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Venezuela Oil DA
1NC Canada
Canadian oil strong now - Egypt
Jeffrey Jones 7/3/13 [a veteran journalist specializing in energy, finance and environment for The Globe
and Mail’s Report on Business, based in Calgary, The Globe and Mail, “Oil at new high raises Canadian oil
sands prospects”, http://www.theglobeandmail.com/report-on-business/industry-news/energy-andresources/oil-at-new-high-raises-canadian-oil-sands-prospects/article12970632/]
Oil prices surged to a 14-month high on Wednesday, triggered partly by unrest in Egypt, a factor that may
pull some investor interest back into a Canadian energy sector that has been pressured for months by
uncertainty over obstacles to increasing oil sands crude exports. ¶ Canadian oil companies such as Suncor
Energy Inc. and Imperial Oil Ltd., which produce and refine the fuel, may surprise investors with strong
second-quarter results in the coming weeks as world crude prices climb and Canadian prices follow suit.
Foreign investment to Venezuela threatens Canada production
Barrie McKenna 4/28/13 [correspondent and columnist in The Globe and Mail's Ottawa bureau. From
1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital, The Globe and Mail,
“The secret threat to Canada’s oil sands”, http://www.theglobeandmail.com/report-on-business/industrynews/energy-and-resources/the-secret-threat-to-canadas-oil-sands/article11597201/, RH]
Natural Resources Minister Joe Oliver likes to pick on Venezuela when he sells the virtues of Canadian oil
to Americans.¶ Buy from a loyal ally, not from “less friendly, less stable countries” with shoddy
environmental records, Mr. Oliver warned bluntly in a speech last week in Washington. ¶ Unfortunately,
Venezuelan oil has a lot more in common with Canadian oil sands crude than Mr. Oliver cares to admit. Oil
is a commodity, after all. And price typically trumps virtue and a smiling face.¶ The bottom line is that
Canada and Venezuela produce the same kind of heavy crude that’s now sought by re-engineered U.S.
petroleum refineries along the Gulf of Mexico. So does Mexico.¶ In recent years, Canada has been winning
the competitive battle to feed those refineries. Alberta oil has steadily displaced Mexican and Venezuelan
crude in the U.S. market.¶ But there is no certainty that shift will continue. Indeed, Venezuela and Mexico
are showing tentative signs of getting their energy act together.¶ Canada has benefited from the ineptitude of
its energy producing rivals in the hemisphere. The state-run oil industries in Venezuela and Mexico are
hobbled by inefficiencies, poor technology and under-investment in exploration. In spite of vast reserves,
the two countries are producing less oil now than they did five years ago. U.S. imports of Venezuelan
crude, for example, have dropped to less than a million barrels a day from 1.7 million barrels a day in 1997.
Oil imports from Mexico have shrunk nearly 30 cent since 2006.¶ New drilling technology and foreign
investment cash could change all that.¶ An often overlooked risk for Canada’s oil patch is the possibility
that both these underperforming competitors could start ramping up production and exports again. That
would exacerbate the already-significant price discount on Canadian crude in the U.S. market. It would also
ratchet up pressure on Canadian producers to access alternative markets in China and India via pipelines to
the West Coast.¶ Politics and economics have held back Venezuela and Mexico. But the landscape in both
countries is shifting.¶ Hugo Chavez was an unexpected gift to the oil sands. Now that he’s gone, Venezuela
has a much greater chance of shedding its image as an unstable and inefficient supplier of oil to the U.S.¶
Venezuela has proven oil reserves of 211 billion barrels, eclipsing Canada’s 175 billion barrels, according
to the U.S. Energy Information Administration. ¶ And in Mexico, newly installed President Enrique Pena
Nieto is vowing to reform the country’s troubled oil industry and attract private investment, particularly to
help develop deep offshore and shale reserves in the Gulf of Mexico. Mexico has nearly 11 billion barrels
of proven oil reserves, but roughly twice that including potential unconventional and deepwater sources. ¶
Mexico is unlikely to privatize Petroleos Mexicanos – the state-owned oil company known as Pemex. But
Finance Minister Luis Videgaray acknowledged recently that Mexico can’t do everything itself and there
might be opportunities for private investors in unconventional oil and gas projects where “Pemex clearly
doesn’t have either the capital or the expertise.”¶ Venezuela and Mexico have a long way to go to right their
energy industries, and some tough political decisions to make.¶ But if, and when, they do, Canada could be
the biggest loser. More Venezuelan and Mexican oil coming into the U.S. would likely lead to an even
larger discount on oil sands crude, which is already hampered by high extraction costs and limited pipeline
capacity.
Canada crude is the single most important commodity to the Canadian economy
Nasdaq 2012 [“CANADA ECONOMICS FEATURE: Canada's Heavy Oil Dependency - BMO's Douglas
Porter and Benjamin Reitzes”, http://www.nasdaq.com/article/canada-economics-feature-canadas-heavyoil-dependency-bmos-douglas-porter-and-benjamin-reitzes-cm137218, RH]
"Canada's energy industry is increasingly in the spotlight, between the high-profile debate over pipeline construction, decade-low
natural gas prices, the double-discount on crude exports, and rapidly rising oil sands production. While the latter has raised loose talk
of Canada becoming an energy superpower, the evidence is a bit more nuanced, and the economic and financial impact of the energy
sector is far from clear-cut. Indeed, Bank of Canada Governor Carney just last week suggested that "it is far too simplistic to talk
about the Canadian dollar as a commodity currency, let alone a currency that moves consistent with one commodity." While it may be
simplistic to consider the loonie a petro currency, there is little doubt that oil is now the single most important
commodity for the Canadian economy, and commodity wealth is what differentiates Canada from most
other industrialized countries.¶ "The net merchandise trade surplus on all forms of energy totaled $61.4 billion over the past
year, or roughly 3.5% of GDP over that period. While certainly significant, the energy trade surplus in fact averaged 3.4% of GDP
from 2000-¶ 2011, so recent trends are consistent with the past decade. The big break occurred around 2000, when the energy trade
surplus took a step up from a 20-year trend of just over 1% of GDP to around its current level, as both oil¶ and gas prices ramped up.
Taken as a whole, the energy sector's importance for the broader economy has increased markedly from the 1980s and 1990s, but
hasn't really changed much from the 2000s. For comparison, Russia's net energy trade surplus is about 17% of GDP, while the U.S.
energy deficit was just over 2% of GDP in the past year.¶ "Yet, there is little doubt that the Canadian dollar is heavily
influenced by the direction of oil prices. We have long contended that the currency tends to move by 3-5 cents (US) for
every US$10 move in oil prices. The wide divergence¶ between Brent, WTI, and Western Canadian Select (WCS) prices in the past
18 months has seen the relationship temporarily weaken, compounded by heavy capital inflows. Still, in the long term, we find that
WTI provides the best fit¶ with the currency, with a correlation coefficient of more than 0.90 on week-to-week moves in the loonie.¶
"No doubt, WTI is currently not an accurate gauge of oil's impact on Canada, with most of our consumers effectively paying Brent
prices, and many of our producers receiving the low-end WCS price. The Bank of Canada estimates that¶ this spread is costing the
Canadian economy 0.1% of GDP (roughly $2 billion) this year. The spread between Brent and WCS has exploded to about $43 barrel
on average so far in 2012, up from $33 last year and just under $15 in 2010. While rising export and falling import volumes have
expanded the oil trade surplus, a narrower price gap would clearly be extremely beneficial to Canada. Indeed, if¶ all exports were sold
at Brent prices, Canada would reap an additional $19 bln annually (roughly a 4% increase in total exports). However, the gap is
expected to be transitory, as new pipelines improve product flow in North America and¶ Mid-East tensions ease. In the event, the high
correlation between WTI and the loonie will likely re-emerge.¶ "The other dampening issue on Canada's energy sector is the deep dive
in natural gas prices. One key shift in the past decade has been the reversal of fortune between oil and gas. Net crude oil exports are
now running at $42.9¶ billion per year (or 2.5% of GDP), while natural gas sales have dropped to just $12.5 billion (0.7% of GDP, the
lowest since the early 1990s). Indeed, due to the incredibly mild winter and the upswing in U.S. production, Canadian¶ gas exports
dropped below $700 million in February, onethird of the 10-year trend and just 1.7% of all merchandise exports, the lowest since the
mid-1970s. Until 2006, oil and gas exports were running almost hand-in-hand, but¶ now they are on different planes altogether. Also
note that trade in coal, electricity and refined petroleum products have all been in small surplus¶ positions over the past year but,
combined, account for little more than 0.3% of GDP.¶ "Weak gas prices and the discount on Canadian crude have undercut our overall
commodity price basket and have trimmed the terms of trade. While well above the¶ 2009 lows, neither measure has progressed since
2005 2006."¶ Bottom Line: "There is much more to Canada's economy than commodities, and there's much more to commodities than
oil. However, crude oil has become the single most important commodity for Canada and, arguably, our
single¶ most important product. Crude oil exports alone are now larger than all exports of autos, trucks and
parts, whereas they were one-seventh of auto sector exports in the 1990s. Crude oil exports are also now
larger than agriculture and¶ forest product exports combined. It may seem simple that Canada's currency
and economic outlook will be heavily influenced by the fate of oil output and prices, but the simple
explanation is often also the best."
Canadian Economy key to US Economy
Economy Watch 10 [Canada Economy,
http://www.economywatch.com/world_economy/canada/?page=full]
Despite the differences, Canada’s economic progress is closely tied to that of the US. Following the signing
of the 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement
(NAFTA), trade and economic integration between both countries have increased significantly. The US is
Canada’s largest foreign investor with heavy investments in mining, smelting, petroleum, chemicals and
machinery. Often, Canadian economic policies have been adjusted in order to adapt to changes in the US
economy. Historically, even a minor change in the US interest rates has had economic repercussions in
Canada. Although NAFTA dramatically improved trade between the US and Canada, disputes still remain
pertaing to intellectual property rights, softwood lumber, beef, tomatoes and other agricultural products. ¶
The US is Canada’s largest and most important trade partner. In 2009, 75.02 percent of Canadian exports
were directed to the US, while 51.1 percent of imports came from the US.¶ Commodities dominate trade
between the US and Canada. In agriculture, both countries are its counterpart’s largest export market – the
US imports more than half of Canada’s food products while Canada imports nearly 20 percent of the US’s
food product.¶ The energy trade is another critical element in US-Canada trade. Canada is the US’s largest
oil supplier, accounting for 16 percent of US oil imports and 14 percent of US’s natural gas consumption.
Besides sharing hydropower facilities on the western borders, national electricity grids in Canada and the
US are also linked with each other.¶ The UK and China are Canada’s next largest export partners after the
US. Respectively, these countries account for 3.37 and 3.09 percent of Canada’s exports. China is also the
second largest source for imports to Canada, accounting for 10.88 percent of imports. In 2010, Canada was
the 10th largest exporter and 12th largest importer in the world.
Economic decline leads to war—diversionary tactics prove
Jedidiah Royal ’10. (Director of Cooperative Threat Reduction at the U.S. Department of Defense.
Economics of War and Peace: Economic, Legal and Political Perspectives p. 213-216. Emma.)
Less intuitive is how periods of economic decline may increase the likelihood of
external conflict. Political science literature has contributed a moderate degree of
attention to the impact of economic decline and the security and defense behavior of
interdependent states. Research in this vein has been considered at systemic, dyadic
and national levels. Several notable contributions follow. First, on the systemic level,
Pollins (2008) advances Modelski and Thompson’s (1996) work on leadership cycle
theory, finding that rhythms in the global economy are associated with the rise and
fall of a pre-eminent power and the often bloody transition from one pre-eminent
leader to the next. As such, exogenous shocks such as economic crises could usher in a
redistribution of relative power (see also Gilpin, 1981) that leads to uncertainty about
power balances, increasing the risk of miscalculation (Fearon 1995). Alternatively,
even a relatively certain redistribution of power could lead to a permissive
environment for conflicts as a rising power may seek to challenge a declining power
(Werner, 1999). Separately, Pollins (1996) also shows that global economic cycles
combined with parallel leadership cycles impact the likelihood of conflict among
major, medium and small powers, although he suggests that the causes and connections
between global economic conditions and security conditions remains unknown. Second,
on a dyadic level, Copeland’s (1996, 2000) theory of trade expectations suggest that
“future expectation of trade” is a significant variable in understanding economic
conditions and security behavior of states. He argues that interdependent states are likely
to gain pacific benefits from trade so long as they have an optimistic view of future trade
relations. However, if the expectations of future trade decline, particularly for
difficult to replace item such as energy resources,` the likelihood for conflict
increases, as states will be inclined to use force to gain access to those resources.
Crises could potentially be the trigger for decreased trade expectations either on its own
or because it triggers protectionist moves by interdependent states. Third, others have
considered the link between economic decline and external armed conflict at a national
level. Blomberg and Hess (2002) find a strong correlation between internal conflict and
external conflict, particularly during periods of economic downturn. They write, The
linkages between internal and external conflict and prosperity are strong and
mutually reinforcing. Economic conflict tends to spawn internal conflict, which in turn
returns the favor. Moreover, the presence of a recession tends to amplify the extent to
which international and external conflicts self-reinforce each other. (Blomberg and
Hess, 2002, p. 89) Economic decline has also been linked with an increase in the
likelihood of terrorism (Blomberg, Hess and Weerapana, 2004), which has the capacity to
spill across borders and lead to external tensions. Furthermore, crises generally reduce the
popularity of a sitting government. “Diversionary theory” suggests that, when facing
unpopularity arising from economic decline, sitting governments have increased
incentives to fabricate external military conflicts to create a “rally around the flag”
effect. Wang (1996), DeRouen (1995) and Blomberg, Hess and Thacker (2006) find
supporting evidence showing that economic decline and use of force are at least
indirectly correlated. Gelpi (1997), Miller (1999), and Kisangani and Pickering (2009)
suggest that the tendency towards diversionary tactics are greater for democratic states
than autocratic states due to the
(CONTINUED BELOW…)
fact the democratic leaders are generally more susceptible to being removed from office
due to lack of domestic
support. De DeRouen (2000) has provided evidence showing that periods of weak
economic performance in the
United States and thus weak Presidential popularity are statically linked to an increase in
the use of force. In summary, recent economic scholarship positively correlates economic
integration with an increase in the frequency of economic crises, whereas political
science scholarship links economic decline with external conflict at systemic, dyadic
and national levels. This implied connection between integration, crises and armed
conflict has not featured prominently in economic-security debate and deserves more
attention. This observation is not contradictory to other perspectives that link economic
interdependence with a decrease in the likelihood of external conflict , such as those mentioned in
the first paragraph of this chapter. Those studies tend to focus on dyadic interdependence
instead of global interdependence and do not specifically consider the occurrence of and
conditions created by economic crises. As such the view presented here should be
considered ancillary to those views.
2NC UQ
Canada crude oil production high and set to grow
The Windsor Star 6/26/13 [Daily Canadian Newspaper based in Ontario, “Oil industry set to grow”,
http://www.windsorstar.com/industry+grow/8579159/story.html]
Canada's oil industry continues to expand and will see production more than double over the next two
decades, says a forecast released by the Canadian Association of Petroleum Producers (CAPP). ¶ The
projected increase presents both opportunities and challenges for the sector and the markets it is seeking to
supply.¶ Crude oil production in Canada is expected to increase to 6.7 million barrels per day by 2030, up
from 3.2 million barrels per day in 2012, according to CAPP's 2013 Crude Oil Forecast, Markets and
Transportation report released this month. This includes oil sands production of 5.2 million barrels per day
by 2030, up from 1.8 million barrels per day in 2012. ¶ "The emergence of the oil sands and the application
of new technology are allowing previously uneconomic resources to be commercially extracted," says Greg
Stringham, CAPP's vice president of markets and oil sands. ¶ With oil sands representing the majority of
Canada's crude oil reserves, it is the primary driver of future overall growth. However, production will
grow more rapidly in in-situ (drilling) in the oil sands versus mining. ¶ "In-situ is a relatively young
technology in oil (less than 15 years), and we are beginning to see significant environmental and
technological improvements that are making these projects more efficient," explains Stringham. By 2030
in-situ oil sands production is forecast to reach 3.5 million barrels per day, up from one-million barrels per
day in 2012.¶ Much of the growth in the second half of the 20-year forecast comes from a resurgence in
conventional oil production. The incremental increase by 2030 is 300,000 barrels per day, compared to
200,000 barrels per day from oil sands production.
Canada crude strong – high demand
Reuters 2012 [“Canada crude-Heavy crude strengthens on strong demand”,
http://www.reuters.com/article/2012/09/06/markets-cancrude-idUSL2E8K6GQN20120906]
(Reuters) - Canadian heavy crude prices strengthened on Thursday on strong refinery demand and few
operational upsets.¶ Western Canada Select heavy blend for October delivery last traded at a discount of
$10.25 per barrel to the West Texas Intermediate benchmark. That compares to a settlement price of $11
per barrel under WTI a day earlier, according to Shorcan Energy Brokers. ¶ The discount for Canadian
heavy crude has been narrowing for the past month on strong demand from refiners. At the beginning of
August, WCS sold for nearly $23 a barrel under benchmark because of pipeline problems and refinery
outages in Canada and the U.S. Midwest.¶ There are now few refining outages in Canadian crude market
regions. Royal Dutch Shell Plc said on Wednesday that it was restarting process units at its 75,000 barrelper-day Sarnia, Ontario, refinery, after an unplanned shutdown caused by a lightning strike a day earlier. ¶
Sinclair Oil Corp said on Wednesday its 74,000 bpd refinery at Evansville, Wyoming, would operate at 75
percent of capacity after a power outage damaged a gasoline-making unit.¶ Light synthetic crude for
October delivery last traded at a premium to WTI of $11 per barrel, unchanged from Wednesday's closing
price. (Reporting by Scott Haggett; editing by Jim Marshall)
Global crude price highest in the past three months – geopolitics
The Gazette 7/16/13 [founded in 1883 and owned by the same families since 1884, plus our employees,
The Gazette is a respected industry leader, “Crude oil prices hit three-month high”,
http://thegazette.com/2013/07/16/crude-oil-prices-hit-three-month-high/]
Brent crude oil rose towards $110 per barrel on Tuesday, reaching a three-month high, due to lower U.S.
inventories, firm demand and concern that turmoil in Egypt could disrupt supply.¶ Brent crude gained 21
cents to $109.30 a barrel by 1400 GMT. U.S. oil added 33 cents to $106.65. It touched its highest since
March last year of $107.45 on July 11.¶ Brent oil, the European benchmark, has risen 7.2 percent so far this
month and is on track for its biggest monthly gain since August, lifted by sharply falling U.S. crude oil
stocks, an improving economic outlook and supply disruption. U.S. crude is up 10.8 percent, its biggest rise
since October 2011.¶ “Global demand has picked up strongly. There are huge supply problems at a time
when refineries are increasing output,” Amrita Sen, an analyst at Energy Aspects, said.¶ She pointed to
production disruption in Libya, which has been hit by protests, and in Nigeria, which has been affected by
oil theft leading to its lowest output in years.¶ Investors are also watching developments in Egypt, where
seven people were killed and more than 260 wounded when supporters of Mohamed Mursi clashed with the
deposed president’s opponents and security forces through the night.
2NC Links
US-Venezuelan engagement trades off with Canada
Yadullah Hussain 3/6/13 [the editor of www.zawya.com, Middle East's largest business and financial
newswire and business intelligence platform, Financial Post, “Life after Chavez: America’s oil gains could
be Canada’s loss”, http://business.financialpost.com/2013/03/06/life-after-chavez-venezuela-u-s-oilindustries-are-naturally-attractive-trading-partners/?__lsa=ffd2-4fa4]
“The robust trade in crude oil from Venezuela to the United States is due to the compatibility between the
configuration of some U.S. refineries and the quality characteristics of Venezuelan crude, which is
predominately sour and medium or heavy.Ӧ This is a worrying development for Canadian crude producers,
which offer similar type of heavy crude to the U.S. Gulf Coast refineries, and may lose out if Venezuela
reforms its oil industry.¶ Despite shrinking U.S. oil imports, Canada is now it southern neighbour’s largest
supplier of crude, accounting for nearly 30% of all U.S. imports last year. Much of these gains were at the
expense of heavier crudes from Venezuela and Mexico.¶ A long-term reversal in Venezuela oil production
could compete with Canada in the United States and even China and Asian markets.
Increased Venezuela oil production hurts Canada – same crude variety
Garry White and Emma Rowley 3/11/13 [White, mining correspondent, Rowley, writer for The Telegraph
UK, “Death of Hugo Chavez propels Venezuelan oil production into the spotlight”,
http://www.telegraph.co.uk/finance/commodities/9920725/Death-of-Hugo-Chavez-propels-Venezuelan-oilproduction-into-the-spotlight.html]
Should production eventually rise, which seems likely, the main loser is likely to be Canada. Venezuela
positioned its oil industry away from the US to the more “friendly” nationals of China and Russia. ¶ Oil
exports to the US are about 900,000 barrels of oil equivalent per day (boepd), down from a high of 1.4m
boepd in 1998. This has benefited Canada, which has seen exports to the US double. ¶ “Venezuela’s oil is of
the heavy crude variety, which is also what the Canadians produce around Alberta,” Mr Hansen noted.
“Companies operating in Alberta will be able to export their know-how, which is good for the companies.
Secession Impact
Canadian economic collapse causes Quebec secessionism.
Donald E. Nuechterlein, September 1999. Rockefeller Research Scholar at the University of California,
Berkeley. “CANADA DEBATES A VARIETY OF DOMESTIC
ISSUES,” http://donaldnuechterlein.com/1999/canada.html.
Current opinion polls in Quebec show that pro-independence forces are somewhat below the 50 percent
margin that would trigger formal negotiations with the rest of Canada on the terms of separation. The current
premier, Lucien Bouchard, is a crafty nationalist who will not put the question to another referendum unless he is convinced it will
obtain a majority vote. My guess is that if Bouchard has doubts about reaching at least 50 percent in favor of independence, he will
first call a provincial election and hope to increase the majority of his Parti Quebecois. That would give him more confidence about
winning a referendum. An important factor influencing many Quebeckers will be their degree of
satisfaction with the Canadian economy.At present, prosperity reigns in most parts of the country and
many Quebec voters may worry that their province will suffer economically if it separates .
Secession of Quebec will embolden anti-US sentiments in Russia and prompt a
nuclear attack by miscalculation
Lamont 94—President of American Trust for the British Library (Lansing, Breakup: The Coming End
of Canada and the Stakes for America, p. 237-239)
Quebec's separation
and the emergence to America's north of a fragmented Canada, neither event enhancing the continent's
security; Canada's military inadequacies and an erosion of Canada-U.S. relations, which might send signals inviting aggression
by the Western alliance's adversaries; or a political upheaval in the former Soviet Union, which would
precipitate an international crisis. Any prolonged crisis, as security analysts know, involves not only heightened
tensions and escalating suspicions but a shift in emphasis to preparing for a very rapid response if
hostilities erupt. In such situations the usual safeguards are sometimes apt to be disregarded or even
removed. That is why, with Canada's and Russia's future in doubt today, it is possible to imagine this scenario in the wake
of Quebec's secession : Economic reform has collapsed throughout Russia. Widespread despair over soaring prices, injured pride over
That prospect, however dim at the moment, could take on sharper tones in the context of these possible developments:
Russia's loss of stature, and disgust with Moscow's leadership boil over. A cabal of so-called "Reds" and "Browns"-unreconstructed former
Communist officials and neo-Fascist militarists-sweeps the Yeltsin reformers from office. In the name of restoring social order and averting total
economic ruin, the leaders of the coup establish an authoritarian provisional government backed by key elements of the disaffected military. The new
government resents the Western Alliance for its Cold War triumph and humiliation of the Soviet Union, resents the infatuation with Western
culture and consumer products. It especially resents the United States for having won the arms race and reduced Russia to a beggar nation, then
acting niggardly in its response to Russian requests for massive economic aid. The
Russians, who have always regarded Canada
as a less vehemently anti-Soviet balance against the United States in the continental partnership, particularly resent
Canada's fracturing after Quebec's separation and the prospect of its pieces eventually attaching to the
U.S. empire. Russian-North American relations move from tepid to subfreezing. The new hardliners
running the Kremlin reassess Russia 's arsenal of Bear and Blackjack long-range bombers, its nearly 1,200 air-launchable cruise missiles. They
reanalyze the strategic value of the Arctic, whose jigsawed desert of ice conceals not only an estimated 500 billion barrels of oil
but lurking nuclear-armed submarines. Then, the Russians order a sequence of airborne reconnaissance missions
to hard probe the Arctic and North American defenses. Somewhere on the eastern end of the Beaufort Sea, 30,000 feet above
the approaching Parry Islands, a Russian Bear-H intercontinental bomber prepares to enter North American airspace clandestinely. The turboprop
bomber, a bright red star on its side, has averaged 400 miles per hour since it left its base in Siberia and headed over the polar icecap. It carries
inside its bulky frame eight AS-X-15 cruise missiles, each a little over 20 feet long, each packing a nuclear warhead with more than
five times the power of the Hiroshima bomb. As it wings over Canadian territory, high enough so that air resistance is minimal,
the Bear approximates the flight mode of a glider, moving silently through the ether except for short irregular bursts of acceleration from its
engines.
