russia/ Saudi Arabia Oil DA
Crude oil now is well established as a world market and is hypersensitive to the slightest change in
energy use or production anywhere on the planet. For example, when a severe hurricane strikes the
United States and several drilling platforms in the Gulf of Mexico, and several oil refineries in Louisiana
and Texas are temporarily disabled the price of crude oil on the world market spikes by $10 per barrel.
The United States has a severely cold winter month, and the price goes up $5 per barrel. Or if the month
is excessively mild, the price drops $5 on the world market. Under ordinary circumstances, these very
minor blips in the world oil market would go unnoticed. However, inasmuch as America, the largest oil
importer, has been targeted by the dominant media of the world as the "Great Satan," ordinary
circumstances are out the window. The world dominant media, no friend of the United States, has
positioned itself to exert great influence on the price of oil by the manner in which it hypes a story.
I don't wish to be rude. Al-Naimi knows a lot more about oil than me. But "fundamentals" are very much
driving the market. And even if we do see more Saudi oil in the coming months, it's unlikely to lower
the price of crude. Oil prices have now risen seven-fold since 2001. Having surged 40 per cent since
January, crude has already notched up 28 record highs this year. Even after falling slightly last week, oil
still stands above $134. And a drop isn't expected soon, with crude for delivery later this year close to $135.
Anyone wanting to understand what's happening should peruse BP's excellent Annual Statistical Review of
World Energy, published last week. It shows the "fundamental" problem - oil demand running ahead of
supply. And that gap is far more likely to widen than to close. In 2007, the review shows, global oil
demand was 85.2m barrels a day, up from 84.2m the year before. Global production, meanwhile, fell
from 81.7m barrels daily, to 81.5m. So, global oil use is accelerating just as production is coming down.
Such price-boosting trends will almost certainly continue. On the consumption side - as is well-know -
the relentless demands of China, India, Indonesia and the other "emerging giants" are unlikely to abate
soon. As these countries continue getting richer, their rapid population growth and escalating fuel use per
head will keep global oil demand spiralling upward.
Gonzaga Debate Institute 2008 35
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The energy challenge over the next several decades and beyond is to meet ever-growing demand with
affordable, reliable supply, while ensuring environmental protection and quality. Recent years have
witnessed historically high energy prices, a consequence of which has been a slate of new investments
in alternative energy, frontier hydrocarbons and advanced end-use technologies that portend greater
diversity of supply and environmentally friendly energy use in the future. This report summarizes these
emerging technology investments by the U.S. oil and gas industry, other private industries, and the Federal
government over the 2000-2005 time period.
Gonzaga Debate Institute 2008 36
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Alan Greenspan, the former chairman of the Fed, said that the central bank's effort to revive the financial
markets had worked to an extent, but warned that the crisis could persist into next year. He said the US
was "on the brink" of a recession, and said 2009 would be "very sluggish" with a "highly volatile oil
market. "Oil prices continue to inch towards the record high of $139.89 reached earlier this month.
Meanwhile, the dollar fell 0.6pc to $1.5613 per euro and the S&P 500 sank 16pc from its October
record.
Energies stalled this week as a trend changing inventory report coupled with some profit taking
created a pennant near the highs. Is Israel about to wage war on Iran or are they just flexing their military
might? Technically the market setup a bear move when it broke out of the pennant congestion to the
upside earlier in the week, but the intraday selloff ultimately turned the pattern right back into
consolidation mode. $3 price moves in crude oil should be the daily norm and the likelihood of even
larger price expansion and volatility is very high. Option premiums are through the roof, but only the
foolish would naked sell in this environment. Instead look at long condors or bear spreads with lots of
time to expiration. Straight Dec. 85 puts also could get a solid premium spike on a volatile selloff.
If you'd been stuck on a deserted island for the past five months and returned home today to check
how the stock market was doing, you might think not a lot had changed. Currently, the Dow Jones
industrial average and the S&P 500 and NASDAQ indexes all sit within a couple percentage points of where
they were in mid-January. Of course, anyone who has had money in the market for the past five months
knows better, having witnessed some of the most significant volatility we've seen in years as oil prices
skyrocketed and the credit and housing crises continued to linger. Just last week, for example, the Dow
jumped about 214 points one day (a gain of close to 2%), only to fall almost 395 points the next (a loss
of more than 3%).
Gonzaga Debate Institute 2008 37
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OVER THE PAST SEVERAL YEARS, THE SINGLE biggest development affecting the global
petrochemicals industry has been the surge in price volatility. Gone are the days of stable, predictable
prices. Prices of petrochemicals have become hypersensitive to swings in crude oil prices, yet—compared
with oil—markets for them remain small and opaque, with the flow of trade concentrated between Middle
East swing producers and the giant consuming center of China. Combined, these factors have
contributed to unprecedented volatility, making the need for risk management more acute. Nonetheless,
the market still exhibits seasonal cycles, making prices fairly predictable on an inter-quarter basis. Prices
typically peak during the spring plant maintenance period (when available supply is constrained) and during
the winter shopping season, and hit a trough during the summer holiday lull. But volatility on a smaller scale
is no longer easy to anticipate. The trend toward greater volatility is undeniable. For example, swings in
the price of ethylene, a barometer for the petrochemical market as a whole, grew from about 5% in
2000 to 9% in 2002 and to 14% in 2004, according to Platts estimates. HoweCBver you measure it, the
result is the same: Volatility is on the rise, and it's here to stay.
Gonzaga Debate Institute 2008 38
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There is currently a highly polarized debate on whether commodity investors, whose involvement in oil
futures markets has increased significantly in recent years, add more to the volatility of prices than to
their levels. This has come out against suggestions that their activity has been a major contributor to the
post-August 2006 downward trend in oil prices, in the same manner as they greatly contributed to their
upsurge before. Futures markets are intended to be used by commercial entities (producers, merchants and
major consumers) for the purpose of hedging against price risks. However, future markets also provide
refuge assets for a smaller portion of investors, including hedge funds, whose objective is to achieve high
returns through the anticipation of price movements. This activity, which is in essence speculative, adds
liquidity to the market and makes it easier for commercial players to hedge their exposure. By betting on
price changes, speculators tend to rush to buy the commodity (take positions) before the price trend
ends, and an even greater rush to sell the commodity (unwind positions) when prices reverse. Obviously, this
aggravates the movement of futures prices and, through time arbitrage transactions, that of spot prices.
Therefore, spot prices end up much higher or much lower than are justified by the market fundamentals. This
simple interpretation allows us to say that speculation may have exacerbated the ongoing episode of
falling oil prices.
Oil prices are based on a speculative market- not actual physical supply and demand
Nader 08 (Ralph, CounterPunch [http://www.counterpunch.org/nader05282008.html] What's Really Driving the
High Price of Oil?/ May 28, 2008)
Last week the price of crude oil reached about $130 a barrel after spiking to $140 briefly. The
immediate cause? Guesses by oil man T. Boone Pickens and Goldman Sachs that the price could go to
$150 and $200 a barrel respectivly in the near future. They were referring to what can be called the hoopla
pricing party on the New York Mercantile Exchange. (NYMEX) Meanwhile, consumers, workers and small
businesses are suffering with the price of gasoline at $4 a gallon and diesel at $4.50 a gallon. Suffering but
not protesting, except for a few demonstrations by independent truckers. A consumer and small business
revolt could be politically powerful. But what would they revolt to achieve? Their government is paralyzed
and is unable to indicate any action if oil goes up to $200 or $400 a barrel. Washington, D.C. is leaving
people defenseless and drawing no marker for when it will take action. Oil was at $50 a barrel in January
2007, then $75 a barrel in August 2007. Now at $130 or so a barrel, it is clear that oil pricing is
speculative activity, having very little to do with physical supply and demand. An essential product—
petroleum—is set by speculators operating on rumor, greed, and fear of wild predictions.
Gonzaga Debate Institute 2008 39
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Crude prices are determined by what's known as the futures spot market price determined on major
commodities exchanges like the Nymex. Prices quoted daily are month-ahead, spot market prices.
Contracts between crude suppliers and refiners guarantee delivery -- not price. "Crude oil trades
globally on a daily basis, and there are no long-term contracts," Global Insight's Novak said. "When a
refiner signs a contract, it's signing for volume and delivery, with the price based on the Nymex price.
"Today's soaring Nymex crude prices are driven by speculative trading, the experts say. Speculation
has grown in all commodities because hedge funds, pension funds and other large investors have
moved out of the declining markets such as housing and finance in their search for profitable
investments, Novak said. "The $130 a barrel oil is due to speculation," Novak said. If speculation were
eliminated, she estimates the price of crude could plummet to $75 or $80 a barrel.
"A large number of contracts bought and sold are paper contracts, and so when it's time to match up
contracts to physical product, many contracts are liquidated because speculators want nothing to do
with product," said Tom Skarada, vice president-refining at Warren, Warren County-based United Refining
Co., a privately held, small refiner (70,000 gallons of crude oil per day), who also is a wholesale and retail
gasoline supplier. "One would like to think that supply and demand has a lot to do with pricing, but
there's a lot of psychology involved in the commodities market," said Amy Myers Jaffe, the Wallace S.
Wilson Fellow in Energy Studies at Rice University's Baker Energy Forum, in Houston. "It's like the stock
market. "Jaffe said some people trading in oil have the mindset that prices only can go up; others get
involved because demand keeps growing as developing countries like China and India keep buying oil,
driving up the price. "People who didn't want to buy oil because the price was too high, look around,
see what's happening, and now they will buy," Jaffe said.
In June 2006, the senate investigation estimated that of oil traded in futures markets at some $60 a barrel,
about $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US
oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60. That
would mean today that at least $50 to $60 or more of today's $115 a barrel price is due to pure hedge
fund and financial institution speculation. However, given the unchanged equilibrium in global oil
supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and
ICE exchanges in New York and London, it is more likely that as much as 60% of the oil price today is
pure speculation. No one knows officially except the tiny handful of energy trading banks in New York
and London, and they certainly aren't talking.
Gonzaga Debate Institute 2008 40
Scholars Russia/ Saudi Arabia Oil DA
All this is well and official. But how today's oil prices are really determined is done by a process so
opaque only a handful of major oil trading banks, such as Goldman Sachs or Morgan Stanley, have any
idea who is buying and who is selling oil futures or derivative contracts that set physical oil prices in
this strange new world of "paper oil". With the development of unregulated international derivatives
trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in
oil prices. Since the advent of oil futures trading and the two major London and New York oil futures
contracts, control of oil prices has left the Organization of the Petroleum Exporting Countries (OPEC) and
gone to Wall Street. It is a classic case of the "tail that wags the dog". A June 2006 US Senate Permanent
Subcommittee on Investigations report on "The Role of Market Speculation in rising oil and gas prices"
noted, "... there is substantial evidence supporting the conclusion that the large amount of speculation
in the current market has significantly increased prices".
The price of crude oil today is not made according to any traditional relation of supply to demand. It is
controlled by an elaborate financial market system as well as by the four major Anglo-American oil
companies. As much as 60% of today's crude oil price is pure speculation driven by large trader banks
and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control
of oil and its price. How? First, the role of the international oil exchanges in London and New York is
crucial to the game. Nymex in New York and the Intercontinental Exchange (ICE) Futures in London
today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do
so via oil futures contracts on two grades of crude oil - West Texas Intermediate and North Sea Brent. A third
rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a
daughter of Nymex, with Nymex president James Newsome sitting on the board of DME and most key
personnel British or American citizens.
Gonzaga Debate Institute 2008 41
Scholars Russia/ Saudi Arabia Oil DA
Gonzaga Debate Institute 2008 42
Scholars Russia/ Saudi Arabia Oil DA
In June 2006, the senate investigation estimated that of oil traded in futures markets at some $60 a barrel,
about $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US
oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60. That
would mean today that at least $50 to $60 or more of today's $115 a barrel price is due to pure hedge
fund and financial institution speculation. However, given the unchanged equilibrium in global oil
supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and
ICE exchanges in New York and London, it is more likely that as much as 60% of the oil price today is
pure speculation. No one knows officially except the tiny handful of energy trading banks in New York
and London, and they certainly aren't talking.
All this is well and official. But how today's oil prices are really determined is done by a process so
opaque only a handful of major oil trading banks, such as Goldman Sachs or Morgan Stanley, have any
idea who is buying and who is selling oil futures or derivative contracts that set physical oil prices in
this strange new world of "paper oil". With the development of unregulated international derivatives
trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in
oil prices. Since the advent of oil futures trading and the two major London and New York oil futures
contracts, control of oil prices has left the Organization of the Petroleum Exporting Countries (OPEC) and
gone to Wall Street. It is a classic case of the "tail that wags the dog". A June 2006 US Senate Permanent
Subcommittee on Investigations report on "The Role of Market Speculation in rising oil and gas prices"
noted, "... there is substantial evidence supporting the conclusion that the large amount of speculation
in the current market has significantly increased prices".
The price of crude oil today is not made according to any traditional relation of supply to demand. It is
controlled by an elaborate financial market system as well as by the four major Anglo-American oil
companies. As much as 60% of today's crude oil price is pure speculation driven by large trader banks
and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control
of oil and its price. How? First, the role of the international oil exchanges in London and New York is
crucial to the game. Nymex in New York and the Intercontinental Exchange (ICE) Futures in London
today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do
so via oil futures contracts on two grades of crude oil - West Texas Intermediate and North Sea Brent. A third
rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a
daughter of Nymex, with Nymex president James Newsome sitting on the board of DME and most key
personnel British or American citizens.
Gonzaga Debate Institute 2008 43
Scholars Russia/ Saudi Arabia Oil DA
The first two scenarios suggest that oil price projections may be particularly sensitive to assumptions
about the demand for oil. Moderate variations in global growth (½ per cent per annum stronger except in
China, where the variation is 1 per cent) could push the oil price up by an additional $4.50 by 2030
(scenario group 1), while an increase of 0.2 in the income elasticity of oil demand could lead to an oil
price some $13 higher (scenario group 2). In both cases, the magnitude of the shock imposed is plausible;
any GDP growth projections over a 25-year horizon will have significant error bounds associated with them,
and the range of estimates for long-run elasticities of demand with respect to income is sufficiently wide to
suggest that a 0.2 percentage point change relative to the baseline assumption is possible. Although the
scenarios presented in Table IV.2 are for positive shocks to growth and the income elasticity, negative
shocks are equally plausible (with the impact approximated by reversing the signs in Table IV.2). As
discussed in the annex, the model already assumes that the income elasticity of demand has declined since
the 1970s, consistent with falling oil intensity and on-going technological change. But this process could
continue over the next 25 years, resulting in even lower income elasticities.
Gonzaga Debate Institute 2008 44
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Economic experts worry if the cost of oil climbs high enough, the rising prices could result in the kind of
global economic disruption associated with the 1973 Arab oil embargo. Slowing world economic growth
historically has slackened demand for oil, causing prices to plummet. So far, the recent rise in oil prices has
not dampened economic growth. “It would take much higher energy costs to cause a global recession,”
says Council Fellow Roger M. Kubarych. In fact, he says, “today's higher energy costs spur considerable
business investment in both the oil and gas industries to expand production, and within industry at
large to make processes more energy-efficient.”
But the biggest fools today may be those greenies who are clapping their hands over $135 oil as if this
somehow represents the beginning of the end of fossil fuels. High prices are not the equivalent of carbon
taxes – they will have the opposite effect in the long run, spurring investment and technological
progress to bring vast new resources of fossil energy into production. For instance, turning coal, oil sands
and oil shale into motor fuels, which is cost-effective at half of today's oil price, means massive additional
releases of CO2. It's the worst nightmare of the climate worrywarts.
Gonzaga Debate Institute 2008 45
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While global oil reserves are probably relatively ample, their distribution is likely to be increasingly
concentrated on the Middle Eastern members of OPEC, which already account for around two thirds of
global proved reserves. Outside the Middle East, newly discovered resources have tended to become
smaller and more expensive to develop, being increasingly offshore.
Against this background, and while oil reserves will probably remain relatively ample, their distribution is
likely to be increasingly concentrated on the Middle Eastern members of OPEC, which already account
for around two-thirds of global proved reserves (Figure IV.4). However, with reserves concentrated in a
limited number of OPEC countries, where investment is not allocated according to market forces,
investment in the energy sector may not be sufficient.
Gonzaga Debate Institute 2008 46
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A2: High Oil Prices Bad – A2: World Econ: No $200 Barrels
Prices Expected To Stabilize at $120 a Barrel For The Next Two Years
The Associated Press 2008 (“Ahead of the Bell: Deutsche Bank Boosts Oil Target”, CNBC,
http://www.cnbc.com/id/25410070/for/cnbc, June 27, 2008)
NEW YORK - An economist with Deutsche Bank raised his crude price outlook Friday, prompting
revisions to price targets on some of the world's largest oil companies. Adam Sieminski, chief energy
economist for Deutsche Bank, now expects crude prices around the $120 per barrel mark for the next
two years, and prices to stabilize around $100 per barrel by 2010. The new estimates are due to a
delayed reaction of worldwide supply-and-demand elasticities to high prices, and the jump in
exploration and development costs, the bank said. "Unsurprisingly, the revised commodity price deck has
significant impact on future earnings and company valuation," analyst Paul Sankey said in a note to clients.
Sankey boosted his price target on Chevron to $125 from $103 and his 2008 earnings forecast to $12.38 per
share from $9.92 per share. Analysts polled by Thomson Financial expect, on average, earnings of $11.69 per
share for the year. Sankey raised his ConocoPhillips target to $110 from $96 and his 2008 earnings forecast
to $14.63 per share from $10.69 per share. Analysts expect profit of $11.93 for the year. Sankey warned,
however, that "the potential for government change in Washington, D.C., is a major risk for the 'Big 5' oils —
ExxonMobil, Shell, BP, Chevron and ConocoPhillips — particularly in the lead up to this year's election."
Gonzaga Debate Institute 2008 50
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A2: High Oil Prices Bad – A2: Food Prices – Prices Low
( ) Food prices going through a revolution – we now have cheap food.
Minten 8 (Bart, Senior Research Fellow in the New Dehli office of the International Food Policy Research
Institute, http://www.medicalnewstoday.com/articles/112137.php)
Most people don't think twice as they pass spring apples from the southern hemisphere as they enter the
supermarket, but they are participating in a cheap food revolution that has swept the industrialized world
over the past couple of generations. The supermarket is the last step in a complicated global process that has
changed every aspect of how we produce and consume food. In theory, the arrival of supermarkets in a country
should bring with it the "cheap food" that we have enjoyed for so many years.
Reuters 2008 (“Gulf Oil Economies Join Forces”, YOUR CAREER GUIDE,
http://www.yourcareerguide.co.uk/article.asp?aid=484, June 16, 2008)
"Unlike the previous oil booms of the 70s and 80s this time the region is investing in its own economy and its
own future. I think they do recognise that they are dependent completely on oil and gas so they are trying to
shift away," said Dubai-based Pean, who advises family-owned businesses in the Middle East. "You are
going to see more and more global leaders emerge from this region and the sovereign wealth funds are
going to become a major force but they will be good corporate citizens and gradually the governance
and transparency is going to become more open...," he added. Pean said 1.9 trillion dollars worth of
investments were either on the way or had been announced for the next 7 years in the oil-and-gas producing
Gulf Cooperation Council (GCC) countries, grouping Saudi Arabia, Kuwait, the United Arab Emirates,
Bahrain, Oman and Qatar.
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Second, the threat of Islamic extremism the greatest to the whole world only a shift to
multipolarity can prevent the wars that come from Islamic extremism.
Foxman 2006 (Abraham H., National Director of the Anti-Defamation League, “The Threat of Islamic
Extremism”, To the ADL National Commission Meeting, October 2006)
Today I want to speak about another, greater threat to us – to democracy, to America, to the State of
Israel and Jewish people, indeed to the world – the threat of Islamic extremism. History will record the
20th century as one of triumph and tragedy…of miracles and massacres…of hope to make life better
through inventions and technology and mostly, of the horrors of the Holocaust that destroyed the life
of 6 million Jews and a war that destroyed millions of others. This 21st century is starting out with a clash
of cultures, a clash of faiths -- Islamists against Western and Judeo-Christian values. This looms ominously
as the greatest threat to the safety of the world – to the safety of world Jewry and world peace. Radical
Islamists are arming their faithful with hate and rage, with a goal toward dismantling democracy and
creating a world ruled by Islamic law. This threat must be confronted with the same resolve that brought
triumph for democracy and freedom over fascism and Communism. This threat is especially dangerous
because its roots are in religion, thus there is no way to reason with it, as we, the Jewish people, know
too well from our history. Al Qaeda's chief in Iraq made our blood run cold when he said "killing the
infidels is our religion, slaughtering them is our religion, until they convert to Islam or pay us
tribute." How do you reason with these thoughts? How do you debate? How do you argue? How do you
dialogue?
Gonzaga Debate Institute 2008 62
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The wars and deterrance that are inherent with US hegemony would limit our response
time, which would destroy our ability to stop proliferation of WMDs
Corr 03 (Anders, department of government harvard "american primacy and offensive posture:a reply to stephen
walt." belfer center for science and international affairs, November)
In order to ease international fear of American military primacy, Stephen Walt (2002) prescribes decreasing
US military mobility (an offensive capability) in favor of localized defensive forces -- ground troops and
tactical aircraft (primarily defensive capabilities). "United States ground troops and tactical aircraft
could be deployed overseas to defend key allies, as they currently do in Japan, Germany, and South
Korea," writes Walt. "By eschewing large offensive capabilities (such as long-range bombers), the United
States would appear less threatening to others and would be less likely to provoke defensive reactions"
(148-9). While such a defensive position is entirely appropriate for a lesser power concerned primarily
with providing security to itself, it is not effective for the provision of security to an international
system. Such a decrease in mobility would damage the US ability to respond in a timely manner to
surprise violations of the international order by rogue states such as Iraq or even large powers such as
China. Decreasing the mobility of troops would decrease the deterrent of what limited stationary troops are
located with close allies such as South Korea or Taiwan. Defending these allies requires that forces quickly
move to the theater of conflict. The forces currently in place are too thin to defend those theaters without
rapid reinforcements from distant locations. Military intervention in humanitarian crises and civil wars
must often be rapid to gain effect. A slow US response to civil war or genocide may be no response at all.
Most importantly, a defensive posture would deny the US the ability to fight wars of prevention
against surprise weapons of mass destruction (WMD) proliferation. If intelligence is received that a
state is quickly developing a WMD capability that can strike the West and its allies, the US military
necessarily requires speed in eradicating the threat and upholding international treaties of
nonproliferation. A defensive conventional posture would protect the US in the short-term, but it
would not give the US the ability to deter WMD proliferation that threatens the international system
and long-term US national security.
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A2: High Oil Prices Bad – A2: Leadership – A2: Links (1/2)
US Leadership Strong Despite High Oil Prices
Engardio 2008 (Pete, Business Week International Staff Writer, “Is U.S. Innovation Headed Offshore?”,
BUSINESS WEEK,
http://www.businessweek.com/innovate/content/may2008/id2008057_518979.htm?campaign_id=eu_May13&li
nk_position=link44, May 7, 2008)
To those worried about America's ability to compete in the 21st century, the trend is alarming: Just as key manufacturing industries fled offshore in the
1970s and '80s, U.S. companies are now shifting more engineering and design work to low-cost nations such as China, India, and Russia. Surely, innovation
itself must follow. Apparently not, according to a new study published by the National Academies, the Washington organization that advises the U.S.
government on science and technology policy. The 371-page report titled Innovation in Global Industries argues that, in sectors from software and
semiconductors to biotech and logistics, America's lead in creating new products and services has remained
remarkably resilient over the past decade—even as more research and development by U.S. companies is
done offshore. "This is a good sign," says Georgetown University Associate Strategy Professor Jeffrey T. Macher, who co-edited the study
with David C. Mowery of the University of California at Berkeley. "It means most of the value added is going to U.S. firms,
and they are able to reinvest those profits in innovation." The report, a collection of papers by leading academics assessing the impact of
globalization on inventive activity in 10 industries, won't reassure all skeptics that the globalization of production and R&D is good for the U.S. One drawback is that most of the
conclusions are based on old data: In some cases the most recent numbers are from 2002. Exporting the Benefits? And while the authors of the report make compelling cases that U.S.
companies are doing just fine, thank you, none of the writers addresses today's burning question: Is American tech supremacy thanks to heavy investments in R&D also benefiting
U.S. workers? Or are U.S. inventions mainly creating jobs overseas? A few years ago, most people took it for granted that what was good for companies was good for the greater
economy. But the flat growth in living standards for most Americans during the last boom has raised doubts over the benefits of globalization. "Innovation shouldn't be an end in itself
for U.S. policy," says trade theorist Ralph E. Gomory, a research professor at New York University's Stern School of Business. "I think we have to address whether a country can run
on innovation. If you just do R&D to enhance economic activity in other countries, you are getting very little out of it." Gomory, a former top IBM (IBM) executive, retired in 2007 as
president of the Alfred P. Sloan Foundation, which funded the National Academies study. Still, given all the debate over offshoring, the report's central findings are interesting. The
thanks to innovation, globalization hasn't eroded U.S. leadership even in some
authors marshal a wealth of evidence to show that,
industries where there has been a substantial offshore shift in engineering and design. Despite an explosion of outsourcing to India and Ireland, for example,
America's software industry still trumps the rest of the world in exports of packaged software and services, patent activity, and venture capital investment.
The U.S. also accounts for 90% of chip-design patents—the same level as 1991—although Asian companies now do most of manufacturing. And when
it comes to biotechnology, the U.S. is way ahead, luring more venture capital than all other countries
combined. America First The U.S. even remains a heavyweight in personal computers, the study says, though China and Taiwan manufacture most of
the hardware. That's because the real innovation and profits still belong to companies like Microsoft (MSFT) and Intel (INTC), makers of the operating
system and central processors, while U.S. brands command 40% of the global market and still define breakthrough design.
A2: High Oil Prices Bad – A2: Leadership – A2: Links (2/2)
Oil producing countries don’t inhibit US leadership – they still import energy and we’re
interdependent.
Verrastro and Ladislaw 07 (Frank and Sarah, CSIS Energy and National Security Program director and
fellow, “Providing Energy Security in an Interdependent Work”, p. 5,
www.twq.com/07autumn/docs/07autumn_verrastro.pdf)
Of 193 countries in the world, none are energy independent. Even the major oil-exporting countries of
Saudi Arabia, Russia, Norway, the United Arab Emirates, and Nigeria all import energy in the form either
of refined petroleum products, electricity, natural gas, or coal. Oil is currently the most widely traded
energy resource, with nearly 60 percent of global oil traded across national borders. The percentages for
international trade in natural gas and coal are lower but still significant at 25 percent and 17 percent of
production, respectively. Over the coming decades, global trade in all three fuel types is expected to
increase significantly. By 2030 the volume of global oil trade is expected to double, and natural gas trade is
expected to triple. The global oil market is far from perfect, and the influence of the Organi- zation of the
Petroleum Exporting Countries over the price and supply of oil on the market is not insignificant. One of the
main arguments for reducing dependence on imported oil is to reduce the strategic leverage of
countries in the Middle East. This sentiment is particularly strong after the September 11 attacks and in the
midst of the war in Iraq. Yet, oil-producing countries rely on these markets for their own domestic
economic stability. The trend has thus been for oil-producing countries to seek stable pricing that
allows enough market stability and certainty for them to make investments and ensure a steady income.
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A2: High Oil Prices Bad – A2: Species – Turn: Oil Increases Species
Oil feeds species
Species extinction is natural – your impact is denied by 4.5 billion years of history
Morano and Washburn 2000,(Marc and Kent,WorldNet Daily, Part 1 Shaky science behind save-rainforest
effort New TV documentary finds skeptics among researchers, http://www.bio.net/bionet/mm/ag-forst/2000-
July/015413.html)
Stott agrees that the focus on species loss is misguided from a scientific point of view. "The earth has
gone through many periods of major extinctions, some much bigger, let me emphasize, than even
being contemplated today and 99.9999 percent (of all species) and I wouldn't know the repeating
decimal have gone extinct. Extinction is a natural process," he asserts.
Gonzaga Debate Institute 2008 67
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A small-scale, regional nuclear war could disrupt the global climate for a decade or more, with
environmental effects that could be devastating for everyone on Earth, researchers have concluded.The
scientists said about 40 countries possess enough plutonium or uranium to construct substantial nuclear
arsenals. Setting off a Hiroshima-size weapon could cause as many direct fatalities as all of World War II.
"Considering the relatively small number and size of the weapons, the effects are surprisingly large," said
one of the researchers, Richard Turco of the University of California, Los Angeles. "The potential devastation
would be catastrophic and long term." The lingering effects could re-shape the environment in ways never
conceived. In terms of climate, a nuclear blast could plunge temperatures across large swaths of the
globe. "It would be the largest climate change in recorded human history," Alan Robock, associate
director of the Center for Environmental Prediction at Rutgers' Cook College and another member of the
research team. The results will be presented here today during the annual meeting of American Geophysical
Union. Blast fatalities In one study, scientists led by Owen "Brian" Toon of the University of Colorado,
Boulder, analyzed potential fatalities based on current nuclear weapons inventories and population densities
in large cities around the world. His team focused on the black smoke generated by a nuclear blast and
firestorms—intense and long-lasting fires that create and sustain their own wind systems. For a regional
conflict, fatalities would range from 2.6 million to 16.7 million per country. "A small country is likely to
direct its weapons against population centers to maximize damage and achieve the greatest advantage," Toon
said. Chilled climate With the information, Robock and colleagues generated a series of computer
simulations of potential climate anomalies caused by a small-scale nuclear war. "We looked at a scenario of a
regional nuclear conflict say between India and Pakistan where each of them used 50 weapons on cities in the
other country that would generate a lot of smoke," Robock told LiveScience. They discovered the smoke
emissions would plunge temperatures by about 2 degrees Fahrenheit (1.25 degrees Celsius) over large
areas of North America and Eurasia—areas far removed from the countries involved in the conflict.
The term "WMD," then, appears to be both an over- and understatement. It can overstate the destructive
power of some weaponry, while understating its wickedness. The two most destructive moments of the last
Gulf War were, in point of casualties, the revenge taken by Saddam on the Shia and Kurdish intifada in the
conflict's closing moments; in point of physical mayhem, his decision to ignite the Kuwaiti oilfields during
Iraq's ignominious retreat. The main weapon in the first instance was the helicopter-gunship, and the chief
one in the second instance was high explosive. Mass destruction of humans and resources was the outcome
in each case, but this tells us little about the weaponry (while telling us a good deal about the regime). The
term "WMD" originated, as far as I can tell, as a Soviet expression during the protracted '70s and '80s
negotiations about arms control and détente. It was a generalization, as well as something of a euphemism,
but it was also a loosely pejorative way of referring to thermonuclear weaponry. This kind of warfare
obviously meets all conditions of condemnation, because it causes unimaginable damage to cities and to
the infrastructure, as well as vaporizing civilians by the million and tearing apart the web of nature
that we call the ecology. Insofar as we can tell, it also threatens the whole biosphere and creates long-
term risks from radiation and climatic change. At its worst, it could cause extinction rather than mere
extermination: killing everybody alive, as well as those yet unborn—a true and apocalyptic "end of
history." No gas or bug or nerve agent can quite do that.
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***Russia UQ***
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UQ – A2: Inflation
The Russian government is taking steps to fight inflation
Reuters UK June 25, 2008
http://uk.reuters.com/article/topNews/idUKL2450096420080625
REUTERS: Mr President, as far as Russia and Russia's economy are concerned, there is a problem: inflation is rising and spending is rising at the
same time. How are you going to tackle this problem, are you going to cut spending, are you going to raise interest rates, or revalue the rouble ?
What are you going to do to lower inflation in Russia? MEDVEDEV: You have correctly noted the two trends. Actually, inflation has
accelerated. We will definitely take measures -- and are taking already -- to bring it down. These include
limits on excessive state spending. We should also influence the so-called monetary causes of inflation, and
other, non-monetary factors that have an impact on inflation. The government worked out such a programme
and it is being implemented now. As for the interest rate policy, of course we could not pursue interest rate policy in isolation from the
general situation. It is determined both by the current level of inflation and the situation with international financial institutions. For instance, I
mean the state of international financial liquidity. Because, as we see it, money now freely flows from one state into the other, depending on the
interest rate policy pursued by the surrounding world. So we will adjust our interest rate policy, proceeding from this. But there must be no
surprises here.
UQ – A2: Unemployment/Population
Russian unemployment rates are down, population growth is up
Moscow News June 19, 2008
http://www.mnweekly.ru/interview/20080619/55334032.html
We are dealing with urgent problems like the supply of housing. It grew twenty percent last year, which is a very good result. We built almost
900,000 square meters of housing in 2007. We'll build 1,100,000 square meters this year. We also have a shortage of schools now. We plan to
create 140,000 places in the next four years. Last year we reduced unemployment significantly. Today's level of
unemployment in the Khanty-Mansiysk autonomous region is about one percent of the population. The wages of
our population are rising. The average wage is 35,000 rubles per month in the Khanty-Mansiysk autonomous region (Ed.: about $1,500). Our
region is in the top five Russian regions with the highest salary level. Wage growth is about 17 percent per year. The population of our region is
very optimistic, which is confirmed in our demographic patterns. The birth rate is increasing. Our region is one of the leaders
in Russia with the best demographic results. The death-rate is going down - meaning that the population of
our region is increasing because of a greater number of births than deaths. Khanty-Mansiysk autonomous region is very
attractive for immigrants. However immigrants make up approximately 5 to 8 percent of the total growth of population of the region today.
UQ – Investment High
Investment in Russia high
RIA 08 (Russian News & Information Agency [http://en.rian.ru/business/20080530/108889933.html] Russia says
foreign investment in Russia reaches $220 bln/ May 30, 2008)
Accumulated foreign investment in Russia has exceeded $220 billion, a Russian deputy prime minister
said at an international economic conference in Moscow on Friday. "We expect more foreign investors to
come to Russia. So far accumulated foreign investment has exceeded $220 billion," Alexander Zhukov
said. Transport, mineral production, power generation, the social sector and the real estate market have been
the major areas for investment, Zhukov said. The official acknowledged that a lack of protection for
intellectual property rights has hampered investment in Russian companies. He also said investment in
infrastructure development in Russia was expected to top $1 trillion by 2020.
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Russia's economic growth remains robust. High oil prices, a strong catch-up potential, and sound fiscal
policy underlie Russia's long spell of robust growth. Several years of double-digit terms-of-trade gains,
reinforced by rapidly developing financial markets and much-improved access to foreign borrowing, have
underpinned strong investment growth, punctured only by a soft spot in late 2004. Nevertheless, the level of
investment has remained low, and capital and labor have accounted for less than half of the increase in
GDP since 2003, with the balance due to higher total factor productivity. Robust growth has thus owed
much to Russia's still considerable catch-up potential, as resources are reallocated to more dynamic
sectors in the economy. The resulting nexus of strong productivity growth, rising real incomes, and
higher consumption has been a key source of self-sustaining growth, especially in recent years as
capacity constraints have slowed energy exports.
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In terms of oil and gas, Russia is a country with enormous energy resources. Because it holds the
world's largest proven natural gas reserves and the seventh-largest oil reserves, Russia plays a critical
role in the global energy market. Since 2001, Russia's increases in crude oil production have more than
matched increases in China's demand. Further, Russia is the world's biggest natural gas producer and
exporter, providing close to one-fourth of the requirements of European countries that are part of the
Organization for Economic Cooperation and Development. Russia supplies nearly one-third of the natural
gas needs of the growing economies of Eastern Europe and the Baltic states.
Gonzaga Debate Institute 2008 83
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The Russian economy has now entered its seventh year of expansion, confounding almost everyone
with an average real GDP growth of just under 6.8% per annum during 1999-2004. But the economy has
come to depend heavily on the performance of a small number of natural resource sectors, above all
oil. The trouble is, oil-sector growth has been slowing of late, despite record-high prices. Add to this a
number of persistent institutional weaknesses, and doubts start to creep in about Russia’s capacity to
sustain high growth over the longer term. The role energy has played in Russia’s expansion is striking.
Natural resource sectors directly accounted for roughly 70% of the growth of industrial production in
2001-2004, with the oil sector alone accounting for just under 45% (see graph). This implies that natural
resource sectors directly contributed more than one third of Russian GDP growth over the period, and the oil
industry alone close to one quarter. There are, of course, well known dangers associated with resource-
dependent growth, and these underlie much of the scepticism about Russia’s longer-term prospects, as
well as much of the concern with diversifying economic activity in Russia away from natural resources.
Nevertheless, given its current economic structure, Russia is destined to remain highly dependent on the
performance of its resource sectors for many years to come.
Energy exports have been a major driver of Russia's economic growth over the last five years, as
Russian oil production has risen strongly and world oil and gas prices have been relatively high. This type of
growth has made the Russian economy very dependent on oil and natural gas exports, and vulnerable to
fluctuations in world oil prices. On average, a $1 per barrel change in oil prices results in a $1.4 billion
change in Russian government revenues in the same direction.
The world's largest gas company, Gazprom holds more than 20% of the world's total gas reserves and in
2004 produced close to 80% of Russia's total gas output. The company's supplier position in Eastern
Europe is remarkable. Gazprom provides approximately 91% of Hungary's gas imports, 79% of Poland's, and
nearly 75% of the Czech Republic's. In Western Europe, Gazprom supplies about one-fourth of the
region's natural gas. Based upon its size, production capabilities, and market position, the Russian
government is reinforcing Gazprom's position as an international energy giant. Gazprom is currently looking
beyond Europe to America and Asia and has targeted the development of LNG projects as part of an
ambitious expansion plan. The company recently signed memorandums of understanding with a number of
international firms such as Chevron, ConocoPhillips, Statoil, and Petro-Canada regarding the development of
the giant Shtokman field, and is also involved in several large pipeline projects. Foreign companies that
wish to gain access to Russian gas will have to partner with Gazprom based upon its size, pipeline
connections, and reserves. The company will rely on international firms to supply the substantial
funding for project development and infrastructure costs.
Others say Russia's gas-and-oil sector can continue to grow, but only if there are massive new
investments and critical reforms to an industry that under Putin became dominated by two state-owned
behemoths, Gazprom and Rosneft. Both companies have accumulated huge debt in an ongoing campaign to
take over formerly private assets that have returned nearly half of Russian oil and gas reserves to state control
in recent years. "Ten years ago the bulk of our oil resources were held by private companies, and growth rates
were very high," says Michalkova. "Growth rates have become sluggish for complex reasons lately, but
political interference and battles over ownership have not been helpful." Major investments will be
needed to eke out further production from the largely exhausted Soviet-era oil fields of western
Siberia, experts say. "Production costs have more than doubled in the past six years, and the current tax
regime makes additional output at older fields unviable," says Valery Nesterov, an energy expert with
Troika Dialog.
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This increasing recoverability, and not dramatic new discoveries of oil, explains why Russia's proven
reserves keep shooting up. The leading Russian oil companies have all announced big increases this
year, following independent international audits. Lukoil (LUKOY ), Russia's largest oil outfit, saw a boost of
4.7% in proven reserves both this year and last, according to Society of Petroleum Engineers SPE standards.
No. 2 producer Yukos, meanwhile, jumped 13.2% this year, according to stringent standards set by the U.S.
Securities & Exchange Commission. The growth in Russia's proven reserves is mainly happening at
existing fields in western Siberia, a supposedly "mature" region where production had been declining
until recently. DeGolyer & MacNaughton predicts that western Siberia could boost its output to 10 million
bbl. a day by 2012, up from less than 6 million at present, and keep production at that level for at least 10
years. The use of even newer technologies available by then means that western Siberian oil production may
not decline for decades to come. Russia's reserve potential is vaster still when undeveloped regions, such
as the Arctic, the Caspian, and in particular eastern Siberia, are factored in. And then there's Russia's
plentiful supply of natural gas. It is already acknowledged as having the world's largest gas reserves, with 47
trillion cubic meters, or 26.7% of global reserves. But tapping Russia's vast oil pool will require billions in
investment, especially in export pipelines. Although on course for 8% growth this year, production gains
could slow as export bottlenecks appear. But infrastructure investment is likely to go up in tandem with
reserve estimates. If Russia finds a way to get all that lovely oil to needy international consumers, its
days as a global energy powerhouse could be just beginning.
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The upshot is little exploration work has been done over the last 17 years. The Soviets explored western
Siberia pretty thoroughly and started production on many of the biggest fields. However, as this
produced more than enough oil little prospecting was done in eastern Siberia, which has a very similar
geology and is widely believed to contain rich oil deposits. Just no one has been to look yet. The lack of
exploration will only exacerbate the recent trend of falling oil production in Russia. Most of the Soviet-
era fields currently being exploited are either mature or already in decline. Heavy investment is needed
simply to maintain current production levels, while demand for oil is rising all the time. The decrease
xfgcan't be offset by production at the new oil fields coming on stream. The International Energy Agency's
World Outlook 2007 says that even in the best-case scenario growth of the oil production in Russia might
stall in 2010 to 2012 and is not likely to resume until 2015.
A top foreign affairs official with the Russian government says the country needs investment in new oil
fields amid recent reports that Russian oil production has peaked. "The legacy of the Soviet oil and gas
industry is almost over," Mikhail Margelov, chairman of the committee on foreign affairs of the federation
council of the Russian Federation, said Thursday after a luncheon speech to the World Affairs Council in
Houston. "As any old industry, and our oil and gas industry is relatively old, it needs more investment and
organization." The latest data on Russian oil production showed that for the first time in a decade,
output fell in the first three months of this year. Merrill Lynch analyst Francisco Blanch said in a recent
report to investors that Russia surpassed Saudi Arabia as the world's largest oil producer in 2007 with an
average daily output of 9.84 million barrels. But first-quarter production this year fell to an average 9.75
million barrels per day. "Mature fields, exploding costs, a heavy tax burden, infrastructure constraints
and market-unfriendly government policies have led to stagnation in oil exploration and production,"
Blanch wrote.
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In principle, Russia's bonanza could continue for years: it has the world's seventh-biggest oil reserves,
at 80 billion barrels, according to BP, a British oil firm. And oilmen reckon there are 100 billion more
barrels to find—“the biggest exploration prize in the world”, in the words of Robert Dudley, the boss of
TNK-BP, BP's Russian joint venture. But Russia has regulated the industry so poorly that production is
falling despite the soaring oil price. “Tax is the major impediment,” says Ms Redman. The government levies
an export duty of 65% at prices over $25 a barrel. Add to that various corporate, payroll and production
taxes, oilmen complain, and the state creams off as much as 92% of profits. Executives at TNK-BP have
argued that rising costs across the oil industry will make many investments in Russia unprofitable unless the
tax regime is changed. As it is, TNK-BP accounts for a fifth of BP's production, but only a tenth of its profits.
The government does offer tax breaks on production from older fields. So oil firms, naturally, have been
concentrating on squeezing as much oil as they can out of those. Until recently, that was an obvious
priority anyway, since fields that had fallen into ruin after the collapse of the Soviet Union in the early 1990s
could be revived relatively easily and cheaply. By mapping existing fields more precisely, installing new
pumps and injecting water and chemicals into wells to maintain pressure, private oil firms were able to
raise Russia's production from 6m b/d to almost 10m b/d, mainly from western Siberia. In 2003 alone,
output jumped by 12%. But this strategy is now yielding diminishing returns. Mr Fedun says the western
Siberian fields have reached their natural limit. To keep production at today's levels requires ever more
investment. To get Russia's output growing again, firms must make huge investments to develop new
fields in remote provinces such as eastern Siberia and the Sakhalin region.
Geological limits are also behind the decline. Unlike other parts of the world, such as the North Sea or
Gulf of Mexico, Russia isn't running out of oil. But most of today's production comes from mature
fields in western Siberia, first developed in the 1970s and now experiencing significant declines. Growth
requires massive new investment in the Arctic and in eastern Siberia, inhospitable regions where
infrastructure must be built from scratch. Oil companies will have to invest $2 trillion to tap these
remaining reserves, estimates Leonid Fedun, vice-president at Lukoil (LUKOY), Russia's No. 2 producer.
"It's colossal money," he says.
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Russia’s capacity to export oil faces difficulties, however. One stems from the fact that crude oil exports
via pipeline are under the exclusive jurisdiction of Russia’s state-owned pipeline monopoly, Transneft.