The bomber is
some 200 miles
Warning System's CAM-M site at Cambridge Bay
off Canada's Arctic coast when the ultrasensitive radars of the North
pick it up. CAM-M instantaneously relays the raw data on the unknown
aircraft or "bogie" to NORAD 's Region Operations Control Center (ROCC) at North Bay. In the operations room of the center's subterranean
complex, 600 feet deep in a Laurentian mountain, the "ass opers" (Air Surveillance Operators) start a 3112-minute sequence to establish whether
the bogie is a military or civil aircraft, friend or foe, and the nature of its flight path and probable destination. The Bear does not respond to ROCC
requests to identify itself. The ass opers within seconds have established some basic information on the bogie: military, unfriendly, Bear-Hotel class,
and on a flight path pointing generally toward Winnipeg and Minneapolis. What the ass opers do not know is whether the Bear is carrying nuclear
weapons, its intentions, and whether it is the vanguard of a possibly larger attack force. At the command post on the floor above the operations
room, the commanding major general and two deputies quickly assess the ass opers' data and order fighter-interceptors to scramble from an airfield
at Paved Paws' nearest Forward Operation Location. They also notify NORAD's central U.S. command post in Cheyenne Mountain, Colorado.
A
pair of CF-18 Hornets, attached to the Alouettes, the 425th Tactical Fighter Squadron based in Bagotville, Quebec, race into the skies
and somewhere above Victoria Island lock their radars onto the approaching Bear. One of the jets springs a fuel leak and turns
back. The other, armed with six AIM-9 Sidewinder missiles and a 20-millimeter rapid-fire cannon, intercepts the intruder and buzzes it at close
range. The young francophone pilot gets no response to his repeated demands that the Russians confirm whether they are carrying a nuclear payload.
He frantically radios his base command for instructions and zooms in for a closer look at the bomber, narrowly avoiding the Bear's tail on the pass.
The Bear's pilot takes immediate evasive action, banking his plane steeply at the same time he finally identifies himself and his payload in angry,
almost threatening tones. For one fearful moment intruder and interceptor seem transfixed in uncertainty, hovering above the icy barrens of Victoria
The Hornet pilot prepares to respond with a warning burst from his cannon. The fuming pilot of the
Bear considers activating the ejector cartridges that would thrust a single silvery cruise into the blue, streaking
along its computer-programmed flight path toward a NORAD target. Then discipline and cold sense reassert themselves. The Bear makes a
Island.
shuddering 180-degree turn and heads homeward. The Hornet lingers several minutes to track the Bear's retreat before it, too, swings back
In a dangerously unpredictable, post-Cold War world, some arms experts believe the
chances of a fatal miscalculation happening in the near future are better than 50 percent. The likelier prospect is that a
fragmented Canada without Quebec would itself become a lost missile cruising aimlessly through the
international sphere, its guidance system irreparably damaged, doomed to fizzle and fall into some purgatory
reserved for nations that self- destruct.
toward its base.
US Economy Impact
US depends on Canada crude
Bloomberg News 6/19/13 [Rebecca Penty, Edward Welsch & Matt Winkler, “U.S. Needs Oil Sands as
Surge From Shale Bonanza Seen Overdone”, http://www.bloomberg.com/news/2013-06-18/u-s-needs-oilsands-as-surge-from-shale-bonanza-seen-overdone.html]
The U.S. will continue to need crude from Canada’s oil sands because rising production from its shale
formations is too expensive to maintain. ¶ Increased crude output from U.S. shale isn’t “sustainable
production,” Mike Tims, chairman of Canadian investment bank Peters & Co., said yesterday at a
Bloomberg energy forum in Calgary. Producers need to invest too much to sustain production from wells in
the Bakken and Permian basins, which falls as much as 70 percent in the first year, Tims said. “The
optimism about additions to the U.S. oil production needs to be tempered a little bit,” Tims said. ¶ Oil-sands
capital spending fell 10 percent last year to C$20.4 billion ($20 billion), as some Canadian producers cut
budgets amid competition from lower-cost oil supplies in U.S. shale basins, Alberta energy regulators said
in a report last month. Production from the Bakken Shale in North Dakota has more than doubled from
2011 through April to 727,150 barrels a day, according to the North Dakota Industrial Commission.¶ The
U.S., the world’s largest economy, will probably never be able to meet its own supply needs, said Chris
Seasons, president of Devon Energy Corp. (DVN)’s Canadian division. Devon produced 8.5 million barrels
of crude from Canada in the first quarter, including from its Jackfish oil-sands project.¶ “They’re still
importing a lot of oil and my view is I don’t see U.S. oil self-sufficiency, perhaps, ever,” Seasons said on
the panel.
Canadian Economy key to US Economy
Economy Watch 10 [Canada Economy,
http://www.economywatch.com/world_economy/canada/?page=full]
Despite the differences, Canada’s economic progress is closely tied to that of the US. Following the signing
of the 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement
(NAFTA), trade and economic integration between both countries have increased significantly. The US is
Canada’s largest foreign investor with heavy investments in mining, smelting, petroleum, chemicals and
machinery. Often, Canadian economic policies have been adjusted in order to adapt to changes in the US
economy. Historically, even a minor change in the US interest rates has had economic repercussions in
Canada. Although NAFTA dramatically improved trade between the US and Canada, disputes still remain
pertaing to intellectual property rights, softwood lumber, beef, tomatoes and other agricultural products. ¶
The US is Canada’s largest and most important trade partner. In 2009, 75.02 percent of Canadian exports
were directed to the US, while 51.1 percent of imports came from the US.¶ Commodities dominate trade
between the US and Canada. In agriculture, both countries are its counterpart’s largest export market – the
US imports more than half of Canada’s food products while Canada imports nearly 20 percent of the US’s
food product.¶ The energy trade is another critical element in US-Canada trade. Canada is the US’s largest
oil supplier, accounting for 16 percent of US oil imports and 14 percent of US’s natural gas consumption.
Besides sharing hydropower facilities on the western borders, national electricity grids in Canada and the
US are also linked with each other.¶ The UK and China are Canada’s next largest export partners after the
US. Respectively, these countries account for 3.37 and 3.09 percent of Canada’s exports. China is also the
second largest source for imports to Canada, accounting for 10.88 percent of imports. In 2010, Canada was
the 10th largest exporter and 12th largest importer in the world.
AT: Canada ≠ Middle Power
Canada is a middle power
Patrick Lennox 2007 [Ph. D. Political Science, University of Toronto, Postdoctoral Fellow, Centre for
Military and Strategic Studies, University of Calgary, “Canada as a Specialized Power”, http://www.cpsaacsp.ca/papers-2007/Lennox.pdf]
The picture of Canada as a middle power was originally drawn out of comparison. The ¶ country was
neither great nor completely insignificant as it emerged from the two World ¶ Wars. As a result of its “big
little” or “little big” ranking, Canadian statesmen like Lester ¶ B. Pearson sought distinguishable roles for
the country in shaping non-security related ¶ aspects of the post-War order. A rules-based, participatory
international order, as ¶ opposed to a power-based, exclusive international order, corresponded with
Canadian ¶ interests as a power of middle status and capability. Thus it could be expected that ¶ Canada
would thrust itself into the fray of international politics on issues where it could ¶ be of some functional
utility to the development and evolution of an international system ¶ “conducive to peace, tranquility and
orderly adjustment.”3¶ Canada pursued this course ¶ almost immediately with its service to the United
Nations Economic and Social Council ¶ in the formative hours of that organization. Further examples of
Canada playing the part ¶ of the middle power, as opposed to the isolationist free rider, were seen in its
multiplicity ¶ of peacekeeping efforts, its support for numerous other international organizations, and ¶ its
efforts to mediate in various international conflict situations. As Black and Smith ¶ point out, however, this
perspective of Canada’s place in the world seems to lacks an ¶ underlying or deductive rationale for why it
is that “certain middle-sized states would be ¶ inclined to engage in these forms of behaviour.”4 ¶ The
essence of this critique is that the ¶ middle power perspective is built on the sand of circular reasoning.
Middle powers play ¶ middle power roles because they are middle powers. Beyond this
“middlepowersmanship”5¶ could conceivably capture such a vast array of behavioural ¶ patterns that as a
theory of the country’s place in the world, the Canada as middle power ¶ thesis remains nearly impossible to
falsify.
Aff
Venezuela is not a threat to Canada – lack of foreign companies
Garry White and Emma Rowley 3/11/13 [The Telegraph UK, “Death of Hugo Chavez propels Venezuelan
oil production into the spotlight”, http://www.telegraph.co.uk/finance/commodities/9920725/Death-ofHugo-Chavez-propels-Venezuelan-oil-production-into-the-spotlight.html]
However, this may be less so for the overall economics around Alberta, with Venezuelan heavy crude
being much cheaper to extract.Ӧ However, the Canadian need not worry that the Venezuelans will get their
act together quickly. This seems unlikely to happen for some time. ¶ Goldman Sachs managed to sum up the
consensus view, saying that Mr Chavez’s death should have “limited impact on the nation’s oil production
in the short term” while a “change of leadership may foster longer-term investment and boost output.” ¶
Venezuela needs foreign oil companies to boost this output. Once it accepts this, and invites the oil majors
to use their skills, global oil prices should see some relief. ¶ However, the Canadians are probably hoping
that this won’t happen for some time yet.
1NC Instability
Oil prices are high – Egypt
Josh Young 7/18/13 [Managing Partner of Young Capital Management, which is a registered investment
advisor in the State of California, Seeking Alpha, “Oil Surging, Over $106 Per Barrel On Geo-Political
Risk - Ways To Get Exposure To Higher Oil Prices”, http://seekingalpha.com/article/1555282-oil-surgingover-106-per-barrel-on-geo-political-risk-ways-to-get-exposure-to-higher-oil-prices?source=google_news]
Oil (USO) is over $106 per barrel, likely driven up by "geo-political risk" associated with the situation in
Egypt, the potential involvement of the US in the Syrian civil war and instability in Turkey. Oil inventories
in the US also declined more than expected recently, which could be seasonal but may also be
fundamentally driven.¶ Geo-political risks could further drive up the price of oil and are related to the
production and transport of oil. The big risk is that there is spillover of conflict from the current countries
to the Gulf, where much of the world's oil exports originate. This could take the form of: 1) some kind of
infrastructure-directed terrorism, potentially temporarily destroying or disrupting transportation or
production of oil. Or 2) there could be civil wars in other oil producing countries, negatively impacting
production and further knocking supply and demand out of balance.
US Engagement would lower oil prices
Paul Scicchitano 3/6/13 [a political writer, editor, and frequent television anchor at one of the largest
political news organizations in the United States, worked for such dynamic and respected media
organizations as The Washington Post, The Philadelphia Inquirer, Army Times, McGraw-Hill, and Times
Mirror, Newsmax, “Hoekstra: Post-Chavez Venezuela Could Fuel Eventual Oil Price Drop”,
http://www.newsmax.com/Newsfront/chavez-death-oil-drop/2013/03/06/id/493333]
The former chairman of the powerful House Intelligence Committee tells Newsmax the death of
Venezuelan dictator Hugo Chavez is unlikely to have any effect on global oil prices in the short term, but
could bring greater stability — and possibly a big price drop — in the long term.¶ ¶ “If we get a government
that’s more friendly to the West — it brings about fundamental reforms in Venezuela — I think you could
perhaps in the long term say it’s positive for the United States,” predicted Hoekstra speaking in an
exclusive interview on Tuesday. “It’s positive for American consumers because a stable oil market will
mean that prices will go down.¶ ¶ “Chavez was always one you’re never quite sure what was going to
happen,” he said. “Instability breeds premium pricing. Stability will lower prices, lower risk — and
hopefully that’s what we’ll see.”¶ ¶ Hoekstra, who is on the advisory board of LIGNET, a global intelligence
and forecasting service based in Washington, D.C., said that the United States should respond to Chavez’
death in a “professional” and respectful manner.
Low oil prices would cause Venezuelan instability
Juan Nagel 5/16/13 [writer for Foreign Policy, “Is Venezuela becoming a failed state?”,
http://transitions.foreignpolicy.com/posts/2013/05/16/is_venezuela_becoming_a_failed_state, RH]
Venezuela remains mired in a political and economic crisis that shows no signs of letting up. But while
street protests, soaring inflation, scarcity, and skyrocketing crime are massive headaches, the government
can count on still-high oil prices to soothe the pain a bit. ¶ The question that begs asking is: How will
Venezuela maintain stability if oil prices drop?¶ A recent report by the International Energy Agency
underscores the challenges the country faces in the short term. The United States has made huge progress in
oil extraction thanks to fracking technology. It is set to become the world's largest oil producer by the year
2020, and the global spread of fracking is bound to significantly increase international recoverable oil
reserves in the near future. The agency crows that fracking is creating a "supply shock that is sending
ripples around the world."¶ This obviously matters to Venezuela, a country that exports large amounts of oil
and little else. Venezuela is increasingly reliant on high oil prices to maintain some semblance of stability.
A prolonged drop in oil prices will undoubtedly shake the foundations of the petro-state to its core.¶
Being an oil producer, Venezuela can earn money in two ways: by sustaining high prices, or by increasing
production. (Obviously, if it can do both things, it has hit the jackpot). Fracking threatens the first, and the
country has seriously failed on the latter.¶ Venezuela produces less oil now than it did in 1999, the year
Hugo Chávez first came to power. Worryingly, the IEA sees few prospects for increased production. For
example, in spite of increasing investment to $22 billion last year, Venezuelan production barely budged.
State oil giant PDVSA vows to increase production by 3 million barrels per day in the next six years, but
the IEA believes that a combination of the company's inefficiency and its heavy debt burden means the
increase will actually be a tenth of that amount.¶ Two other developments conspire against the future
viability of Venezuela's oil industry. The country is increasing sales of crude oil to China, as part of a geostrategic move the Chávez administration embarked on many years ago. The problem is that the oil being
shipped has already been paid for, and the government has also already spent the money.¶ The other issue is
Venezuela's creaking refining infrastructure. Last year, following several accidents at its refineries,
Venezuela became a net importer of gasoline and other refined products. In the last part of the year alone,
PDVSA bought refined products for $1.5 billion, only to turn around and give it away for practically
nothing, thanks to the heavy subsidies that characterize its internal market. ¶ The consensus is that
Venezuela needs high oil prices just to stay afloat. But if the fracking oil boom results in low oil prices,
what does the future hold for the South American country? ¶ Sadly, Venezuelans have nothing else to fall
back on. Its private industry is a shambles, and the country is even importing toilet paper. Years of
populism have left the state crippled and heavily in debt. The public deficit reached a whopping 15 percent
of GDP last year, even in the context of high oil prices. Most of the spending came in the form of
entitlements and subsidies that will not be easily eliminated. Furthermore, the country's current power
clique seems particularly inept in dealing with the complicated economic and political conditions it has
inherited.¶ Nicolás Maduro's only claim to legitimacy is that Hugo Chávez chose him. Now he is left with
the thankless task of dealing with the Chávez mess. He has surrounded himself with a Cabinet composed of
many of the same old faces, and neither his policies nor his rhetoric suggest any shift toward the type of
solutions that could steer Venezuela away from the precipice. ¶ The problem for Venezuelans is that there is
no great reformer in the governing party. And while opposition leader Henrique Capriles would
undoubtedly steer Venezuela toward greater economic freedoms, there is little he would be able to do if the
price of oil were to tank.¶ A long period of low oil prices spells doom for Venezuela's political
sustainability. Without high oil revenues, basic services would practically disappear, and the potential for
instability would be enormous. Already the country is stuck in a state of undeclared in civil war, and there
are claims that drug smuggling has permeated the higher echelons of the government.¶ Venezuela has so far
avoided the fate of its neighbor Colombia, a country still deep in a long civil war with Marxist guerrillas
and drug cartels. This is largely due to the deep pockets oil has afforded the government, which allowed for
state presence even in the most remote corners of the country. It is hard to see how that presence could be
maintained if oil rents were to dry up significantly, and for a prolonged period. This could lead to the type
of problems that have bedeviled Colombia, or even poorer neighboring failed states such as Haiti. ¶ Even
though its problems are of its own making, the thought of a large, failed state in the heart of the Western
Hemisphere should trouble the continent's leaders.
Venezuela key to US and global economy
Council on Foreign Relations 2009 [Cesar J. Alvarez, and Stephanie Hanson, “Venezuela's Oil-Based
Economy”, http://www.cfr.org/world/venezuelas-oil-based-economy/p12089#p7]
Though Venezuela has repeatedly threatened to cut off its oil exports to the United States, analysts say the
two countries are mutually dependent. Venezuela supplies about 1.5 million barrels of crude oil and refined
petroleum products to the U.S. market every day, according to the EIA. Venezuelan oil comprises about 11
percent of U.S. crude oil imports, which amounts to 60 percent of Venezuela’s total exports. PDVSA also
wholly owns five refineries in the United States and partly owns four refineries, either through partnerships
with U.S. companies or through PDVSA’s U.S. subsidiary, CITGO. A U.S. Government Accountability
Office (GAO) report (PDF) says Venezuela’s exports of crude oil and refined petroleum products to the
United States have been relatively stable with the exception of the strike period. The World Bank's FrepesCibils says “Venezuela will continue to be a key player in the U.S. market.” He argues that in the short
term it will be very difficult for Venezuela to make a significant shift in supply from the United States.
Nevertheless, Chavez has increasingly made efforts to diversify his oil clients in order to lessen the
country’s dependence on the United States. The GAO report says the sudden loss of Venezuelan oil in the
world market would raise world oil prices and slow the economic growth of the United States.
Economic decline leads to war—diversionary tactics prove
Jedidiah Royal ’10. (Director of Cooperative Threat Reduction at the U.S. Department of Defense.
Economics of War and Peace: Economic, Legal and Political Perspectives p. 213-216. Emma.)
Less intuitive is how periods of economic decline may increase the likelihood of
external conflict. Political science literature has contributed a moderate degree of
attention to the impact of economic decline and the security and defense behavior of
interdependent states. Research in this vein has been considered at systemic, dyadic
and national levels. Several notable contributions follow. First, on the systemic level,
Pollins (2008) advances Modelski and Thompson’s (1996) work on leadership cycle
theory, finding that rhythms in the global economy are associated with the rise and
fall of a pre-eminent power and the often bloody transition from one pre-eminent
leader to the next. As such, exogenous shocks such as economic crises could usher in a
redistribution of relative power (see also Gilpin, 1981) that leads to uncertainty about
power balances, increasing the risk of miscalculation (Fearon 1995). Alternatively,
even a relatively certain redistribution of power could lead to a permissive
environment for conflicts as a rising power may seek to challenge a declining power
(Werner, 1999). Separately, Pollins (1996) also shows that global economic cycles
combined with parallel leadership cycles impact the likelihood of conflict among
major, medium and small powers, although he suggests that the causes and connections
between global economic conditions and security conditions remains unknown. Second,
on a dyadic level, Copeland’s (1996, 2000) theory of trade expectations suggest that
“future expectation of trade” is a significant variable in understanding economic
conditions and security behavior of states. He argues that interdependent states are likely
to gain pacific benefits from trade so long as they have an optimistic view of future trade
relations. However, if the expectations of future trade decline, particularly for
difficult to replace item such as energy resources,` the likelihood for conflict
increases, as states will be inclined to use force to gain access to those resources.
Crises could potentially be the trigger for decreased trade expectations either on its own
or because it triggers protectionist moves by interdependent states. Third, others have
considered the link between economic decline and external armed conflict at a national
level. Blomberg and Hess (2002) find a strong correlation between internal conflict and
external conflict, particularly during periods of economic downturn. They write, The
linkages between internal and external conflict and prosperity are strong and
mutually reinforcing. Economic conflict tends to spawn internal conflict, which in turn
returns the favor. Moreover, the presence of a recession tends to amplify the extent to
which international and external conflicts self-reinforce each other. (Blomberg and
Hess, 2002, p. 89) Economic decline has also been linked with an increase in the
likelihood of terrorism (Blomberg, Hess and Weerapana, 2004), which has the capacity to
spill across borders and lead to external tensions. Furthermore, crises generally reduce the
popularity of a sitting government. “Diversionary theory” suggests that, when facing
unpopularity arising from economic decline, sitting governments have increased
incentives to fabricate external military conflicts to create a “rally around the flag”
effect. Wang (1996), DeRouen (1995) and Blomberg, Hess and Thacker (2006) find
supporting evidence showing that economic decline and use of force are at least
indirectly correlated. Gelpi (1997), Miller (1999), and Kisangani and Pickering (2009)
suggest that the tendency towards diversionary tactics are greater for democratic states
than autocratic states due to the
(CONTINUED BELOW…)
fact the democratic leaders are generally more susceptible to being removed from office
due to lack of domestic
support. De DeRouen (2000) has provided evidence showing that periods of weak
economic performance in the
United States and thus weak Presidential popularity are statically linked to an increase in
the use of force. In summary, recent economic scholarship positively correlates economic
integration with an increase in the frequency of economic crises, whereas political
science scholarship links economic decline with external conflict at systemic, dyadic
and national levels. This implied connection between integration, crises and armed
conflict has not featured prominently in economic-security debate and deserves more
attention. This observation is not contradictory to other perspectives that link economic
interdependence with a decrease in the likelihood of external conflict , such as those mentioned in
the first paragraph of this chapter. Those studies tend to focus on dyadic interdependence
instead of global interdependence and do not specifically consider the occurrence of and
conditions created by economic crises. As such the view presented here should be
considered ancillary to those views.
2NC Links
Increased foreign engagement in Venezuela lowers global oil prices
Alejandro Urrutia Rodríguez 4/19/13 [editor of the annual publication Mexico Oil and Gas review,
“Effects of Hugo Chavez’s Death on Global Oil Markets”,
http://globalconflictanalysis.com/2013/04/effects-of-hugo-chavezs-death-on-global-oil-markets/]
However, this potential opportunity for Pemex and the Mexican oil and gas industry depends on the
political future of Venezuela – which is expected to hold elections in the next 30 days. Whatever the
outcome, if the newly elected Venezuelan president decides to open up the market and allow the return of
foreign companies such as Exxon-Mobil and ConocoPhillips, the potential for oil production increase
would rise, leading to a higher global oil supply and lower oil prices. This could have a potential negative
effect on Mexico’s oil exports since potential oil companies could start focusing on Venezuela, even
though PDVSA is not going to be turned around overnight and many energy analysts believe the political
transition will most probably lead to similar style of government.
Aff
Low Prices Now
Less oil production and low oil prices for Venezuela now
Tom Gjelten 4/11/13 [writer for National Public Radio since 1982, received a Peabody Award in 2004 for
"The War in Iraq", “Venezuela's Next Leader Faces Tough Choice On Oil Program”,
http://www.npr.org/2013/04/11/176843567/venezuela-s-next-leader-faces-tough-choice-on-oil-program]
The state-owned oil company Petroleos de Venezuela, S.A. also donated oil to low-income families in the
United States. There were the oil subsidies for Cuba. Plus, there's all the oil that goes for cheap gasoline for
Venezuelan drivers.¶ "In reality, PDVSA makes money from only a small proportion of the oil it produces,"
says independent energy economist Roger Tissot, who specializes in the Latin American energy market.
"Now, can that continue? I don't think so." ¶ Venezuela's problem is that its oil production is declining, in
part because of the lack of reinvestment and the politicization of PDVSA operations under the Chavez
government. Unless oil prices move sharply higher, the country will face a significant loss of oil revenue.¶
"In 1997, PDVSA was producing 3.5 million barrels a day," notes Piñon, now an energy analyst at the
University of Texas at Austin. "Today they are about 2.8 million barrels a day. It shows you what a bad job
the Venezuelan government has done in managing their national oil company."¶ Chavez died before he had
to confront the economic and political problems certain to plague his successor. Venezuela's next president
won't be able to maintain the oil industry, subsidize gasoline at home, spend oil revenue on social programs
and share Venezuela's oil wealth with his Caribbean and Latin neighbors. Something has to give.¶ If it's a
choice between serving domestic needs and maintaining the sweetheart oil deals with other countries, the
PetroCaribe nations may be in for a disappointment.