Bottlenecks in the Transneft system prevent its export capacity from meeting oil producers’ export
ambitions. Only about four million bbl/d can be transported in major trunk pipelines; the rest is shipped by
more costly rail and river routes. Most of what is transported via alternative transport modes is refined
petroleum. The rail and river routes could become less economically viable if oil prices fall sufficiently. The
Russian government and Transneft are striving to improve the export infrastructure. Unless significant
investment flows into improving the Russian oil pipeline system, non-pipeline transported exports
probably will grow. For example, without a dedicated pipeline, rail routes presently are the only way to
transport Russian crude oil to East Asia. Russia is exporting about 200,000 bbl/d via rail to the northeast
China cities of Harbin and Daqing and to central China via Mongolia. Since Yukos was the leading Russian
exporter of oil to China, there was concern that the breakup of Yukos by the Russian government (see below
under “Energy Policy”) might affect rail exports to China. However, Lukoil has taken over the role of rail
supplier.
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Russia’s ability to maintain and expand its capacity to produce and to export energy faces difficulties.
Russia’s oil and gas fields are aging. Modern western energy technology has not been fully
implemented. There is insufficient export capacity in the crude oil pipeline system controlled by Russia’s
state-owned pipeline monopoly, Transneft. And, there is insufficient investment capital for improving
and expanding Russian oil and gas production and pipeline systems.
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During the chaotic decade after the collapse of the USSR, Russia acquired a reputation as a difficult
place to do business and accordingly many companies which had initially rushed to invest there, became
extremely wary about country risk. This effect was compounded by falling oil prices. The greater political
and regulatory stability brought by President Putin’s administration at the beginning of the present
decade started to improve perceptions. Foreign interest in the Russian oil sector was also stimulated by
rising oil prices and enthusiasm peaked in 2003 when TNK and BP announced their joint venture. Since
then there has been a continuing stream of new investment, but at the same time there is a perception of
increasing political intervention, for example with the Yukos affair and the recent controversy over the
Sakhalin 2 project. Over the last three years oil prices have climbed to unprecedented heights and
industry commentators have begun to focus more and more on the issue of ‘peak oil’. Opinions are
divided on when the World will reach ‘Hubbert’s Peak’, and some believe that we have already passed that
point. While we can not be certain about this we can be certain that hydrocarbons are a finite resource and it
is clear that the rate of increase in proven reserves does not at present match the rate at which consumption is
increasing. Conventional oil reserves in political stable locations (such as the US or UK) are in
irreversible decline. The rapid emergence of China and India as major oil consumers will almost
certainly continue and, baring a catastrophic global recession, one can see continuing upward pressure on
oil prices over the next decade and increasing pressure on supply. This creates an environment in
which hydrocarbon sources which were previously uneconomic (such as Canada’s oil sands), or
unattractive because of perceived political risks (such as the former USSR), become the focus attention
for the energy industry. These become even more important if one doubts the ability of major OPEC
producers, particularly Saudi Arabia, to fill the widening gap between supply and demand.2 In this
situation the international oil companies (IOCs) are facing serious challenges in replacing reserves and many
are increasing M&A activity to supplement exploration and help fill the gap. Their non-OPEC supply has
begun to decline and access to reserves in some OPEC countries is problematic. On top of this high prices
have encouraged ‘energy nationalism’ in, for example, Bolivia and Venezuela and this is further squeezing
the IOCs
A considerable group of foreign investors are looking for routes to enter the Russian market. For
example, the upstream arm of RWE was recently reported to be looking at a major gas project; Repsol YPF
and PetroCanada are also reported to be considering gas and LNG options; Hungarian MOL is already
active in Russian upstream, as is Wintershall; Eni is reported to be in the process of negotiating a joint
venture with Gazprom. Total, Chevron, ConocoPhillips, Hydro and Statoil were the short-listed
bidders for Shtokman, before Gazprom’s recent announcement that it would develop the project alone. Not
only is the interest manifest via direct investment. Portfolio investors were enthusiastic purchasers of
Ural Energy and Novatek when those two companies listed in London during 2005, and while the 2006
Rosneft IPO was overshadowed by the threat of litigation because of its role in the dismemberment of Yukos,
the investment community has still given it a larger market capitalisation than Lukoil.
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Central Asian countries have extensive energy ties to Russia stemming from the numerous transportation
routes that go through Russia. Russia initially opposed western investment in Caspian Sea energy
projects, insisted that oil from the region be transported through Russian territory to Black Sea ports, and
argued for equal sharing of Caspian Sea oil and gas. But it has become more agreeable, and even
cooperative with, western projects; and it has signed an agreement with Azerbaijan and Kazakhstan on
Caspian seabed borders essentially based upon shore mileage.
Russian President Dmitry Medvedev pledged on Saturday to reinforce the rule of law and called for more
foreign investment as part of a Kremlin drive to make Russia the world's number five economy by
2020."Our task is to create absolutely independent modern courts that comply with the country's economic
development level," Medvedev told more than 80 chief executives of major global companies at Russia's top
annual business forum. He also said that a recent law regulating foreign investment in strategic sectors
was based on U.S. rules and should facilitate investment. Muhtar Kent, the COO of Coca-Cola Co, told
reporters after the closed meeting at the St Petersburg Economic Forum that foreign executives were
impressed by Medvedev's willingness to have an open dialogue on topics of interest to investors.
Medvedev had stressed the need for Russia to become a more innovative economy, to be more energy-
efficient and to invest in better education and science, Kent added. Kent said the CEOs had raised two issues
with Medvedev: the need for Russia to improve its creaking, mostly Soviet-era infrastructure to avoid
bottlenecks in growth and the need for a more transparent, improved legal system. Energy chief executives
were very complimentary about a new law passed last month by Russia regulating foreign investment
in strategic sectors of the economy because it set out for the first time clear and concise rules, he added.
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So a clearer picture emerges. Tighter access to reserves has given IOCs the need to look for new places to
invest. At the same time higher prices have increased their tolerance for higher costs and higher risks.
Russia’s huge proven reserves of oil and gas, and even vaster potential, makes it a magnet for the
IOCs. While the Kremlin’s approach may seem sometimes to be hostile to foreign investors in the
hydrocarbon sector, this does not seem to have fully taken the edge of the IOCs’ appetite for Russian
oil and gas.
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On June 11, the International Energy Agency announced that Russia's oil production had hit 9.5 million
barrels per day in the first quarter, edging past Saudi Arabia's 9.2 million to make the country the
global King of Crude. But few in Russia are cheering because that new crown is already wobbling.
After climbing for years, Russia's output has begun to drop: It was down by 0.7% in April. The problem
is so serious that the new Prime Minister, former President Vladimir Putin, has said the issue is his first
priority. To get production growing again, Putin has pledged billions of dollars in tax cuts for the
industry. The biggest change is a lower tax on production, which would result in an extra $4 billion in oil
company coffers each year. An additional $3 billion in benefits would come from tax holidays of up to 15
years for major projects in remote regions. In late June, the Parliament is expected to approve both
adjustments, which would take effect next year. Oil "was so obviously overtaxed that they had to do
something," says Ronald P. Smith, head of research at Alfa-Bank in Moscow.
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The message seems to be that the government will keep a close eye on the Russian energy sector, and
access to the most desirable resources will be especially conditioned. Although the country remains high on
the list of places with promise, these messages require foreign companies to revise their thinking about
Russia. The recent government announcement will increase the number of assets that foreign firms can
pursue and gives them a chance to secure a share of proven reserves that by some estimates may total
between 60 and 200 billion barrels of oil and over 1,500 trillion cubic feet of gas. This represents a huge
opportunity for oil and gas companies which are not already active in the region. Although business risks
continue and future events cannot be accurately predicted, there are a few conclusions that can be reasonably
made: According to the International Energy Agency, investments required to maintain and grow Russia's
energy infrastructure will total some US$935 billion between now and the year 2030. A significant
amount of investment will come from multi-national loans and international corporations.
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Offshore exploration and production is still in relatively early stages, and operations in the Barents Sea or
offshore Sakhalin are regularly hampered by storms and seriously restricted for up to half the year because of
thick ice cover. While infrastructure may be well-developed in the mature producing regions of western
Siberia and the Volga-Urals basin, in the promising areas of Sakhalin, the Barents Sea and eastern
Siberia, only the largest prospects are economic because of the huge cost of developing infrastructure
from scratch. Projects which would be major finds in the Central North Sea or in Kuwait may be simply too
small to justify the level of investments required. Much of Russia is, therefore, a high-cost environment for
hydrocarbon exploration and production operations, and for this reason high oil prices are necessary
to sustain the interest of investors
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With some of its key potential domestic investors expropriated, scared into selling, or forced to reduce
their investments because of the increasingly uncertain business climate, Russia needs a massive
infusion of foreign capital in order to continue developing its energy sector. Here too, however, statist
ideology trumps the country’s long-term interests.
Given that the United States, as well as Russia, is a major energy producer and user, Russian energy
trends and policies affect U.S. energy markets and economic welfare in general. An increase in Russia’s
energy production and its ability to export that energy westward and eastward may tend to ease the
supply situation in energy markets in the Atlantic and Pacific Basins. On the other hand, the Russian
government’s moves to take control of the country’s energy supplies noted earlier may have the effect of
making less oil available. Possibly as important as Russian oil and gas industry developments is the
associated potential for U.S. suppliers of oil and gas field equipment and services to increase their sales
and investment in Russia.
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Those constraints are starting to emerge in Russia itself – where the decade-long boom came to a halt
last year and production has now begun to fall. Some pundits blame the high level of tax levied on oil
profits by Russia, but the deeper cause is that the easy gains achieved by refurbishing existing fields
have now been exhausted. Future increases in production capacity will require the development of new
fields in frontier provinces such as east Siberia and the Arctic, where working conditions are especially
hostile. Analysts agree that it gets very much harder from now on.
With the fall of the Soviet Union at the end of the 1980s, the Russian economy had slumped and oil
production collapsed from 11.5 million barrels per day in 1987 to just over six million in 1998, as fields
were mothballed or simply not maintained. But as confidence returned so did the necessary investment,
and output began to recover – rising almost 60 per cent by 2007. It was this wave that Lord Browne
wanted to ride.
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Bloomberg 8
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8IoBFiocjdo&refer=home
Russia, the world's biggest energy exporter, created state- run institutions including the Development Bank in
2007 to help develop industries other than commodities extraction. Government spending, including on state-
operated corporations, increased by 40 percent last year as Russia seeks to diversify the economy and become
a global leader in nanotechnology and other high-tech industries by 2020.
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"Russia's deteriorating economy elevates the uncertainty quotient in a number of very important
areas. Politically, Russia is increasingly unpredictable and the worsening economy situation affects all
aspects of the Russian scene, as the desperate search for revenue streams is exacerbating a number of very serious problems. For example, it has magnified the proliferation threat across
the board as growing financial pressures raise incentives to transfer sensitive technologies, especially to Iran." (Before Senate Armed Services Committee, Feb. 2, 1999.) NARRATOR: The director of the Defense
"The
Intelligence Agency, Lieutenant General Patrick Hughes, also finds reasons for the United States to worry about Russia's worsening economic situation. LG PATRICK HUGHES, DIA Director:
number of Russian strategic nuclear warheads will continue to decline, but Moscow will retain a potent
strategic arsenal and will increasingly rely on strategic forces to offset its diminished conventional
military capability." (Before Senate Armed Services Committee, Feb. 2, 1999.) NARRATOR: The Russian military has been dramatically diminished both in size and capability since the days of the
Soviet Union. The humiliating defeat in the 1995 war with Chechnya, a tiny breakaway republic, demonstrated Russia's military weakness Nowadays, Russia's armed forces are better known for horrendous living
conditions than for military might. Russian soldiers, once feared as "ten feet tall" by the West, now look considerably shorter. A visit with these raw recruits shows just how far they are from "combat ready." In 1998,
Russia's military budget was barely $5 billion, due to the greatly weakened ruble. In 1999, it may shrink to just one percent of the $267 billion the US spends on its military In 1998 alone, the Russian military reduced its
strength by 400,000 troops. Its forces stand at 1.2 million today. But even that force is much larger than the economy can sustain and according to reports in the Russian press, an additional cut of 600,000 troops may be
needed At "Tank Day," a family holiday for Russia's tank divisions, these weapons may be seeing their final action. The collapse of Russian military forces is highlighted by Pavel Felgenhauer, Russia's leading military
correspondent. PAVEL FELGENHAUER: There were no big maneuvers for already almost at least eight years and there -- the commanding generals and (inaudible) are mostly working as, you know, administrators,
trying to feed the troops and trying to keep their units together. But when it comes to battle, they're not ready. NARRATOR: Today, the mission of these soldiers is to harvest cabbages to make sure they have something
,
to eat tonight. These are the troops both we and the Russians rely on to man and safeguard a still-mammoth nuclear arsenal. CORPORAL ALEXEI GUSHIN Sertolova Tank Division (through translator): To make ends
meet, we have to work side jobs, such an unloading railway cars at night. Sometimes we get by with the help of relatives, but generally we have to look for money elsewhere because we're certainly not getting it from
the military. NARRATOR: When soldiers are worried about feeding their families, nuclear safety drops precipitously on the list of priorities. At home, Corporal Gushin's wife reflects the view of many Russian military
families. ELVIRA GUSHINA (through translator): The military simply should not be neglected as they are today. We are left at the mercy of fate. We have to look after ourselves in almost every way because the military
What worries many of us is that the traditional elements of control, guns and
is certainly not doing it. MR. CIRINCIONE:
guards, over these nuclear materials are weakening as the guards are not being paid, as they may be, in
some cases, selling their guns to buy food or using their guns for other purposes. We have documented
cases of guards deserting their posts around nuclear facilities to go scavenging for food. NARRATOR: Russia's military
has become alienated from a government that fails to provide even basic support and from a society that no longer respects and honors it.
distance delivery. It has more than 20,000 nuclear weapons of all types. There's plenty to worry about.
MR. CIRINCIONE: We're watching potentially the de-evolution of a nuclear state, something that the world has
never seen before, and that could have catastrophic consequences. You can't ignore something like this.
My biggest concern with the Soviet Union is nuclear technology getting out to the wrong hands. Not
just the technology, but the actual weapons themselves. In an economy that's in trouble like that, it's
entirely possible. MR. MANN: The more immediate danger in nuclear terms might be control over tactical nuclear weapons rather than a breach of strategic command. Because tactical nukes -- there
are tens of thousands of them, literally, and they're spread among about 50 storage depots. And that very dispersion is cause for concern. And in some instances, we know that security is not good. NARRATOR: In the
early days of the honeymoon between a new Russia and an America most Russians admired, the United States initiated a program to help Russia with its nuclear problems. When the Soviet Union collapsed, nuclear
weapons were deployed in Russia, Belarus, Kazakhstan and Ukraine. In 1991, the US Congress, recognizing the increased dangers, created and funded the bipartisan Cooperative Threat Reduction Program, also known
as Nunn-Lugar for its original Senate sponsors, Senators Sam Nunn and Richard Lugar. Since then, the US has spent about $3 billion on programs to help dismantle and secure nuclear weapons and materials. The effort
is still far from complete, but it stands out as a rare success in cooperative US-Russian relations. MR. CIRINCIONE: These programs are working. They are helping to lock up the material. They are finding jobs for
scientists and technicians, even if it's make-work jobs. They are destroying the nuclear delivery vehicles that carry these warheads. These things are making concrete contributions to our national security. NARRATOR:
Senator Lugar visited Russia in November, 1998 to inspect the results of his initiative. The US Department of Energy is initiating a program to help Russia's large cadre of unemployed nuclear scientists and technicians.
:
This is the Nuclear Cities Program. MR. CIRINCIONE You have ten closed cities in Russia, nuclear cities, where scientists and technicians for literally generations have built and perfected nuclear weapons. The
unemployment rate in Russia is estimated to be about 20 percent. Inside the nuclear cities, it's estimated to be 60 percent. Many of these technicians and scientists haven't been paid in months and may never get paid.
You want to give these scientists and their families some hope that if they stay in Russia, that there might be a future for them. NARRATOR: But there is a real danger. With the declining concern about Russia in the
United States, funding for the Cooperative Threat Reduction programs could also decline, and this could happen just as new dangers emerge. One danger is the potential failure of the Russian early warning system.
Another is the risk coming from the Year 2000 computer problem. And yet another is that over 100 mothballed nuclear submarines are rusting in Russia's Arctic ports, threatening to leak radioactive waste because
officials can't afford to unload their spent nuclear fuel Russia has already experienced several false warnings of missile attacks. When the Soviet Union broke up in 1991, important radar facilities located in other
system is, like the other defense systems in Russia, collapsing. It is deteriorating from wear and tear. 5 .
The consequences of poor early warning is that Russia may launch a nuclear missile in response to
what may or may not be a US attack. NARRATOR: Both the United States and Russia continue to maintain a large percentage of their nuclear missiles on high alert, ready to be
launched in moments. MR. CIRINCIONE: Many people are saying it's time to take these missiles off their hair-trigger alert. MR. MANN: The best thing we could do of an immediate nature is greatly to increase the
Nunn-Lugar funding that helps Russia with its de-nuclearization. In fact, it might be wise at this point to go one big step further and just simply say to the Russians, let's buy every single nuclear device, every part of
their nuclear inventory that they're willing to sell, and presumably, they'd be willing to sell almost all of it because they're broke. I mean, we would save so many tens of billions of dollars in future defense expenditures
Russia's economy. My information is that folks in Russia, at least in some parts of Russia outside of the Moscow area, are concerned about whether or not they have enough potatoes to survive
through the winter. NARRATOR: While we have focussed on the security of Russia's nuclear arsenal, the root of the
problem is Russia's economic crisis and the failure of the so-called reform program carried out by President Yeltsin with considerable American collaboration.
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The dismal economic situation has many Russians wondering, "What went wrong?" After all,
international banks had dumped billions of dollars of aid into the economy. More was promised. Russian
leaders had pledged that tough economic reform would improve their lives. Instead, Russians have seen their
quality of life rapidly erode. Analysts say corruption, watered-down reform measures and the lack of an
economic safety net are to blame. "The ruble was stabilized largely because people didnt use it very much,"
Kramer said. "Inflation was brought down because the government and enterprises didnt pay wages or
pensions. All that suggests that what was built was, to some extent, a house of cards that has come
crashing down." The economic crisis in Asia struck Russia hard, weakening its exports and damaging
investors confidence. A drop in oil and natural gas prices only made matters worse. Russia owns a third
of the world's natural gas reserves, and 5 percent of the oil reserves. When oil and gas prices go down, so
does Russias primary source of hard currency earnings. Russian President Boris Yeltsin has sacked his
prime minister twice this year, both times shaking investors faith in Russia's stability. "Yeltsin's done two
important things this year," said Kramer. "He's dismissed two governments. That's significant power that he
wields, but he basically hasn't done much else." Both Yeltsin and his on-again, off-again heir apparent, Viktor
Chernomyrdin, have close ties to Russia's banking and media barons. The bankers funded Yeltsins 1996 re-
election campaign, while Chernomyrdin was once head of Russia's natural gas monopoly, Gazprom. Critics
have accused the tycoons of using their influence to protect, and grow their businesses. Unless Chernomyrdin
and Yeltsin can somehow get their powerful friends to swallow difficult reforms, analysts say, their policies
will do little to fix the economy. The stakes of the crisis in Russia are high. At best, Kramer said, the
government will patch up the economy well enough to limp into the next presidential elections, scheduled for
2000. At worst, an unhappy populace could rise up in revolt, perhaps fragmenting Russia into smaller
provinces and throwing into question the control of some 22,000 nuclear warheads in Russia's arsenal.
What's more - Russia has a very similar agreement with their closest ally, and you have heard of them
too, they boast 'the million man army'; China. The agreement between Russia and China is far more blunt.
They aim to work together militarily and economically in order to counter 'western' hegemony in both
fields. In other words - if Russia is involved in a serious militaristic enterprise wherein they need
support, China will back them up. So now this doomsday World War III scenario begins to unfold.
The picture begins to paint itself. But for the sake of clarity, let words be the paintbrush.
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Impact – Democracy
Economic collapse would result in a Russian political disaster
Broder 98 (Jonathan, Salon News [http://www.salon.com/news/1998/09/01newsa.html] Who Lost Russia?
September 1, 1998)
Never mind that Russia is not yet lost and that its political and economic crises could still stabilize. But
with Wall Street's 513-point plunge Monday, fanned by continued global uncertainty -- and by Russia's
prolonged political crisis in particular -- concern is deepening about the fragile young democracy. "It
could get much worse," Stephen Cohen, a Russian specialist at Princeton, told PBS's "Newshour with Jim
Lehrer," referring to the crisis in Russia. "It will get worse, I'm absolutely convinced of it. "Russia's
economic collapse will mean social pain, social anger, vengeance, hatred," Cohen said, reminding viewers
that all this would be playing out in a country that was not long ago the second superpower. "Leave
aside the nuclear weapons. If this country spins out of control, if this country becomes an Albania or
Indonesia scenario, you're talking about a major political catastrophe as well."
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Hill 5 (Fiona, Brookings Senior fellow, the Eurasian Security Environment, HASC threat pannel, September 22 2005)
In fact, none of the North Caucasus fighters captured in Afghanistan was from Chechnya—in
spite of the evident radicalization of the Chechen rebel movement, which is no longer chiefly
driven by a political campaign for independence. Arguably, the situation in Chechnya is now
slowly improving, while things are getting markedly worse in the rest of the North Caucasus
with the spread of militant insurgency from Chechnya to neighboring republics. Last year’s
brutal school siege in Beslan, North Ossetia, highlighted the fact that the situation in the North
Caucasus has become increasingly desperate. Since then, there have been daily reports from the
North Caucasus of terrorist attacks, explosions, assassinations, and incidents of intra-communal
violence, kidnappings, disappearances, and other atrocities. There is also now clearly an
ideological link between Chechen and other North Caucasian radicals and international jihadi
terrorists. There is also a demonstration effect. Terror tactics adopted by jihadis in Chechnya
have been propagated by video and the internet, and adopted elsewhere––including in Iraq. The
spread of these tactics across the North Caucasus and the links with international jihadi terror
raise the possibility that the next “soft target” of North Caucasian terrorism, perhaps in Moscow,
could be a U.S. or a Western one. There is also every possibility that the North Caucasus, like
Afghanistan before it, could become the training and staging ground for terrorist recruits for
operations in Europe, if not the United States.
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Elise Giuliano (2005, 2006) has employed a competition model in an analysis of nationalist mobilisation
in the non-Russian autonomous republics in the Russian Federation after 1989. Giuliano argues that
there was a close correlation between economic and political trends. Republics with high levels of
educational and job competition for white-collar jobs, such as Tatarstan and Sakha-Yakutia, experienced
higher levels of nationalist mobilisation than republics with lower levels of such competition, such as
Mari-El and Mordovia (Giuliano 2005: 6, 2006).
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But Russian officials have a much more immediate reason for "standing up to the West": it's popular at home.
Anti-Americanism is cresting in many parts of the world, and Russia is certainly no exception. In addition,
Russian nationalism continues to foster animosity toward a European Union that has, like NATO,
expanded onto former Soviet territory. As a result, Kremlin resistance to Western "encroachments" is sure
to further boost its domestic popularity. Nationalism aside, however, there's a nagging fear in the Kremlin
that Russia's new strength won't last. Russia faces three emerging threats that analysts of its foreign
policy often ignore. First, the Russian population is shrinking. Rising tuberculosis and HIV infection
rates and high consumption of both cigarettes and alcohol have brought life expectancy for men to 59 years.
In 2000, there were about 146 million Russian citizens. Today there are about 142 million. A recent UN
survey warned that the population might well fall by 40 million over the next four decades. That's not an
encouraging forecast for the economy's long-term prospects. Second, the government is not investing
enough of its oil profits back into energy infrastructure. The International Energy Agency has formally
expressed concern over "creeping nationalization in the oil sector," noting that as production turns from fast
maturing fields toward others that will prove more difficult and expensive to develop, a Russia that
discourages potential foreign investment will struggle to maintain production levels over time. In other
words, just as more money is needed for investment in new infrastructure, the Kremlin has chosen to spend
less. The IEA has also raised concerns over the inadequacy of Russia's "fiscal, legal and regulatory reform"
programs. In short, the Russian government and its supporters among the commercial elite are buying short-
term political strength at the expense of investment in the country's long-term growth. Third, many of
Russia's most successful businessmen still view their country as a wealth generator but not as a sound
long-term investment bet. Any substantial uptick in political uncertainty could generate destabilizing
levels of capital flight. In particular, legislative elections in December and a presidential election next March
increase the risk that investors, fearful that particular friends in high places might lose their influence, will
safeguard assets by moving them abroad. The Kremlin is well aware of these longer-term vulnerabilities.
Russia's ruling elite may calculate that winning domestic support by challenging the world's wealthiest
and most powerful governments will be easier from today's position of strength than from a future
position of relative weakness. For the next several years, the Russian economy, buoyed by strong growth in
domestic consumption, will continue to grow. Foreign direct investment will continue to flow into many
sectors of the economy. High oil prices will bolster Russian surpluses. But fears for the longer-term future
help persuade the Russian elite that it's better to break domestic opposition now while political critics,
independent media, and civil society organizations are weak and the government is both popular and
flush with oil money. That Russia's more confrontational foreign policy flows from domestic
considerations will make it tougher for U.S. and European negotiators to find ways to resolve future
disputes. If the Kremlin would rather obstruct than deal, hope is slim that the slow, steady deterioration in
Russia's relations with the West can be reversed anytime soon.
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Will the newfound sensitivity towards nationalist tendencies lead to a sustained return to tolerant and
liberal aspects of Russia´s political tradition? Or is this new tendency no more than the latest episode
in Moscow´s fluctuating media campaigns? One can identify two contrary trends – one ideological, the
other pragmatic – whose collision has restored a certain measure of controversy to the generally dull
public discourse in Russia. On the one hand, the dualist worldview introduced by Putin´s entourage in the
past few years – the simple, but honest Russians struggling for independence against a devious, soulless,
imperialist West – fulfils an important role in legitimating the "tough" course of the resurging Russia.
However, the officially approved paranoia also opens the floodgates for radical conclusions. Since the US
model of society is presented as the antithesis of Russian civilization, one should not be surprised when
youth gangs of violent thugs try to prevent an "Americanization" of Russian society, in their way. The
damage caused by such reactions to the international image of Russia is, in turn, incompatible with the
equally strong tendency towards establishing the country as a respected partner of the Western countries and
as becoming a part of the "civilized world" (the preferred Russian term for the economically advanced
democratic states). Extreme nationalism has already made the Russian Federation an unattractive study
destination for dark-skinned international students who are regularly beaten and, sometimes, killed at
Russia´s university towns. In trying to stem this tide, the government deals, however, only with the
symptoms of the phenomenon. To get to the root of the problem, the whole logic of current Russian
politics would need to be changed – something that a well-meaning ministerial bureaucrat can,
obviously, not do. Besides, the leadership of the Kremlin appears to be considering large-scale immigration
as a way of replenishing the rapidly dwindling population of the Russian Federation, which would create
new, potentially explosive, tensions. Finally, the fanatical anti-Americanism and pro-Iranian positions of
Dugin as well as others are in contradiction to a number of security policy preferences of the Kremlin
and its efforts to join the international coalition against terrorism as a full member. Due to these and
other challenges in the coming years, the – at least partial – handover of power last month gains some
importance. It will be interesting to see which of the two contradictory tendencies currently present in
Russia – the nationalist anti-Western one, or the urge to become integrated into international formal
and informal networks – will gain the upper hand. A widespread fear among Russian and Western
analysts observing the rise of Russian nationalism is now that the Kremlin could loose (or, perhaps, is
already loosing) control of the genie it has let out of the bottle. Russian nationalism might transform
from a political technology tool into a societal force of a proportion beyond the limits of manipulation
by the cynical manipulators working for the Russian government. If one extrapolates Russia´s
development during the last eight years into the future, we will not only witness a second Cold War. The
Russian Federation might become something like a new apartheid state where foreigners and non-Slavic
citizens are treated separately from white citizens of Russia by governmental and non-governmental
institutions. It is in connection with this, that some observers do not hesitate to speak of a "Weimar
Russia" comparing post-Soviet conditions to those in inter-war Germany. Though it is not likely (yet)
that Russia will turn fascist, it seems even less probable that Russian society will become more tolerant
soon.
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"This declaration is indeed a reaction to the actions of the countries in the Baltic and Ukraine, in which
recently there has been the rehabilitation of the SS Halychyna division," the Kremlin spokesman told
Reuters. "In other countries, Britain for example, Nazi criminals are arrested, not justified." Russia has
chided Ukraine for taking steps since the mid-1990s to grant some form of recognition as combatants
to the Ukrainian Insurgent Army (UPA), guerrillas who fought both Nazi and Soviet troops to secure an
independent state. The issue is contentious in Ukraine, where commemorations expose the country's
split into the nationalist west and centre and the Russian-speaking east, more sympathetic to Moscow.
Historians say the UPA had 40,000 men in its ranks at its peak. Some Ukrainians donned Nazi uniforms in a
unit known as SS Halychyna. Russia has also complained about Baltic nationalists who resisted Soviet
occupation. It became embroiled in a diplomatic row with Estonia last year over the removal of a
statue of a Red Army soldier from Tallinn's city centre to a military cemetery. Moscow also says
Russsian-speaking minorities in Estonia and Latvia have been denied basic rights against a
background of strong anti-Russian sentiment. Medvedev also reaffirmed Russia's support for steps to
create a "union state" with Belarus -- planned since the mid-1990s but with little concrete progress so far.
Without addressing Sen. Charles Schumer's central premise that sanctions would be effective against
oil-rich Iran ("Russia Can Be Part of the Answer on Iran," op-ed, June 3), I would like to address what
appears to be a dangerously myopic view of Russia and Russian foreign policy. First, the senator's
provocative decision to address the matter to Prime Minister Vladimir Putin instead of President Dmitry
Medvedev requires extensive explanation where none was provided. The constitution of Russia makes
very clear that the president is responsible for foreign policy. The prime minister serves at his discretion.
It is well understood that Mr. Putin remains in the seat of power in Russia and that Mr. Medvedev was
simply appointed to win a fraudulent election in March. But for an American senator to publicly take this
state of affairs for granted is remarkable. Mr. Medvedev was not mentioned once in Sen. Schumer's
editorial and I cannot believe this was accidental or the result of ignorance. Therefore, is Sen. Schumer
implicitly acknowledging that Mr. Medvedev's election was a sham and that Russia is a dictatorship?
Does this indicate a disagreement with the current U.S. policy of pretending Russia is a democracy? Would
this be the senator's policy recommendation to his Senate colleague Barack Obama? Is it too much to ask that
such an important, and commendable, stance be taken in less subtle fashion?
In Russia, President Dmitry Medvedev is fitting nicely into his new role as Prime Minister Putin’s
friendlier face. During a celebration on Thursday of Russia’s resurgence as an independent world power,
Medvedev gave a holiday address stressing the importance of freedom and democracy in Russia.
Medvedev says these things while also pledging his support for the policies of his mentor. While some
may look to Medvedev as a sign of coming changes in Russia, the truth is that Russia is more
embedded under the authoritarian rule of Vladimir Putin than ever.
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As reported in both the Russian and Chinese media, Prime Minister Vladimir Putin’s hand-picked
successor, First Deputy Prime Minister Dmitry Medvedev, made his first speech to Russian big-
business recently. During the speech, Medvedev called on Russian companies to "copy China" by going
on a global buying spree. He noted that foreign investment would bolster the Russian economy while
cutting Russia’s dependence on foreign technology. While the notion of cutting foreign dependence by
buying the competition is straight out of Sun Tzu, what he said next really got my attention. Medvedev
pledged Kremlin support for companies that go on the hunt over assets abroad. At the same time - well,
practically anyway - Putin has gone on record saying that Russia will not remain a commodity supplier for
long. He said, "either we become a raw material appendage to the global economy, which can
eventually jeopardize Russia’s very existence, or we become a world leader and the best country to live
in." But Russia’s definition of an "international buying spree" is probably going to be very different
from what we’ve seen from other nations so far. Generally speaking, Chinese sovereign wealth funds
don’t hesitate to pay huge premiums for assets if they also get access to the intellectual property behind
those assets. The Blackstone Group LP (BX) deal is a great example. The Chinese could care less that they
paid $3 billion for their share of the hedge-fund-master because they know they’re getting access to the
very best deal-making know-how in the alternative-asset-management business - and that they can
leverage what they learn from Blackstone in future global deals. Middle Eastern sovereign funds, on the
other hand, don’t seem to be so concerned about intellectual property. Instead, they’re pursuing a
strategy that’s more like being "the house" in a Vegas casino, or owning any one of half a dozen
legendary Bazaars in their part of the world. They don’t appear so concerned with the individual
customers as they do with getting a tiny piece of every transaction, which is why they’ve gone after the
world’s financial centers as well as diversified plays. Here’s another interesting point: Neither of these so-
called "Cash Barons" - from China or the Middle East - has pushed for management say-so or seats on their
target companies boards of directors. The Russian Model History suggests the Russians will pursue a
blend of these two strategies - but with an aggressive edge. It’s likely they’ll look to a combination of
hard assets and operating businesses but in a uniquely Russian twist, they’ll probably seek actual
control, too. And that smacks of Russian nationalism.
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Russia policy experts don't necessarily agree that Medvedev will be simply a rubber stamp for Putin's
agenda or that U.S. foreign policy should proceed on that assumption. Andrew Kuchins of the Center for
Strategic and International Studies says "we should leave ourselves open to taking Medvedev
seriously." Kuchins notes that Medvedev, who is 42, comes from a background that's very different from
that of his mentor, who is 55. In the context of Russia, Kuchins says, the age difference is important,
because it means that Putin spent a significant part of his career under the Soviet system, whereas
Medvedev did not. Medvedev has a background as a law professor and as the general council for a big pulp
company, while Putin worked for the KGB, the Soviet intelligence service. Kuchins notes that in a key
policy speech, delivered on Feb. 15 in the Siberian city of Krasnoyarsk, Medvedev addressed some of
Russia's problems in a way that was different from Putin's approach during his eight years in office.
"You couldn't ask for a more liberal-sounding speech from a Russian leader in today's context,"
Kuchins says. Anders Aslund, of the Peterson Institute for International Economics, agrees that the
Krasnoyarsk speech could be a sign that Medvedev is "something different." He says Medvedev
acknowledged public complaints against Russia's legal system, its culture of corruption, and its bloated
civil service. "He said there's no reason to have so many government officials on the boards of state
corporations, and he's taken a strong stand on private property rights. He's spoken up against
monopolies. He wants to lower taxes and simplify the tax code," Aslund says.
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Sokova 5 (http://www.nti.org/db/nisprofs/russia/forasst/doe/closcity.htm)
Since the collapse of the Soviet Union in 1991, one of Russia's most pressing concerns has been the fate of the
so-called "nuclear cities," home to 600,000 residents and workers.[1] It was in these 10 secret, highly restricted
cities that the Soviet Union designed and produced its nuclear weapons stockpile (for a list of the 10 nuclear
cities see below or the closed cities map and table). Once generously funded by the Soviet state, the nuclear cities
have been forced to grapple with enormous funding problems over the past decade of political, social, and
economic difficulties in Russia. Formerly well-paid nuclear specialists were being paid meager wages that
were often delayed for several months; the standard of living in the closed cities dropped significantly. This
problem came to the forefront in the mid-1990s because of repeated strikes by nuclear workers in closed cities
over back wages, attempts at nuclear smuggling and theft, and the "brain drain" of scientists.
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Impelling NCI and other such programs is evidence over the years that Russian scientists might be
willing to shop their skills to rogue regimes. In one reported 1992 incident, a planeload of
Russian scientists was stopped by police "on the tarmac" as they embarked for North Korea. In 1998,
an arms expert in Sarov was arrested by the FSB security service for allegedly spying for Iraq. A
study last year by the Center for Strategic and International Studies and the
Massachusetts Institute of Technology surveyed the attitudes of 602 Russian nuclear,
biological, and chemical WMD scientists. The study found that the mean income for such
scientists was about $110 a month, and that 21 percent were willing to move to a "rogue nation" to
work. As for the impact of assistance programs like NCI, the survey found 12 percent of those with
grant funding would consider work in a rogue state, versus 28 percent without funding.
A significant number of Russian nuclear scientists are willing to work for rogue states.
Global Security Newswire, December 17, 2004
WASHINGTON — A “small, but significant” number of Russian scientists have expressed a willingness
to consider working in rogue states, a researcher at the U.S. Lawrence Livermore National Laboratory said
here yesterday (see GSN, Nov. 17). A 2002 study of 600 scientists found that 21 percent would consider
working for at least a year in Iran, Iraq, North Korea or Syria, said Deborah Yarsike Ball of the
laboratory’s Proliferation and Terrorism Prevention Program. The most popular potential destination was
North Korea, Ball said, describing the finding as “positively perplexing.”
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MOSCOW AND BOSTON – At a Moscow conference in 2000 on stopping the global migration of
nuclearweapons know-how, a Russian security official revealed that Taliban envoys had tried to recruit
a Russian nuclear expert. That expert didn't go to work for the Afghan regime. But three of his colleagues
did leave their institute for other nations - and Russian officials had no idea which ones, US experts say.
With the threat of nuclear terrorism looming large in a post-9/11 world, the brain drain of Russian
nuclear expertise is an even more critical concern than it was six years ago, many say.
The Carnegie Endowment for International Peace today released a report detailing the decline in living
conditions and economic standards for employees of the Russian nuclear industry. According to the
report, the situation in so-called "nuclear and missile cities" populated by scientists, technicians, and
engineers in those industries is so dire it presents a national security emergency to the United States
and other western nations. "This is a major threat facing the U.S.," John Wolfsthal, the Carnegie report's
editor, told a press conference at the nation's capitol. "The Russian nuclear and missile defense industry is
a gloomy picture of underpaid but highly-skilled and educated workers with poor morale who are
ready to emigrate to the land of the highest bidder." According to Wolfsthal, the Carnegie Endowment
took a census of nuclear cities to "get a good idea of how tough life is among people in the Russian nuclear
industry." The Endowment looked at 8 nuclear and missile cities, sampling 2% of their populations.
According to the survey, 63% make less than $50 per month, and almost none make over $125 per month.
The workers desire, on the other hand, not more than $150 per month. "This makes it very cheap for a
potential nuclear proliferater to come in and help these communities," Wolfsthal maintained. Any entity
helping these downtrodden nuclear workers could also be helping themselves to the necessary expertise
to create a major threat to world peace, Wolfsthal explained. "These people have a strong desire to
moonlight," Wolfsthal said. "14% want to get out of Russia entirely, and another 6% will work for anyone,
anywhere." That translates to about 3,900 people on the open market with the skills necessary to design,
construct, and launch nuclear warheads, according to Wolfsthal. With immense pressure to emigrate, these
highly-educated Russian workers might sell themselves to the highest international bidders - with
dangerous rogue nations such as North Korea, Iran, and Iraq among them."You can't build an economy
on the shoulders of people who have emigrated," said Representative Ellen Tauscher, a Democrat whose
district includes much of the Silicon Valley. Tauscher proclaimed dismay with large cuts in the so-called
"Nuclear Cities Initiative" recommended by President Bush. "I want the President to devote even a tiny
amount of time to nuclear non-proliferation," Tauscher told reporters. That means sending about $26 million
to the Russian non-proliferation effort, not the vastly-reduced $6 million Bush has proposed. Rose
Gottemoeller, a senior associate at the Carnegie Endowment who has visited several nuclear cities, said a
Russian brain drain caused by dire conditions could pose serious problems in the maintenance and
safety of the nuclear stockpile.
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The second proliferation risk is the threat of Russian scientific brain drain. With the collapse of the
USSR in December 1991 came a loss of central political control, downward spiraling economies,
the relaxation of Soviet-era emigration/immigration restrictions, and an escalation of crime and black
market activity. These developments raised international concerns that idle and
unemployed personnel from the Soviet Union's sprawling nuclear, biological, and chemical weapons of
mass destruction complexes might sell their know-how or emigrate to countries of proliferation
concern. Related to the issue of Russian brain drain is that of scientific contact with countries of
proliferation concern. Reported cases of attempted and actual recruitment of former Soviet scientists,
technicians, and engineers have been well-documented. Recruitment efforts have been initiated by
China, Taiwan, North Korea, Libya, Iran, and other countries. Many of these same countries have
established trade offices in Moscow. As recently as late 1995, sources in Ukraine, Georgia,
and Azerbaijan, as well as in the United States, were reporting that Libyan and Iranian
"university representatives" had stepped up efforts to recruit biologists and physicists.
Another troubling development has been the export by Russia of dual-use technology and equipment
to countries of BW proliferation concern. For example, in the fall of 1997, weapons inspectors
with the United Nations Special Commission on Iraq (UNSCOM) uncovered a confidential
document at an Iraqi government ministry describing lengthy negotiations with an official Russian
delegation that culminated in July 1995, in a deal worth millions of dollars, in the sale of a 5,000-liter
fermentation vessel. The Iraqis claimed that the fermentor would be used to manufacture
single-cell protein (SCP) for animal feed, but before the 1991 Persian Gulf War, Iraq used a
similar SCP plant at a site called Al Hakam for large-scale production of two BW agents, anthrax and
botulinum toxin. It is not known whether the Russian fermentor ordered by Iraq was ever
delivered.
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Impact – Prolif
Low economic growth sidelines arms control and causes proliferation
Mike Gallagher, Staff Writer ABQ Journal, Nov. 24 1998
http://www.abqjournal.com/news/russia/1rus11-24.htm
Russia's economic turmoil has raised serious new obstacles to making the world a safer place.
The United States and Russia have signed the Strategic Arms Reduction Treaty II agreeing to vast cuts in
their nuclear arsenals. The U.S. ratified the treaty in 1996 and Russia was expected to do so last spring. But
Russia's economic meltdown and internal political bickering got in the way. Dr. Alexander Pikayev, an
adviser to the Russian Parliament on nuclear issues, said earlier this year that START II was being held
hostage to domestic politics over selection of a new prime minister. Now the concern is that the treaty will be
a hostage to Western financial aid. "It is difficult to make progress when you're not paying your military,
when you're not paying your nuclear scientists," said Sen. Jeff Bingaman, D-N.M. "The economic problems
have overshadowed everything else." There also are concerns about keeping Russian nuclear material
and know-how out of the hands of rogue states such as Libya and Iraq.
Impact – Prolif
Low economic growth causes a nuclear crisis deterence - cannot stop
Bruce Blair and Clifford Gaddy, Russia's Aging War Machine, Brookings Review, summer
1999 pg. 13
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Impact – Prolif – NW
Unchecked Proliferation leads to Nuclear War and Extinction.