US Key to Venezuela
Lack of foreign investment topples Venezuela’s oil economy
Garry White and Emma Rowley 3/11/13 [The Telegraph UK, “Death of Hugo Chavez propels
Venezuelan oil production into the spotlight”,
http://www.telegraph.co.uk/finance/commodities/9920725/Death-of-Hugo-Chavez-propels-Venezuelan-oilproduction-into-the-spotlight.html]
Indeed the scale of potential oil output is enough combined with on-going shale oil production growth in
the USA, suggesting that oil prices could fall.”¶ However, such a scenario is unlikely just yet. “Venezuela’s
massive oil reserves will not be unleashed on global oil markets anytime soon, while the near-term impact
on prices will be limited,” Ole Hansen, head of commodity strategy at Saxo Bank, noted.¶ “The state oil
company PDVSA has increasingly been handing over its income to fund various government programmes,
leaving it with negative cash flows for the past five years,” Mr Hansen added. ¶ “The result of this has been
a lack of investments as old fields matured and new ones were not explored, hence the drop in output.Ӧ Mr
Hansen believes reforms and the re-introduction of foreign investment will not happen overnight, possibly
not for a few years.¶ “But once it does another source of increased supply will further help to alleviate some
of the worries about future supply not keeping up with an increase in demand, especially from emerging
economies,” Mr Hansen said.¶ Should production eventually rise, which seems likely, the main loser is
likely to be Canada. Venezuela positioned its oil industry away from the US to the more “friendly”
nationals of China and Russia.¶ Oil exports to the US are about 900,000 barrels of oil equivalent per day
(boepd), down from a high of 1.4m boepd in 1998. This has benefited Canada, which has seen exports to
the US double.¶ “Venezuela’s oil is of the heavy crude variety, which is also what the Canadians produce
around Alberta,” Mr Hansen noted. “Companies operating in Alberta will be able to export their knowhow, which is good for the companies. However, this may be less so for the overall economics around
Alberta, with Venezuelan heavy crude being much cheaper to extract.” ¶ However, the Canadian need not
worry that the Venezuelans will get their act together quickly. This seems unlikely to happen for some
time.¶ Goldman Sachs managed to sum up the consensus view, saying that Mr Chavez’s death should have
“limited impact on the nation’s oil production in the short term” while a “change of leadership may foster
longer-term investment and boost output.Ӧ Venezuela needs foreign oil companies to boost this output.
Once it accepts this, and invites the oil majors to use their skills, global oil prices should see some relief. ¶
However, the Canadians are probably hoping that this won’t happen for some time yet.
Drop in oil production would globally raise oil prices
GAO 2006 [Government Accountability Office, “Issues Related to Potential Reductions in Venezuelan Oil
Production”, http://www.gao.gov/assets/260/250667.html]
A sudden and severe reduction in Venezuelan oil exports would have ¶ worldwide impacts, while the
impacts of a Venezuelan oil embargo ¶ against the United States or closure of Venezuela's U.S. refineries ¶
would be primarily concentrated in the United States and Venezuela. ¶ * A sudden loss of all or most
Venezuelan oil from the world market ¶ under the current tight global supply and demand balance would
raise ¶ world oil prices. For example, a model developed for DOE estimates that ¶ a disruption of crude oil
with a temporary loss of up to 2.2 million ¶ barrels per day--about the size of the loss during the Venezuelan
¶ strike--would, all else remaining equal, result in a crude oil price ¶ spike of up to $11 per barrel in the early
stages of the disruption. ¶ Such an increase would raise the price of petroleum products and, ¶ because
petroleum products are important to the functioning of the ¶ economy, would likely slow the rate of
economic growth in the United ¶ States and other countries until replacement oil could be obtained. The ¶
model also predicted that U.S. GDP would decrease by about $23 billion. ¶ Because a severe drop in oil
production would also cause large losses ¶ for Venezuela in export revenues and jobs, Venezuela would
likely try ¶ to restore oil production as quickly as possible.
US-Venezuela Relations prevent oil spikes – empirics
Anna Mahjar-Barducci 2011 [writer for the Gatestone Institute, a non-partisan, not-for-profit international
policy council and think tank is dedicated to educating the public about what the mainstream media fails to
report, “Venezuela Freezes Relations with U.S.; Triggers Oil Price Hike”,
http://www.gatestoneinstitute.org/2199/venezuela-freezes-relations-with-us]
Venezuela's announcement that it was freezing diplomatic relations with the United States came as a
response to the U.S. State Department's sanctions against Venezuela's state-owned giant oil company
Petroleos de Venezuela (PDVSA) for providing Iran with gasoline and other refined oil products.
Diplomatic relations were already severed, as the two countries have been without ambassadors since 2010.
Venezuela's President Hugo Chavez vetoed Larry Palmer, who had been appointed as the U.S. ambassador
to Venezuela, because of statements Palmer made about low morale in the Venezuelan military and his
concerns regarding Colombian FARC rebels finding refuge on Venezuelan soil. Later, Washington revoked
the diplomatic visa to Venezuela's envoy Bernardo Alvarez. ¶ Despite U.S. sanctions, Venezuela's Energy
Minister Rafael Ramirez, who is also the head of PDVSA, said that Venezuela would continue to maintain
relations with Iran and any other country it wants. The Iranian ambassador to Caracas, Abdolreza Mesri,
congratulated the Venezuelan government for its firm position against Washington, saying, "Chavez
vigorously challenged U.S. interests in Venezuela through his opposition to U.S. unilateralism and support
for the concept of a multi-polar world." Iranian President Mahmoud Ahmadinejad has actually highlighted
the importance of the relations between Iran and "independent and anti-arrogance countries" such as
Venezuela.¶ Iran has actually found in Venezuela a partner inside the Organization of Petroleum Exporting
Countries (OPEC) to defy the U.S. In a recent meeting of OPEC in Vienna, Venezuela supported Iran in
standing against any increase of oil production. Saudi Arabia, the United Arab Emirates, Kuwait and Qatar
were all in favor of an increase of 1.5 million barrels in daily production, but Iran and Venezuela, followed
by Gaddafi's Libya, Ecuador (a country aligned with Venezuela), Algeria and Angola, voted against this
measure. The failure to make a decision among OPEC countries on oil productions triggered crude prices
hikes. Chavez argued that since the international oil market is sufficiently supplied, and oil prices are fair,
there is no need for OPEC to increase oil production. ¶ "Today's prices, about $100 per barrel, are fair,
according to our point of view," Chavez said. "In the coming years, they will keep increasing, as well as
gold, food and medicine prices." ¶ Last year, Chavez stated that oil should be above $100 a barrel because
the U.S. dollar "is increasingly worthless." The Latin America Herald Tribune reported that during the
week ending June 3, the weekly oil basket of Venezuela rose to $103.01 from the previous week's $100.70.
Venezuela, besides being a founding member of OPEC, is one of the globe's top oil exporters, producing
2.9 million barrels per day. Oil income represents more than a third of the Venezuelan economy. ¶ After the
collapse of the talks in Vienna, it was reported that Saudi Arabia would raise oil production anyway. The
Saudi paper, Arab News, wrote that "oil prices fell on Friday [June 10] as Saudi Arabia began offering
more oil to customers, easing worries about supply." Saudi-owned paper, Al-Hayat, reported that Riyadh
would "boost supplies to 10 million bpd in July, and oil traders said the Kingdom was offering more to
customers in Asia, which is driving the increase in global demand." There is actually a serious need to
pump more oil, as the world is expected to use 1.38 million bpd of oil more than in 2010. ¶ Venezuela,
however, resists pressures to increase oil production, as Chavez wants to use the oil as a tool against the
United States, among others. The Venezuelan president wants to be re-elected in 2012, but he needs money
for his campaign and to try to pull the country out of debt and restore what has been a disastrous economy.
Disruption in Venezuelan oil production would send a global shockwave
Sarah O. Ladislaw 3/6/13 [Frank A. Verrastro, Center for Strategic and International Studies, “PostChavez Outlook for Venezuelan Oil Production”, http://csis.org/publication/post-chavez-outlookvenezuelan-oil-production]
The sustained political uncertainty has also slowed investment; Russian and Indian companies were
planning to invest in Venezuela's oil fields but so far have withheld incremental new money. China has not
announced a new line of credit or extensions on its development-linked financing since last April.
At the same time that production is dropping, highly subsidized domestic consumption of oil is increasing
while revenue from exports is also declining. The United States remains the largest recipient of Venezuelan
oil exports at 950,000 barrels per day in 2011, roughly 40 percent, plus another 185,000 barrels per day
from the Caribbean that was Venezuelan sourced but those volumes area down as U.S. demand has
declined and other crudes have become available. Venezuela's next largest export destinations are the
Caribbean (31 percent) and then China (around 10 percent). Venezuela sells to many of its Caribbean
neighbors at below market rates due to extremely preferential financing relationships, including additional
heavy subsidies for Cuban exports. All of this culminates in an outlook for continued decline in oil
production and a worsening economic outlook for Venezuela during a politically difficult time.
However, conventional wisdom argues that maintaining oil production is in the interest of any regime.
Revenue from oil production is such a large part of Venezuela’s government balance sheet that no
leadership could survive for long without a sustained cash flow that oil exports bring. The converse of this
argument is that revenues generated by the energy sector are such an important source of power and
influence in Venezuela that there is potential for infighting over control of the sector. Moreover, the
potential for strikes or instability among groups involved in the sector (some of whom have not been paid)
could have additional negative impacts on production.
While oil markets have so far taken the news of Chavez’s demise in stride (many claim because the news
was largely expected, others because the political outcome is still so uncertain) an actual disruption in
Venezuelan production could add pressure to an already difficult market outlook. The last year has
produced a number of supply disruptions around the world from OPEC, the Middle East North Africa
region, as well as non-OPEC sources. If the economic outlook continues to improve and yield an increase
global energy demand, if Iran sanctions remain in place, and if Venezuelan production be compromised,
then oil prices would experience much more significant upside pressure from any new disruptions.
Drop in oil imports would result in Venezuelan government collapse
Christopher Smith 2010 [unique nonpartisan, nonprofit policy and education organization that applies
strategic thinking and the leadership lessons of history to critical national challenges and opportunities, US
Coast Guard Economy, “Cutting Ties with Venezuela’s Petroleum”,
http://webcache.googleusercontent.com/search?q=cache:http://www.thepresidency.org/storage/documents/
Fellows2010/Smith.pdf]
Without the revenue created by this trade, the possibility of a government collapse is more likely. Despite
international understanding of the relative scarcity of petroleum, Venezuela has had difficulty encouraging
major companies to invest in its oil production. The ability of Chavez to find replacements for the massive
quantity of oil the United States purchases is questionable. Its economy already in poor condition, the loss
of this revenue would be devastating and an overthrow of the government could be a result. Iraq, like
Venezuela, was ruled by a dictator who harnessed complete control. Both Chavez’s Venezuela and
Hussein’s Iraq granted few political freedoms, civil rights, and civil liberties. The world agreed that
Hussein was a tyrant that should not be leading Iraq (Los Angeles Times, 17February 2003); likewise,
many world leaders recognize Chavez’s incredible level of government secrecy2 and the dictatorial nature
of his rule. Should America stop importing Venezuelan oil, the government could collapse just as it would
if America launched a military offensive. Just like its military intervention in Iraq, this economic strike
would be unilateral. The potential for international political dissidence over America’s decision is present.
AT: Venezuela key to World Market
Venezuela’s role in the world market is exaggerated – Chavez’s death did nothing
Clifford Krauss 3/8/13 [New York Times, “Dwindling Production Has Led to Lesser Role for Venezuela
as Major Oil Power”, http://www.nytimes.com/2013/03/09/world/americas/venezuelas-role-as-oil-powerdiminished.html?_r=0]
HOUSTON — President Hugo Chávez relished using Venezuela’s oil wealth to project power
internationally, nudging OPEC to raise oil prices when he could, showering allies like Cuba and Nicaragua
with subsidized oil shipments, and mocking the United States while selling it his crude. ¶ But Mr. Chávez’s
death on Tuesday has had surprisingly little impact on global oil markets, highlighting how Venezuela’s
dwindling crude production and exports have undercut its global power in recent years. ¶ International oil
prices have barely moved since Mr. Chávez died. OPEC has decided to increase shipments to the United
States and Europe this month, using oil from Saudi Arabia and other Gulf states. Oil company executives,
long frustrated by Mr. Chávez’s nationalizations, are voicing only tepid hopes that they could possibly
return in full force to what was once one of their crown jewels. ¶ Venezuela’s annual oil production has
declined since Mr. Chávez took office in 1999 by roughly a quarter, and oil exports have dropped by nearly
a half, a major economic threat to a country that depends on oil for 95 percent of its exports and 45 percent
of its federal budget revenues.¶ “Venezuela’s clout on OPEC and on world oil prices has been greatly
diminished because of its inability to exploit its enormous resources,” said Michael Lynch, president of
Strategic Energy and Economic Research, a consultancy. “In the 1990s, their production was booming and
they could thumb their nose at Saudi Arabia and get away with it, but now they have become OPEC’s poor
cousin.Ӧ In a fundamental geopolitical turn, Venezuela now relies far more on the United States than the
United States relies on Venezuela.¶ Venezuela depends on the United States to buy 40 percent of its exports
because Gulf of Mexico refineries were designed to process low-quality Venezuelan and Mexican crudes
that most refineries around the world cannot easily handle. But in recent years, the United States has been
replacing its imports of Latin American crudes with oil from Canadian oil sands fields, which is similarly
heavy.¶ American imports of Venezuelan oil have declined to just under a million barrels a day, from 1.7
million barrels a day in 1997, according to the Energy Department. And while Venezuelan exports of oil
are in decline, its dependency on American refineries for refined petroleum products has grown to nearly
200,000 barrels a day because of several recent Venezuelan refinery accidents.¶ Experts expect Venezuela
to send barrels no longer needed in the United States to China, as payments in kind under oil-for-loans
contracts. Venezuela’s broken refinery sector has left shortages of gasoline and diesel in parts of Latin
America, opening the door for valuable markets to American refiners. ¶ Over his 14 years in power, Mr.
Chávez relied heavily on oil revenues to finance his social programs. Energy experts say his gasoline
subsidies doubled domestic consumption, cutting deeply into exports, but that his hostility to foreign
investment and mismanagement of the state oil company Petroleos de Venezuela were the primary reasons
for the steep decline in production.¶ A strike and the firing of management talent and 20,000 workers at the
oil company in 2002 led to a steep decline in the company, which has been underscored by the refinery
accidents.¶ “Venezuela is a fraction of what it used to be,” said Sadad Ibrahim al-Husseini, a former head of
Saudi Aramco’s exploration and production division, “and that’s really because Venezuela’s technocrats
have scattered over the world and are no longer active in Venezuela.” ¶ Mr. Chávez further overhauled oil
exploration and production with a nationalization program in 2006 that ordered a renegotiation of contracts
with foreign companies, mandating that Venezuela’s oil company get a minimum 60 percent share in all
production projects. Sixteen foreign companies, including Royal Dutch Shell and Chevron, went along with
the new rules, while Exxon Mobil, Conoco Philips and other companies resisted, and their holdings were
nationalized.¶ Venezuela has huge reserves, including its Orinoco heavy oil belt, which the United States
Geological Survey estimates to have 513 billion barrels of recoverable oil — enough potentially to make
Venezuela one of the top three world producers. But foreign oil companies have been wary of investing. ¶
Jose Valera, a Houston energy lawyer, said that if Nicolás Maduro, Mr. Chávez’s vice president until he
was sworn in as president on Friday, or another member of the Mr. Chávez’s movement was elected
president in a special election “it is reasonable to expect continuity of a substantial portion of the policies.”
But as for Venezuela’s economy, he argued, “the situation right now is not sustainable and it’s only a
matter of time before some significant changes will have to be instituted.”
Apathy towards Chavez’s death proves waning global influence of Venezuela
Jim Jelter 3/5/13 [writer for Market Watch, “Why oil prices dipped on Chavez’s death”,
http://blogs.marketwatch.com/thetell/2013/03/05/why-oil-prices-dipped-on-chavezs-death/]
Hugo Chavez is dead. He’s been dying for a long time. So has Venezuela’s oil industry. And that’s the
main reason the oil market reacted to the death of Venezuela’s president with little more than a shrug. ¶
Following news of Hugo’s death, April crude-oil futures drifted lower to $90.72 a barrel on Globex, down
10 cents from the $90.82 settlement price earlier in the day on the New York Mercantile Exchange.¶ The
muted response reflects Venezuela’s waning influence on the global energy market.¶ That’s not to dismiss
its reserves. Chavez’s government has estimated Venezuela’s untapped oil reserves at nearly 300 billion
barrels. The United States Geological Survey puts them at closer to 200 billion barrels. Either way, Saudi
Arabia is the only country sitting on more oil than Venezuela. ¶ But under Chavez’s 14-year rule,
Venezuela’s oil production fell 30%, from 3.5 million barrels per day to 2.5 million. Behind the decline lies
a botched effort to nationalize the nation’s oil industry, which left state oil company PDVSA woefully
underfunded, drove foreign investment out of the country, and left its aging energy infrastructure with a
severe shortage of qualified personnel to maintain it.¶ Meanwhile, production elsewhere in the world has
surged, led by the boom in shale-oil drilling in the United States.¶ There was a time not many years ago
when mere rumors of supply disruptions or output cuts in Venezuela would push oil prices sharply higher
as U.S. refiners scrambled to find replacement barrels in the spot market. These days, refiners rely far more
on output from deepwater rigs in the U.S. Gulf and barrels from newly-opened shale oil fields in Texas and
North Dakota.¶ That said, the country is entering a potentially turbulent time. Over the next 30 days the
country must elect a new leader, which throws the nation’s oil policy into question. A return to power by
Chavez’s leftist regime would presumably mean more of the same. Victory by the conservative opposition
party would almost certainly push the country to revive its ailing oil industry, which still accounts for about
95% of its export revenue. And reviving the industry means putting more barrels of oil on the global market
which, of course, would be bearish for prices.¶ So the oil market’s long-term view is unlikely to be shaped
by short-term political turmoil in Caracas. And that explains the muted reaction in oil prices tonight to the
death of Hugo Chavez.
Misc. Cards
Venezuelan new leadership dilemma will affect global oil markets
Sri Jegarajah 3/5/13 [writer for CNBC, “Venezuela—The Next Risk for Oil Markets”,
http://www.cnbc.com/id/100520892]
The prospect of snap elections in Venezuela — which may be triggered by the death of President Hugo
Chavez — may create volatility in global oil markets though any upward price impact is likely to only be
short-term.¶ Venezuelan President Hugo Chavez has died after a two-year battle with cancer, Vice President
Nicolas Maduro said in a televised speech late Tuesday. ¶ Chavez's death opens the way for a new election
within 30 days. That would pave the way for a showdown between Vice President Nicolas Maduro, 50, and
40-year-old opposition leader Henrique Capriles, who lost last year's election to Chavez. ¶ "All the signs are
that Maduro is already in semi-campaign mode for a ballot which would probably see Capriles leading for
the opposition," said Alastair Newton, senior political analyst at Nomura. "An uptick in uncertainty around
an election could trigger some upward pressure on oil. But I'd expect any pre-election movement to be
fairly minimal." Gal Luft, co-director at the Institute for the Analysis of Global Security and a senior
adviser to the U.S. Energy Security Council said that though a Chavez departure may already be well
factored into prices, it won't "translate into market calmness before it is clear what the nature of the new
leadership is."¶ Clarity over who will be running state-oil producer PDVSA will be equally important, Luft
said. "The company has been battered by terribly ineffective personnel changes and removal of competent
leadership which has been replaced by political appointees," he said. "Once we begin to see changes in the
company's leadership, reflecting professionalism and competence, that could mean the company is making
a U-turn, becoming attractive for investors." ¶
Inverse correlation between oil prices and freedom – First Law of Petropolitics
Thomas L. Friedman 2006 [writer for Foreign Policy, “The First Law of Petropolitics”,
http://www.foreignpolicy.com/articles/2006/04/25/the_first_law_of_petropolitics]
I would be the first to acknowledge that this is not a scientific lab experiment, because the rise and fall of
economic and political freedom in a society can never be perfectly quantifiable or interchangeable. But
because I am not trying to get tenure anywhere, but rather to substantiate a hunch and stimulate a
discussion, I think there is value in trying to demonstrate this very real correlation between the price of oil
and the pace of freedom, even with its imperfections. Because the rising price of crude is certain to be a
major factor shaping international relations for the near future, we must try to understand any connections it
has with the character and direction of global politics. And the graphs assembled here certainly do suggest
a strong correlation between the price of oil and the pace of freedom -- so strong, in fact, that I would like
to spark this discussion by offering the First Law of Petropolitics. The First Law of Petropolitics posits the
following: The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist
states. According to the First Law of Petropolitics, the higher the average global crude oil price rises, the
more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and
independent political parties are eroded. And these negative trends are reinforced by the fact that the higher
the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them.
Conversely, according to the First Law of Petropolitics, the lower the price of oil, the more petrolist
countries are forced to move toward a political system and a society that is more transparent, more sensitive
to opposition voices, and more focused on building the legal and educational structures that will maximize
their people's ability, both men's and women's, to compete, start new companies, and attract investments
from abroad. The lower the price of crude oil falls, the more petrolist leaders are sensitive to what outside
forces think of them. I would define petrolist states as states that are both dependent on oil production for
the bulk of their exports or gross domestic product and have weak state institutions or outright authoritarian
governments. High on my list of petrolist states would be Azerbaijan, Angola, Chad, Egypt, Equatorial
Guinea, Iran, Kazakhstan, Nigeria, Russia, Saudi Arabia, Sudan, Uzbekistan, and Venezuela. (Countries
that have a lot of crude oil but were well-established states, with solid democratic institutions and
diversified economies before their oil was discovered -- Britain, Norway, the United States, for example -would not be subject to the First Law of Petropolitics.)