Utgoff 02 (“Proliferation, Missile Defence and American Ambitions” Victor A., Deputy Director
of the Strategy,
Forces, and Resources Division of the Institute for Defense Analysis, Survival, 2002 Vol.44,
Iss. 2 p. 87-90,
proquest)
What would await the world if strong protectors, especially the United States, were [was] no longer seen as
willing to protect states from nuclear-backed aggression? At least a few additional states would begin to
build their own nuclear weapons and the means to deliver them to distant targets, and these initiatives
would spur increasing numbers of the world’s capable states to follow suit. Restraint would seem ever
less necessary and ever more dangerous. Meanwhile, more states are becoming capable of building nuclear
weapons and long-range missiles. Many, perhaps most, of the world’s states are becoming sufficiently
wealthy, and the technology for building nuclear forces continues to improve and spread. Finally, it seems
highly likely that at some point, halting proliferation will come to be seen as a lost cause and the restraints on
it will disappear. Once that happens, the transition to a highly proliferated world would probably be very
rapid. While some regions might be able to hold the line for a time, the threats posed by wildfire
proliferation in most other areas could create pressures that would finally overcome all restraint. Many
readers are probably willing to accept that nuclear proliferation is such a grave threat to world peace that every effort should be made to avoid it. However,
every effort has not been made in the past, and we are talking about much more substantial efforts now. For new and substantially more burdensome efforts
to be made to slow or stop nuclear proliferation, it needs to be established that the highly proliferated nuclear world that would sooner or later evolve
without such efforts is not going to be acceptable. And, for many reasons, it is not. First, the dynamics of getting to a highly proliferated world could be very
dangerous. Proliferating states will feel great pressures to obtain nuclear weapons and delivery systems before any potential opponent does. Those who
succeed in outracing an opponent may consider preemptive nuclear war before the opponent becomes
capable of nuclear retaliation. Those who lag behind might try to preempt their opponent’s nuclear programme or defeat the opponent using conventional
forces. And those who feel threatened but are incapable of building nuclear weapons may still be able to join in this arms race by building other types of weapons of mass destruction,
such as biological weapons. [The article continues…] The war between Iran and Iraq during the 1980s led to the use of chemical weapons on both sides and exchanges of missiles
against each other’s cities. And more recently, violence in the Middle East escalated in a few months from rocks and small arms to heavy weapons on one side, and from police
Escalation of violence is also basic human nature. Once the violence
actions to air strikes and armoured attacks on the other.
starts, retaliatory exchanges of violent acts can escalate to levels unimagined by the participants before hand. Intense
and blinding anger is a common response to fear or humiliation or abuse. And such anger can lead us to impose on our opponents whatever levels of
violence are readily accessible. In sum, widespread
proliferation is likely to lead to an occasional shoot-out with
nuclear weapons, and that such shoot-outs will have a substantial probability of escalating to the maximum
destruction possible with the weapons at hand. Unless nuclear proliferation is stopped, we are headed
toward a world that will mirror the American Wild West of the late 1800s. With most, if not all, nations
wearing nuclear 'six-shooters' on their hips, the world may even be a more polite place than it is today, but
every once in a while we will all gather on a hill to bury the bodies of dead cities or even whole nations.
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Russia's deteriorating economy elevates the uncertainty quotient in a number of very important areas.
Politically, Russia is increasingly unpredictable and the worsening economy situation affects all aspects
of the Russian scene, as the desperate search for revenue streams is exacerbating a number of very
serious problems. For example, it has magnified the proliferation threat across the board as growing
financial pressures raise incentives to transfer sensitive technologies, especially to Iran." (Before Senate
Armed Services Committee, Feb. 2, 1999.) NARRATOR: The director of the Defense Intelligence Agency,
Lieutenant General Patrick Hughes, also finds reasons for the United States to worry about Russia's
worsening economic situation. LG PATRICK HUGHES, DIA Director: "The number of Russian strategic
nuclear warheads will continue to decline, but Moscow will retain a potent strategic arsenal and will
increasingly rely on strategic forces to offset its diminished conventional military capability." (Before
Senate Armed Services Committee, Feb. 2, 1999.)
Russia's economic turmoil has raised serious new obstacles to making the world a safer place. The United
States and Russia have signed the Strategic Arms Reduction Treaty II agreeing to vast cuts in their nuclear
arsenals. The U.S. ratified the treaty in 1996 and Russia was expected to do so last spring. But Russia's economic
meltdown and internal political bickering got in the way. Dr. Alexander Pikayev, an adviser to the Russian
Parliament on nuclear issues, said earlier this year that START II was being held hostage to domestic politics over
selection of a new prime minister. Now the concern is that the treaty will be a hostage to Western aid. "It is difficult
to make progress when you're not paying your military, when you're not paying your nuclear scientists,"said
Sen. Jeff Bingaman, D-N.M. "The economic problems have overshadowed everything else." There also are
concerns about keeping Russian nuclear material and know-how out of the hands of rogue states such as
Libya and Iraq.
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According to FBI Director Louis Freeh, Russian organized crime groups, which run extremely complex
criminal operations in the United States, are a threat to US national security. Freeh said: "There is now
greater danger of a nuclear attack by some outlaw group than there was by the Soviet Union during
the Cold War." There is a growing fear that unpaid or underpaid, capable, Russian nuclear scientists
can be easily hired by these groups to construct nuclear weapons. These groups are considered more
dangerous than a government possessing nuclear weapons because they are difficult to locate and
retaliate against. Governments are not mobile.
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***Saudi UQ***
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UQ – Saudi Econ
Saudi Econ , GDP growth proves
Arab News June 26, 2008
http://www.arabnews.com/?page=6§ion=0&article=111271&d=26&m=6&y=2008
Saudi Arabia’s already robust economic growth outlook has been further bolstered by its decision to add up
to 500,000 barrels per day of crude oil to global markets. The extra crude will push real hydrocarbons GDP
growth up to 9.5 percent this year, while boosting overall real GDP growth to 7.4 percent — the fastest rate
for five years. “Despite the additional supply we still anticipate an average price for Brent of $120 a barrel this year, climbing to $135 a
barrel in 2009 as US demand begins to recover. Based on this outlook, we expect Saudi nominal GDP to expand by a
staggering 45 percent this year, to almost SR2 trillion ($545 billion), putting the Saudi economy ahead of Sweden and just behind
Turkey, in the IMF’s global rankings,” Howard Handy, general manager and chief economist of Samba, said.
UQ – Investment High
Investment in Saudi oil high
Arab News 08 (MENAFN [http://www.menafn.com/qn_news_story_s.asp?StoryId=1093200859] Saudi Arabia-
$80bn plan to raise oil output: Report/ June 18, 2008)
Saudi Arabia is planning to invest $80 billion in increasing its oil output to 12.5 million barrels per day
and expanding its refining capacity by 43 percent to six million bpd within the next few years,
according to an economic report unveiled yesterday. The report, which was issued by the Federation of GCC
Chambers of Commerce and Industry, expects that the gross GCC domestic product will grow by 27.9
percent this year to reach $1 trillion with the increase in oil prices. The federation believes that the Gulf
Cooperation Council of Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain and Oman will achieve a 31.2
percent surplus in their current accounts in 2008, compared to 28 percent last year.
The kingdom has a fifth of known reserves. It supplies an eighth of the world's oil and remains, crucially,
the only producer with at least some spare capacity. A huge investment plan under way should raise its
capacity from 11.3m barrels a day in 2007 to 12.5m by next year. Noting pleas from George Bush and
Ban Ki-moon, the UN's secretary-general, the Saudis have upped actual production twice in the past month,
raising it by 500,000 barrels a day to its present level of 9.5m.
Saudi Arabian General Investment Authority governor Amr Al-Dabbagh estimates that investment
into the Kingdom last year totalled $3.8 billion. The aim, he says, is to draw in $1 trillion in foreign
direct investment over the next 20 years. Kuwait-based Arab Organisation for Investment Guarantee says
that in 2004 the Kingdom ranked the leading country in the region for attracting direct foreign and
Arab investment. The International Finance Corporation, which acts as the private sector investment arm of
the World Bank rates the Kingdom as the best investment location in the Arab world. In its 'Doing Business
in 2006' report the IFC puts Saudi Arabia ahead of Kuwait and Oman and 38th out of 155 locations
worldwide for investment. IFC ranks countries according to a number of benchmarks. These include starting
a business, dealing with licences, hiring and firing registering property, obtaining credit, protecting investors,
paying taxes, trading across borders, enforcing contracts and closing a business. In just one year the
Kingdom has seen its global investment ranking increase 29 places. Saudi Arabia is reducing the
sectors that are off limits to foreign investors. Retailing, telecommunications and insurance have already
been removed from the list.
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Saudi Oil Minister Ali Al Naimi said on Sunday the world has enough crude to last "many decades"
and that his country will invest massively to allow production of 15 million barrels a day. "The world
has enough petroleum reserves, both conventional and non-conventional, to meet oil demand for many,
many decades to come," Al Naimi told a summit in Jeddah of top consumers and producers. "Concerns
over long-term supply shortages seem to be playing a role in strong futures prices, though I believe these
concerns are badly misplaced," he added. In contrast, US Energy Secretary Samuel Bodman told the
meeting that "production had not kept pace with growing demand for oil, resulting in increasing -- in
increasingly volatile -- prices." Al Naimi said Saudi Arabia's production capacity will rise to 12.5 million
barrels per day (bpd) by the end of 2009 and another 2.5 million bpd could be added if demand
warranted. Projects underway will see "the kingdom's maximum sustained production capacity rise to
12.5 million bpd by the end of next year," he said. It currently has output capacity of 11.3 million bpd. "In
addition, we have identified a series of future crude mega increments totalling another 2.5 million bpd
of capacity that could be built if and when crude oil demand warrants their development," the minister
said. The projects include a 900,000 bpd boost in Zuluf, 700,000 bpd in Safaniya, 300,000 bpd each in Berri
and Khurais and 250,000 bpd in Shaybah, Al Naimi said. The kingdom plans to add two million bpd of
refining capacity over the next five years.
Saudi Arabia, the world's biggest oil exporter, is planning to increase its output next month by about a
half-million barrels a day, according to analysts and oil traders who have been briefed by Saudi officials.
The increase could bring Saudi output to a production level of 10 million barrels a day, which, if
sustained, would be the kingdom's highest ever. The move was seen as a sign that the Saudis are becoming
increasingly nervous about both the political and economic effect of high oil prices. In recent weeks, soaring
fuel costs have incited demonstrations and protests from Italy to Indonesia. Saudi Arabia is currently
pumping 9.45 million barrels a day, which is an increase of about 300,000 barrels from last month.
Saudi Aramco's proved oil reserves of 260 billion barrels, represents a conservative figure, by
established industry (SPE/WPC/AAPG) standards. Significant upward potential for reserves additions
exists. Oil-focused exploration and delineation efforts, application of EOR processes and continual
emphasis on existing and future technologies - custom-fit to the Company's reservoir portfolio - will
certainly engender a major expansion in Saudi Aramco's reserves base in the decades ahead,
commensurate with global market conditions and requirements.
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But some experts are skeptical. Edward O. Price Jr., a former top Saudi Aramco and Chevron executive and
a leading United States government adviser, says he believes that Saudi Arabia can pump up to 12 million
barrels a day ''for a few years.'' But ''the world should not expect more from the Saudis,'' he said. He
expects global oil markets to be in short supply by 2015. Fatih Birol, the chief economist for the
International Energy Agency, said the Saudis would not be able to increase production enough for future
needs without large-scale foreign investment.
The I.E.A., an independent agency founded by energy-consuming nations, and Washington see investment
in energy exploration and field maintenance as vital, but such proposals face strong opposition inside
Saudi Arabia. Tensions with the West, particularly the United States, make such investment politically
difficult for Saudi society. For example, an effort by Crown Prince Abdullah, the kingdom's de facto ruler, to
encourage Western companies to invest $25 billion in his country's natural gas industry essentially collapsed
last year. ''Access to Persian Gulf oil reserves, especially Saudi Arabia's, is the key question for the
whole world,'' Dr. Birol said.
"At the same time, in keeping with Saudi Arabia’s current oil policy and as a commitment to world oil
markets, we will maintain our surplus production capacity of one-and-a-half to two million barrels a
day, even as our actual production grows. This surplus capability is expensive to develop and maintain,
but over the years it has repeatedly proven its worth, and so we bear this cost to promote market
stability and continued global economic development," said Jum’ah in this year's state-of-the-industry
address through a live direct video transmission from Dhahran to Kuala Lampur for Asia's annual conference
on Oil and Gas.
Saudi Aramco officials flew especially to Washington to refute Simmons' analysis. In a speech before the
Center for Strategic and International Studies in Washington DC, Nansen G. Saleri, a manager of reservoir
management for Saudi Aramco said Saudi Arabia can maintain production capacity at the current rate of
10 mbd for the rest of this decade and if needed they could increase maximum output by 20-50% within a
decade. His colleague Mahmoud Abdul-Baqi, Saudi Aramco's vice president for exploration also
expressed optimism about the future of their industry. "We have a lot of area to explore and find a lot
of oil and gas. Our track record shows we delivered for the past 70 years and we will continue to
deliver in the next 70 years and beyond." Saudi Aramco says that with more investments it can expand
its capacity to 12 mbd or more.
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International institutions such as the IMF and IEA argue that the erosion of spare capacity has been the
result of worldwide under-investment in the oil sector and hence they call for removing barriers to
investment in order to restore spare capacity in all parts of the supply chain. Others such as Goldman Sachs
(2005) are more pessimistic about the realization of investments, arguing that “demand destruction will be
needed to recreate a spare capacity cushion in order to return to a period of lower energy prices”.
Saudi Arabia’s declared policy of maintaining a volume of spare capacity of around 2 mbd could be
achieved, but this spare capacity is too little compared to global demand
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These investments in oil and gas, both upstream and downstream, contribute to market stability and
predictability. This also reassures the world economy especially the economies of the developing
countries of continued flow of energy resources to fuel growth and progress. And while they increase the
value added and returns to the Saudi economy, they also provide attractive opportunities to the local
and international oil and energy industries in the engineering, design, construction and services
arenas. I would therefore like to encourage businesses everywhere to seize these opportunities and build
mutually beneficial, long-term alliances and relationships with Saudi enterprises.
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To meet global demand for oil, Saudi Arabia will need to produce 13.6 million barrels a day (mbd) by
2010 and 19.5 mbd by 2020. Both the International Energy Agency and EIA assume Saudi oil output will
double over the next 15 to 20 years. In a new study soon to be released, Matthew R. Simmons, president of
Simmons and Company International, a specialized energy investment banking firm, contends that this is not
likely to happen. He argues that Saudi Arabia's oil fields now are in decline, that the country will not be
able to satisfy the world's thirst for oil in coming years and that its capacity will not climb much higher
than its current capacity of 10mbd. Considering the growth in demand, this could easily spark a global
energy crisis.
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To respond positively to these new conditions of competition, Saudi firms and industries will
continuously need to improve their product and process technologies and to respond rapidly to changes
in markets and competition. This in turn will require access to information, knowledge and skills,
strong networking with buyers and suppliers and an effective legal and regulatory framework. The
financial system will have to be greatly strengthened to cope with the rapidly increasing demands
placed on it. Competitiveness will have to show marked improvements for the positive forces of
globalization to offset the negative.
Gonzaga Debate Institute 2008 155
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With windfall profits from record-high crude prices, oil-rich Arab countries are exploring more
investments opportunities in the Middle East while at the same time attracting foreign funds to update
aging infrastructure or build new projects from scratch. The UN Conference on Trade and Development
(UNCTAD) said that Saudi Arabia was the largest recipient of foreign direct investment in the Arab
world in 2006, attracting $18 billion - an increase of 51 percent over 2005.
Gonzaga Debate Institute 2008 156
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Yet, such levels of investment require prices to be at a level that allows producers to bring more oil and
gas out of the ground without depressing demand. In this regard, consultants PFC Energy say high oil
prices have rendered the top Opec troika of Saudi Arabia, Iran and Venezuela more resilient to external
shocks than at any time in history because of the exceptional behaviour of their oil-dominated economies.
Nevertheless, Opec's top three producers remain vulnerable to any sharp fall in oil prices, PFC say. For
instance, Saudi Arabia's budget breakeven is currently at around $55 a barrel for US WTI and Iran's at $60 –
with both rising. The message is that oil prices will need to stay at relatively high levels if producers are
to meet their investment spending targets, though few expect the Opec basket price to rise above $70 a
barrel as it did last year. Opec has not said what price level it will defend, though remarks by senior officials
and ministers suggest they would act if it fell below $50 a barrel.
Gonzaga Debate Institute 2008 157
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The European Union (EU) and the Organization of the Petroleum Exporting Countries (OPEC) agreed on
Tuesday that secure future demand of oil is key to spurring oil investment to guarantee supply. The EU
and OPEC "recognized the importance of secure future demand for crude and products in spurring
timely investment both upstream and downstream, thus contributing to greater security of supply,"
said energy officials from both sides in a joint statement after a meeting here. The fifth EU Energy
Dialogue, attended by EU Commissioner for Energy Andris Piebalgs and OPEC President Chakib Kheli and
secretary general Abdullah al-Badri, among others, took place in the aftermath of a global summit on oil
prices in Saudi Arabia's Red Sea city of Jeddah Sunday. The summit, which brought together the world's
major oil producers and consumers, ended with a call for more investment and improved transparency in
the oil industry.
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The kingdom's government encourages foreign direct investment, particularly investment that is tied
to joint ventures with Saudi partners. The Saudi General Investment Authority (SAGIA) has been
created to handle the liberalization of investment, improve the investment climate, and approve
investment proposals. In 2002, the investment authority handed out licenses for $4.78 billion in projects
to US companies. Currently, the Supreme Economic Council is encouraging foreign investment in
communications, insurance, culture, electricity distribution, and advertising, including granting new rights to
foreign newspapers to open branches in Saudi Arabia. In May 2003, Chairman of SAGIA Prince Abdullah
laid out the long-term foreign investment situation from the Saudi point of view. He stipulated that the
kingdom needed $6,7 billion in foreign investment over the next 20 years, divided into the following
sectors: $140 billion in infrastructure projects, 116 billion for the electricity sector, 92 billion in
petrochemicals, 88 billion for water, 60 billion in telecommunications, 53.4 billion for tourism, 50 billion
for the natural gas sector, 28.3 billion for agriculture, and 10.7 billion each for information technology and
education. In the near term, Prince Abdullah has indicated that the kingdom will look for $20 billion dollars
annually in the water, railway, and electricity sectors alone.
Gonzaga Debate Institute 2008 160
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***Saudi Impacts***
Gonzaga Debate Institute 2008 164
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Impact – Coup
Economic growth prevents Saudi Coup
UPI 05 (United Press International
[http://www.metimes.com/Business/2005/11/04/analysis_booming_saudi_growth_eases_coup_fears/4632/]
Analysis: Booming Saudi growth eases coup fears/ November 4, 2005)
United States lawmakers, who have in committee hearings been weighing the prospects of a military or
Islamist coup in Saudi Arabia, may be reassured by new reports of a sprightly economic recovery in
both the oil and non-oil sectors of the Saudi economy. The latest banking projections for the Saudi
economy say that its entry into the World Trade Organization, expected at the Hong Kong WTO meetings in
December, will be eased by boom conditions in the desert kingdom. "Real GDP for 2005 is set to climb 6.8
percent, the highest growth level achieved in the country for the past two decades," says a new report
from the SAMBA group, the Saudi bank that is 30 percent owned by Citibank. "Nominal GDP will grow
29.8 percent, a phenomenal rise by any economic standards, and driven by the rise in oil prices," the report
goes on, assuming that oil prices are likely to remain at or above the 2005 average price of $51 a barrel.
"The Saudi economy is booming and it is at its best performing period ever," the SAMBA report says,
forecasting a surplus on this year's current account of over $100 billion. "The advent of King Abdullah
brought a new climate of hope about the pace of economic reforms and several developments have occurred
early in his reign. Saudi Arabia's accession to the WTO is now visibly close, as the final hurdle, a bilateral
trade agreement with the United States, was reached in September," it said. The recovery of Saudi finances
after a series of deficits brought on by the low oil price has important political implications. Pay
increases for civil servants and the military, along with more money for social programs, seems likely
to damp down the fears in the west of political instability.
This is an example of psychology and deterence theories (18), this time applied to the average Saudi subject.
A member of the private sector who is used to living at a certain level of wealth, as the Saudis before the Gulf
War or in the heyday of high oil prices, may feel greatly deprived when no longer benefiting from such a
favorable economic situation, as the Saudis in the post-Gulf War economic slump. This is a result of the
difference in reference points between the pre-1979 Iranians and current day Saudis (19). Because the
reference point of the oil-rich Saudis is so high, any significant drop in prosperity from that reference
point would be considered deprivation and poverty. This could also be considered an example of
unmotivated bias on the part of the Saudi subjects regarding their economic status (20). In an unmotivated
bias an actor’s perception is shaped by what he expects. For the Saudis of the last forty years, wealth is
an expectation. It is part of their belief about themselves. Because they expect a modest degree of
wealth, they perceive anything less as deprivation and react virulently, as a result of their unmotivated
bias. Thus, while objectively the poverty levels in the Iranian and Saudi examples may not be
equivalent, a suffering Saudi economy and perceived relative poverty could bring about the same
socio-economic effects in a potentially revolutionary situation, as the Saudis are in now.
Gonzaga Debate Institute 2008 165
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Impact – Coup
A decline in oil prices will result in a Saudi coup
Bucholz 97 (Jennifer, University of Michigan [http://www-
personal.umich.edu/~rtanter/S97PS472_Papers/BUCHOLZ.JENNIFER.SAUDI.HTML] Saudi Arabia as a Potential
Rogue State/ June 1997)
All famous revolutions have a leader who becomes the embodiment of the revolutionary movement. For the
French he was Robespierre or Danton, for the Americans he was Washington, for the Iranians he was
Khomeni. Who will it be for the Saudis? As of yet, no one. There are many possible leaders: the six thousand
princes, the religious leaders within and outside the regime. But none has yet emerged as The One. Also,
there must be a spark to start the revolutionary coup in motion. This is typically a national crisis or
hardship, or else a very blatantly unacceptable act on the part of the old regime. For the Saudis, still
highly dependent on the ebb and flow of the world oil market, a catastrophe on the world oil market
could be that spark. The lifting of international sanctions on Iraq and subsequent crash in oil prices or the
end of Saudi oil reserves, concurrent with continued dissatisfaction of the Saudis with their
government, would spell the end of the current regime. A quote by an astute American reporter on the
Saudi situation quite accurately relates the tale of the Saudi future: "Riyadh will be able to keep a lid on an
increasingly tense and uneasy society. But if something happens to break that bubble, the odds would
shift." (52).
Gonzaga Debate Institute 2008 166
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The Saudi government is cracking down on terrorist activities, recent arrests and security
operations prove
The National June 25, 2008
http://www.thenational.ae/article/20080625/FOREIGN/660039335/1042/OPINION
Saudi police have arrested more than 700 people in the past six months for alleged attempts to revive
and finance networks linked to al Qa’eda, including some that were plotting attacks on oil and security
facilities, Saudi officials said today.Of those arrested, 181 were released for lack of evidence, but 520 persons, including both Saudi
nationals and foreigners, remain in custody, an official statement said. Disclosure of the arrests followed comments by
the interior minister, Prince Naif bin Abdul Aziz, that security forces had found evidence of terrorist
financing.“We have found things … that can be used as evidence against al Qa’eda’s financial
backers,” Prince Naif recently told Asharq al Awsat, adding that he hoped to release the findings of an investigation soon.Gen
Mansour al Turki, an interior ministry spokesman, said the arrests were made in different parts of the country and that some of those
detained had been “recruiting Muslims from outside Saudi Arabia” to join terrorist cells here.“They are serving the al Qa’eda
ideology and it has been proved that they have been in contact with foreign organisations,” he said.
“These people were planning to re-establish al Qa’eda in Saudi Arabia. They have been trying to
publicise al Qa’eda ideology, collect money for terrorists, and trying to recruit Saudis to get involved”
in terrorist activities inside the kingdom.The arrests led some long-time observers to speculate that many of the detainees
are not operatives who would carry out operations but sympathisers willing to support and finance militant networks.Gen Turki said one
of the disrupted cells included people who had been collecting money for suspicious activities in 2003 and 2004, but for one reason or
another had not been arrested at that time. “They are doing the same thing now,” he said, and as a result were detained.Gen Turki
declined to say which countries the detainees are from, but if the past is anything to go by they are likely to be from Egypt, Sudan,
Yemen and Indonesia.Police checkpoints on the roads in Riyadh were noticeably more frequent in recent
nights.Gen Turki said the arrested suspects came from “more than one group” and that some of the organisers were “taking advantage
of the hajj” to recruit militants.The official statement, carried by the government-run Saudi Press Agency, said officials “have
carried out a number of security operations against the deviant groups who have been working for the
service of the country’s enemies targeting the country’s principles, security, economy and way of life”.“Deviant” is
a term Saudi officials use to describe the ideology of al Qa’eda and similar groups.
Gonzaga Debate Institute 2008 168
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Aburish says that his book is “an appeal to the West to make plans to contain the damage which will
follow the coming turmoil in Saudi Arabia … by engineering a palace coup which would change the very
nature of the rule of the House of Saud and reduce its kings to figureheads.” Aburish warns the West that a
revolution in Saudi Arabia would have far-reaching economic consequences. Even a brief disruption or
stoppage of oil production could lead to a global depression as well as a confrontation with the Muslim
world. Any U.S. move into the Saudi oil fields would entail the occupation of sacred Muslim soil, and
this could set the entire Islamic world on fire.
These threats to American interests in Saudi Arabia proper may not be sufficient to irrevocably portray a
Saudi rogue state as a regional hegemon. But the crucial role of Saudi Arabia as a leader of Islamic
nations everywhere, as the geographic and historical protector of Islam, establishes the Saudis as a
keystone in the U.S. security interests regarding Islamic countries. This is even more so in the Middle East
because of its additional geographic proximity to Saudi Arabia. Because the Saudis have managed to
remain moderate thus far, the full extent of this influence has not been tested. However, if the Saudis
were to adopt a wildly radical stance, it could have a significant impact on the policies of other
countries who subscribe to the same social and political code as Saudi Arabia. Just as the communist
U.S.S.R. had almost total hegemonic control over regional satellites because of geographic proximity
and well-propagated social and political ideology, the Saudis could have their own band of satellites,
both within the Middle East and without. Visions of Kuwait, U.A.E., and Oman as the next Poland,
East Germany, and Czechoslovakia and rapidly-developing Indonesia as the next China bring the
Saudis' full hegemonic capabilities into crystal-clear focus.
As I said, there's no shortage of division in the Middle East. But who gets to rule is less clear. For some
time I have been warning that the next great global conflict will begin in the Middle East, just as the two
world wars had their origins in Eastern Europe. The lethal combination of ethnic disintegration, economic
volatility and an empire in decline (in this case, the U.S.) makes an upward spiral of violence hard to
avoid. Add to that the demographic pressures caused by high Muslim birthrates, the money generated
by vast deposits of oil and natural gas and the risk that the most revolutionary power in the region will
soon possess nuclear weapons — and you have a recipe for Armageddon.
Gonzaga Debate Institute 2008 169
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The issue of dissent in the desert kingdom has been newly revived by two major terrorist attacks on
Americans in Saudi Arabia in the last two years. Saudi terrorists have claimed responsibility for both.
The first was a car bombing at a building used by U.S. personnel to train the Saudi National Guard on 13
November, 1995 (22). Fatalities of the bombing included five Americans, two Indians, and no Saudis. At the
time of the attack, several dissident groups claimed responsibility. Later, Abdulaziz Fahd Nasser, one of
four arrested for the bombing, said that they opposed Saudi Arabia’s close ties with "non-Muslim countries"
and were angered by the regime’s failure to strictly observe Islamic tenets (23). In the following months, the
U.S. State Department received further threats, as announced in this January statement: "The U.S. Embassy
has received new and disturbing reports that additional attacks may be planned against institutions identified
with the United States and its interests in Saudi Arabia." The threats deterred Secretary of State Warren
Christopher’s planned visit to Riyadh to meet with Crown Prince Abdullah, who is leading the country during
King Fahd’s illness. When the two did meet, Abdullah assured Christopher that the two countries would not
abandon their close ties despite suspicion among conservative groups about the U.S.-Saudi relations (24).
Then in late June 1996, as a fulfillment of the threat of promised additional attacks, a bomb went off in front
of a U.S. building in Dhahran, which housed U.S. military personnel. Several U.S. citizens died in the attack
(25). But the bombings of November 1995 and June 1996 were not isolated incidents. The following
message issued 25 February, 1997, by the American Embassy and Consulates in Saudi Arabia provides
very real evidence of the continuing plague of terrorism by Saudis against Americans within Saudi
borders: "The embassy notes with deep concern a recent interview aired on London television on 20
February with well-known terrorist Usama Bin Ladin in which he not only threatened again the U.S.
military in Saudi Arabia but also called for the expulsion of American civilians. At the same time the
Embassy continues to receive reports indicating possible surveillance or probes of U.S. military and
government facilities suggesting that planning for terrorist action against U.S. interests in Saudi Arabia
continues unabated." As voiced by the terrorist Nasser, the reason behind such bombings is primarily
opposition to the Saudi regime’s connections to the U.S., which explains the select targets of the bombings:
U.S. military presence in Saudi Arabia. The bombings are significant to this study for two reasons. First, they
are further evidence of growing Saudi dissatisfaction with the persistently pro-U.S. choices of the regime.
Secondly, they are evidence of the growing prevalence of terrorism as a political means in Saudi
Arabia. Sponsoring of terrorist acts is a basic characteristic of rogue states; indeed, the first list of such
rogue states was the U.S. State Department’s list of states sponsoring international terrorism. Although the
current government does not sponsor such acts, the track record of the dissident groups leads one to
the conclusion that they would have no reservations utilizing terrorism on an international scale if they
were to come to power.
Gonzaga Debate Institute 2008 170
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Impact – Coup=WMDs
Emergence of a coup would result with the emergence of WMDs in Saudi Arabia
Bucholz 97 (Jennifer, University of Michigan [http://www-
personal.umich.edu/~rtanter/S97PS472_Papers/BUCHOLZ.JENNIFER.SAUDI.HTML] Saudi Arabia as a Potential
Rogue State/ June 1997)
Now that the general Saudi military capability and conventional weapons supply have been well-
documented, the question remains of Saudi interest in weapons of mass destruction (WMD). Saudi
Arabia’s public reputation, in keeping with the spirit of Islam, is pacifist, so of course they have signed the
Nuclear Non-Proliferation Treaty and the Biological and Chemical Weapons Conventions (31a, 31b, 31c,
31d, 31e, 31f). However, while there is no reason to think that the Saudis possess such WMDs at the current
time, the prospect theory concept of the basement of fear can be used to explain why the Saudis might
pursue the development or acquisition of such weapons in the near future (32). If the Saudis are put in a
position to fear other WMD-possessing states, they might perceive the development or acquisition of
such weapons as their only option. In the current situation, in which Saudi Arabia is at least outwardly an
ally of the U.S. (as evidenced by U.S. support in the Gulf War), such fear would be absurd: the monarchy
knows that it can call upon the U.S. and the UN for military support against regional aggressors. But if the
government were to undergo a coup and change its alignment to anti-U.S. and in agreement with Iraq,
the West’s enemy, a basement of fear situation would be entirely reasonable. For in such a situation, the
Saudis would have relatively few friends in the international realm, and would be ideologically head-
to-head with the U.S. and other WMD-possessing powers. If the Saudis were to enter into such a
situation through a revolutionary coup against the monarchy, the attainment of WMDs would be a
feasible possibility, given the funds that the Saudis have the luxury of spending on their military.
Hence, the desire for and attainment of WMDs, a requirement for being a rogue state, would be entirely
within the reach of a post-coup Saudi Arabia.
Gonzaga Debate Institute 2008 171
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The United States has raised the prospect of a military invasion of Saudi Arabia. The House Armed
Services Committee considered the possibility of a Saudi coup and U.S. response during a hearing on Oct.
26. Saudi Arabia, with 200,000 military and National Guard troops, is the largest oil producer and
exporter, with an output of nine million barrels of oil per day, according to Middle East Newsline. The Arab
kingdom is the third largest supplier of oil to the United States, with more than 1.55 million barrels per day.
The scenario was outlined by Michael O'Hanlon, a senior fellow of the Brookings Institution, who cited
a Saudi coup as one of several threats to the United States. "How should the United States respond if a
coup, presumably fundamentalist in nature, overthrows the royal family in Saudi Arabia?" O'Hanlon asked.
"Such a result would raise the specter of major disruption to the oil economy." The response could
include the deployment of three U.S. Army divisions backed by fighter-jets and airborne early-warning
and alert aircraft. In all, the U.S.-led mission could include up to 300,000 troops.
Gonzaga Debate Institute 2008 172
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Impact – Coup=Prolif
Saudi Arabian coup leads to nuclear proliferation
Michael O'Hanlon Testimony of October 26, 2005 before the House Armed Services
Committee (panel on regional conflicts for the committee defense
review)http://www.brookings.edu/views/testimony/ohanlon/20051026_arms.pdf
What military scenarios might result in such circumstances? If a fundamentalist
regime came to power and became interested in acquiring nuclear weapons, the United
States might have to consider carrying out forcible regime change. If by contrast the
regime was more intent on disrupting the oil economy, more limited measures such as
seizing the oil fields might be adequate. Indeed, it might be feasible not to do anything at
first, and hope that the new regime gradually realized the benefits of reintegrating Saudi
Arabia at least partially into the global oil economy. But in the end the United States and
other western countries might consider using force. That could happen, for example, if
the new regime refused over a long period to pump oil, or worse yet if it began destroying
the oil infrastructure and damaging the oil wells on its territory—perhaps out of a
fundamentalist commitment to a return to the lifestyle of the first millenium. Since
virtually all Saudi oil is in the eastern coastal zones or in Saudi territorial waters in the
Persian Gulf, a military mission to protect and operate the oil wells would have a
geographic specificity and finiteness to it. The United States and its partners might then
put the proceeds from oil sales into escrow for a future Saudi government that was
prepared to make good use of them.
Gonzaga Debate Institute 2008 173
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After years of cool relations following 9-11, Washington once again relies on Riyadh as a diplomatic
partner. Not only do U.S. policymakers now consider a strong Saudi Arabia as a counterbalance to
Iran, but State Department officials also look at Saudi authorities as partners in the Middle East peace
process and in supporting nationalist factions in Lebanon against their pro-Syrian counterparts.[32] Saudi authorities even went so far
as to issue religious edicts against Hezbollah for provoking war with Israel in 2006.[33] Each likely successor will maintain
the Saudi security alliance with the United States. But, U.S.-Saudi relations have been strained in recent years, and some
kings may approach their ties to Washington differently than others. In this context, succession will put Saudi Arabia in play. Any U.S.
policy today--from the Middle East peace process to the Middle East Partnership Initiative, which emphasizes civil society, economic
reforms, political participation, and development as part of a broader U.S. public diplomacy effort in the Middle East[34]--depends on
both Egyptian and Saudi goodwill. The departure of both or even one of these states from the U.S. sphere will force significant changes
in the U.S. Middle East posture.
Embassy of Saudi Arabia 04 (Royal Embassy of Saudi Arabia Washington D.C., press release,
http://www.saudiembassy.net/2004News/Press/ PressDetail.asp?cIndex=193)
[Washington, DC] -- For the first time, Saudi Arabia has established a non-governmental human rights
organization to uphold the basic rights guaranteed to its citizens. The National Human Rights
Association (NHRA), which will implement international human rights charters signed by Saudi
Arabia, will also include a special panel to monitor violations of women's rights. The NHRA consists of
41 members who will work with international human rights organizations and issue periodic reports
on the progress of human rights in Saudi Arabia. Ambassador to the United States Prince Bandar bin
Sultan stated: "The establishment of this human rights organization is just another step in Saudi Arabia's
integrated reform program. Institutions such as these are the foundation for successful and lasting
reforms." The formation of the NHRA follows on the heels of the first-ever human rights conference in
Saudi Arabia which was held in Riyadh last October. There is already a human rights committee at the
Consultative Council, Saudi Arabia's 120-member advisory body. Another government-run human rights
body will soon be established, and it will work to implement government decisions regarding human
rights. Over the past few years, Saudi Arabia has embarked upon a comprehensive economic, educational,
and political reform agenda to promote a vibrant economy and broader civic and political participation of our
citizens. Specific measures taken to implement the reform agenda are discussed below and can be found in
the ISSUES section of this web site, under Human Rights and Reform .
Gonzaga Debate Institute 2008 184
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Still, interest in alternative energies did not cease. “As the curtain slowly descends on the age of oil,”
noticed a Worldwatch study in 1984, “investments in more energy-efficient technologies, in other fossil
fuels, and in renewable energy resources are expanding.”
Meanwhile, industrializing countries, such as India and China, will also turn to renewable energies to
satisfy their burgeoning energy requirements. The World Energy Council predicts that by 2010, the
volume of global investment in renewable energies will have reached 625 billion US dollars and could
rise to 1.9 trillion by 2020.
Gonzaga Debate Institute 2008 186
Scholars Russia/ Saudi Arabia Oil DA
The commodity is crude oil and it is in one of the most recklessly ascending bull markets ever seen in the
history of bull markets. The question is, is now the time to buy in or is this market setting up for a big fall?
Is this a boom that will continue or a bubble that is about to burst?In an attempt to answer this question,
we must first understand the macroeconomic reasons why prices are at current levels. While worldwide oil
demand may not be fully to blame for the most recent spike in crude prices, it most certainly continues to
provide a favorable environment for the bull market in crude. 10 years ago, world oil demand was
about 70 million barrels per day. In 2008, that figure is close to 87 million barrels per day. This figure is
expected to increase about 1 million barrels per year for the next 5 years largely as a result of growing
industrial use in China and India. Worldwide producers seem to be reaching maximum production capacity
with major producer Russia indicating that its production may have “peaked out” in 2007. Crude Oil,
however, answers to many different price determinates in addition to supply and demand. With billions
of new dollars pouring into commodities each year, commodity and hedge funds need a place to put it.
Funds tend to be trend followers and they tend to favor the long side of the market (commodity index
funds are always long the market). Thus, a solid uptrend with a good fundamental demand story and
massive open interest makes a perfect market for funds to “place” equity. Any bullish tidbit of news
becomes an excuse to buy. This is why oil markets have been hypersensitive to any type of bullish news story
in recent months. These waves of capital flowing into energy markets create more buyers than sellers. If
oil producers were eager to lock in profits at these levels, hedge selling would have curbed price gains weeks
or even months ago. But at this point, producers seem content to let prices go where they may.
Gonzaga Debate Institute 2008 189
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Gonzaga Debate Institute 2008 190
Scholars Russia/ Saudi Arabia Oil DA
Proven global oil reserves have risen from 667 billion in 1980 to 1.2 trillion barrels now, even though the
world has consumed some 700 billion barrels in the interim, he said. The Saudi minister reiterated that
financial markets, rather than fundamentals, were influencing current oil prices. “Financial markets
have a logic and mechanism of their own. Such markets are influenced by ever-changing factors and
parameters that transcend markets and boundaries and are often unregulated. Therefore, the short-
term oil prices are more closely tied to the internal logic of the financial markets than to underlying
supply and demand fundamentals.”
High oil prices are not caused by supply and demand fundamentals
Thomas Financial 08 (AFXNews [http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=eab20b48-
3399-4705-8fd0-b5ae9b6aef03] World oil supplies are enough for 'many decades' - Saudi Arabia's Al Naimi, June
22, 2008)
Al Naimi emphasised that record prices were not reflecting the true state of market supplies. The price
of a barrel of crude has doubled from about $70 to nearly $140 over the past year. "Between the second
quarter of 2007 and the second quarter of 2008, global demand rose by an estimated 800,000 (barrels)
to 1.2 million barrels per day. "At the same time, global oil supplies rose between 1.4 and 1.6 million
barrels per day, substantially more than the increase in demand." He added that forward cover -- a key
market measure for how long oil inventories would last if production stopped -- had increased from 52 days
to 54 days over the past 12 months. "Clearly something other than supply and demand fundamentals is
at work here, and a simplistic focus on supply expansion is therefore unlikely to tame the current price
behaviour," Al Naimi said.
Gonzaga Debate Institute 2008 191
Scholars Russia/ Saudi Arabia Oil DA
N/L – Dollar
Weak US dollar behind oil high oil prices
Noueihed 08 (Lin, Reuters [http://uk.reuters.com/article/oilRpt/idUKL1767484120080617] Refining shortage
cause of high oil price: UAE/ June 17, 2008)
OPEC has consistently said that fundamentals are not to blame and that high oil prices are due to
factors beyond its control such as U.S. dollar weakness, speculation and international politics as well as a
lack of refining capacity. But concerns over globally rising prices have prompted Saudi Arabia to host a
meeting of producers and consumers on June 22 to discuss rising oil. Reports that Saudi Arabia plans to
boost output initially helped ease prices but the effect was offset by U.S. dollar weakness, propelling oil
to a record high of almost $140 a barrel on Monday.
There is a direct relationship between Dollar value and oil prices. All crude oil purchases worldwide
have been conducted exclusively in U.S. Dollars for over thirty-five years. [1] When Dollar value falls
via inflation, oil prices rise. [2] [3] [4] This phenomenon could be called Petrodollar Inflation; it
occurred during the 1970’s oil ‘price shock’, and it is occurring right now. [1] Oil is a critical economic and
strategic resource - because every country needs oil to develop and prosper, they also need U.S. Dollars. This
has raised the demand, and value, of the Dollar worldwide for several decades. [1] However, the U.S. Dollar
is continuously devalued (inflated) by Federal Reserve and U.S. government monetary policies. [5] Due
to recent hyper-inflation of the Dollar, oil producing nations are losing money - or rather, wealth - by selling
oil in Dollars. To prevent losses, oil producing nations will sell some or all of their oil in other currencies
(Euros, for example). This further devalues the Dollar, since oil buying countries no longer need them to
purchase oil.
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N/L – Gouging
High prices caused by price gouging
Champion 08 (Jaimeson, Workers World [http://www.workers.org/2008/us/oil_prices_0703/] What's really
causing rising oil prices?/ June 26, 2008)
Recently, there has been no shortage of explanations for the meteoric and record-breaking ascent of
the price of oil. But lost amidst all the talk of growing demand in China and speculation in the futures
market is the fundamental contradiction of a natural resource that is essential to the daily lives of
billions of people being owned and distributed by a small handful of private corporations. Increasing
monopolization of the oil industry has enabled oil giants like Exxon Mobil and Royal Dutch Shell to
become price setters. The average cost per barrel of producing oil for a company like Exxon Mobil or
Shell has remained around $30, if not lower, since 2003. In the same time frame, the price of oil has
gone from $30 a barrel in 2003 to over $140 a barrel today. That is the very definition of windfall
profits. The claim by the oil corporations that the price increase reflects the increased cost of oil
exploration and drilling is an outright lie. Exxon Mobil spends more money per year on buybacks of its
own shares than on oilfield exploration and investment. Exxon Mobil raked in $40.6 billion in profit last
year. That figure ranks as the biggest profit margin in the history of capitalism. Royal Dutch Shell raked
in more than $30 billion. In the same year, ballooning energy and food costs pushed billions of workers
deeper into poverty, while 800 million people went hungry. Accumulation of great wealth at the top of the
socio-economic ladder has directly caused misery and starvation at the bottom.
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The Federal government (Figure 10) has been the most diversified investor, supporting all seventeen
technologies. Total expenditure in the six years of $5.2 billion has tended toward frontier
hydrocarbons, particularly coal gasification, gas-to-liquids research, and heavy oil studies. While the
level of spending may seem low compared to the private sector, seed-money investments by government can
do the work of billions of dollars in ensuring that private investment follows.
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The quantitative relationship between oil prices, economic activity and inflation is complex (Box IV.3)
but seems to have weakened over time for a number of reasons. First, the weight of oil and oil products in
price indices has fallen. Second, many economies have raised specific taxes on gasoline, which reduces
the impact of a per-barrel rise in the oil price. Third, the wage formation process has become less
responsive to fluctuations in oil prices. Fourth, heightened competition has helped to reduce the
secondary impact on core inflation from changes in oil prices. In this context, the impact of oil prices on
headline inflation expectations also appears to have become smaller over time, indicating that these tend to
be formed from extrapolations of core rather than headline inflation.
Poverty Is The Biggest Impact That Exists – Its Effects Are The Same As An Ongoing
Nuclear War Against The Poor
Abu-Jamal 1998 (Mumia, Peace Activist, “A Quiet and Deadly Violence,” FLASHPOINTS,
September 19, 1998, available online at
http://www.flashpoints.net/mQuietDeadlyViolence.html, accessed 6/30/07)
This form of violence, not covered by any of the majoritarian, corporate, ruling-class protected media, is
invisible to us and because of its invisibility, all the more insidious. How dangerous is it--really? Gilligan
notes: [E]very fifteen years, on the average, as many people die because of relative poverty as would be
killed in a nuclear war that caused 232 million deaths; and every single year, two to three times as
many people die from poverty throughout the world as were killed by the Nazi genocide of the Jews
over a six-year period. This is, in effect, the equivalent of an ongoing, unending, in fact accelerating,
thermonuclear war, or genocide on the weak and poor every year of every decade, throughout the
world. [Gilligan, p. 196] Worse still, in a thoroughly capitalist society, much of that violence became
internalized, turned back on the Self, because, in a society based on the priority of wealth, those who own
nothing are taught to loathe themselves, as if something is inherently wrong with themselves, instead of the
social order that promotes this self-loathing.. This vicious, circular, and invisible violence, unacknowledged
by the corporate media, uncriticized in substandard educational systems, and un-understood by the very folks
who suffer in its grips, feeds on the spectacular and more common forms of violence that the system makes
damn sure -that we can recognize and must react to it. This fatal and systematic violence may be called The
War on the Poor.