Canadian soft power is key to prevent Quebec secession
Choudhry 2007 -Faculty of Law and Department of Political Science @ the University of Toronto- 2007
(Sujit, “Does the World Need More Canada? The Politics of the Canadian Model in Constitutional Politics
and Political Theory”, Forthcoming, International Journal of Constitutional Law, 19-22,
http://www.cardozo.yu.edu/uploadedFiles/FLOERSHEIMER/Does%20the%20World%20Need%20More%
20Canada%20paper%20draft%203.pdf)
A sub-literature assumed that Canada was doomed, and that the country should turn to the difficult question
of how secession could occur. Issues such as the debt, borders, citizenship, the rights of aboriginal peoples,
the nature of the economic and political relationship between Canada and an independent Quebec, as well
as the process of those negotiations (who would participate, what would be the nature of public
involvement) were debated at countless conferences and workshops. Again, the titles tell much of the story. Books
such as The Secession of Quebec and the Future of Canada; The Referendum Papers: Essays on Secession and National Unity; Two
Nations, One Money?; Closing the Books: Dividing Federal Assets and Debt if Canada Breaks Up; Broken Links: Trade Relations
after a Quebec Secession; Negotiating with a Sovereign Quebec; Tangled Web: Legal Aspects of Deconfederation; Dividing the
House: Planning for a Canada Without Quebec; The Partition Principle: Remapping Quebec after Separation; Dual Independence: The
Birth of a New Canada and the Re-birth of Lower Canada; Beyond Quebec: Taking Stock of Canada; Economic Dimensions of
Constitutional Change; If Quebec Goes … The Real Costs of Separation; Plan B: The Future of the Rest of Canada; Québec-Canada:
What Is the Path Ahead?; and most poignantly Can Canada Survive? Under What Terms and Conditions? Turned to the grim task of
grappling with these questions. 71 In an important respect, English Canada was catching up with Quebec, which had
before long turned its mind to the modalities of secession. In the wake of the failure of the Meech Lake
Accord, the Quebec government struck the Commission on the Political and Constitutional Future of
Quebec. One of the commission’s principal contributions to public debate within the province was in the
form of a large number of original research studies which examined both the substance and process of
Quebec secession. Moreover, these studies received widespread media coverage, and were debated widely
in the national press. In fact, a large reason for the surge in interest in English Canada was precisely the fact
that these issues had been discussed in Quebec for a long time. There are two important questions which need to be
answered. The first is why Canada was in constitutional crisis for much of the 1990’s, and more precisely, what the exact character of
the Canadian constitutional crisis was. I turn to this issue below. The20second is what the connection was between this debate – in
which the future prospects for Canada looked dim indeed – and the rise of the Canadian model. The book titles listed above illustrate
that the discussion over Canada’s future and the mechanics of taking it apart were far from marginal. On the contrary, they were at the
very centre of academic and political discourse. Indeed, the country seemed to be able to talk about little else. And no Canadian could
ever forget the near dissolution of the federation in 1995. So it is inconceivable that the proponents of the Canadian model could have
been unaware of it. On the contrary, what I want to suggest is that many proponents of the Canadian model not only recognized the
crisis gripping the Canadian constitutional order, but viewed the international promotion of the Canadian model as an important
element in resolving problems at home. This link was first made by Pierre Trudeau, in an essay published in 1962, long before the
near constitutional collapse of the 1990’s.72 In it, Trudeau responds to the case made by supporters of Quebec independence that
every nation must necessarily have a state, by arguing that Canadian federalism should be preserved as something precious. For
Trudeau, part of the reason for retaining multinational federalism is not only that it is right for Canada, but also that it is right for the
world. Canadians should strive to ensure the survival of Canada so it can serve as an international role model, as a city on the hill, for
countries facing the same linguistic and ethno national divisions which led to creation of the Canadian model in the first place. He
writes:73It would seem, in fact, a matter of considerable urgency for world peace and the success of the new states that the form of
good government known as democratic federalism should be perfected and promoted, in the hope of solving to some extent the worldwide problems of ethnic pluralism. …Canada should be called upon to serve as mentor, provided she has seen enough to conceive her
own future on a grand scale. … Canada could become the envied seat of a form of federalism that belongs to tomorrow’s world. …
Canadian federalism is an experiment of major proportions; it could become a brilliant prototype for the moulding of tomorrow’s
civilization. To be clear, Trudeau is doing much more than highlighting a positive, incidental side effect to the success of the Canadian
model. Rather, he makes the stronger claim that Canada’s success matters internationally because other countries face similar
problems to Canada’s, and Canada’s potential influence as an international role model should serve not only as a21source of pride to
Canadians, but also as a reason for Canadians to make its constitutional arrangements work. These themes were picked up and further
developed nearly thirty years later by Charles Taylor.74 In an essay published in 1991, Taylor argues that Canada’s constitutional
difficulties were traceable to the clash between two different visions of citizenship – one, captured and fuelled by the Charter, in
which citizens consider themselves as bearers of constitutional rights and as equal members in the Canadian political community,
unmediated by membership in any intermediate provincial political communities, and another, in which Quebecers view their
membership in the Canadian political community as flowing from their membership in a constituent nation of Canada. For Taylor, the
solution is to reject a model of uniform citizenship, and instead to opt for “deep diversity” as “the only formula on which a united
federal Canada can be rebuilt”.75 But the case for deep diversity goes beyond Canada, because “in many parts of the world today the
degree and nature of the differences resemble those of Canada” and so “the world needs other models to be legitimated in order to
allow for more humane and less constraining modes of political cohabitation”.76 So Canada “would do our own and some other
peoples a favour by exploring the space of deepdiversity”.77 After the failure of the Charlottetown Accord, and the near miss in the
1995referendum, Taylor continued to press the same themes, albeit with a greater sense of urgency and an acute awareness of the peril
which Canada faced.78 Thus, “the principal threat” to Canada’s existence “comes from a problem which is in a sense everyone’s in
this day and age” – that there are many more nations than states, that it would be impossible for each nation to have its own state, and
so there needs to be some way for national groups to exist within the same state.79 “Canada’s inability to solve this problem, after
what seemed like a promising start in favourable conditions,
naturally causes consternation, and depressed spirits, abroad”, Taylor continues.80 If the Canadian model cannot work in Canada, it
cannot work in circumstances which are far more difficult. Canada needs to try to make it work for the sake of the world. This is
political theory doubling as constitutional therapy. So arguing for the success of the Canadian model was not just an academic
endeavour. It was a political intervention in two different but interrelated arenas. It was an intervention in international politics, to
offer a practical, viable model to deal with the issues of minority nationalism that were a source of political instability in ECE and
beyond. It was also an intervention in domestic constitutional politics, to argue that Canada had hit upon one of the few workable
solutions to the accommodation of minority nationalism within a liberal22democratic constitutional order. And there were multiple
links between the two agendas. There was the argument made by Trudeau and Taylor, that Canada should make its constitutional
arrangements work to help other countries. Foreign observers have often made this point. Charles Doran, writing on why Canadian
unity matters to America, states that the “failure of the Canadian federal experiment … does not bode well for the ability of their
democracies to establish political harmony among their own regional communities”, while conversely, success in Canada “will help to
preserve democratic pluralism worldwide”.81Kofi Annan and Mikhail Gorbachev’s public interventions in the Canadian national
unity debate demonstrate how important the success of the Canadian model was to the international community struggling with the
destructive potential of nationalism. There are other links between the domestic and international political agendas. The promotion
of the Canadian model abroad should be understood, at least in part, as an attempt to buttress support for
the Canadian model at home, by instilling national pride. I think this is the way to make sense of the
increasing prominence of the Canadian model in foreign policy. Canadian politicians have sought to place
the Canadian model at the heart of Canadian foreign policy, by serving as a pillar of development
assistance to deeply divided societies. The previous Liberal government’s International Policy Statement stated that
development assistance should be focused on a few key areas, including the promotion of good governance, with “Canada’s
commitment … to a federal system that accommodates diversity” as part of that agenda.82 Liberal MP Michael Ignatieff, in a speech
to the Canadian Department of Foreign Affairs and International Trade in 2004, stated that Canada has “more institutional
memory about the legislative and legal requirements for the accommodation of linguistic and religious
diversity than any other mature democracy in the world” and has a “comparative advantage in the politics
of managing divided societies”, and should translate its institutional experience into
China Energy Security DA
1NC Shell
China is expanding into Latin America’s energy sectors
Xiaoxia 5-7—Worldcrunch Journalist (Xiaoxia, Wang. "In America's Backyard: China's Rising Influence In
Latin America." - All News Is Global |. N.p., 06 May 2013. Web. 18 July 2013.
<http://www.worldcrunch.com/china-2.0/in-america-039-s-backyard-china-039-s-rising-influence-in-latinamerica/foreign-policy-trade-economy-investments-energy/c9s11647/>.)
Over the past five years, Chinese businesses have been expanding their footprint in Latin America
in a number of ways, beginning with enhanced trade to ensure a steady supply of bulk commodities
such as oil, copper and soybeans. At this year's Boao Forum for Asia, for the first time a Latin American subforum was created that included the participation of several heads of state from the region. Since 2011, China
has overtaken the Netherlands to become Latin America’s second biggest investor behind the
United States. China has signed a series of large cooperation agreements with Latin American
countries in such fields as finance, resources and energy. According to the latest statistics of the General
Administration of Customs of China, Sino-Latin American trade grew in 2012 to a total of $261.2
billion, a year-on-year increase of 8.18 percent. This trend risks undermining the position of the
United States as Latin America’s single dominant trading partner. In 2011, the U.S.-Latin American
trade volume was $351 billion.
Increasing U.S. influence pushes China out
Regenstreif 6/12 [Gary Regenstreif Editor, Special Projects, Reuters, Thomson Reuters, USA Joined
Reuters as a Reporter, Canada; former Bureau Chief, Caracas, Buenos Aires & Rome; later, Regional Editor,
Western Europe; has overseen local-language news products in domestic markets for Thomson Reuters;
editorial liaison to several Thomson Reuters business units, leveraging news for commercial growth; also resp.
for several specialist magazines & online publications; Thomson Reuters editorial liaison to the World Economic
Forum. Former steering group member on World Economic Forum working groups: Media in Fast Growing
Markets and the Future of Content Creation. Currently participating in: Shaping Culture and Governance in
Digital Media. June 12, 2013, “The looming U.S.-China rivalry over Latin America”,
http://blogs.reuters.com/great-debate/2013/06/12/the-looming-u-s-china-rivalry-over-latin-america/
Though the U.S. and Chinese presidents heralded a “new model” of cooperation at their weekend summit, a growing
competition looks more likely. The whirlwind of activity before President Barack Obama met with President Xi
Jinping in the California desert revealed that Beijing and Washington’s sights are set on a similar prize
—
and face differing challenges to attain it. Their focus is Latin America and the prize is
increased trade and investment opportunities in a region where economic reforms have pulled millions
out of poverty and into the middle class. Latin America is rich in the commodities and energy that both
China and the United States need, largely stable politically and eager to do deals . Consider the
travel itinerary: Obama visited Mexico and Costa Rica last month. Vice President Joe Biden
recently went to Colombia, Trinidad and Tobago and Brazil. Chile’s president paid Obama a
visit last week, Peru’s leader arrived Tuesday and Brazil’s is due in October. Meanwhile, just after
Biden left Trinidad, Xi arrived, part of a tour that also took him to Costa Rica and Mexico to
promote trade and cooperation. Both U.S. and Chinese officials, however, are finding a more self-confident Latin
America, able to leverage its new strength to forge better agreements and find multiple trading partners. That will likely
force Washington to work harder to maintain its leading trade position against China — which
has money to burn in the region. “There is a more energetic [U.S.] tone, a more optimistic mood about economic
agenda in second term than [the] first time,” Michael Shifter, president of the Inter-American Dialogue, a Washington policy
group, told me. “There’s something happening in the region and the U.S. wants to be part of it. Whether there’s a well-thoughtout vision or policy remains a question. But there is more of an affirmation of the region and a willingness to engage.” The
United States, Latin America’s largest trading partner throughout much of its history, still retains this position. Washington has
now signed free trade agreements with more than a third of the hemisphere’s nations and annually exchanges more than $800
billion in goods and services with Latin America — more than three times the region’s commerce with China. In Obama’s first
term, however, the administration was widely viewed as neglecting Latin America. And China has moved in fast.
China built its annual trade with the region from virtually nothing in 2000 to about $260
billion in 2012. In 2009, it overtook the United States as the largest trading partner of Brazil, the region’s powerhouse —
largely through massive purchases of iron ore and soy. Other data is telling: In 1995, for example, the United States accounted
for 37 percent of Brazil’s foreign direct investment. That dropped to 10 percent in 2011, according to the Council of the
Americas, which seeks to foster hemispheric ties. Washington’s renewed ardor is at least partly because of
the fear that China will repeat in Latin America the economic success it has built in Africa . China
has been able to present itself as a benevolent partner there, which has played well against the West’s history of meddling in
domestic affairs. “It’s about influence and leverage,” said Eric Farnsworth, vice president of the Council of the Americas, “…The
region matured and expects to be treated in real partnership rather than [in the] patronizing way it happened in the past.” The
challenges facing Beijing and Washington lie in how each approaches the region. Washington confronts lingering resentment
about its historic regional interference, stretching back to the 1823 Monroe Doctrine, and its continuing desire to mix business
with policy — which muddies its approach to trade and investment. Washington’s domestic problems, its pivot to Asia and a
host of global crises, also serve as distractions that could keep its actions in Latin America from matching its words — as has
happened before. China, meanwhile, is largely viewed in the region as unencumbered by ideology. It approaches opportunities
almost exclusively on commercial terms there. Biden, in a May 29 speech in Rio de Janeiro, gushed about the progress made by
Latin America and trumpeted the region’s growing international stature. “In the U.S.,” Biden said, “the discussion is no longer
what it was when I was first elected as a young man: What could we do for the Americas? That’s long since gone. The issue
now is: What can we do together? We want to engage more. We think there’s great opportunity. We’re optimistic.” As with
many new starts, a recognition of past mistakes is in order. “For many in Brazil,” Biden said, “the United States doesn’t start
with a clean slate. There’s some good reason for that skepticism. That skepticism still exists and it’s understandable. But the
world has changed. We’re moving past old alignments, leaving behind old suspicions and building new relationships.” China
has particular interest in Mexico, the region’s second-largest market. Beijing has been competing with
Mexico to supply the U.S. market with manufactured goods. But China is now looking to work with Mexico City
— investing in infrastructure, mining and energy because of the expected reforms that would
open the oil industry to foreign investment. There are obstacles ahead. One irritation that President Enrique
Peña Nieto shared with Xi is that though Mexico posted a trade surplus with its global partners, it ran a big deficit with China.
China is looking for even more however. It is eager to pursue a free trade agreement with Mexico, but Mexico City said last
week it was too soon. Meanwhile, Mexico’s trade with the United States continues to flourish and it is due to displace Canada
as the largest U.S. trade partner by the end of the decade, according to the Dialogue. China is also considering joining
negotiations for the Trans-Pacific Partnership agreement, which aims to boost trade among the Americas, Asia and Australia.
The talks include the United States, Canada and other major economies on the Pacific rim. Each superpower also brings
baggage to the region. Washington still seeks to exert pressure on its partners. It has told Brazil, for example, that it has the
responsibility to use its leverage with others, such as Iran. Meanwhile, “Chinese investment,” Farnsworth said, “doesn’t always
bring with it good governance practices or anti corruption or environmental concerns.” The different approaches suit Latin
America just fine as it looks for continued growth. “Latin Americas welcomes being courted by both superpowers,” Shifter
explained. Just as Latin America doesn’t want to rely too much on the United States, it also now doesn’t want to depend too
much on Beijing, particularly in light of the China’s current economic slowdown. “It gives them options,” Shifter said about the
different dynamics in play. “The U.S. relationship comes with more complications. The Chinese one
comes strictly on the economic question. They’re very targeted, strategic in areas they want to
support. They have a specific agenda. The U.S. agenda is more diffuse. Latin America welcomes
both.”
Chinese investment in Latin America is key to their energy security
Singh 6-17—Research Officer in the China Research Programme at the Institute of Peace and Conflict
Studies (Singh, Teshu. "China And Latin America: Quest For Energy Security – Analysis." Eurasia Review. N.p., 17
June 2013. Web. 18 July 2013. <http://www.eurasiareview.com/17062013-china-and-latin-america-quest-forenergy-security-analysis/>.)
LAC countries are one of the developing regions of the world and have immense potential for
investments. The three countries Trinidad and Tobago, Costa Rica and Mexico are significant in their own
way. Trinidad and Tobago is one of the wealthiest countries in the Caribbean, with large reserves of oil and gas
they form a regional petroleum hub; often called as the pearl in the Caribbean. Costa Rica is well known for its
renewable energy; more than ninety percent of its electricity is generated from renewable sources. It is working
towards becoming world’s first carbon free economy. Mexico is the largest economy in Latin America and has a
thriving oil industry. Overall, all these countries offer an alternative and reliable source of energy
to satisfy China’s increasing demands. Achievments of the Visit Besides meeting the leaders of
Trinidad and Tobago, the Chinese president also held talks with leaders of Suriname, Barbados, Guyana,
Antigua and Barbuda, Dominica, Grenada, the Bahamas and Jamaica. During the visit he proposed stepping
up energy co-operation between the two countries. Agreements were reached in key areas such as
infrastructure development, energy and minerals, and in new areas of mutual and beneficial cooperation such as agriculture, telecommunications and new energy. Loan of USD 250 million was awarded and
hundred volunteer medical professionals would be sent to over the next three years. Additionally, Trinidad
intends to open an embassy in Beijing later this year. During his visit to Costa Rica, thirteen major
agreements were signed on projects worth nearly USD 2 billion, in the areas of the upgrade of an
oil refinery, a key highway and public transport. Amongst these agreements, the biggest project
will be the modernization of an obsolete oil refinery in the Caribbean port of Limón, which will be
replaced with a new refinery capable of processing 65,000 barrels of oil a day. The USD1.5 billion venture will be
financed with a USD 900-million credit from the China Development Bank, and the remaining USD 600 million
will be put up by the China National Petroleum Corporation and Costa Rica’s National Refinery (RECOPE). A
group of thirty RECOPE officials will travel to Beijing in coming days to receive training for three months at
China’s University of Petroleum. Another big project agreed to is the upgrading of Route 32, a strategic highway
that links San José to Limón, a USD 400-million dollar endeavour that will be financed by China. During the visit
to Mexico, bilateral relations were upgraded to a comprehensive strategic partnership. The two heads of state
agreed to push forward the China-Mexico comprehensive strategic partnership by working jointly in the
following four aspects; by showing mutual understanding and support on the issue concerning each other’s core
interest, improving practical cooperation in accordance with their development strategies, and agree to increase
mutual investment in key areas such as energy, mining, infrastructure and high technology, encourage more
exchanges between art troupes, promote tourism and strengthen communication among students, academics,
journalists and athletes and improving multilateral coordination based on their common interests and
responsibilities on major international issues. Bilateral trade between LAC and China in the year 2012 was USD
261.2 billion. Thus visit further enhanced the bilateral ties to a much higher level. The Future of Bilateral
Relations between China and the LAC Energy Security remains the prime agenda of its foreign
policy; the new leadership is trying to project China’s ‘peaceful development’ to every possible
place on the globe. The visit reveals regardless of the size and geographical distances China is keen on
developing relations with these countries to boost its economic ties to secure its energy resources.
Being in the developing stages, the LAC needs Chinese investments in its infrastructure and construction which
has not come till now by the US The agreements signed are an indication to the LAC countries that China has
been taking them seriously and has responded to their gesture
Chinese energy insecurity leads to war over oil in the South China Sea, this brings in the US
into a full scale war
Sreeraman 12 [Hemant Sreeraman is an investor with a special interest in finance and international
relations. For his Masters at London School of Economics, his areas of focus were Economic History and
International Relations. He harbors interests in writing and geopolitics, with a specific focus on Asia, August 22,
2012, “(South China) Sea of Problems: A Question of Energy Security”
http://www.foreignpolicyjournal.com/2012/08/22/south-china-sea-of-problems-a-question-of-energy-security/]
Apart from the overlapping lines drawn on the map, contours of confrontation are beginning to appear in
the territorial disputes in the South China Sea (“SCS”). The dispute, careening towards a military
flashpoint that potentially threatens to destabilize the region, revolves around considerations
of energy security overlapped on China’s longer-term aspirations of playing a larger role in
regional geopolitics. To appreciate the importance of the issue of energy security, it would be useful to briefly direct
attention at the region through the lens of energy considerations. According to BP’s Statistical Energy Review, the AsiaPacific region accounted for a meager 2.5% of global proved reserves of oil in 2011, but
accounted for a little over a third of global consumption. On the natural gas front, Asia-Pacific made up 8%
of global proved reserves and accounted for c.18% of global consumption. The Asia-Pacific region is the world’s
largest energy consumer, accounting for nearly 40% of global consumption. Since 2001, AsiaPacific’s oil and natural gas consumption has grown at over twice the growth rate for total world consumption. BP forecasts
Asia-Pacific’s consumption to continue to grow at over twice the world consumption growth rate, through 2030. China is a
far bigger player and a massive guzzler of oil and natural gas (charts, below). The economic stakes are high. As
Asia guzzles ever-increasing amounts of oil and natural gas, securing steady sources of energy supplies will
assume critical importance. Energy security would reduce dependence on sources from distant geographies, often
muddled in strife of their own, and confer significant geopolitical leverage upon the endowed. Believed to be lying
below the waters are deposits of natural gas and oil. Reserve estimates vary widely from a low
of 28 billion barrels to a high of 213 billion barrels; the latter, if true, would catapult the SCS to third in the
global league tables of proved oil reserves, behind Saudi Arabia. There is a 50% chance that the waters hold 3.8 trillion cubic
meters of natural gas, which is a shade under a quarter of Asia-Pacific’s present proved natural gas reserves. The SCS
serves as an important transit pathway for natural gas and oil movements in the region. The
value of the ship borne trade is estimated at US$5 trillion annually. For China, the SCS is a matter of sovereignty.
Overlapped on economic considerations, China’s keenness in exercising influence is
comprehensible. The SCS could provide succor to the energy parched economic behemoth,
which is a net importer of oil and natural gas, and afford it an opportunity to project its
authority on the region. The hydrocarbon angle also holds interest to two other net importers
of oil claiming overlapping interests in the region, Vietnam and the Philippines . Brunei and
Malaysia, the other players in the fray, are net exporters of oil and natural gas. This is China’s opportunity to project strategic
leadership and raise its influence to a higher plane, within the region and more broadly, among the world. A slovenly attitude
bordering on belligerence at this critical juncture would severely undermine credibility, not only among regional peers but
also global geopolitical rivals. In order to emerge as a responsible participant in the global sphere, it is imperative for China to
choose dialogue over arsenal. Prospects of a collective resolution to the problem, possibly moderated by the ASEAN, appear
dim, given the historical deadlock among regional stakeholders. The failure of the July 2012 ASEAN Foreign Ministers’ Meeting
in putting out a Joint Communiqué, for the first time in forty-five years, should have come as no surprise, as the realistic
probability of eking out a consensus on the South China Sea issue was slim. The only statement released, the Six-Point
Principles on the South China Sea, made two explicit references to the United Nation Convention on the Law of the Sea
(UNCLOS). A point that China contends does not apply to the present situation, which it claims revolves around historical
sovereignty. China’s preference for bilateral talks over multilateral consensus building is understandable, as it proffers greater
negotiating leverage over individual smaller nations, thanks to its superior economic positioning. Whether bilateral talks
would be aimed at achieving multilateral accord, remains draped in speculation. China is likely to continue to use bilateral
diplomacy to win support among smaller non-claimant nations, combined with covert displays of understated aggression, to
guide its policy posture in the situation. China’s sense of timing in escalating the issue, amid the
backdrop of upcoming elections in the USA, bears traces of opportunism . It would, however, have to
balance this with the high-level leadership transition at home, which carries with it its own interest-group idiosyncrasies. It is
in China’s interest to keep USA from intervening in the situation. A belligerent posture towards the ASEAN bloc is likely to
exacerbate the situation, by driving smaller nations into USA’s arms. Consequently, China will deem it appropriate to adopt, or
at least convey, a temperate stance. There is much at stake, should skirmishes lead to all-out
confrontation; which, while low probability, could potentially be a high-impact event with severe
repercussions for China and the region. It is difficult to see China pushing this to the region’s pain point. The
military and strategic costs would be too high. The USA’s National Security Strategy explicitly recognized China’s emergence as
a geopolitical influence to be reckoned with, in addition to its emergence as an economic power. USA’s “pivot” to Asia signals
its concerns in managing China’s rapid emergence in the global power rivalry. Washington faces pressing multiple
escalation/de-escalation questions heading into election period. The FDR era isolationism/interventionism debate may reemerge on the ‘East Questions’ – Israel-Iran, Syria in the Middle East and the South China Sea in the Far East. It seems likely
that the USA may feel obliged to intervene on the premise of protecting its interests , ostensibly
commercial but also geopolitical, in the region. Having played a pivotal role on the international sphere for nearly a century,
the USA would be wary of instigating actions that cede control to rivals, particularly China. USA intervention could
potentially imperil the bilateral relationship between the USA and China, where a degree of
nervousness lurks below a layer of harmony, threatening to lead to a cataclysmic rift. Areas of
disagreement abound on both sides, with China being suspicious of USA’s attempts at
stymieing its military and economic ascendancy. Beijing’s recent rejoinder in response to Washington’s
statement on the issue, where the latter took umbrage to the establishment of a military garrison in the city of Sansha, is
indicative of China’s rather dismissive posture towards covert USA participation. Consequently , continued military
brinkmanship by China would play into USA’s hands. This would give the latter an excuse to project itself on
the situation, on the side of the smaller nations in the ASEAN bloc. As long as China projects a conciliatory stance towards its
neighbors, the USA would be hard pressed to clothe its participation in diplomatically palatable terms, whether internationally
or at home. Domestic electoral politics notwithstanding, the USA would do well to assume the role of a vigilant observer in the
conflict, and let regional stakeholders eke out a peaceful solution. Vietnam and the Philippines have few
alternatives. In its strong condemnation over the non-issuance of the Joint Communiqué, Philippines referred to
China as the ‘northern neighbor’ and plainly spelt out the need for multilateral resolution over bilateral discussions,
a route which China prefers strongly. The troika’s tit-for-tat actions, which witnessed them extending
invitations to oil companies in June/July 2012 to explore in contested overlapping waters in
the SCS, further added fuel to simmering differences. The smaller nations are justifiably worried about
shifting balance of powers in the region. Their attempt at internationalizing the problem is at loggerheads with China’s efforts
at regionalizing the issue. This impasse could swiftly escalate in the absence of proactive dialogue. Vietnam and the
Philippines’ trade dependence on China confer upon these nations weaker negotiating leverage relative to China, on the
economic sphere. Moreover, they lack the individual military might to take China head-on in an
armed confrontation. They have little to gain and much to lose by adopting this course of action. Given the power
differential, the optimal path ahead for the smaller neighbors would be to pursue a course of constructive multilateral
dialogue. In several ways, the smaller nations have a hedge in the USA, should China opt to escalate
confrontational rhetoric. Given the potential of this development, China ought to reconsider overplaying its hand.