And, terrorism guarantees extinction. This must outweigh any other policy considerations
Chesney 1997 (Robert, Law Clerk to the Hon. Lewis A. Kaplan, JD from Harvard Law, 1997)
[Loyola of Los Angeles International & Comparative Law Review, November, p. 31-32]
The horrible truth is that the threat of nuclear terrorism is real, in light of the potential existence of a black
market in fissile material. Nuclear terrorists might issue demands, but then again, they might not. Their target
could be anything: a U.S. military base in a foreign land, a crowded U.S. city, or an empty stretch of desert
highway. In one fell swoop, nuclear terrorists could decapitate the U.S. government or destroy its
financial system. The human suffering resulting from a detonation would be beyond calculation, and in
the aftermath, the remains of the nation would demand both revenge and protection. Constitutional liberties
and values might never recover. When terrorists strike against societies already separated by fundamental
social fault lines, such as in Northern Ireland or Israel, conventional weapons can exploit those fault lines to
achieve significant gains. 1 In societies that lack such pre-existing fundamental divisions, however,
conventional weapon attacks do not pose a top priority threat to national security, even though the pain and
suffering inflicted can be substantial. The bedrock institutions of the United States will survive despite the
destruction of federal offices; the vast majority of people will continue to support the Constitution despite the
mass murder of innocent persons. The consequences of terrorists employing weapons of mass
destruction, however, would be several orders of magnitude worse than a conventional weapons attack.
Although this threat includes chemical and biological weapons, a nuclear weapon’s devastating potential is
in a class by itself. Nuclear terrorism thus poses a unique danger to the United States: through its sheer
power to slay, destroy, and terrorize, a nuclear weapon would give terrorists the otherwise-unavailable
ability to bring the United States to its knees. Therefore, preventing terrorists from obtaining nuclear
weapons should be considered an unparalleled national security priority dominating other policy
considerations. A would-be nuclear terrorist’s only real obstacle is the difficulty inherent in acquiring an
adequate amount of weapon-usable nuclear material. In years past, terrorists had little prospect of acquiring
this material. Those few nations that possessed nuclear weapons material kept their caches under the highest
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security conditions. The disintegration of the Soviet Union, however, has changed this situation. Presently,
large amounts of unsecured and unaccounted-for weapons-usable material are scattered throughout the
former Soviet Union.
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Travin 8 (Dmitri, writer for International News Commentary, June 29, http://www.australia.to/international/0,25197,23040467-310,00,00.html)
The corruption factor. All this is characteristic of any country which receives large revenue from the use of
natural resources. Profits accrue to those who in one form or another serve the high-revenue business, and to
those who receive their slice through the state. But in Russia the beneficiaries of this money also includes a
special category: those connected with widespread corruption. Or, to be precise, this special category exists
not only in Russia,but in many resource-rich countries of the third world - Venezuela, Nigeria,Saudi Arabia,
Turkmenistan etc. Following the trial and incarceration ofMikhail Khodorkovsky in 2003, Russian business (especially the oil sector) began to
realise that it was going to have to share its revenues with state employees who could otherwise create serious problems for it. These include not
just officials on whom the development of business depends directly, as was true in the 1990's. Today there are also a lot of state
employees who, although they do not themselves make decisions that benefit companies, can easily destroy
those companies.These include fiscal officials, customs officers, officers of the specialservices, investigators, traffic police, drug
agency employees, people who protect the environment, prevent fires, fight outbreaks of epidemics etc. The very list of the people who
can come and make threats, demanding their share ofthe ‘petrodollar pie', is astonishingly long. Each of these
people has a family. They too take this money and join the consumer race, and by so doing they redistribute petrodollarsto regions and industries
all over the place, some of which are a long way awayfrom Western Siberia. Observers note that today the richest houses in the
elite zones of the Moscow Oblast are not being built by businessmen, but by civil servants, especially those from the
law-enforcement organisations. Nor should the role of the so-called oligarchs be underestimated when calculating
where the petrodollars go. In recent years their capital has increased drastically, as you can see from the list
of billionaires regularly compiled by Forbes magazine. But the distribution of oil money goes far further than the people on this
list.
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Global democratic consolidation prevents many scenarios for war and extinction.
Larry Diamond, senior fellow at the Hoover Institution, December 1995, Promoting Democracy in the 1990s,
http://wwics.si.edu/subsites/ccpdc/pubs/di/1.htm
OTHER THREATS 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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Un-democratic Institutions Increases the Threat of Nuclear, Chemical, and Biological War
Larry Diamond, Hoover Institution, Stanford University, December, PROMOTING DEMOCRACY
IN THE
1990S, 1995, p. http://www.carnegie.org//sub/pubs/deadly/diam_rpt.html //. (DRGAF/D5)
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.
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Marine Species Key to Survival- They perform critical life cycle functions
Current Science 2006 (5(10), 9-10, p.574, http://www.ias.ac.in/currsci/sep102006/573.pdf)
Aquatic ecosystems sustain life on earth, regardless of mankind’s understanding of the biology, chemistry
and geology involved. Wetlands inhabit a transitional zone between terrestrial and aquatic habitats, and
are influenced to varying degrees by both. They differ widely in character due to regional and local
differences in climate, soil, topography, hydrology, water chemistry, vegetation and other factors. Wetlands
provide habitats and support a diverse range of biodiversity (e.g. in 1 m2 of coral reef there can be up to
3000 species). Wetlands undertake important biological and ecological processes, including life support
systems, i.e. water and carbon cycles. Hence, they are important for hydrological functions, and
economic, social, spiritual and cultural development.
EPA 7 (HTTP://WWW.EPA.GOV/CLIMATECHANGE/EFFECTS/ECO_CORAL.HTML)
Coral reefs provide our oceans with the highest biodiversity of any marine ecosystem. Corals are formed from the
skeletons of plants and animals that secrete limestone (calcium carbonate), and harbor more than 25 percent of all
known ocean fish. Just as fish find refuge in the reefs, many marine organisms live inside the corals, adding up to
nearly a million species of fish or other marine life that make up a coral reef ecosystem. Coral reefs are also a
significant food source for many coastal communities, and serve important functions as atoll island foundations,
coastal protection structures, and sources of beach sand. They have economic value for recreation and tourism and
support emerging opportunities in biotechnology. Climate change is one cause of coral reef degradation. Many coral
reefs are surviving at or close to their temperature tolerance levels, so rising sea surface temperatures are creating
more hostile conditions for the corals. As temperatures rise, corals expel the colorful organisms that live inside them
and appear “bleached.” Although these organisms re-colonize the corals once temperatures return to a more tolerable
range, repeated or prolonged bleachings have proven to be fatal for some reefs, primarily due to the loss of nutrients
that the organisms provide for the coral. Atmospheric carbon dioxide (CO2) reacts with seawater to form carbonic
acid, leading to increased acidity in the oceans. This higher acidity—or more accurately, reduced alkalinity, because
the oceans are unlikely to ever become truly acidic—hampers the ability of corals to build their calcium carbonate
skeletons, slowing or in some cases even halting their growth. More acidic waters may also weaken existing coral
structures, leading to erosion of reefs (IPCC, 2007a, Kleypas et al., 2006). Since the beginning of the Industrial
Revolution, the ocean's surface has become more acidic—by about 0.1 pH unit—and since 1980 about one-third of
all human emissions of CO2 have been stored in the oceans. The current rate of oceanic CO2 uptake far exceeds the
rate at which nature can restore the system to normal conditions. Researchers project that over the next few
centuries, ocean pH will decline faster and to a lower (more acidic) value than any experienced in the last several
hundred million years A doubling of atmospheric CO2 concentrations above pre-industrial levels is expected to
reduce calcium carbonate formation in some coral species by 20-60 percent, and many reefs could reach critical
states by 2070.
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Impact- Pipelines
Pipelines Contribute to Global Climate Change
Friends of the Earth International 2005 (“Baku-Ceyhan Oil Pipeline- Risky Oil for the Rich”, Friends of
the Earth International, http://www.foei.org/en/publications/link/mining/38case.html, No Date)
The danger of oil leakage from the pipeline is significant, through earthquake as well as possible sabotage
actions. In Turkey, the pipeline would traverse major fault lines, six watersheds, and two sites protected
under national legislation. In Azerbaijan, the pipeline would cross 21 major rivers, impact a sensitive desert
ecosystem and traverse unstable land with high seismic activity. In Georgia, there are six major river
crossings in areas with unstable land prone to landslides. Campaigners are also concerned about the
pipeline’s contribution to global climate change. The oil transported along the pipeline, once burned,
will contribute 185 million tons of carbon dioxide to the atmosphere every year. The pipeline will pass
through politically unstable regions, including the Armenian enclave in Azerbaijan and Kurdish areas in
Turkey. The presence of oil and money is very likely to increase conflict and human rights violations in these
areas. It is already clear that local people’s opinions are hardly being considered. In Turkey 30,000 people
live along the route of the pipeline. These people have not been properly consulted, despite the World Bank’s
special guidelines for this purpose. Many of these inhabitants are economically dependent on their land, and
compensation for its use by the consortium has been non-existent or too low. In some cases, construction
started before the compensation was granted. Clearly, spending public and private money on projects like the
Baku-Tblisi-Ceyhan oil pipeline will hardly benefit local people, and will only increase ‘the paradox of
plenty’.
Impact- Pipelines
Pipelines Provide Great Risk to the Environment
Rainforest Action Network 2008 (“Ecuador: New Oil Pipeline Threatens Fragile Ecosystems and
Communities From Amazon Rainforest to Pacific Coast”, Rainforestweb.org,
http://www.rainforestweb.org/pages/ocp.php, June 28, 2008)
The pipeline would transport heavy crude from the country's eastern rainforest region to the Pacific Coast,
placing fragile ecosystems and dozens of communities along the 300-mile route in jeopardy.
The pipeline route chosen by the OCP consortium affects 11 protected areas, and cuts through the middle
of the Mindo Nambillo Cloudforest Reserve and the surrounding ecologically sensitive forests. This
area is home to more than 450 species of birds--46 of which are threatened by extinction --and has been
designated the first "Important Bird Area"of South America by Birdlife International. The pipeline also
represents a threat to the area's burgeoning ecotourism industry, which is expected to bring in $600 million
over the next 20 years. In order to fill the new pipeline, Ecuador would have to double its current oil
production, setting off an unprecedented boom in new oil exploration that could lead to the irreversible
loss and destruction of some the country's last remaining old growth rainforest and territories of
isolated indigenous peoples. Hundreds of new oil wells and flow lines would be built from existing oil
concessions along with facilities necessary to process and refine the heavy crude for transport across the
country.
Impact- Pipelines
Higher Oil Prices Lead to a an Increase in Oil Pipelines
Wikinvest 2008 (“Oil Prices”, Wikinvest: investing, simplified,
http://www.wikinvest.com/concept/Oil_Prices, June 25, 2008)
Smaller companies highly leveraged on oil include Parker Drilling Company (PKD)--the major players are
often diversified outside of oilfield services.
Oil and Gas Pipeline companies build supply pipelines and stand to gain from increased construction
when oil prices are high. They include Williams Companies (WMB) and Enbridge.
Industrial gases companies such as Praxair (PX) will benefit because hydrogen, which they sell, is necessary
for the extraction of heavy and non-conventional oil (i.e. tar sands, shale oil), and production of these types
of oil increases as prices rise.
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Russia’s economic growth looks set to slow over the next decade, Goldman Sachs chief economist Jim O’Neill said over the
weekend. “Oil prices will definitely not do what they’ve done the past 10 years, and that’s not going to be great
news for Russia,” Bloomberg quoted him as saying at the St Petersburg International Economic Forum on June 8. Russia’s economy is currently the tenth
biggest in the world and it grew by 8.1 percent last year, according to Reuters. However O’Neill predicts that Russian GDP will grow 3.3 percent annually between
2010 and 2015 before dropping off to 2.9 percent for the five years after 2015.
Some of the difficulties of access were in nations such as Venezuela, Russia and in the Middle East that
have adopted clear policies of resource nationalism where the state has grabbed assets from
independent oil companies. However, Hayward also noted that 92% of the US is off limits - for
environmental reasons - and he said the Arctic needed opening up. Production volumes had been falling in
Russia due to a tax system that means the vast bulk of the revenues has gone to the Kremlin since the
price of oil rose above $30 a barrel.
The Kremlin often touts Russia's image as an "energy superpower," but now the country's oil
production is declining. Some say Russia may have already reached peak oil output. Underscoring the urgency of the issue, Prime Minister
Vladimir Putin's new cabinet made its first order of business on Monday the approval of a package of measures to relieve the oil-production crisis. "It's a
good first step," says Natalia Milchakova, an oil and gas analyst for Otkritiye, a Moscow-based brokerage firm. But she adds that "rapidly
slowing" oil production, which was growing by more than 10 percent five years ago, isn't "something that
can be quickly fixed with political declarations." As the world's second-largest oil exporter, Russia joins a growing number of top
oil suppliers wrestling with how to address declining or peaking production. Like Venezuela and Mexico, Russia is heavily dependent on oil, which
accounts for more than two-thirds of government revenue and 30 percent of the country's gross domestic product. Now, Moscow
is trying to
remedy a situation caused in part by outdated technology, heavy taxation of oil profits, and lack of
investment in oil infrastructure. The Presidium of the Cabinet, as it is officially known, in its inaugural
meeting Monday approved tax holidays of up to 15 years for Russian companies that open new oil fields
and proposed raising the threshold at which taxation begins from the current $9 per barrel to $15. Oil
companies welcomed the measures, but experts say that after almost two decades of post-Soviet
neglect, which have seen little new exploration, it may be too little, too late. After rising steadily for
several years to a post-Soviet high of 9.9 million barrels per day (bpd) in October, Russian oil production
fell by 0.3 percent in the first four months of this year, while exports fell 3.3 percent – the first Putin-era drop.
Russia's proven oil reserves are a state secret, but the Oil & Gas Journal, a US-based industry publication, estimates it has about 60 billion barrels – the
world's eighth largest – which would last for 17 years at current production rates. Energy Minister Viktor Khristenko recently admitted the decline, but
"The
suggested it might be overcome by fresh discoveries in underexplored eastern Siberia or in new Arctic territories recently claimed by Russia.
output level we have today is a plateau, or stagnation," he said. But Leonid Fedun, vice president of Russia's largest private oil
company LUKoil, went one step further in an interview with the Financial Times last month. "Russian oil production has peaked and
may never return to current levels," he said. That poses problems for Russia, which has talked of expanding beyond its main oil market –
Europe – to China, Japan, and the US. In 2006, then-President Putin approved construction of an $11 billion pipeline across Siberia to the Pacific Ocean to
oil analysts
carry eastward exports. Putin and his successor, Dmitri Medvedev, have insisted Russia can meet demand by increasing output but
around the globe are pessimistic that oil supplies can meet rising consumption in the coming decade.
By choosing re-centralization and re-nationalization over liberal reforms in energy markets, and
opting for state control over direct foreign investment, Russia may stop itself from raising enough
capital to sustain the current level of energy production and transportation, much less to expand it.
“Energy superpower” is likely to become an even more distant dream than it is today.
US Investment low
Gelb 06 (Bernard A- Specialist in Industry Economics Resources, Science, and Industry Division, CRS Report for
Congress [http://fpc.state.gov/documents/organization/58988.pdf] Russian Oil and Gas Challenges/ January 3, 2006)
However, U.S. suppliers of oil and gas field equipment have established a modest beachhead in Russia.
U.S. exports of oil field machinery and equipment accounted for 9% of U.S. all goods exports to Russia
in the first 10 months of 2005, one of the largest export categories. As noted earlier, potential growth of
both oil and natural gas production in Russia is limited by the lack of full introduction of the most
modern western oil and gas exploration, development, and production technology. Similar to U.S. trade
with Russia, U.S. investments there, especially direct investments, have increased since the dissolution of
the Soviet Union, but the levels are far below their expected potential. Even so, as of the end of 2003, the
United States was Russia’s second largest source of foreign direct investment, largely concentrated in energy,
communications, engineering, and transportation.22
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In this context, however, Russian economic policies and regulations have been a source of concerns. The
United States and the U.S. business community have asserted that structural problems and inefficient
government regulations and policies have been a major cause of the low levels of trade and investment
with the United States. While they consider the climate to be improving, potential investors complain that
the climate for investment in Russia remains inhospitable. They point to lack of effective intellectual
property rights protection, burdensome tax laws, jurisdictional conflicts among Russian federal,
regional and local governments, inefficient and corrupt government bureaucracy, and the lack of a
market-friendly commercial code as impediments to trade and foreign investments. And, more
specifically, the forced breakup of Yukos has clouded prospects for private investment.
Moreover, Russia has begun to pressure the existing foreign operators of oil and gas fields into
renegotiating their agreements. Last September, the authorities were suddenly so concerned about
environmental and ecological “violations” that they threatened to halt the construction, led by Royal
Dutch Shell, of the world’s biggest liquefied natural gas plant on Sakhalin Island in the Far East. Known as
“Sakhalin-2,” the project is the largest direct foreign investment in Russia, estimated to cost Shell and its
Japanese partners $20 billion. Projected annual output is 70 million barrels. At the same time, pressure was
also brought to bear on ExxonMobil’s offshore Sakhalin production (“Sakhalin-1”) just as it was about
to start shipping. That project was expected to cost $17 billion and produce 88 million barrels of oil
annually. There is no Russian participation in Sakhalin-2, while Rosneft has only a 20 percent stake in
Sakhalin-1. Now that oil and gas are so much more expensive than when the original deals were struck, the
Kremlin wants a larger share of profits—or all of them. It is now widely assumed that the government will
pull the license of Russia’s second-largest oil company, half-owned by the British, unless the three
principal Russian owners agree to sell their shares to Gazprom. That firm, TNK-BP, is developing the
Kovykta, a giant gas field in eastern Siberia. The latest addition to the Kremlin’s hit list is Russia’s largest
remaining private company, Lukoil, one-fifth of which is owned by ConocoPhillips. The company, which
pumps 18 percent of Russia’s daily production, has been charged by the Ministry of Natural Resources with
unspecified “violations” in the development of oil fields and is threatened with the recall of almost two dozen
licenses. These moves are bound to make foreign direct investors think twice before going into Russia—
and if last July’s float of Rosneft’s shares on the London Stock Exchange is an indicator, harvesting stock
markets might not work either. Intoxicated as they were with high oil prices, investors’ response to the
largest initial public offering in Russian history (and the sixth-biggest in the world)[8] was less enthusias-
tic than Moscow had hoped for. The interest from international institutional investors, such as insurance
companies, was weaker than an offering this large would normally produce.[9] The three biggest
accounts belonged to the entities clearly seeking to refurbish their Kremlin loyalty credentials: BP (10
percent of the offering), the Malaysian state oil company Petronas (9 percent), and the China National
Petroleum Corporation (4 percent). The offering produced half the revenues expected.
Gonzaga Debate Institute 2007 243
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But the risks of going into such areas are enormous, and the required investment is huge. Many
reservoirs are in places that are icebound much of the year, like the planned Northern Territories Project
in the Russian northwest Arctic, which holds an estimated 4.27 billion barrels of oil, as well as the
Verkhnechonsk, Talakan and Yurubchen reservoirs in eastern Siberia. Oil companies going into new zones
would have to build practically all the facilities needed. Oil from northern Caspian Sea fields, for instance,
would need to be moved out by pipelines that are yet to be built. Then there are the perennial headaches
of pumping oil in Russia. The pipeline system is controlled by a government agency, Transneft, that
limits exports to 30 percent of production. The Russians ship much oil by rail, so transportation costs are
high. Any remaining oil is sold at home, at prices far below world levels -- a condition that would
severely limit a Western company's return on investment. Russia is also notorious for changing the
laws for Westerners in the middle of the game, or blocking projects, creating a level of uncertainty that
makes foreigners nervous.
Today, then, Russia is a key focus for investment by the international oil and gas industry. But even
without taking into account its political environment, it is a very challenging place to do business, not
least because of its vast size and harsh environment. Siberia regularly records the lowest temperatures
of any place on the planet, Antarctica not excluded. Even in summer it is scarcely a welcoming
environment. Supposing that hydrocarbons can be located, developed and produced in such a hostile
environment, they need to be transported thousands of kilometers to consumers. Offshore exploration
and production is still in relatively early stages, and operations in the Barents Sea or offshore Sakhalin
are regularly hampered by storms and seriously restricted for up to half the year because of thick ice
cover. While infrastructure may be well-developed in the mature producing regions of western Siberia and
the Volga- Urals basin, in the promising areas of Sakhalin, the Barents Sea and eastern Siberia, only the
largest prospects are economic because of the huge cost of developing infrastructure from scratch.
Russia's lower house of parliament on Wednesday backed restrictions limiting foreign investment in
key sectors such as oil and gas, aerospace and mass media. The legislation, which also would increase the
powers of Russian security services in business transactions, has raised concern among foreign investors.
The State Duma passed the bill in its final reading 384-55. It now goes to the upper house, the Federation
Council, where passage is likely, and to the president for his signature. The legislation stipulates that
private foreign companies would need authorization to buy more than 50 percent of a Russian
company in one of 42 "strategic" sectors. A commission made up of Russian economic and security officials
would review such deals.
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Russia's new president, Dmitry Medvedev, has inherited many economic problems, such as Russia's
dependence on raw materials, monopolies, red tape and corruption, which are spurring prices and hindering
economic development. On the other hand, he has a powerful instrument of tackling these problems, oil
prices, which have soared to $120 per barrel. But Medvedev will also have to deal with other, no less
formidable economic challenges. Russia seems to have been developing quite well despite this chronic
problem. However, the growth of prices accelerated last year and reached nearly 12% compared with
9% in 2006 and the planned 8.5% in 2007. The Russian government and Central Bank hope to stop
inflation at 10% in 2008, although it has already reached 6.3% in the first four months. Experts
predict yearend inflation at between 12% and 18%, which will discourage investment.
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Moscow - Like a teenager at the wheel of his diamond encrusted Mercedes, Moscow feels invulnerable, set
to swerve past the US housing slump and slam through the global credit crunch. And today's precious
fuel prices have armed Russia's economic heavy foot. 'Nothing bad, nothing awful will happen,'
Vladimir Bragin, an analyst at Trust Bank, said blithely. 'If Russian oil prices remain relatively high, there'll
be no problem.' Russia's economy in blush is underpinned by plentiful commodities, strong growth
spurred by a consumption and investment boom and a banking system that is largely insulated from
the paucity of money that has threatened lenders in other markets. 'This is an unusual global
slowdown in the sense that it hasn't hit Russia's main export commodities,' agreed Rory MacFarquhar, a
managing director at Goldman Sachs, which 'very bullish' on commodities predicted last week that oil prices
could spike as high as 175 dollars per barrel in the long-term. But neither is Russia's economy susceptible
to collapsing as in 1998 from a sudden drop in oil prices, economists in the capital said. 'For Russia this
is all gravy. This money is all going straight into government accounts,' said MacFarquhar. Now
approaching the 10th anniversary of the financial crisis, the singe of cautiousness marking Russia's financial
authorities after watching their nation's savings vaporize in 1998 has left Russia best positioned to weather
through. The government has culled huge current account and budget surpluses from taxes on oil into
the so-called state Stabilization Fund, representing 170 billion dollars taken out of the investment cycle to
mitigate the relationship of world oil prices on Russia's growth. 'With most of this oil windfall is taxed
away and stashed away now, the effect of oil prices is not as strong as seven years ago,' said Yaroslav
Lissovolik, Deutsche Bank's chief economist in Russia. Addressing the World Economic Forum in Davos,
Finance Minister Alexei Kudrin ebulliently proclaimed Russia 'an island of stability,' perhaps teasing other
economic leaders caught out in the storm.
This economic revival has made Russia an economic and political power and a country that can no longer
be ignored, says de Souza. Russia's economic performance after the implementation of structural
reforms remains impressive, argues de Souza, with a functioning market economy having been
established. This means the macroeconomic framework has become more robust than it was in the
1990s, he observes. Despite structural reform slowing down in certain sectors, it has not stopped altogether, the author adds. De Souza believes the resumption of
economic growth in Russia is down to the effects of economic and structural reform, as well as recent high energy prices. For him, the changing nature of the
Russian economy can mostly be seen in the way the country has withstood the financial instability
which has swept global financial markets. De Souza is suitably impressed by Russia's economic
performance since 1999 compared with similar economies from the Commonwealth of Independent States –
which gathers the former Soviet republics – both in terms of GDP and inflation.
Gonzaga Debate Institute 2007 249
Scholars Lab File Title
While Europe is now re-evaluating its growing dependency on Russian energy imports, the U.S.
continues to count on increased Russian supplies to fill the energy gap created by declining domestic
and Canadian production, and by political instability in Venezuela, Nigeria, and the Middle East. Energy
Secretary Samuel Bodman has stated that the U.S. will import 10 to 20 percent of its natural gas needs from
Russia in the next few years. Increasing our dependency on an authoritarian Russia that uses energy to
regain control over its neighbors cannot be good policy, particularly when the Putin government continues
to centralize control over energy resources in the Kremlin and when the business climate in Russia becomes
less, rather than more, transparent. EU countries and the United States previously ignored the petro-
politics of the Kremlin as long as they were confined to the former communist states of Eastern and
Central Europe, but now it is now clear that the policy is being used in an attempt to influence U.S.
and Western European security policies. Moscow’s cutoff of gas shipments to Ukraine and much of
Europe in January is merely the most recent instance of many in which oil and gas shipments have
been shut off or reduced to Russia’s energy customers for political and economic reasons. This action,
taken in the dead of winter by Russia’s government-owned and directed Gazprom, has served as a wake-up
call to Western Europe. The business climate for Western energy investors is becoming less, rather than
more transparent. The Baltic Sea gas pipeline deal, put together with the help of former German Chancellor
Gerhard Schröder, illustrated the opaque connection of former intelligence officers from Russia and Germany
putting together deals that will weaken the energy security of the region. The only thing that remains
transparent is the Kremlin’s intention to use energy for geopolitical gain and to reverse
democratization trends in the former Soviet republics. Russia’s energy companies have become clear
instruments of foreign policy. Dmitry Medvedev, Gazprom’s chairman, is the country’s first deputy prime
minister; Also, Igor Sechin, chief of the Kremlin administration, is CEO of Rosneft, Russia’s fastest growing
energy company. While Lukoil and other Russian companies are free to buy control of U.S. energy assets,
such as Getty Petroleum, American companies are limited to the role of minor shareholders in Russian
energy companies. Why should we allow ourselves to become more dependent on Russia when the Putin
government is undercutting U.S. security interests in Uzbekistan and other Central Asia states, in the
Middle East, including Palestine, and is undermining the new democratic states of Ukraine, Georgia,
and Moldova? A serious move toward reducing domestic energy demand and increased use of
alternative energy sources is smarter policy than becoming more dependent on a Kremlin that uses
foreign energy dependency to project its geostrategic interests.
Gonzaga Debate Institute 2007 253
Scholars Lab File Title
I/L Turn – Oil Bad – Russian Dutch Disease – Impact – Moral Hazard
Oil Dependence is a moral hazard – Prevents Broad Economic Reforms Key to Growth
Matthews, 05/07/08 (Owen, Newsweek, “Economy of Clay: Moscow is flush with oil money. But the new President
Dmitry Medvedev needs to do more than just redistribute it to bring his nation back to fiscal health,”
http://www.newsweek.com/id/135877)
But in truth, the Russian economy as a whole is an edifice with feet of clay. The bling and glitter of the
capital obscures a harsh reality: the architecture of Russia's economy is no more solid than that of an
inflatable children's castle at fairground, with energy and commodity prices the wind that keeps it inflated.
Yes, the Russian economy has been growing fast. But little of that growth has spilled over into the real
Russian economy. Rather, the boom has, in many ways, held back Russia's non-commodities economy
from growing: rampant inflation, spiraling real-estate prices and higher labor costs, bureaucratic
corruption, expensive credit and bad governance have combined to stifle the competitiveness of many
Russian businesses. "Russia's macroeconomic performance has been stellar," says economic analyst Anders
Aslund. "But Russia's oil surplus is so huge that it hides flaws in economic policy; the longer oil prices
remain high, the worse economic policy will become. Booms breed complacency and corruption."
Gonzaga Debate Institute 2007 255
Scholars Lab File Title
Across the third world, Russia is busy providing weapons, building ports and bases and creating an
anti-Western alliance based around its own oil and gas resources, that unites oil producing Latin American
nations with leftist governments such as Venezuela with Arab OPEC nations to form a common front against
America and Europe. On its own borders Russia is doing its best to push back NATO expansion while
preparing for its own great project to reclaim the lost territories of the USSR, not in the name of
Communism, but in the name of greed, power and Russian nationalism. The old rivalries with England
and the US have been resumed and the KGB is active everywhere that Russian trade goes. The KGB's
New Guard have learned from Communism's failures and they don't intend to repeat the same
mistakes. They respect the achievements of the USSR but their goal is to build a great Russian Empire
ruled by themselves. They are the crime syndicate which now rules Russia and is expanding across the
world. Fueled by the energy boom, they have a great deal of wealth and while the system they run is
corrupt and incompetent, it is not nearly as corrupt or incompetent as the old Communist system was.
The roots of Russia´s currently rising nationalism are threefold: pre-Soviet, Soviet and post-Soviet.
The idea of Moscow as the "Third Rome," i.e. of a special Russian mission in world history, goes back
several centuries. Russian nationalism had been – contrary to what many in the West believed – an
important element of Soviet ideology ever since the 1930s. Like in the early 19th century when Moscow´s
so-called Slavophiles applied German nativist thought to Russian conditions, ideas of various Russian
nationalist movements today are often imported from the West. A factor also accounting for Russia´s
recent nationalist resurgence is the mode of thinking learned in Soviet schools and universities – a
Manichean world-view which sharply distinguishes between "us" and "them." Although the basic
definitions of "us" and "them" have changed, a number of Soviet stereotypes, for instance, about the
US have survived glasnost until today.
Gonzaga Debate Institute 2007 261
Scholars Lab File Title
Nationalism Up (2/2)
Radical nationalism in Russia on the rise
Umland 08 (Andreas, The American Chronicle [http://www.americanchronicle.com/articles/66359] Russian
Nationalism, Post-Soviet Political Discourse, and the New Fascist Danger/ June 26, 2008)
Moreover, the radical, often neo-fascist wing of Russian nationalism, naturally, has been rising together
with the movement as a whole. To be sure, both the Kremlin and mainstream public discourse
demonstratively condemn manifest expressions of racism. Yet, the extremists - whether active in the neo-
Nazi skinhead movement or publishing in high-brow conspirological journals - are part and parcel of
the xenophobic hysteria that much of Russian society has recently gotten into. For instance, the
Russian book market is experiencing a glut of vituperative political lampoons whose main features
include pathological anti-Americanism, absurd conspiracy theories, apocalyptic visions of the future,
and bizarre fantasies of national rebirth. Among the more or less widely read authors of such concoctions
are Sergei Kurginyan, Igor Shafarevich, Oleg Platonov, Maxim Kalashnikov (a.k.a. Vladimir Kucherenko),
and Sergei Kara-Murza. A main difference between Russian and Western forms of nationalism is that, in the
contemporary West, the intellectual and political mainstream of a given country usually more or less clearly
distances itself from that country´s – sometimes, also rather strong – nationalist movement. While the
Russian mainstream is quick to condemn racist violence, its relationship to the world view standing
behind such violence is, in contrast, more ambivalent. Thus, authors who, in the West, would be
regarded as being far beyond the pale of permissible discourse, such as the ultra-nationalist publicist
Aleksandr Prokhanov, are esteemed participants in political and intellectual debates at prime-time TV
shows. The bizarre, pseudo-scientific ideas of the late neo-racist theoretician Lev Gumilev are required
reading in Russia´s middle and higher schools. Gumilev teaches that world history is defined by the
rise and fall of ethnic groups that are natural units driven, moreover, by biological impulses and under
the influence of cosmic emissions.
Gonzaga Debate Institute 2007 262
Scholars Lab File Title
Russian President Dmitry Medvedev has called for an end to what he termed "economic nationalism,"
in which political considerations trump pragmatic actions. "I don't think that such a strategy is the best
solution to all problems in the current crisis," Medvedev told the economic forum in St. Petersburg on
Saturday. "Many experts believe the consequences of a clash of the old tendencies in the globalization
and the desire of certain countries to protect their economic sovereignty and reap the highest possible
profits for their citizens 'without sharing with the neighbors', so to speak, are becoming increasingly
apparent in the world," he said. "Essentially, we are talking about an increase in economic selfishness.
On the one hand, it is a natural characteristic of any economic activity. Like Leningrad film producer
Georgy Tovstonogov once joked, the higher the fence the better the neighbors," said Medvedev. "In general,
economic selfishness in this sense poses no serious risk to development. But on the other hand, there is
sometimes much tougher ideology behind it: namely, something that can be described as 'economic
nationalism', in which pragmatic interests are replaced with political reasons," said Medvedev.
Mr. Medvedev denounced “economic egoism” and “economic nationalism” which “substitutes
pragmatic interests for political considerations”. “The assumption that one country, no matter how
powerful, can play the role of a global government has proved to be an illusion,” said Mr. Medvedev at
the 12th St. Petersburg International Economic Forum, attended by business leaders of 400 Russian and
foreign companies, as well as Ministers and politicians from all over the world.
Gonzaga Debate Institute 2007 263
Scholars Lab File Title
The most important fact in Russia's re-emergence on the world stage is energy, and its most important
instrument in parlaying that into actual power--and projecting it abroad--is control of the flow of that
oil and natural gas from the former Soviet Union to places abroad. This pipeline--the Baku-Ceyhan
pipeline, with its million barrels of daily exports--is the first significant break in Russia's previous
monopoly control over all oil and natural gas from the Caspian Sea states. When the line starting
shipping that oil in 2006, it entirely changed the geopolitics of this important region--Central Asia and
the Caucasus. Now Russia no longer calls the shots with impunity. Azerbaijan and Georgia, for example,
rely on this pipeline--and a companion natural gas line--for the political independence they often act out. Of
course, that's somewhat dated news now. It's Russia who so far has learned the lessons of that enormous
U.S.-backed diplomatic triumph; it's got a handful of carefully selected oil-natural gas pipelines on the
drawing board that, if built unanswered by rival, western-built lines, will grab back much influence in
Kazakhstan and Turkmenistan, and project more of its petro-power into Europe down the road. I call
it the Pipeline War.
While Washington continues to fixate on Iraq, a resurgent Russia is steadily expanding its influence in
Eurasia. If the next U.S. president ignores Moscow’s inroads, democratic development in Asia will come
under threat, and the United States may soon be faced with a strategic challenge in one of the world’s
most resource-rich regions. The Kremlin’s main target of late is Mongolia, one of Asia’s most vibrant
democracies. Since first holding elections in 1990, Mongolia has developed a stable electoral system with
more than 15 political parties and seen two peaceful handovers of power. Mongolians will vote on June 29 to
elect a new parliament. Polls suggest the ruling ex-Communist Mongolian People’s Revolutionary Party,
which regained power in 2000, could lose power to the opposition Democratic Party. Regardless of the
election outcome, Mongolia’s relationship with Moscow will take center stage. State-owned oil company
Rosneft supplies more than 90 percent of Mongolia’s oil. Over the past three months, it has increased prices
twice — by an average of 20 percent each time. This comes on top of surging prices that, since 2006, have
pushed inflation in Mongolia to over 15 percent annually. Rosneft recently told Mongolian officials that it
would lower oil prices if given the rights to run oil production in the country. Moscow also wants to build
100 gas stations throughout the country, which would solidify its overwhelming presence there and reduce
consumers’ energy choices even further. Similar tactics are afoot in other sectors of Mongolia’s economy.
Russian enterprises already own 49 percent of Mongolia’s national railway and its largest copper and
gold mining companies. An industrial group founded by Prime Minister Vladimir Putin wants to
consolidate the Russian-controlled shares of all three companies, effectively giving Putin’s cronies a
near-stranglehold on key players in the Mongolian economy. Officially, Mongolian officials express
confidence in the benefits of deeper economic relations with the Kremlin. Privately, they admit to feeling
pressured into opening up their markets to Moscow and wish more Western companies would invest.
Despite these misgivings, Mongolian President Nambaryn Enkhbayar visited Moscow last month and agreed
to discuss further joint uranium production and nuclear cooperation. President Dmitry Medvedev stated
that bilateral trade will soon exceed $1 billion, cementing Russia’s position as Mongolia’s largest
trading partner after China. If these trends continue, Mongolia may become an economic satellite of
Putin’s newly expansive Russia.
Gonzaga Debate Institute 2007 268
Scholars Lab File Title
Countries tend to open their upstream oil sectors to foreign investment because of lack of capital,
experience, technology and profitability. The Saudi oil sector, on the other hand, does not lack any of
these attributes. Foreign investment in the oil sector will not benefit the Saudis, because it will not add
much to GDP, improve technology or reduce unemployment. In addition, foreign investment in the oil
sector could force Saudi Arabia to violate its OPEC quota--a situation that happened in Venezuela.
Foreign investments don’t boost the Saudi oil market or increase its GDP
Alhajji 00 (A.F., The Business Network
[http://findarticles.com/p/articles/mi_m3159/is_6_221/ai_63127271/pg_1?tag=artBody;col1] Investment in Saudi
Arabia needs patience and more patience - Brief Article/ June 2000)
Countries tend to open their upstream oil sectors to foreign investment because of lack of capital,
experience, technology and profitability. The Saudi oil sector, on the other hand, does not lack any of
these attributes. Foreign investment in the oil sector will not benefit the Saudis, because it will not add
much to GDP, improve technology or reduce unemployment. In addition, foreign investment in the oil
sector could force Saudi Arabia to violate its OPEC quota--a situation that happened in Venezuela.
Gonzaga Debate Institute 2007 270
Scholars Lab File Title
Naimi, the Saudi oil minister, rejected that argument and said at the conference Sunday he was
convinced that oil markets were well supplied and that production levels were not the primary reason
for the dramatic price increases. Global demand over the past year rose by about 1 million barrels a
day, he said, while global supplies rose by around 1.5 million barrels. Analysts said Saudi Arabia was
trying to bring prices down because despite the cash windfall, the kingdom, which sits atop the world's
largest oil reserves, wants to maintain demand over the long run. "The price volatility hurts everyone
because it discourages long-term investment in oil exploration and encourages development of viable
alternatives and conservation measures," Aluwaisheg said.
Gonzaga Debate Institute 2007 271
Scholars Lab File Title
Aff- Saudi Econ (1/2)
Saudi currency dollar peg causes overheating and massive inflation
Gulf News June 28, 2008
http://www.gulfnews.com/business/Economy/10224260.html
What's true for China and other Asian economies is even more so for Saudi Arabia and its oil-exporting
neighbours in the Gulf region, where currency pegs to the dollar cause double-trouble, says Harvard economics
professor Martin Feldstein. First, because of dollar-pegging, Saudi Arabia was forced to more or less match US
interest rate cuts recently when what it needed was the reverse to combat overheating in the economy. Second,
given that oil is paid for in dollars, weakness in the dollar exchange rate means the likes of Saudi Arabia end
up "importing" inflation when they are forced to pay more for goods bought in foreign markets other than
the United States. "Emerging market countries around the world have been able to pursue successful anti-inflationary policies after
abandoning their dollar pegs," Feldstein said in an article published last week.
Its always been assumed, by the United Nations as well as European and U.S. policy makers, that Saudi
Arabia would be able to pump more of its oil to fulfill increasing world demand. The Saudis are
pumping, at most, 9 million barrels a day now and have boasted that they could pump as much as 15 million
barrels a day for the next 50 years. Indeed, Saudi leaders promised that they would start pumping more a
few weeks ago. But since world oil production hasnt increased any since those promises were made,
economists and energy users have wondered whether Saudi Arabia has elected, for political reasons, not
to fulfill its vow. Simmons says it's worse than that: Much like the biggest problem in the Enron fiasco
was that analysts always trusted Enron managers declarations about the strength of its financial assets,
he says that the world has always taken Saudi Arabia at its word for its oil assets. He now believes that
it cannot be trusted. He notes that the six major oil fields in Saudi Arabia, all discovered between 1940
and 1967, produce about 95% of Saudi oil. The Saudis produce 10% of the worlds oil from them at the
worlds lowest prices, and the Saudis are the only serious provider of spare capacity on the planet. A single
field, Ghawar, which is the worlds largest, was discovered in 1948 and produces up to 60% of the
kingdoms total. He believes that production at these mature fields has peaked. While that doesn't mean
they'll run out tomorrow, they're becoming much harder and more expensive to exploit efficiently. Its
much like a person getting older and suffering from arterial sclerosis: They slow down and become
increasingly less capable. The Saudis are now using intense water-injection techniques to improve
production, he says, a technique that can ultimately lead to catastrophic pressure failure. Aramco
disputes his claim, but Simmons notes correctly that its principal answer comes down to an Enron-like,
Trust me. There's no solid independent data source of Saudi oil production. A lack of verified data
leaves the world in the dark, he told the Hudson Institute.
Pundits of every stripe have been heavily debating in the past few months whether there are signs that
oil output from Saudi Arabia, the world’s largest producer, has slowed and may indicate it has reached
peak output level that can only decline from here. As we’ve discussed a few times in Supply Chain Digest,
“peak oil” theorists predict even greater rises in fuel costs than we seen in the last 12 months are inevitable,
which would dramatically change the way we need to think about our supply chains (Supply Chain
Management and the End of Oil, Supply Chain Impact of $100 Oil). Houston energy analyst Matthew
Simmons, for example, is one of perhaps dozens of pundits who argues that Saudi Arabia has
overestimated the vastness of its oil reserves, and the difficulties of getting the hard-to-extract oil that
remains underground. In other words, it has or soon will reach its peak output. Simmons is perhaps the
most vocal of the oil pessimists, and has even said there may be a rapid drop in Saudi production within
3-5 years, sending oil markets into chaos. The impact of any decline from the Saudi’s is not only due to its
global market share, but because until now at least it frequently had some excess production capacity it
would unleash when global supply conditions tightened. The Saudi peak oil speculation got some added
juice this week when a Saudi official said the country’s oil had recently declined because global
demand was ebbing. That caused even well-known financial commentator and radio show host Jim Cramer
to say that this was just “an attempt to hide that the Saudis are running out of oil.” Energy Bulletin
blogger Mark Derewicz also recently had this to say: “Saudi Arabia, which is notoriously secretive about
the decline rates of its fields, says it can increase the overall flow of oil to meet increased demand. The
Saudis, though, haven’t released field-by-field justification of this statement for decades and, in fact,
they are mostly just reworking old oil fields to squeeze out more oil, not bringing large new fields on
line. This will bring on peak oil faster, and the decline rates will likely be even steeper than projected, which
are typically between 4 and 7 percent annually.”
Gonzaga Debate Institute 2007 277
Scholars Lab File Title
US Saudi relations have always been rocky, but practical factors keep the countries
together
Washington Post 06
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/19/AR2006051901758.html
The 9/11 hijackers undermined otherwise strong U.S.- Saudi ties. Actually, things were never that smooth. Historians refer to the
"special relationship" established when Saudi Arabia's King Abdel Aziz and President Franklin D. Roosevelt
met in 1945. But since then the relationship has endured oil embargoes, U.S. restrictions on arms sales to
Saudi Arabia, and tensions around Israel and Palestine. Dissension permeates the entire history of U.S.-Saudi
relations. Since the end of the Cold War, relations have become particularly fraught, with the 9/11 attacks being the most recent issue. Oil,
defense and some regional interests keep the countries together, but both sides have made clear that the
relationship is less special today. In 2005, Rice stated that "for 60 years . . . the United States pursued stability at the expense of
democracy in this region here in the Middle East -- and we achieved neither."
Gonzaga Debate Institute 2007 282
Scholars Lab File Title
War on terror is failing – Muslims increasingly identify with terrorists, not the US.
Alt cause – water is the main concern for Middle East conflict.
Alt cause – Western intervention, arms dealers, military spending, and poverty.