Troubles, meanwhile, are brewing between China and Japan over the Senkaku Islands (Diaoyu
Islands) in the East China Sea. The intensity of statements, from China, risks another territorial dispute between the
two historically edgy neighbors spiraling out of control. Chinese activists made their way to the Islands and the Chinese media
promptly seized the situation to fan nationalist sentiments. When Japan activists reciprocated, anti-Japan protests erupted in
China. Territorial questions tend to easily stoke nationalistic feelings among citizens, which
becomes a cagey issue for governments to handle beyond a tipping point. On one hand China
claims this is a question of sovereignty, and thus outside the purview of UNCLOS; on the other hand it
demonstrates an earnestness to assert its territorial claims in the region, so it has a hedge under the
aegis of the UNCLOS. China should resist the urge to escalate military maritime forcefulness and devote energy into regional
security. Its assertiveness would be welcome, if directed at achieving a multilateral solution to the issue and within the
purview of the basic tenets of international law. Some form of equitable distribution and joint development of hydrocarbon
resources appears the best mode of action available to regional participants, who must mutually work towards peaceable
resolution of festering discord. This, in turn, is somewhat predicated on resolution of the claimants’ territorial disputes, a
prospect that appears mired in deadlock. There are no easy solutions. Dithering increases the risk of armed
conflict, accidental or otherwise. International arbitration, presided over by the USA, would dent China’s image as
an emerging responsible leader on the global scale. At a broader level, the issue could signal a subtle, albeit gradual, shift of
influence; from the West to the East. The South China Sea could potentially be a key moment of transition in the relations
between USA and China. The geopolitical epicenter shift from the West to the East, already underway in the economic sphere,
might further gain traction. Battle lines might be drawn but the probability of a full-scale armed conflict appears slim, so far, at
least. This is one opportunity of leadership that China should be loath to squander away.
2NC
UQ
Generic
China’s influence in Latin American energy markets is quickly growing
WSJ 6-6 (Winkley, Ben. "Energy Journal: China Broadens Reach Into Latin America." The Wall
Street Journal. N.p., 6 June 2013. Web. 18 July 2013.
<http://blogs.wsj.com/moneybeat/2013/06/06/energy-journal-china-broadens-reach-into-latinamerica/>.)
Having successfully made vast inroads into Africa, North America and the key oil-producing region of the North
Sea, resource-hungry China is turning its attention to Central and South America . Venezuela is
negotiating a $4 billion credit line from the Export-Import Bank of China that would be used for
purchasing oil-field equipment, The Wall Street Journal’s Kejal Vyas reports from Caracas. The deal adds to a
separate $4 billion loan that state oil company PdVSA will receive from the Chinese government to boost oil
production at Petrolera Sinovensa, a joint venture in Venezuela’s vast Orinoco heavy-oil belt. The Chinese ExIm Bank is also extending a credit line of $1 billion to Petroleos Mexicanos, Rigzone reports, again to
buy vessels and offshore equipment. The Mexican and Venezuelan oil sectors have been hampered by
underinvestment and restrictions on outside money. What’s in it for China? As ever, access to the fuel for its
economy—Venezuela currently sends more than 600,000 barrels of oil a day to China and aims
to reach 1 million barrels a day within a couple of years, the Journal says. Pemex will begin increasing oil
exports to China by an initial 30,000 barrels a day, Reuters reports.
China is expanding into Latin America’s energy sectors
Xiaoxia 5-7—Worldcrunch Journalist (Xiaoxia, Wang. "In America's Backyard: China's Rising Influence In
Latin America." - All News Is Global |. N.p., 06 May 2013. Web. 18 July 2013.
<http://www.worldcrunch.com/china-2.0/in-america-039-s-backyard-china-039-s-rising-influence-in-latinamerica/foreign-policy-trade-economy-investments-energy/c9s11647/>.)
Over the past five years, Chinese businesses have been expanding their footprint in Latin America
in a number of ways, beginning with enhanced trade to ensure a steady supply of bulk commodities
such as oil, copper and soybeans. At this year's Boao Forum for Asia, for the first time a Latin American subforum was created that included the participation of several heads of state from the region. Since 2011, China
has overtaken the Netherlands to become Latin America’s second biggest investor behind the
United States. China has signed a series of large cooperation agreements with Latin American
countries in such fields as finance, resources and energy. According to the latest statistics of the General
Administration of Customs of China, Sino-Latin American trade grew in 2012 to a total of $261.2
billion, a year-on-year increase of 8.18 percent. This trend risks undermining the position of the
United States as Latin America’s single dominant trading partner. In 2011, the U.S.-Latin American
trade volume was $351 billion.
China’s investment in Latin America will continue to grow
China Internet Information Center 6-5– The authorized government portal site to China
published under the auspices of the State Council Information Office and the China International Publishing
Group in Beijing. ("New Chapter for China-Latin American Relations." - China.org.cn. N.p., 5 June 2013. Web. 18
July 2013. <http://www.china.org.cn/opinion/2013-06/05/content_29032698.htm>.)
Chinese President Xi Jinping's ongoing trip to Latin America and the Caribbean has ushered in a new chapter in
the region's fast-growing bilateral relations with China. The trip also proves that the two sides can be each
other's opportunities in their long-term comprehensive cooperation. In the past decade, the development of
bilateral trade testifies to the win-win cooperation China and its Latin American partners have
vowed to seek. China is now the second largest trading partner of Latin America and a leading
source of investment in the region. It is the largest trading partner of Brazil and Chile. Free trade
agreements have been signed between China and Chile, Peru as well as Costa Rica respectively.
Even amidst the global economic downturn and the European debt crisis, bilateral trade reached 261.2
billion U.S. dollars in 2012, increasing by 8.1 percent year-on-year. It is expected to reach 400
billion dollars in 2017. It is undeniable that China's demand for commodities revived the growth engine for
resource-rich Latin America in recent years. However, Latin America is not just China's raw material corner, nor
is China Latin America's one-time bonanza. To enhance cooperation across such geographical distances is not
bricolage. The trade structures of China and Latin American countries are highly complementary. They offer a
wide range of cooperation opportunities which have been expanded beyond energy to include,
among other things, finance, agriculture, infrastructure, science and technology, aerospace, and tourism. The
economic exchange between China and Latin America has also found a balance between trade and investment,
evolving from the trade-dominated mode at the very beginning. China's investment in Latin America has
reached around 65 billion dollars and created much needed jobs in the region. The infrastructure projects
funded by Chinese banks and built by Chinese contractors set good examples that China and Latin America
have already been on track for comprehensive cooperation in the long term.
China winning oil contracts in Latin America now
Singh 6/17 [Teshu Singh is a Research Officer in the China Research Programme at the Institute of Peace and Conflict
Studies since June 2011. She is a Doctoral Candidate at the Department of East Asian Studies, University of Delhi and has
completed her M.Phil from the Department of East Asian Studies, University of Delhi, Delhi, on the topic “the changing Foreign
Policy on the territorial Dispute of the South China Sea in the Reform Era”, June 17, 2013, “China And Latin America: Quest For
Energy Security – Analysis”, http://www.eurasiareview.com/17062013-china-and-latin-america-quest-for-energy-securityanalysis/]
Besides meeting the leaders of Trinidad and Tobago, the Chinese president also held talks with leaders of Suriname,
Barbados, Guyana, Antigua and Barbuda, Dominica, Grenada, the Bahamas and Jamaica. During the visit he proposed
stepping up energy co-operation between the two countries. Agreements were reached in key areas
such as infrastructure development, energy and minerals, and in new areas of mutual and beneficial cooperation such as agriculture, telecommunications and new energy. Loan of USD 250 million was awarded and hundred
volunteer medical professionals would be sent to over the next three years. Additionally, Trinidad intends to open an embassy
in Beijing later this year. During his visit to Costa Rica, thirteen major agreements were signed on projects
worth nearly USD 2 billion, in the areas of the upgrade of an oil refinery , a key highway and public
transport. Amongst these agreements, the biggest project will be the modernization of an obsolete oil
refinery in the Caribbean port of Limón, which will be replaced with a new refinery capable of
processing 65,000 barrels of oil a day. The USD1.5 billion venture will be financed with a USD 900-million credit
from the China Development Bank, and the remaining USD 600 million will be put up by the China National Petroleum
Corporation and Costa Rica’s National Refinery (RECOPE). A group of thirty RECOPE officials will travel to
Beijing in coming days to receive training for three months at China’s University of Petroleum.
Another big project agreed to is the upgrading of Route 32, a strategic highway that links San José to Limón, a USD 400-million
dollar endeavour that will be financed by China. During the visit to Mexico, bilateral relations were upgraded to a
comprehensive strategic partnership. The two heads of state agreed to push forward the China-Mexico
comprehensive strategic partnership by working jointly in the following four aspects; by showing mutual understanding and
support on the issue concerning each other’s core interest, improving practical cooperation in accordance with their
development strategies, and agree to increase mutual investment in key areas such as energy,
mining, infrastructure and high technology, encourage more exchanges between art troupes, promote tourism
and strengthen communication among students, academics, journalists and athletes and improving multilateral coordination
based on their common interests and responsibilities on major international issues.
China investing tons of money into Latin American Oil
Winkley 6/6 [Ben Winkley, Assistant News Editor at Dow Jones Newswires, Jun 6, 2013, “Energy Journal:
China Broadens Reach Into Latin America”, http://blogs.wsj.com/moneybeat/2013/06/06/energy-journalchina-broadens-reach-into-latin-america/]
Having successfully made vast inroads into Africa, North America and the key oil-producing region of the North Sea,
resource-hungry China is turning its attention to Central and South America. Venezuela is
negotiating a $4 billion credit line from the Export-Import Bank of China that would be used
for purchasing oil-field equipment, The Wall Street Journal’s Kejal Vyas reports from Caracas. The deal adds
to a separate $4 billion loan that state oil company PdVSA will receive from the Chinese
government to boost oil production at Petrolera Sinovensa, a joint venture in Venezuela’s vast Orinoco
heavy-oil belt. The Chinese Ex-Im Bank is also extending a credit line of $1 billion to Petroleos
Mexicanos, Rigzone reports, again to buy vessels and offshore equipment. The Mexican and
Venezuelan oil sectors have been hampered by underinvestment and restrictions on outside money. What’s in it for China? As
ever, access to the fuel for its economy—Venezuela currently sends more than 600,000 barrels
of oil a day to China and aims to reach 1 million barrels a day within a couple of years, the Journal
says. Pemex will begin increasing oil exports to China by an initial 30,000 barrels a day, Reuters
reports.
China’s demand for energy has led to many long term energy contracts in Latin America
Brandt et al 12 [Jon Brandt, Derek Hottle, Nicole Adams, Nav Aujla, Christina Dinh, Kirsten Kaufman, Devin
Kleinfield-Hayes, Wanlin Ren, Andrew Tuck, US-China Economic and Security Review Commission, December
2012, “Chinese Engagement in Latin America and the Caribbean: Implications for US Foreign Policy”,
http://www.american.edu/sis/usfp/upload/Chinese-Engagement-in-LAC-AU_US-Congress-FINAL.pdf]
China’s insatiable demand for natural resources has prompted its foreign and commercial
policies to be focused on ‘going out.’ Due to China’s massive population, domestic resource constraints,
environmental degradation and global creditor position, the Chinese have set out to exchange dollars for
resources and diplomacy. China has begun to make notable inroads all around Latin America
in the supply of credit and financing to resource-rich and credit-deficient nations throughout
the region. Most of China’s loans, which have grown immensely in the past decade, are aimed at natural
resource extraction. Since 2005 China has provided approximately $75 billion in loan commitments to Latin America.
The China Development Bank (CDB) and Chinese Export-Import Bank (China Ex-Im) are the number one and two sources of
credit respectively.16 Since 2005, China Ex-Im Bank has out-financed US Ex-Im by a factor of four, or $8 billion as opposed to
$2 billion.17 As China’s loans have continued to grow, its relative influence in the region with
respect to the US and Western lending institutions has grown alongside it. “As of 2010, China loaned
more to Latin America than the World Bank, Inter-American Development Bank and US Ex-Im Bank combined.” Perhaps the
most intriguing trend is to whom the Chinese are lending in comparison to western lenders’ debtors. The top recipients of
Chinese loans are Venezuela, Brazil, Argentina and Ecuador in that order. Outside of Brazil, these countries are ‘non-credit
worthy’ nations that are unable to obtain credit in international capital markets . There is a visible pattern between
the loans the Chinese have provided and the natural resource, energy or other commodity
extraction tied to them. Since 2007, CDB has loaned Venezuela $42.5 billion collateralized by
revenue from the world’s largest oil reserves, according to data compiled by Bloomberg from announcements
of deals by the Chavez government. That’s around 23 percent of all overseas loans by the state-run lender and more than the
$29 billion the US spent rebuilding Iraq between 2003 and 2006. At least $12 billion was promised in the past 15 months,
when stagnant oil output and the highest borrowing costs among major emerging markets would’ve made raising capital more
expensive.19 Earlier in the year, China and Brazil signed a massive ten-year, $10 billion loan in which
Petrobras agreed to send oil to China for a decade.20 Similar loan agreements have been with
Venezuela and Argentina as China continues to leverage its position as the largest creditor in the
world to ensure its energy security and deepen political ties within the region . Of the $194 billion in
global lending provided to Latin America from 2005-2011, China’s contribution was just under $74 billion while the next
largest contributor was the Inter-American Development Bank at $67 billion.21
China has long term investments in Latin America now
Brune 10 [Dr. Nancy E. Brune works on energy security and national security issues at Sandia National
Laboratories. She is a Truman National Security Fellow, as well as a member of Women in International Security
and the Pacific Council on International Policy, July 26, 2010, “Latin America: A Blind Spot in US Energy Security
Policy”, http://www.ensec.org/index.php?option=com_content&view=article&id=250:south-of-the-borderamericas-key-to-energy-security&catid=108:energysecuritycontent&Itemid=365]
Domestic political and economic turmoil—violence, falling production and nationalization—in Latin America are not the only
factors increasing the risk to America’s long term energy security. Sadly, while US engagement with Latin
America has reflected muddled, short-term unilateral objectives, other countries—like China,
Iran and Russia—recognize the strategic importance of Latin America and are building broad
relationships in very systematic, aggressive ways. These new alliances between our Latin American neighbors
and several countries that are frequently hostile to American interests may also disrupt our stable and secure access to energy
resources. Russia is widely recognized as using its vast natural resources as a political weapon and holding countries hostage
by manipulating access, control and distribution of the energy resources. Russia has also been quite active in building strategic
relationships with several resource-wealthy countries to enhance its own long term energy security. When Russia’s reach was
limited to Eastern Europe, it was easy for the US to stay on the sidelines of Western Europe’s diplomatic and political battles
with Russia. Now the situation is not as ambiguous. In September 2009, Russia and Venezuela announced several cooperative
agreements on energy, defense and trade, including a commitment to supply Venezuela with almost $4 billion in weapons.
PDVSA signed two agreements with a consortium of energy giants in Russia. While production and investment are years away,
a Russia-Venezuela joint venture has the potential to disrupt our supply lines. As is well known, China’s grand strategy
has been shaped by its desire to secure surety of energy supplies to fuel its continued
industrialization. In 2008, China spent $100 billion in Latin America, most of this on
hydrocarbons, energy and mining. China has had a growing presence in Venezuela since 2003
after helping PVDSA recover from a prolonged labor strike. The China National Petroleum Corporation (CNPC) has been
operating Venezuelan oil fields in the Zulia and Anzoategui provinces for years. Reciprocally, PVDSA has maintained a
representative office in China since 2005. In April 2010, China announced a $900 million heavy crude
production project with Venezuela. To sweeten the pot, the China Development Bank signed a
financing agreement to loan Venezuela $20 billion. Just prior to that, in neighboring Brazil, a country that sits
on vast pre-salt oil reserves, China’s Sinopec and the China Development Bank signed a strategic
development pact with Petrobras, Brazil’s state-owned oil company, whereby China agreed to provide financing to
the tune of $10 billion in Petrobras over the next five years. Leaving no corner unturned, China also has operations in Ecuador.
In 2006, Andres Petroleum, a consortium of Chinese oil companies, purchased the Ecuadorian assets of the Canadian firm,
EnCana for $1.42 billion. In return, CNPC gets oil and control over the controversial Oleoducto de Crudos Pesados (OCP)
pipeline.
U.S. hegemony in Latin America is falling as China increases investments
Barrio and Romero 5/06/2009 [Alexei Barrio and Simon Romerno, May 6, 2009, “Deals Help
China Expand Sway in Latin America”, World Security Network,
http://www.worldsecuritynetwork.com/Latin-America/Simon-Romero-and-Alexei-Barrionuevo-1/Deals-Help-China-Expand-Sway-in-Latin-America-1]
CARACAS, Venezuela - As
Washington tries to rebuild its strained relationships in Latin
America, China is stepping in vigorously, offering countries across the region
large amounts of money while they struggle with sharply slowing economies, a plunge in commodity prices and
restricted access to credit. In recent weeks, China has been negotiating deals to double a development
fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide
Argentina with access to more than $10 billion in Chinese currency and lend Brazil's national oil company $10
billion. The deals largely focus on China locking in natural resources like oil for
years to come. China's trade with Latin America has grown quickly this decade,
making it the region's second largest trading partner after the United States.
But the size and scope of these loans point to a deeper engagement with Latin
America at a time when the Obama administration is starting to address the
erosion of Washington's influence in the hemisphere. "This is how the balance
of power shifts quietly during times of crisis," said David Rothkopf, a former Commerce
Department official in the Clinton administration. "The loans are an example of the checkbook power in the world moving to
new places, with the Chinese becoming more active." Mr. Obama will meet with leaders from the region this weekend. They
will discuss the economic crisis, including a plan to replenish the Inter-American Development Bank, a Washington-based
pillar of clout that has suffered losses from the financial crisis. Leaders at the summit meeting are also expected to push Mr.
Obama to further loosen the United States policy toward Cuba. Meanwhile, China is rapidly increasing its lending in Latin
America as it pursues not only long-term access to commodities like soybeans and iron ore, but also an alternative to investing
in United States Treasury notes. One of China's new deals in Latin America, the $10 billion arrangement with Argentina, would
allow Argentina reliable access to Chinese currency to help pay for imports from China. It may also help lead the way to
China's currency to eventually be used as an alternate reserve currency. The deal follows similar ones China has struck with
countries like South Korea, Indonesia and Belarus. As the financial crisis began to whipsaw international markets last year, the
Federal Reserve made its own currency arrangements with central banks around the world, allocating $30 billion each to
Brazil and Mexico. (Brazil has opted not to tap it for now.) But smaller economies in the region, including Argentina, which has
been trying to dispel doubts about its ability to meet its international debt payments, were left out of those agreements. Details
of the Chinese deal with Argentina are still being ironed out, but an official at Argentina's central bank said it would allow
Argentina to avoid using scarce dollars for all its international transactions. The takeover of billions of dollars in private
pension funds, among other moves, led Argentines to pull the equivalent of nearly $23 billion, much of it in dollars, out of the
the Chinese
overtures in the region were made possible by the "lack of attention that the
United States showed to Latin America during the entire Bush administration." China is also seizing
country last year. Dante Sica, the lead economist at Abeceb, a consulting firm in Buenos Aires, said
opportunities in Latin America when traditional lenders over which the United States holds some sway, like the InterAmerican Development Bank, are pushing up against their limits. Just one of China's planned loans, the $10 billion for Brazil's
national oil company, is almost as much as the $11.2 billion in all approved financing by the Inter-American Bank in 2008.
Brazil is expected to use the loan for offshore exploration, while agreeing to export as much as 100,000 barrels of oil a day to
China, according to the oil company. The Inter-American bank, in which the United States has de facto veto power in some
matters, is trying to triple its capital and increase lending to $18 billion this year. But the replenishment involves delicate
negotiations among member nations, made all the more difficult after the bank lost almost $1 billion last year. China will also
have a role in these talks, having become a member of the bank this year. China
has also pushed into Latin
American countries where the United States has negligible influence, like
Venezuela. In February, China's vice president, Xi Jinping, traveled to Caracas to meet with President Hugo Chávez. The
two men announced that a Chinese-backed development fund based here would grow to $12 billion from $6 billion, giving
Venezuela access to hard currency while agreeing to increase oil shipments to China to
one million barrels a day from a level of about 380,000 barrels. Mr. Chávez's government contends the Chinese
aid differs from other multilateral loans because it comes without strings attached, like scrutiny of internal finances. But the
Chinese fund has generated criticism among his opponents, who view it as an affront to Venezuela's sovereignty. "The fund is a
swindle to the nation," said Luis Díaz, a lawmaker who claims that China locked in low prices for the oil Venezuela is using as
repayment. Despite forging ties to Venezuela and extending loans to other nations that have chafed at Washington's clout,
Beijing has bolstered its presence without bombast, perhaps out of an awareness that its relationship with the United States is
still of paramount importance. But this deference may not last. "This is China playing the long game," said Gregory Chin, a
political scientist at York University in Toronto. "If this ultimately translates into political influence, then that is how the game
is played."
China has the advantage over the US for contracts in Latin America
Tyler 5/31/2013
[Jeff Tyler, May 31, 2013, “The battle of trade for Latin America”,
Marketplace World, http://www.marketplace.org/topics/world/battle-trade-latin-america]
Chinese president Xi Jinping begins a tour of Latin America today. First stop, the Caribbean island of Trinidad. His visit comes
on the heels of Vice President Biden’s tour of the region. Biden just signed a renewable energy agreement with Trinidad. So
what can China offer? Trinidad is one of the world’s leading producers of natural gas. The U.S. used to buy a lot of it from
Trinidad, until we tapped our own reserves. “Trinidad now needs to find global markets for its primary commodity,” says Eric
Farnsworth, vice president of the Council of the Americas. “China’s hungry for energy and it makes a lot of sense to talk to the
Trinidadians about perhaps developing that energy relationship.” Leaders from the U.S. and China down-play their
competition. “I don’t think either of them see themselves in a head-to-head race for influence in the region necessarily,”
Farnsworth says. But the U.S. and China also compete in Latin America, as the continent becomes
increasingly important to the world’s economy. “Chinese national oil companies have a
competitive advantage over U.S. oil companies,” says Jorge Piñón with the University of Texas in Austin.
“They also play the role of a banker to the energy sector.” Piñón says China loaned a total of $45
billion to Brazil and Venezuela to develop energy projects, with the loans to be repaid with oil.
That’s a deal it would be hard for Exxon or Chevron to match.
China Influence Increasing
US Department of State 2012 International Narcotics Control Strategy Report, Volume I: Drug and
Chemical Control, Bureau of International Narcotics and Law Enforcement Affairs, US Department of State.
http://www.state.gov/j/inl/rls/nrcrpt/2012/vol1/184098.htm#China.
China’s presence in Latin America and the Caribbean has mushroomed in the last decade. The
region has experienced a dramatic increase in economic, political, military, cultural, and
diplomatic ties with China. Over the past decade Chinese economic engagement with Latin
America has exploded. Today China is the top trade partner of Brazil and Chile and the second
largest trade partner of Argentina and Peru. Resulting from three decades of continuous
economic growth, urbanization and a massive social transformation, China is one of the
world’s most important players in the LAC energy sector.
Venezuela
China is rapidly increasing its share of Venezuelan oil
WSJ 5-15 ("Venezuela, China Finalizing Terms of $4B Oil JV Loan - Oil Minister." Wall Street Journal. N.p., 15
May 2013. Web. 18 July 2013. <http://online.wsj.com/article/BT-CO-20130515-714770.html>.)
MORICHAL, Venezuela--Venezuelan officials continue to finalize terms over a previously announced
$4 billion loan from China to finance a sharp output increase at an oil joint venture in the South
American country, Venezuela's oil minister, Rafael Ramirez, said Wednesday. The funds are slated to go
toward Sinovensa, a joint project between state energy companies Petroleos de Venezuela SA and China
National Petroleum Corp. in Venezuela's massive Orinoco heavy oil belt. Current output at the venture, which is
60% controlled by Venezuela, is 140,000 barrels a day and officials seek to raise production to 330,000 barrels a
day. "We're signing the financial terms, the rate, all of that, and when we have it ready we'll announce it," Mr.
Ramirez told reporters following a meeting with Chinese Vice President Li Yuanchao who is on a tour of the
resources-rich country. Mr. Ramirez said he planned to travel to China "very soon" to sign the loan agreement,
which was announced in late 2011. China has granted Venezuela more than $30 billion in loans
over the last several years, which is being repaid in oil shipments . Mr. Ramirez said shipments to
China currently account for 626,000 barrels a day. Mr. Ramirez also said that both parties were looking
into raising production at another joint venture in Venezuela's Junin 4 oil bloc to 400,000 barrels a day by 2016.
Speaking through a translator, Mr. Li said he had spoken to the minister about increasing investments in other
projects, without offering specifics.
China looking to drastically expand investment in Venezuela Oil
Hearn 12 [Kelly Hearn is an investigative reporter whose work has been funded by the Pulitzer Center on
Crisis Reporting and the North American Congress on Latin America, March 12, 2012, “Venezuelan oil a risky
investment for China”, http://www.washingtontimes.com/news/2012/mar/12/venezuelan-oil-a-riskyinvestment-for-china/?page=all]
China has poured billions of dollars into Venezuela’s oil sector to expand its claim over the
country’s massive oil reserves. But Beijing is getting relatively little for its investments, and Chinese officials are
increasingly frustrated with Venezuelan President Hugo Chavez, according to energy analysts and former managers of the
state oil company, Petroleum of Venezuela, or PDVSA as it’s known by its Spanish acronym. Mr. Chavez, who is battling a lifethreatening recurrence of cancer, said his goal is to send 1 million barrels of oil a day to China, which has given Venezuela
more than $30 billion in loans and promised billions of dollars more in energy investments by 2016. PDVSA claims to send
410,000 barrels a day to Chinese markets, the bulk of which is used to pay back the loans. Already this year, PDVSA has
announced that Citic Group Corp., China’s largest state-owned investment company, will acquire a 10 percent stake in the
Petropiar heavy-crude project held with PDVSA and U.S.-based Chevron Corp. It also said that the China Development Bank
will spend $4 billion to help boost production in a joint venture with China National Petroleum Corp., or CNPC. The
Chinese bank and the Venezuelan government also have agreed to renew a $6 billion bilateral
investment fund, of which $2 billion will help boost PDVSA production. But Tom O’Donnell, an oil
analyst who teaches at the New School University and writes an oil-industry blog, the Global Barrel, said the payoffs of China’s
loans amount to a “consolation prize.” He said China’s goal is not to get oil for loans, but to have its own
national oil companies contract for major oil-production projects in Venezuela’s Orinoco Tar
Sands, the largest single known petroleum reserve in the world, with 513 billion barrels of
heavy crude oil. “The Chinese have not gotten the kind of preferential access they want [to the
tar sands], and my sources tell me they are extremely unhappy,” said Mr. O’Donnell. In 2010, CNPC signed a deal
to help Venezuela develop a major Orinoco oil field known as Junin 4, which includes the construction of a facility to convert
heavy oil to a lighter crude that could be shipped to a refinery in Guangdong, China. “Although the contract was signed in
December 2010, not one barrel of oil has yet been produced, much less upgraded,” said Gustavo Coronel, a former PDVSA
board member. “So far, nothing much seems to be happening, except for the arrival of a large group of Chinese staff to the
CNPC’s Caracas office,” he added, referring to the Venezuelan capital, Caracas. “Apart from money, there seems to be little that
China can offer Venezuela in the oil industry,” he said, adding that a “culture gap will make working with China very difficult
for Venezuelan oil people, who were mostly trained in the U.S.” Erica Downs, a former energy analyst for the Central
Intelligence Agency now with the Brookings Institution in Washington, said the Junin-4 project could be key to China’s future
in Venezuela. “If all that happens, China will be in a position to take substantial volumes of Venezuelan
oil,” she said. “The problem is that the project hasn’t gotten off the ground .” Ms. Downs said Venezuela is
far from living up to Mr. Chavez’s export goals for Beijing and that PDVSA’s claims of sending 410,000 barrels a day do not
match Chinese customs data, which show 322,000 barrels per day of crude and fuel oil imported from Venezuela last year.
“Although Venezuela’s oil exports to China have grown along with the volume of oil-backed loans extended by China
Development Bank to Caracas, the delivered volumes still fall short of Chavez’s goal of eventually shipping 1 million barrels
per day to China,” she said. Critics of the loans say Mr. Chavez is using the so-called “China fund” as his personal piggy bank.
The Chinese also seem to be increasingly wary. Internal PDVSA documents released by a Venezuelan congressman show that
the Chinese balked at a $110 billion loan request by Mr. Chavez in 2010, after PDVSA officials failed to account fully for where
the money would go. The Chinese are now pressing PDVSA to let them list some of their
investments in the Orinoco region on the Hong Kong exchange, a move analysts say would increase transparency
and accountability in PDVSA’s spending. “Development of the Orinoco oil belt is only slowly taking place because most of the
companies — excluding Chevron, Repsol and China National Offshore Oil Corp. — either do not have the cash or the
technology,” said Oliver L. Campbell, a former finance coordinator at PDVSA. Unlike light and sweet crude from Saudi Arabia,
oil from Orinoco is tarlike. It is laced with metals and sits beneath deep jungles. Getting to the oil field means
building roads, electrical-power grids and other major infrastructure. Once the oil is extracted from
the ground, it is technically difficult to process. “One of the major problems is that there are very few refineries outside the
Gulf of Mexico that can handle Venezuelan crude,” said Jorge Pinon, a former president of Amoco Oil Latin America. Years ago,
U.S. companies such as Shell and Exxon invested heavily in U.S. Gulf Coast refineries capable of processing heavy crude after
they saw that the world’s supplies of sweet crude were diminishing, Mr. Pinon said. “The Chinese don’t have that kind of
capacity,” he said. But they are looking to get it by investing in oil infrastructure off Venezuela’s Caribbean coast. CNPC, for
example, has extended a line of credit to Cuba to upgrade a Soviet-built facility jointly owned by Venezuela and Cuba. The
company PetroChina also has taken over Saudi Aramco’s lease on a massive oil-storage facility at the strategically located
Statia terminal on the Dutch Caribbean island of St. Eustatius. PetroChina also has tried to buy an oil refinery on the island of
Aruba owned by Texas-based Valero Energy Corp., according to news reports. Luis Giusti, a former president of PDVSA, said
the Chinese market becomes even more relevant for Venezuela in the face of a projected
resurgence of domestic production in the United States, which currently buys about 45 percent of all
Venezuelan crude exports. “The U.S. Energy Information Agency has estimated that the U.S. could reach a production of 20
million barrels per day by 2035, coming from shale oil in North Dakota, Arkansas, Oklahoma, Montana and others,” he said in
an email. “This would force exports from South America to look for other markets,” he said.
China locked in long term oil contracts with Venezuela but still looking for more
Romero and Barrionuevo 9 [Simon Romero became the Brazil bureau chief for The New York Times in November
2011. In this role, Mr. Romero covers Brazil and several other countries in South America, including Argentina, Chile, Paraguay
and Uruguay. Before beginning this assignment, Mr. Romero was Andean bureau chief from 2006 to 2011, based in Caracas,
Venezuela, where he wrote extensively on a broad range of issues, including President Hugo Chávez’s political movement,
Colombia’s long internal war and indigenous politics in Bolivia, and Alexei Barrionuevo joined the real estate desk in February
2012 where he wrote about high-end real estate in the Big Deal column until May 2013, April 15, 2009, “Deals Help China
Expand Sway in Latin America”, http://www.nytimes.com/2009/04/16/world/16chinaloan.html?_r=0]
As Washington tries to rebuild its strained relationships in Latin America, China is stepping in vigorously,
offering countries across the region large amounts of money while they struggle with sharply
slowing economies, a plunge in commodity prices and restricted access to credit. In recent weeks, China has been
negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at
least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10
billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals
largely focus on China locking in natural resources like oil for years to come. China’s trade with
Latin America has grown quickly this decade, making it the region’s second largest trading partner after the United States. But
the size and scope of these loans point to a deeper engagement with Latin America at a time when the Obama administration is
starting to address the erosion of Washington’s influence in the hemisphere. “This is how the balance of power shifts quietly
during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans
are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.” Mr.
Obama will meet with leaders from the region this weekend. They will discuss the economic crisis, including a plan to
replenish the Inter-American Development Bank, a Washington-based pillar of clout that has suffered losses from the financial
crisis. Leaders at the summit meeting are also expected to push Mr. Obama to further loosen the United States policy toward
Cuba. Meanwhile, China is rapidly increasing its lending in Latin America as it pursues not only long-term access to
commodities like soybeans and iron ore, but also an alternative to investing in United States Treasury notes. One of China’s
new deals in Latin America, the $10 billion arrangement with Argentina, would allow Argentina reliable access to Chinese
currency to help pay for imports from China. It may also help lead the way to China’s currency to eventually be used as an
alternate reserve currency. The deal follows similar ones China has struck with countries like South Korea, Indonesia and
Belarus. As the financial crisis began to whipsaw international markets last year, the Federal Reserve made its own currency
arrangements with central banks around the world, allocating $30 billion each to Brazil and Mexico. (Brazil has opted not to
tap it for now.) But smaller economies in the region, including Argentina, which has been trying to dispel doubts about its
ability to meet its international debt payments, were left out of those agreements. Details of the Chinese deal with Argentina
are still being ironed out, but an official at Argentina’s central bank said it would allow Argentina to avoid using scarce dollars
for all its international transactions. The takeover of billions of dollars in private pension funds, among other moves, led
Argentines to pull the equivalent of nearly $23 billion, much of it in dollars, out of the country last year. Dante Sica, the lead
economist at Abeceb, a consulting firm in Buenos Aires, said the Chinese overtures in the region were made possible by the
“lack of attention that the United States showed to Latin America during the entire Bush administration.” China is also seizing
opportunities in Latin America when traditional lenders over which the United States holds some sway, like the InterAmerican Development Bank, are pushing up against their limits. Just one of China’s planned loans, the $10 billion for Brazil’s
national oil company, is almost as much as the $11.2 billion in all approved financing by the Inter-American Bank in 2008.
Brazil is expected to use the loan for offshore exploration, while agreeing to export as much as 100,000 barrels of oil a day to
China, according to the oil company. The Inter-American bank, in which the United States has de facto veto power in some
matters, is trying to triple its capital and increase lending to $18 billion this year. But the replenishment involves delicate
negotiations among member nations, made all the more difficult after the bank lost almost $1 billion last year. China will also
have a role in these talks, having become a member of the bank this year. China has also pushed into Latin
American countries where the United States has negligible influence, like Venezuela . In February,
China’s vice president, Xi Jinping, traveled to Caracas to meet with President Hugo Chávez. The two men announced that a
Chinese-backed development fund based here would grow to $12 billion from $6 billion,
giving Venezuela access to hard currency while agreeing to increase oil shipments to China to
one million barrels a day from a level of about 380,000 barrels. Mr. Chávez’s government contends the
Chinese aid differs from other multilateral loans because it comes without strings attached, like scrutiny of internal finances.
But the Chinese fund has generated criticism among his opponents, who view it as an affront to Venezuela’s sovereignty. “The
fund is a swindle to the nation,” said Luis Díaz, a lawmaker who claims that China locked in low prices for the oil
Venezuela is using as repayment. Despite forging ties to Venezuela and extending loans to other nations that have
chafed at Washington’s clout, Beijing has bolstered its presence without bombast, perhaps out of an
awareness that its relationship with the United States is still of paramount importance . But this
deference may not last. “This is China playing the long game,” said Gregory Chin, a political scientist at York
University in Toronto. “If this ultimately translates into political influence, then that is how the
game is played.”
Ecuador
China signed a deal to claim oil refining in Ecuador
ECF 7-9— Energy China Forum is a Chinese energy industry news source with market data and analysis on
China energy ("US$13bn Ecuador-Venezuela Refinery JV Calls in China's CNPC." Energychinaforum. N.p., 9 July
2013. Web. 18 July 2013. <http://www.energychinaforum.com/news/73705.shtml>.)
Ecuador's vice president Jorge Glas announced China state oil firm CNPC's participation in the
more than US$13bn Pacífico refinery project, scheduled to begin operations in 2017. Pacífico was
being pursued as a JV between Ecuador and Venezuela state oil firms Petroecuador and PDVSA, with the former
holding a 51% interest and the latter the balance. However, CNPC will acquire a 30% interest, Glas said in a
weekly national address. Glas did not quantify CNPC's investment in the project but added, " we've advanced
a lot in the realization of investments, and they comprise capital contributions from the
(original) partners and the new partner." Ecuador has yet to return to the international bond market
following its US$3.2bn default in 2008. The country has met financing needs through bilateral credit deals,
mostly with China. The Pacífico refinery is expected to produce 300,000b/d and lower Ecuador's petroleum
costs. The OPEC nation produces around 500,000b/d but imports oil products due to its low refining capacity.
Bidding and initial construction began last month.
Mexico
A Chinese deal with PEMEX ensures China’s growing influence in Mexico’s oil
sector
Dupre 6-5— Journalist for Rigzone, with more than ten years specializing in the offshore oil and gas
industry (Dupre, Robin. "PEMEX, China Make Landmark Deal." 05 June 2013. Web. 18 July 2013.
<http://www.rigzone.com/news/oil_gas/a/126927/Pemex_China_Make_Landmark_Deal>.)
Petroleos Mexicanos (PEMEX) will have access to a credit line of $1 billion from China's Export-Import
Bank to buy vessels and offshore oilfield equipment, the company announced Tuesday after signing the
agreement with the bank. PEMEX stated that this loan is an important financing option for the renewal of its
fleet and the modernization of its marine equipment in its exploration and production division. The loan is valid
for three years. The agreement will back about $1.2 billion in the U.S. exports for projects that include the
Cantarell oil field, new exploration and production development, and a new gas development program. It is
estimated that about $200 million of funding for those three projects will be reserved for exports from small
businesses. This deal comes on the heels of PEMEX's April announcement that it will begin
increasing exports to China by 30,000 barrels of oil per day. The two-year agreement between
PEMEX and China's Sinopec was signed in January. "This represents a landmark in the history of
PEMEX, since it is the first long-term contract of its kind signed with a Chinese company," PEMEX
Chief Executive Emilio Lozoya said at a press conference in China, reported Reuters. The amount of exports to
China could increase over time as part of the agreement
China is interested in Mexican Oil to satisfy their demand
Associated Press 6/3 [Associated Press, June 3, 2013, “Oil likely on agenda as Chinese leader visits Mexico”,
http://azstarnet.com/news/world/oil-likely-on-agenda-as-chinese-leader-visits-mexico/article_3bfe1f5d-670b-5f91-8bb34f6ca1ec7f7f.html]
China has invested heavily in resource-rich Latin America in recent years, striking major
trade deals with governments from Venezuela to Argentina. Now its president is reaching out
to one of the few countries in the region where ties have been slow to develop: Mexico. President
Xi Jinping's three-day visit starting Tuesday comes as Mexico debates opening its highly regulated energy
sector to more foreign investment. China's president has said he plans to address Mexico's
large trade deficit with the Asian power and discuss ways to increase Mexican exports.
Analysts say that could mean oil, which Mexico has and China needs to fuel its expanding
economy and the cars of its growing middle class. "Access to strategic raw materials is key to understanding
the dynamic of relations with China," said Hugo Beteta, director for Mexico and Central America of the United Nations
Economic Commission for Latin America and the Caribbean. "Clearly there is an interest by China in Mexican
oil." The trip is part of a four-country regional tour that ends in the United States. Xi started in Trinidad and Tobago, where he
also met with leaders of other Caribbean countries, and he arrives Sunday night in Costa Rica. China and Trinidad have had
diplomatic ties for almost 40 years, and Trinidad is a major trading partner in the Caribbean for China. Costa Rica is the only
country in Central America to have diplomatic relations with China. U.S. trade still dwarfs China's for the three countries Xi is
visiting. But China's trade with Costa Rica and with Mexico has tripled since 2006, according to the International Monetary
Fund. Relations with Mexico had been chilly in the past, especially when former President Felipe Calderón hosted the Dalai
Lama in 2011, something China's Foreign Ministry said "hurt the feelings of the Chinese people and harmed Chinese-Mexican
relations." President Enrique Peña Nieto, who took office in December, has been aggressive so far about changing that, and the
two new presidents reportedly hit if off on a personal level when Peña Nieto visited China and met with Xi in April. That
resulted in an unusually quick diplomatic follow-up, just two months into Xi's presidency.
During the April talks, Xi said he is "committed to working with Mexican authorities to help Mexico export more," Mexico's vice
minister of foreign relations, Carlos de Icaza, told The Associated Press. That's key for Mexico, because its trade deficit with
China is exploding, far surpassing that of any other Latin American nation. While China is looking to assure
supplies of raw materials, Mexico is looking to diversify its trade and investment , which have long
been dominated by its superpower neighbor to the north.
Cuba
China and Cuba are signing energy agreements
Habana Radio 6-3—Cuban Radio Station ("Cuba, China Step up Cooperation in Energy, Transport and
Tourism." N.p., 03 June 2013. Web. 19 July 2013.
<http://www.solvision.co.cu/english/index.php?option=com_content&view=article&id=1480:cuba-china-stepup-cooperation-in-energy-transport-and-tourism-&catid=2:nacionales&Itemid=118>.)
Representatives of Cuba and China signed in Havana seven agreements to boost bilateral
cooperation on energy, transport, tourism and biotechnology. The agreements were inked
within the framework of the visit to Cuba of a high-level Chinese delegation led by the senior leader
of the Political Bureau of the Communist Party of China, Guo Jinglong, setting the basis for bilateral
cooperation in the development of transport vehicles, cancer drug treatments and joint ventures to build
resorts with golf courses in the island. The Chinese visitors also formalized the donation to Cuba of a
photovoltaic park, which will serve as model for the construction of future facilities. Previously, Jinglon held
official talks with Cuban President Raul Castro, during which both dignitaries extolled the close links
between the communist parties, governments and peoples of their countries and the fruitful
cooperation in the economic area.
China influence in Cuba is growing
Hernandez ’13— Reporter (Hernandez, Jennifer. " An Information Service of the Cuba Transition
ProjectInstitute for Cuban and Cuban-American Studies University of Miami." Focus on Cuba. N.p., 13 Mar. 2013.
Web. 19 July 2013. <http://ctp.iccas.miami.edu/FOCUS_Web/Issue186.htm>.)
The People’s Republic of China has a strong commercial presence in Latin America. The Asian giant is
providing professional expertise and technology transfer while Latin American countries guarantee access to
their natural resources. China has been particularly successful in securing oil from Venezuela by providing the
Bolivarian country with components for its information technology infrastructure. In recent years, Chinese
technology enterprises have had a more open presence in Cuba- its largest trade partner in
the Caribbean (1). Several Trade Fairs have been held in Havana with the participation of
numerous Chinese companies offering products from kitchen appliances to sophisticated information
technology equipment, which have substantial demand in Cuba. China, in turn, has benefited from heavy
investments in the island’s nickel industry, agricultural products such as rice and sugar, and oil
exploration. Through bilateral trade agreements, China has been expanding its sphere of influence.
China eyes Cuba’s oil reserves
Franks 11 [Jeff Franks, staff writer for the Globe and Mail, June 8, 2011, “China poised to play major role in Cuban oil
development”, http://www.theglobeandmail.com/news/world/china-poised-to-play-major-role-in-cuban-oildevelopment/article598579/]
China looks ready to play a major role in the development of Cuban oil, including the island's soon-tobe explored fields in the Gulf of Mexico, after the signing of energy-related accords during a visit this
week by Vice-President Xi Jinping. The text of the agreements has not been disclosed, but they appear aimed at
making China a significant oil partner with its fellow communist-run country, which is likely to raise eyebrows in the nearby
United States. State-owned China National Petroleum Corp said on Wednesday the accords
committed the company to make "full use" of its oil expertise to help Cuba raise its oil output
and "to expand co-operation with (state-owned) Cubapetroleo in exploring and developing
new onshore and offshore oil blocks in Cuba." Whether the agreement means CNPC has leased Gulf of Mexico
blocks for exploration was not immediately clear. But Jorge Pinon, a visiting fellow at Florida International University and
expert on Cuban oil, said the Cubans have previously said they were discussing the leasing of five of their 59 offshore blocks to
the Chinese. "All the pieces of the puzzle are finally falling into place," he told Reuters. Those pieces include two other accords
that commit the two countries to negotiate contracts for a major expansion of a Cuban oil refinery in the city of Cienfuegos,
and the construction of a liquefied natural gas project, including a regasification plant, at the refinery. Sources have said the
projects would cost $6-billion, most of which would be provided by China and backed by oil from Venezuela.
Link (Zero Sum)
China and U.S. influence in Latin America is zero sum
Chang ’11— GORDON G. CHANG is the author of The Coming Collapse of China and Nuclear Showdown:
North Korea Takes On the World. He lived and worked in China and Hong Kong for almost two decades as a
lawyer. His writings have appeared in the New York Times, Wall Street Journal, International Herald
Tribune, Commentary, the Weekly Standard, National Review, and Barron’s. He is a columnist at Forbes.com and
the Daily. He has given briefings at the National Intelligence Council, the Central Intelligence Agency, the State
Department, and the Pentagon. He has also spoken before industry and investor groups and at universities and
think tanks and appeared before the House Committee on Foreign Affairs and the US-China Economic and
Security Review Commission. He has appeared on CNN, Fox News Channel, CNBC, MSNBC, PBS, the BBC, and
Bloomberg Television. (Chang, Gordon G. "Around Asia." World Affairs Journal. N.p., 22 Nov. 2011. Web. 18 July
2013. <http://www.worldaffairsjournal.org/blog/gordon-g-chang/china-takes-america-zero-sum-game>.)
What is the best way for China to take over the world ? Yan Xuetong of Tsinghua University suggests a
game plan in his Monday New York Times op-ed, first published online on Sunday. In “How China Can
Defeat America,” Yan, perhaps Beijing’s leading international relations analyst, argues that ,
even without democracy, China can present a more attractive model to the world than the United
States and therefore win over allies around the globe. “It is the battle for people’s hearts and minds that will
determine who eventually prevails,” Yan writes. “As China’s ancient philosophers predicted, the country that
displays more humane authority will win.” In making his points, Yan distorts Chinese history, misdescribes the
current global situation, and maligns the United States. Yet along the way he also performs a valuable
service for Americans, giving them an opportunity to view his government in a more realistic
light. In the provocative op-ed, a distillation of his recently released book, Yan explains that competition
between Beijing and Washington is “inevitable.” And then he ends his piece with this thought: “China’s
quest to enhance its world leadership status and America’s effort to maintain its present
position is a zero-sum game.”
Increasing U.S. influence pushes China out
Regenstreif 6/12 [Gary Regenstreif Editor, Special Projects, Reuters, Thomson Reuters, USA Joined
Reuters as a Reporter, Canada; former Bureau Chief, Caracas, Buenos Aires & Rome; later, Regional Editor,
Western Europe; has overseen local-language news products in domestic markets for Thomson Reuters;
editorial liaison to several Thomson Reuters business units, leveraging news for commercial growth; also resp.
for several specialist magazines & online publications; Thomson Reuters editorial liaison to the World Economic
Forum. Former steering group member on World Economic Forum working groups: Media in Fast Growing
Markets and the Future of Content Creation. Currently participating in: Shaping Culture and Governance in
Digital Media. June 12, 2013, “The looming U.S.-China rivalry over Latin America”,
http://blogs.reuters.com/great-debate/2013/06/12/the-looming-u-s-china-rivalry-over-latin-america/
Though the U.S. and Chinese presidents heralded a “new model” of cooperation at their weekend summit, a growing
competition looks more likely. The whirlwind of activity before President Barack Obama met with President Xi
Jinping in the California desert revealed that Beijing and Washington’s sights are set on a similar prize
—
and face differing challenges to attain it. Their focus is Latin America and the prize is
increased trade and investment opportunities in a region where economic reforms have pulled millions
out of poverty and into the middle class. Latin America is rich in the commodities and energy that both
China and the United States need, largely stable politically and eager to do deals . Consider the
travel itinerary: Obama visited Mexico and Costa Rica last month. Vice President Joe Biden
recently went to Colombia, Trinidad and Tobago and Brazil. Chile’s president paid Obama a
visit last week, Peru’s leader arrived Tuesday and Brazil’s is due in October. Meanwhile, just after
Biden left Trinidad, Xi arrived, part of a tour that also took him to Costa Rica and Mexico to
promote trade and cooperation. Both U.S. and Chinese officials, however, are finding a more self-confident Latin
America, able to leverage its new strength to forge better agreements and find multiple trading partners. That will likely
force Washington to work harder to maintain its leading trade position against China — which
has money to burn in the region. “There is a more energetic [U.S.] tone, a more optimistic mood about economic
agenda in second term than [the] first time,” Michael Shifter, president of the Inter-American Dialogue, a Washington policy
group, told me. “There’s something happening in the region and the U.S. wants to be part of it. Whether there’s a well-thoughtout vision or policy remains a question. But there is more of an affirmation of the region and a willingness to engage.” The
United States, Latin America’s largest trading partner throughout much of its history, still retains this position. Washington has
now signed free trade agreements with more than a third of the hemisphere’s nations and annually exchanges more than $800
billion in goods and services with Latin America — more than three times the region’s commerce with China. In Obama’s first
term, however, the administration was widely viewed as neglecting Latin America. And China has moved in fast.
China built its annual trade with the region from virtually nothing in 2000 to about $260
billion in 2012. In 2009, it overtook the United States as the largest trading partner of Brazil, the region’s powerhouse —
largely through massive purchases of iron ore and soy. Other data is telling: In 1995, for example, the United States accounted
for 37 percent of Brazil’s foreign direct investment. That dropped to 10 percent in 2011, according to the Council of the
Americas, which seeks to foster hemispheric ties. Washington’s renewed ardor is at least partly because of
the fear that China will repeat in Latin America the economic success it has built in Africa . China
has been able to present itself as a benevolent partner there, which has played well against the West’s history of meddling in
domestic affairs. “It’s about influence and leverage,” said Eric Farnsworth, vice president of the Council of the Americas, “…The
region matured and expects to be treated in real partnership rather than [in the] patronizing way it happened in the past.” The
challenges facing Beijing and Washington lie in how each approaches the region. Washington confronts lingering resentment
about its historic regional interference, stretching back to the 1823 Monroe Doctrine, and its continuing desire to mix business
with policy — which muddies its approach to trade and investment. Washington’s domestic problems, its pivot to Asia and a
host of global crises, also serve as distractions that could keep its actions in Latin America from matching its words — as has
happened before. China, meanwhile, is largely viewed in the region as unencumbered by ideology. It approaches opportunities
almost exclusively on commercial terms there. Biden, in a May 29 speech in Rio de Janeiro, gushed about the progress made by
Latin America and trumpeted the region’s growing international stature. “In the U.S.,” Biden said, “the discussion is no longer
what it was when I was first elected as a young man: What could we do for the Americas? That’s long since gone. The issue
now is: What can we do together? We want to engage more. We think there’s great opportunity. We’re optimistic.” As with
many new starts, a recognition of past mistakes is in order. “For many in Brazil,” Biden said, “the United States doesn’t start
with a clean slate. There’s some good reason for that skepticism. That skepticism still exists and it’s understandable. But the
world has changed. We’re moving past old alignments, leaving behind old suspicions and building new relationships.” China
has particular interest in Mexico, the region’s second-largest market. Beijing has been competing with
Mexico to supply the U.S. market with manufactured goods. But China is now looking to work with Mexico City
— investing in infrastructure, mining and energy because of the expected reforms that would
open the oil industry to foreign investment. There are obstacles ahead. One irritation that President Enrique
Peña Nieto shared with Xi is that though Mexico posted a trade surplus with its global partners, it ran a big deficit with China.
China is looking for even more however. It is eager to pursue a free trade agreement with Mexico, but Mexico City said last
week it was too soon. Meanwhile, Mexico’s trade with the United States continues to flourish and it is due to displace Canada
as the largest U.S. trade partner by the end of the decade, according to the Dialogue. China is also considering joining
negotiations for the Trans-Pacific Partnership agreement, which aims to boost trade among the Americas, Asia and Australia.
The talks include the United States, Canada and other major economies on the Pacific rim. Each superpower also brings
baggage to the region. Washington still seeks to exert pressure on its partners. It has told Brazil, for example, that it has the
responsibility to use its leverage with others, such as Iran. Meanwhile, “Chinese investment,” Farnsworth said, “doesn’t always
bring with it good governance practices or anti corruption or environmental concerns.” The different approaches suit Latin
America just fine as it looks for continued growth. “Latin Americas welcomes being courted by both superpowers,” Shifter
explained. Just as Latin America doesn’t want to rely too much on the United States, it also now doesn’t want to depend too
much on Beijing, particularly in light of the China’s current economic slowdown. “It gives them options,” Shifter said about the
different dynamics in play. “The U.S. relationship comes with more complications. The Chinese one
comes strictly on the economic question. They’re very targeted, strategic in areas they want to
support. They have a specific agenda. The U.S. agenda is more diffuse. Latin America welcomes
both.”
U.S. - China energy demand in Latin America is zero-sum
Stahl ’09—B.S. in Security Studies from Georgetown University (Stahl, Douglas Patrick. "SLEEPING
DRAGON?: CHINESE ENERGY SECURITY ASPIRATIONS IN SOUTH AMERICA, AND THEIR IMPLICATIONS FOR
U.S. REGIONAL PREEMINENCE." N.p., 15 Nov. 2009. Web. 18 July 2013.
<http://repository.library.georgetown.edu/bitstream/handle/10822/553588/stahlDouglas.pdf?sequence=1>.)
According to Joshua Kurlantzick, China will import nearly 6.9 million barrels of oil daily by 2020. 6 The
University of Alberta, Canada speculates further, noting how “China’s energy consumption will increase to 15
million barrels per day by 2030 while its production will only be 4.2 million barrels,” thereby requiring a
minimum import quota of 10.8 million barrels daily in the next twenty years (should this projection prove
true).7 The rippling effects of Beijing’s energy demand have a profound impact on global supply .
Kenny’s contemporary Dr. Francois Lafargue wrote in his June 2006 Military Review article that “Imports, which
accounted for 27 percent of China’s oil consumption in 1999, 37 percent in 2002, and 43 percent in 2005, are on
a constant upward swing,” noting how foreign energy dependence has thus become a preoccupation of
Chinese policymakers.8 In addition, “[China] has replaced the United States as the principal consumer of
coal, steel, copper, aluminum, magnesium, and zinc, [and] China’s oil consumption doubled [from 1994-2006],”
increasing 9% annually against the United States, wherein demand escalated only 4% yearly.9 Comparatively, it
appears China has begun to edge the United States in Latin America, but because the PRC has started
from a developmental base far below Washington, its growth (though staggering) is therefore less impressive.
Nevertheless, Latin America provides an outlet for the People’s Republic to muster the requisite
supplies to fuel its expanding future, and in a world of zero-sum resource competition where
global powers contend for every minutia, this could prove dangerous to US interests. But to what extent
has China truly capitalized upon this heretofore neglected market?
US is hurt by China’s presence in Latin America and vice versa
Ferchen 12 [Matt Ferchen specializes in China’s political-economic relations with emerging economies. At the Carnegie–
Tsinghua Center for Global Policy, he runs a program on China’s economic and political relations with the developing world,
including Latin America, April 6, 2012, “China’s Latin American Interests”,
http://carnegieendowment.org/2012/04/06/china-s-latin-american-interests/a7av#7]
China’s increasing presence in Latin America presents a set of challenges and opportunities to the
United States. In terms of challenges, China offers an alternative economic, and potentially political,
partnership to countries in the region. Perceptions of America’s foreign economic and political impact on Latin
America have often fluctuated between anxieties that the United States was either too involved or not involved enough.
Especially since the financial crisis, countries more closely tied through trade and investment to the
United States have suffered compared to those with closer economic ties to China . While overall
the United States remains the region’s main trade and investment partner, the perception that China’s star is
rising and America’s is falling means the United States must reengage the region both
economically and politically in a way that is seen as contributing to rather than inhibiting
Latin American economic and political development. And even if the idea of a China Model or Beijing
Consensus remains vague and open to various interpretations, the idea that China itself presents a successful
model of development, and is a major new trade and investment partner for the region,
exposes the need for the United States to rethink its own approach toward both economic and
political development issues in Latin America and elsewhere. But there are also benefits and opportunities for
the United States. At the most basic level, to the extent that increasing trade and investment ties with China have helped boost
economic growth in some Latin American countries, the United States should view China as a positive developmental force in
the Western Hemisphere. China seems uniquely positioned to help Latin America build badly needed infrastructure, and to the
extent that such infrastructure will be a kind of public good that facilitates transportation and development, the United States
should welcome such a Chinese role.
US China influence over Latin America is zero sum
Mallen 6/28 [Patricia Rey Mallén covers Latin America for the International Business Times. Before joining IBT in May
2013, she worked at BBC America in New York, La República in Lima, La2 TV in Madrid and the UN in Brussels, June 28 2013,
“Latin America Increases Relations With China: What Does That Mean For The US?”, http://www.ibtimes.com/latin-americaincreases-relations-china-what-does-mean-us-1317981]
As if to confirm the declining hegemony of the United States as the ruling global superpower, China is gaining
influence in its hemispheric "backyard," Secretary of State John Kerry's unintentionally insulting designation for Latin
America. China has had its sights on Latin America for the past decade and is now positioning
itself as a competitive trade partner in the region. The populous, rapidly developing Asian
nation covets oil, soybeans and gold, of which Latin America has plenty, and has been slowly but
steadily increasing its presence and its trade with several countries there. The U.S., whose
history of blocking outside political influence in Latin America going back to the Monroe
Doctrine, has been directing its attention elsewhere, as Michael Cerna of the China Research Center
observed. “[The U.S.'] attention of late has been focused on Iraq and Afghanistan, and Latin America fell lower and
lower on America’s list of priorities. China has been all too willing to fill any void ,” Cerna said.
US China battles over Latin America
Funaro 6/4 [Kaitlin Funaro, Breaking News writer in Los Angeles, is a GlobalPost breaking news writer. June
4, 2013, “Xi flies to Mexico as China battles US for influence in Latin America”,
http://www.globalpost.com/dispatch/news/regions/asia-pacific/china/130604/xi-flies-mexico-china-battlesus-influence-latin-ame]
Chinese President Xi Jinping is making the most of his four-country tour of the Americas to
position China as a competitor to the US and Taiwan's economic influence in the region. Xi arrives
in Mexico Tuesday for a three-day visit in which he and Mexican President Enrique Peña Nieto are
expected to discuss their economic ties. The two nations are economic partners but also competitors, particularly
when it comes to exports to the United States. Mexico and China both enjoy strong exports to the American market but Mexico
itself has been flooded with cheap Chinese goods that are displacing domestic goods. "China is a complicated case" for Mexico,
Aldo Muñoz Armenta, political science professor at the Autonomous University of Mexico State told USA Today. "It's not the
healthiest (relationship) in diplomatic terms because the balance of trade has been so unequal." When it comes to economic
influence, China may be gaining the upper hand in Latin America. China is increasing its funding
to the region just as the US has been coming under pressure to cut aid and investment . "If I’m a
Latin American leader, I’m very happy because I now have more chips to play with," Kevin Gallagher, author of the 2010 book
"The Dragon in the Room," about China’s inroads in Latin America, told Bloomberg. "The onus is on the US to come up with a
more flexible, attractive offer but that’s not so easy because it doesn’t have the deep pockets like it used to." Latin
America's growing economy makes for an attractive investment. The International Monetary Fund
forecasts the region’s economies will expand 3.4 percent this year, almost three times the pace of growth in the developed
world. Xi's tour of Trinidad, Costa Rica and Mexico are setting the stage for his visit to California later this week, which will be
his first face-to-face talks with Obama since taking office. That Xi's Latin America trip came so early into his presidency is a
confident approach that shows little concern for American reaction, Evan Ellis, a professor at the National Defense University
in Washington told Bloomberg. "In the past Chinese presidents were very deferential to the US., always making reference to
Washington’s backyard," Ellis said. "You don’t hear any of that from Xi’s team, though you don’t find any threatening rhetoric
either."
Economic engagement in Latin America decreases China’s influence
Johnson 5 [Stephen L. Johnson was the Administrator of the Environmental Protection Agency under President George W.
Bush during the second term of his administration, October 24, 2005, “Balancing China's Growing Influence in Latin America”,
http://www.heritage.org/research/reports/2005/10/balancing-chinas-growing-influence-in-latin-america]
In the 1960s, the Soviet Union defied America's Monroe Doctrine by supporting Fidel Castro's mili-tary buildup in Cuba. Later,
it supported insurgencies in Central America. This triggered a competition among existing right-wing dictatorships, Marxist
authoritarianism, and the U.S. democratic model. In the end, democracy and open markets won. Pro-moted by the United
States, these principles have generally made Latin American states more viable politically, economically, and commercially.
Today, another communist state-the People's Republic of China (PRC)-is seeking trade, diplo-matic, and
military ties in Latin America and the Car-ibbean. The region is rich in natural resources and
developing markets for manufactured goods and even arms. China does not currently pose a direct military
threat in Latin America and has steadily embraced market concepts, but it represents serious competi-tion that
could dilute U.S. influence. Washington could ignore this intrusion or attempt to contain it. Ignoring it leaves a
vacuum for China to fill, while trying to contain it runs against America's own free market ideals. Instead, the United
States can best look after its hemispheric interests and moderate China's presence by : ◾
Consolidating trade relations with Latin America and removing protectionist U.S. trade
barriers, ◾ Emphasizing comprehensive relationships as opposed to narrow-interest
diplomacy such as counternarcotics, ◾ Minimizing unproductive restrictions on assis-tance to U.S. neighbors,
and ◾ Pressing harder for democratic and economic reforms, prioritizing support for these pur-poses, and
reenergizing public diplomacy.
The U.S. and China distrust each others ambitions for energy securityincreases tensions
Herberg and Zweig 4/2010 [Mikkal E. Herberg- BP Foundation Senior Research Fellow for
International Energy at the Pacific Council on International Policy, David Zweig- Chair Professor,
Division of Social Science, Hong Kong University of Science and Technology, and Director of the
Center on China’s Transnational Relations, April 2010, “China’s “Energy Rise”, The U.S., and The New
Geopolitics of Energy”, Pacific Council on International Policy,
http://www.pacificcouncil.org/document.doc?id=159]
Success in meeting today’s global energy security and environmental challenges will depend heavily on the
energy relationship between these two energy giants and on whether it will be fundamentally cooperative or
competitive. This is a mirror image of the question at the center of the China rising debate at a broader strategic
level. If the energy relationship continues to drift towards competition and distrust, China and
the U.S. will each have the ability to seriously undermine the others’ vital energy interests,
and energy risks becoming an even greater source of bilateral friction and tension .
Alternatively, the mutual energy security interests of China, the U.S., and other major energy importers in stable
markets and an environmentally sustainable outcome will be served to the extent that China and the U.S. can
forge a more confident and cooperative energy relationship. Much of the tension between China
and the U.S. over energy issues is based on distrust over each other’s longterm energy intentions. Beijing’s belief that Washington is out to use energy to
weaken China mirrors Washington’s belief that China’s untamed energy
demand, aggressive energy security diplomacy, and rising emissions are
undermining U.S. energy and climate security. Under the Obama administration, it is vital to
redouble efforts to create a direct, leadership level strategic energy relationship to build confidence, reduce distrust, and
promote energy cooperation with China, not just on climate and clean energy, as many advocate, but Much
of the
tension between China and the U.S. over energy issues is based on distrust
over each other’s longterm energy intentions. 2955hina’s “Energy Rise”, the U.S., and the New
Geopolitics of Energy across the entire range of global energy security issues. 18 But a “dialogue” will not be
enough to overcome entrenched domestic resistance and forge a common
approach to energy. Something much more ambitious in the form of a true energy “partnership” is
needed. This must be built on the two countries’ core shared interests in stable and reliable global energy markets to fuel
economic prosperity and environmentally sustainable global energy architecture. Existing channels of regular bilateral energy
consultation have helped build confidence but these are far too limited to reduce deep suspicions that exist over each others’
long-term energy intentions. An active energy dialogue took place within the Treasury Department-led Strategic Economic
Dialogue (SED) but the SED was fundamentally an economic, not a strategic dialogue. The separate parallel bilateral energy
dialogue that continues, while promoting a wide range of technical cooperation efforts, has also done little to reduce suspicion
at the leadership level over energy intentions. Projecting economic influence and “soft power” is far easier than projecting
military strength, particularly for China at the start of the 21 st century. American military supremacy remains unquestioned,
particularly in the Western Hemisphere where, under the Monroe Doctrine, the U.S. has dominated Latin America for close to
200 years. But
growing trading and investment power helps China navigate
America’s backyard. In 2004, 50 percent of China’s outward foreign direct investment (FDI) went to Latin
America. Visits by top officials have become common. Vice-President Zeng Qinghong visited the Caribbean in February 2005,
as did Vice Premier and trade guru, Wu Yi. Hu Jintao visited four countries in South America in 2004 and signed many
Wu Bangguo, the second
highest Communist Party leader in China, visited Brazil, Chile, and Uruguay. A
key target of China’s expanding influence in Latin America has been
Venezuela.
Memoranda of Understanding (MOUs) with Brazil. And in September 2006,
China is becoming a threat to U.S. interests in Latin American energy
Arora and Gupta 1/15/2013 [Surbhi Arora-University of Petroleum and Energy Studies,
Dehradun - College of Management and Economic Studies, Anshuman Gupta- University of Petroleum
& Energy Studies, Dehradun, January 1, 2013, “Control Oil - Rule the World!”, Social Science Research
Network, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2200815]
China is the emerging power of the 21st century according to many economic and political
pundits. It has a surging military and cash to buy access to resources and could be a threat to
U.S. in future. However, it suffers from domestic political and economic weaknesses which may hamper its
becoming the next economic power. The third largest economy, Japan, is facing a situation of uncertainty because of its
protector, the U.S. It is focusing on building its military to defend its interests independently. Japan’s disputes with China are
on the rise as it has almost no domestic fossil fuel resources and needs secure access to supplies. Russia has abundant
resources, but is politically corrupt and economically not that developed. With a residual military force at the ready, it vies
with China and the U.S. for control of Caspian and Central Asian energy and mineral wealth through alliances with former
Soviet states. It tends to strike tentative deals with China to counter American interests, but ultimately Beijing may
prove to be as much of a rival as Washington. Moscow uses its gas exports as a bargaining chip for influence in
Europe. However, very little of the income from the country’s resource riches benefits its population. The Russian people’s
advantage in all this may be that they have recently been through one political-economic collapse and will therefore be
relatively well-prepared to navigate another (Heinberg). Countries like Venezuela, Bolivia, Ecuador, and
Nicaragua do not accept American foreign policy, yet the U.S. continues to exert enormous
influence on resource-rich Latin America via North American-based corporations. But now China
is actively contracting for access to energy and mineral resources throughout this region
leading to a gradual shift in economic interests.
China Takes on America in a “Zero-Sum Game”
Gordon G. Chang- Lawyer, Author, Television pundit, November 22, 2011, China Takes on America in a
‘Zero-Sum Game’, World Affairs,
http://www.worldaffairsjournal.org/blog/gordon-g-chang/china-takes-america-zero-sum-game
“China’s quest to enhance its world leadership status and America’s effort to maintain its
present position is a zero-sum game.” Zero-sum competition? That’s not the way Washington’s
foreign policy specialists see the international system. Since the end of the Second World War, they
have believed that every nation can better its lot with free markets, free trade, and free politics.
Chinese leaders have eschewed all three of these “Western” concepts, but they have
appropriated that awful phrase, “win-win,” and assure us they believe in it. With a win-win
mind-set, governments around the world have sought to “engage” China, nurture it, and ease its
entry into the international community. Naturally, the Chinese state has prospered in such a benign
environment. But instead of accepting the international system as it was—the fond hope of the
engagers—Beijing has sought to upend and replace it with something more friendly to its
brand of authoritarianism. In short, liberal institutions are seen as a threat to China’s one-party
state, and so it should come as no surprise that its leaders view geopolitics as an I-win, you-lose
proposition.
China’s Energy Consumption- Zero-Sum Game
Jeffrey Rubin ‘10- Former Chief Economist, July 27, 2010, China’s Energy Consumption a Zero-Sum Game,
Huff Post,
http://www.huffingtonpost.com/jeffrey-rubin/chinas-energy-consumption_b_660793.html
It wasn't sheer coincidence that last year marked two pivotal events in the world's vehicle industry.
In 2009, China became the largest car market in the world, while in the same year there were four
million fewer vehicles on the road in the United States. In a world where the supply of
economically viable oil has peaked, or is, at best, growing marginally, driving has suddenly
become a zero-sum game. And that energy, for the most part, is carbon-based. China may lead the
world in energy from renewable sources such as solar and wind, but it's good ol' fashioned
King Coal that's powering that country's industrial revolution, just as it powered the
Industrial Revolutions centuries ago in the west. China may still only consume half the oil
America does, but it's long since passed the US when it comes to coal consumption, which provides
China with 80 per cent of its power. Unless abated by cuts elsewhere, the planned expansion of coalfired generating plants in China and India will almost double world coal consumption over the next
two decades. As with oil, the more coal China burns, the less coal North America can use. If
world carbon emissions are to be capped, or even if global emissions growth is to be slowed, there
must be an offsetting decarbonization of economies elsewhere. And that means coal plants must
be shut down in places like North America if new plants are built in China. Not only is China
the world's largest consumer of energy, but the more carbon-based fuel it burns to power its
economic growth, the more our economies will have to make do with burning less.
U.S.- China Competition Increasing
Wilson Center, June 11, 2010, U.S.-China Competition for Clean Energy Jobs: A Zero-Sum Game?,
Wilson Center,
http://www.wilsoncenter.org/event/us-china-competition-for-clean-energy-jobs-zero-sum-game
As the world moves toward clean energy alternatives, companies in the United States and
China are working to develop new, more cost efficient manufacturing processes and
increase their shares of their domestic and export markets. Controlling production lines
and growing market share will certainly have important economic implications for both
countries in the short and long-term. However, a broader perspective suggests that cooperative
initiatives to increase the capacity and reduce the cost of renewable energy technologies may
produce benefits on both sides of the Pacific over the longer term by reducing the reliance on
fossil fuels and helping achieve global carbon reduction goals. China is investing in clean
energy not only to serve growing domestic energy demands, Romankiewicz asserted, but
also seeks to be a major force in the international market. China has already made
impressive advances in clean energy industries: of the top fifteen wind producers, four are
Chinese while only two are American, and of the top ten crystalline-silicon solar cell producers,
six are Chinese. China is focused on becoming a major player in exporting clean energy
technologies. Romankiewicz argued, however, that breaking into the American market
could prove exceedingly difficult given the stiff competition from domestic and foreign
firms.
China Replacing U.S. in Latin America
Michael Cerna- Columnist for Barcelona, August 15, 2011, China’s Growing Presence in Latin America:
Implications for U.S. and Chinese Presence in the Region, China Research Center,
http://www.chinacenter.net/chinas-growing-presence-in-latin-america-implications-for-u-s-and-chinesepresence-in-the-region/
A major talking point in the U.S. media today is the alleged weakening of American influence in the
world. The common perception is that power is shifting to East Asia, and particularly to China,
with ramifications globally and especially close to home in Latin America. China’s economic
emergence over the last decade has sent shockwaves through the region, causing economic policy
shifts and realignment of markets toward the reawakened dragon. While the U.S. has a strong history
of moving to block outside political influence in Latin America, its attention of late has been focused
on Iraq and Afghanistan, and the region has gradually fallen lower and lower on America’s list of
priorities. China has been all too willing to fill any void. However, the numbers show that, despite the
rapid growth of the Chinese economy, the U.S. remains the central figure in economic relations with
Latin America by an enormous margin. Yet, there are trends that should at least concern the United
States. Exactly how worried should the U.S. be about China’s growing influence in Latin America? Is
China on its way to overtaking the U.S. as the region’s primary trade partner? Are China’s
motivations strictly economic or is there an underlying political driver behind China’s actions
that should warrant concern from the U.S.? Perhaps most important, is trade with Latin
America a zero-sum game, or is it possible for both China and the United States to benefit from
Latin America’s growth? These are the questions that this article will attempt to answer. The first is
that China’s intensifying relations with Latin America offer a clear sign of the end of U.S.
dominance in the region, and in a greater sense, the entire world. There is enough evidence to
show that the tides have changed in favor of China. There is clear evidence of an increasingly
symbiotic relationship with China throughout Latin America. China already has replaced the
U.S. as the largest trading partner for Brazil and Chile, and is on pace to do the same in Peru
and Venezuela.
IL (Key to China energy security)
Latin American oil key to China’s economy-only with a strong economy can
China become energy independent
Garcia 5/1/2013 [Juan González García-author on Chinese and Latin American economics, May
1, 2013, “The Relationship between Economic Growth and Energy in China: Medium- and Long-Term
Challenges”, Latin American Policy, http://onlinelibrary.wiley.com/doi/10.1111/lamp.12002/full]
The Chinese reform has been gradual, with a domestic regional project based on its own resources and resources from the
world market (Cornejo, 2010). Contrary to the Latin American path, Chinese politicians understood that the only way to
compete in the international economy was to implement export promotion industrialization. The economic opening was a
Chinese-style appropriation of Prebisch—a combination of domestic and international markets based on manufacturer
exports (Prebisch, 1964). This double strategy allowed the Chinese to accelerate their economy and become a world-class
investor beginning in the 1990s. Chinese investment has been in developed and underdeveloped countries. One of the
main investment targets has been in key sectors such as market commodities, raw materials, fossil fuel, and food.
Thanks to the relative success of the last 30 years, China is at the pinnacle of the world in trade production
and is competing to gain access to traditional energy sources (oil, gas, and coal). These sources are
vital to maintaining the viability of its economic and social development model (United States
Government Accountability Office [GAO], 2005, p. 15). China sees Latin America as a rich region
full of natural resources and agro food that is necessary to the survival of its investment and
trade. Latin Americans perceive the Chinese market as the gateway to selling gas (Bolivia and Peru),
oil (Venezuela and Brazil), grains and meat (Argentina), and mining and agriculture products. China has understood well that
the logic of the international economic system is that one cannot participate in it without the provision of sufficient energy
sources for the production of goods and services. Since the 1990s, when it became an oil importer, but especially after the
economic crisis of 2008–2009, China has deepened its dual strategy of obtaining energy sources, having
an external and internal strategy to ensure the supply of inputs, raw materials, and energy sources. According to Richmond
(2011), China has deployed a comprehensive strategy that has not left out any part of the world to supply its economy with
traditional energy sources, such as oil and natural gas, where it is deficient (pp. 271–280). In Africa, Latin America and the
Caribbean, Central Asia, South East Asia, and North Europe, Chinese transnational oil corporations have invested
in or acquired oil, gas, and mines to ensure it has the energy and premium materials necessary to
sustain its economic growth in terms of its basic elementary inputs to produce goods and services. While it vents its
cash surplus, it strengthens its position as a global energy resource applicant and ensures its
energy endowment to guarantee its production. These new goods and services that China produces are
produced with greater energy efficiency, and many of them will be produced with alternative energy. For this to happen, it will
be necessary for China to achieve its goals of alternative energy production and succeed in reducing its dependence on
traditional sources. China is expanding its energy market and will act as the main buyer, especially
of oil and natural gas (Yang, Chen, & Liu, 2007, p. 350). The current decade will show the extent to which China may affect
the international economy and the major global markets, such as energy, and whether China will be able to make valid
scenarios as the world's largest economy. If China manages to make valid predictions about its supremacy, it is likely that it
will be able to overcome other challenges, such as establishing the basis for a new model of economic development, energy
saving, nature friendliness, and social inclusiveness to meet the challenge of moving toward a high income and not be trapped
in the stage where most underdeveloped countries fail.
China’s energy demand increases relations with Latin America
Chen and Fazilov 6/17/2013 [Xiangming Chen-Dean, Professor, and Director of the Center for
Urban and Global Studies and Professor in the School of Social Development and Public Policy at
Fudan University in Shanghai, Fakhmiddin Fazilov-Professor of International Studies at Trinity
College, June 17, 2013, “A Rising China Reshaping the Global Energy Landscape”, The European
Financial Review, http://www.eurasiareview.com/17062013-china-and-central-asia-a-significantnew-energy-nexus-analysis/]
The growth of China’s economy at historically unprecedented speed and scale over the last three
decades has completely altered the supply-demand equation of global energy. Its galloping
manufacturing machine has been running on massive quantities of coal and oil. From a country with no private cars to the
largest auto market in the world, China has dramatically accelerated its petrol consumption. With millions of skyscrapers and
lower buildings of all kinds shooting up in its hundreds of large cities that have to be cooled and heated, China has become a
giant in the overall consumption of energy by the world’s cities. Given its limited domestic supply of oil and
gas, China has to get this massive amount of new energy from somewhere else in the world. It is
the combination of the quantity and sources of China’s added demand for energy that has spun a
new web of global and regional geo-economic ties other regions such as Latin America.1The nature and
trajectory of China’s rising energy demand have been shaped by the model and scale of its economic growth. China has built a
huge number of export-oriented factories of massive scale in what can be called factory-cities along its coast, some of which
employ almost one million workers like Foxconn’s factory in Shenzhen. Moreover, China has put up gigantic buildings and
transport infrastructure in these cities where millions of affluent consumers live and drive. Nothing like this conjuncture of
powerful forces has happened in the history of industrialization, urbanization and modernization. As a result, China has
become world’s largest energy consumer in less than 20 years, accounting for almost 20 percent of the world’s total energy
consumption now (see Figure 1). This has also turned China into the world’s second largest net importer of oil today, from
being an oil exporter in the 1990s (see Figure 2). Looking forward, China’s energy demand is expected to expand 75 percent
by 2035 when its lead over the United States will be much larger (Figure 1). Although China has a substantial domestic supply
of energy, especially coal, it has been looking abroad for more and more sources of oil and gas. China produced an estimated
4.3 million barrels per day (bbl/d) of oil liquids in 2011, which is forecast to rise to 4.5 million bbl/d by the end of 2013.
However, its booming economy requires China to import more than 50 percent of the oil it needs. According to the US Energy
Information Administration (EIA), China may import about 75 percent of the crude oil it will consume
by 2035.2
Latin America oil strengthens China energy independence and political ties
Brandt et. al. ‘12, Adams, Dinh, Kleinfield-Hayes, Tuck, Hottle, Aujla, Kaufman, and Ren
12/2012 [Jon Brandt, Nicole Adams, Christina Dinh, Devin Kleinfield-Hayes, Andrew Tuck, Derek
Hottle, Nav Aujla, Kristen Kaufman, and Wanlin Ren-American University School of International
Service, December 2012, “Chinese Engagement in Latin America and the Caribbean: Implications for
US Foreign Policy”, http://www.american.edu/sis/usfp/upload/Chinese-Engagement-in-LAC-AU_USCongress-FINAL.pdf]
Perhaps the most intriguing trend is to whom the Chinese are lending in comparison to western lenders’ debtors . The top
recipients of Chinese loans are Venezuela, Brazil, Argentina and Ecuador in that order. Outside of
Brazil, these countries are ‘non-credit worthy’ nations that are unable to obtain credit in international capital markets. There
is a visible pattern between the loans the Chinese have provided and the natural resource, energy or other commodity
extraction tied to them. Since 2007, CDB has loaned Venezuela $42.5 billion collateralized by revenue from the world’s largest
oil reserves, according to data compiled by Bloomberg from announcements of deals by the Chavez government. That’s around
23 percent of all overseas loans by the state-run lender and more than the $29 billion the US spent rebuilding Iraq between
2003 and 2006. At least $12 billion was promised in the past 15 months, when stagnant oil output and the highest borrowing
costs among major emerging markets would’ve made raising capital more expensive. 19 Earlier in the year, China and
Brazil signed a massive ten-year, $10 billion loan in which Petrobras agreed to send oil to
China for a decade. 20 Similar loan agreements have been with Venezuela and Argentina as
China continues to leverage its position as the largest creditor in the world to ensure its energy
security and deepen political ties within the region. Of the $194 billion in global lending provided to Latin America
from 2005-2011, China’s contribution was just under $74 billion while the next largest contributor was the Inter-American
Development Bank at $67 billion. 21 Resulting from three decades of continuous economic growth, urbanization and a massive
social transformation, China is one of the world’s most important players in the LAC energy sector. However, with only one
percent of the world’s proven oil reserves and the second largest in terms of consumption, the country has no option but to
secure sustainable supply sources elsewhere. Countries in Latin America (especially Argentina, Brazil,
Colombia, Ecuador and Venezuela) are among China’s premier investment destinations. 74% of all
Chinese lines of credit to LAC is in oil loans to guarantee future energy supply and energy security. 28 While China’s quest for
energy security is not a direct threat to US energy security, the relationship between China and Latin
American oil exporters should be closely monitored.
Chinese energy contracts with Latin America increase chances of energy
security
Singh 6/17/2013 [Teshu Singh-Research Officer in the China Research Programme at the
Institute of Peace and Conflict Studies, June 17, 2013, “China And Latin America: Quest For Energy
Security – Analysis”, Institute for Peace and Conflict Studies,
http://www.eurasiareview.com/17062013-china-and-latin-america-quest-for-energy-securityanalysis/]
Xi Jinping toured through Latin America and the Caribbean (LAC) countries on 31May-6 June 2013. He visited Trinidad and
Tobago, Costa Rica and Mexico. This marks a new chapter in Chinese foreign policy. Why did President Xi choose these three
specific countries? What were the achievements of the visit? What does this imply for the future trajectory of China-LAC
relations? Importance of the LAC for China LAC countries are one of the developing regions of the world
and have immense potential for investments. The three countries Trinidad and Tobago, Costa Rica and Mexico
are significant in their own way. Trinidad and Tobago is one of the wealthiest countries in the Caribbean, with large
reserves of oil and gas they form a regional petroleum hub; often called as the pearl in the Caribbean. Costa Rica is well
known for its renewable energy; more than ninety percent of its electricity is generated from renewable sources. It is working
towards becoming world’s first carbon free economy. Mexico is the largest economy in Latin America and
has a thriving oil industry. Overall, all these countries offer an alternative and reliable source
of energy to satisfy China’s increasing demands. Achievments of the Visit Besides meeting the leaders of
Trinidad and Tobago, the Chinese president also held talks with leaders of Suriname, Barbados, Guyana, Antigua and Barbuda,
Dominica, Grenada, the Bahamas and Jamaica. During the visit he proposed stepping up energy co-operation between the two
countries. Agreements were reached in key areas such as infrastructure development, energy
and minerals, and in new areas of mutual and beneficial co-operation such as agriculture, telecommunications and new
energy. Loan of USD 250 million was awarded and hundred volunteer medical professionals would be sent to over the next
three years. Additionally, Trinidad intends to open an embassy in Beijing later this year. During his visit to Costa Rica, thirteen
major agreements were signed on projects worth nearly USD 2 billion, in the areas of the upgrade of an oil refinery, a key
highway and public transport. Amongst these agreements, the biggest project will be the modernization of an obsolete oil
refinery in the Caribbean port of Limón, which will be replaced with a new refinery capable of processing 65,000 barrels of oil
a day. The USD1.5 billion venture will be financed with a USD 900-million credit from the China Development Bank, and the
remaining USD 600 million will be put up by the China National Petroleum Corporation and Costa Rica’s National Refinery
(RECOPE). A group of thirty RECOPE officials will travel to Beijing in coming days to receive training for three months at
China’s University of Petroleum. Another big project agreed to is the upgrading of Route 32, a strategic highway that links San
José to Limón, a USD 400-million dollar endeavour that will be financed by China. During the visit to Mexico, bilateral relations
were upgraded to a comprehensive strategic partnership. The two heads of state agreed to push forward the China-Mexico
comprehensive strategic partnership by working jointly in the following four aspects; by showing mutual understanding and
support on the issue concerning each other’s core interest, improving practical cooperation in accordance with their
development strategies, and agree to increase mutual investment in key areas such as energy, mining, infrastructure and high
technology, encourage more exchanges between art troupes, promote tourism and strengthen communication among
students, academics, journalists and athletes and improving multilateral coordination based on their common interests and
responsibilities on major international issues. Bilateral trade between LAC and China in the year 2012 was USD 261.2 billion.
Thus visit further enhanced the bilateral ties to a much higher level. The Future of Bilateral Relations between China and the
LAC Energy Security remains the prime agenda of its foreign policy ; the new leadership is trying to
project China’s ‘peaceful development’ to every possible place on the globe. The visit reveals regardless of the size and
geographical distances China is keen on developing relations with these countries to boost its economic ties to secure its
energy resources. Being in the developing stages, the LAC needs Chinese investments in its infrastructure and construction
which has not come till now by the US The agreements signed are an indication to the LAC countries that China has been
taking them seriously and has responded to their gesture. Perhaps the strengthening of the China-LAC relations will help the
international community better cope with global challenges and promote a multi polar world and democracy in the
international relations. President Obama and Vice President Joe Biden had already taken trip to exactly these three countries
earlier this year. Thus it can decipher that the choice of these countries are no coincidence. However the burgeoning
ties between China and LAC may cause discomfort to the US as it has brought China close to its
doorstep.
Chinese investment in Latin America is key to their energy security
Singh 6-17—Research Officer in the China Research Programme at the Institute of Peace and Conflict
Studies (Singh, Teshu. "China And Latin America: Quest For Energy Security – Analysis." Eurasia Review. N.p., 17
June 2013. Web. 18 July 2013. <http://www.eurasiareview.com/17062013-china-and-latin-america-quest-forenergy-security-analysis/>.)
LAC countries are one of the developing regions of the world and have immense potential for
investments. The three countries Trinidad and Tobago, Costa Rica and Mexico are significant in their own
way. Trinidad and Tobago is one of the wealthiest countries in the Caribbean, with large reserves of oil and gas
they form a regional petroleum hub; often called as the pearl in the Caribbean. Costa Rica is well known for its
renewable energy; more than ninety percent of its electricity is generated from renewable sources. It is working
towards becoming world’s first carbon free economy. Mexico is the largest economy in Latin America and has a
thriving oil industry. Overall, all these countries offer an alternative and reliable source of energy
to satisfy China’s increasing demands. Achievments of the Visit Besides meeting the leaders of
Trinidad and Tobago, the Chinese president also held talks with leaders of Suriname, Barbados, Guyana,
Antigua and Barbuda, Dominica, Grenada, the Bahamas and Jamaica. During the visit he proposed stepping
up energy co-operation between the two countries. Agreements were reached in key areas such as
infrastructure development, energy and minerals, and in new areas of mutual and beneficial cooperation such as agriculture, telecommunications and new energy. Loan of USD 250 million was awarded and
hundred volunteer medical professionals would be sent to over the next three years. Additionally, Trinidad
intends to open an embassy in Beijing later this year. During his visit to Costa Rica, thirteen major
agreements were signed on projects worth nearly USD 2 billion, in the areas of the upgrade of an
oil refinery, a key highway and public transport. Amongst these agreements, the biggest project
will be the modernization of an obsolete oil refinery in the Caribbean port of Limón, which will be
replaced with a new refinery capable of processing 65,000 barrels of oil a day. The USD1.5 billion venture will be
financed with a USD 900-million credit from the China Development Bank, and the remaining USD 600 million
will be put up by the China National Petroleum Corporation and Costa Rica’s National Refinery (RECOPE). A
group of thirty RECOPE officials will travel to Beijing in coming days to receive training for three months at
China’s University of Petroleum. Another big project agreed to is the upgrading of Route 32, a strategic highway
that links San José to Limón, a USD 400-million dollar endeavour that will be financed by China. During the visit
to Mexico, bilateral relations were upgraded to a comprehensive strategic partnership. The two heads of state
agreed to push forward the China-Mexico comprehensive strategic partnership by working jointly in the
following four aspects; by showing mutual understanding and support on the issue concerning each other’s core
interest, improving practical cooperation in accordance with their development strategies, and agree to increase
mutual investment in key areas such as energy, mining, infrastructure and high technology, encourage more
exchanges between art troupes, promote tourism and strengthen communication among students, academics,
journalists and athletes and improving multilateral coordination based on their common interests and
responsibilities on major international issues. Bilateral trade between LAC and China in the year 2012 was USD
261.2 billion. Thus visit further enhanced the bilateral ties to a much higher level. The Future of Bilateral
Relations between China and the LAC Energy Security remains the prime agenda of its foreign
policy; the new leadership is trying to project China’s ‘peaceful development’ to every possible
place on the globe. The visit reveals regardless of the size and geographical distances China is keen on
developing relations with these countries to boost its economic ties to secure its energy resources.
Being in the developing stages, the LAC needs Chinese investments in its infrastructure and construction which
has not come till now by the US The agreements signed are an indication to the LAC countries that China has
been taking them seriously and has responded to their gesture.
China energy security will destabilize if they can’t secure Latin American
sources
Xiaoxia 5-7—Worldcrunch Journalist (Xiaoxia, Wang. "In America's Backyard: China's Rising Influence In
Latin America." - All News Is Global |. N.p., 06 May 2013. Web. 18 July 2013.
<http://www.worldcrunch.com/china-2.0/in-america-039-s-backyard-china-039-s-rising-influence-in-latinamerica/foreign-policy-trade-economy-investments-energy/c9s11647/>.)
Initially, China’s activities in Latin America were limited to the diplomatic level. By providing funds
and assisting in infrastructure constructions, China managed to interrupt diplomatic ties between
poor Latin countries and Taiwan. Since then, with China's economic boom, the supply of energy
and resources has gradually become a problem that plagues China -- and its exchanges with Latin
America thus are endowed with real substantive purpose. Among the numerous needs of China, the
demand for oil has always been the most powerful driving force. In the past 30 years, China has
consumed one-third of the world's new oil production and become the world's second-largest oil
importer. More than half of China's oil demand depends on imports, which increases the
instability of its energy security. Diversification is inevitable. In this context, Latin America and
its huge reserves and production capacity naturally became a destination for China. China must
better protect its energy supply, and can't just play the simple role of consumer. It must also help
solidify the important links of the petroleum industry supply chain. Indeed, the China National
Petroleum Corporation frequently appears in Latin American countries, and China’s investment and
trade in the Latin American countries are also focused on its energy sector.
Impact
Chinese energy insecurity leads to war over oil in the South China Sea, this brings in the US
into a full scale war
Sreeraman 12 [Hemant Sreeraman is an investor with a special interest in finance and international
relations. For his Masters at London School of Economics, his areas of focus were Economic History and
International Relations. He harbors interests in writing and geopolitics, with a specific focus on Asia, August 22,
2012, “(South China) Sea of Problems: A Question of Energy Security”
http://www.foreignpolicyjournal.com/2012/08/22/south-china-sea-of-problems-a-question-of-energy-security/]
Apart from the overlapping lines drawn on the map, contours of confrontation are beginning to appear in
the territorial disputes in the South China Sea (“SCS”). The dispute, careening towards a military
flashpoint that potentially threatens to destabilize the region, revolves around considerations
of energy security overlapped on China’s longer-term aspirations of playing a larger role in
regional geopolitics. To appreciate the importance of the issue of energy security, it would be useful to briefly direct
attention at the region through the lens of energy considerations. According to BP’s Statistical Energy Review, the AsiaPacific region accounted for a meager 2.5% of global proved reserves of oil in 2011, but
accounted for a little over a third of global consumption. On the natural gas front, Asia-Pacific made up 8%
of global proved reserves and accounted for c.18% of global consumption. The Asia-Pacific region is the world’s
largest energy consumer, accounting for nearly 40% of global consumption. Since 2001, AsiaPacific’s oil and natural gas consumption has grown at over twice the growth rate for total world consumption. BP forecasts
Asia-Pacific’s consumption to continue to grow at over twice the world consumption growth rate, through 2030. China is a
far bigger player and a massive guzzler of oil and natural gas (charts, below). The economic stakes are high. As
Asia guzzles ever-increasing amounts of oil and natural gas, securing steady sources of energy supplies will
assume critical importance. Energy security would reduce dependence on sources from distant geographies, often
muddled in strife of their own, and confer significant geopolitical leverage upon the endowed. Believed to be lying
below the waters are deposits of natural gas and oil. Reserve estimates vary widely from a low
of 28 billion barrels to a high of 213 billion barrels; the latter, if true, would catapult the SCS to third in the
global league tables of proved oil reserves, behind Saudi Arabia. There is a 50% chance that the waters hold 3.8 trillion cubic
meters of natural gas, which is a shade under a quarter of Asia-Pacific’s present proved natural gas reserves. The SCS
serves as an important transit pathway for natural gas and oil movements in the region. The
value of the ship borne trade is estimated at US$5 trillion annually. For China, the SCS is a matter of sovereignty.
Overlapped on economic considerations, China’s keenness in exercising influence is
comprehensible. The SCS could provide succor to the energy parched economic behemoth,
which is a net importer of oil and natural gas, and afford it an opportunity to project its
authority on the region. The hydrocarbon angle also holds interest to two other net importers
of oil claiming overlapping interests in the region, Vietnam and the Philippines . Brunei and
Malaysia, the other players in the fray, are net exporters of oil and natural gas. This is China’s opportunity to project strategic
leadership and raise its influence to a higher plane, within the region and more broadly, among the world. A slovenly attitude
bordering on belligerence at this critical juncture would severely undermine credibility, not only among regional peers but
also global geopolitical rivals. In order to emerge as a responsible participant in the global sphere, it is imperative for China to
choose dialogue over arsenal. Prospects of a collective resolution to the problem, possibly moderated by the ASEAN, appear
dim, given the historical deadlock among regional stakeholders. The failure of the July 2012 ASEAN Foreign Ministers’ Meeting
in putting out a Joint Communiqué, for the first time in forty-five years, should have come as no surprise, as the realistic
probability of eking out a consensus on the South China Sea issue was slim. The only statement released, the Six-Point
Principles on the South China Sea, made two explicit references to the United Nation Convention on the Law of the Sea
(UNCLOS). A point that China contends does not apply to the present situation, which it claims revolves around historical
sovereignty. China’s preference for bilateral talks over multilateral consensus building is understandable, as it proffers greater
negotiating leverage over individual smaller nations, thanks to its superior economic positioning. Whether bilateral talks
would be aimed at achieving multilateral accord, remains draped in speculation. China is likely to continue to use bilateral
diplomacy to win support among smaller non-claimant nations, combined with covert displays of understated aggression, to
guide its policy posture in the situation. China’s sense of timing in escalating the issue, amid the
backdrop of upcoming elections in the USA, bears traces of opportunism . It would, however, have to
balance this with the high-level leadership transition at home, which carries with it its own interest-group idiosyncrasies. It is
in China’s interest to keep USA from intervening in the situation. A belligerent posture towards the ASEAN bloc is likely to
exacerbate the situation, by driving smaller nations into USA’s arms. Consequently, China will deem it appropriate to adopt, or
at least convey, a temperate stance. There is much at stake, should skirmishes lead to all-out
confrontation; which, while low probability, could potentially be a high-impact event with severe
repercussions for China and the region. It is difficult to see China pushing this to the region’s pain point. The
military and strategic costs would be too high. The USA’s National Security Strategy explicitly recognized China’s emergence as
a geopolitical influence to be reckoned with, in addition to its emergence as an economic power. USA’s “pivot” to Asia signals
its concerns in managing China’s rapid emergence in the global power rivalry. Washington faces pressing multiple
escalation/de-escalation questions heading into election period. The FDR era isolationism/interventionism debate may reemerge on the ‘East Questions’ – Israel-Iran, Syria in the Middle East and the South China Sea in the Far East. It seems likely
that the USA may feel obliged to intervene on the premise of protecting its interests , ostensibly
commercial but also geopolitical, in the region. Having played a pivotal role on the international sphere for nearly a century,
the USA would be wary of instigating actions that cede control to rivals, particularly China. USA intervention could
potentially imperil the bilateral relationship between the USA and China, where a degree of
nervousness lurks below a layer of harmony, threatening to lead to a cataclysmic rift. Areas of
disagreement abound on both sides, with China being suspicious of USA’s attempts at
stymieing its military and economic ascendancy. Beijing’s recent rejoinder in response to Washington’s
statement on the issue, where the latter took umbrage to the establishment of a military garrison in the city of Sansha, is
indicative of China’s rather dismissive posture towards covert USA participation. Consequently , continued military
brinkmanship by China would play into USA’s hands. This would give the latter an excuse to project itself on
the situation, on the side of the smaller nations in the ASEAN bloc. As long as China projects a conciliatory stance towards its
neighbors, the USA would be hard pressed to clothe its participation in diplomatically palatable terms, whether internationally
or at home. Domestic electoral politics notwithstanding, the USA would do well to assume the role of a vigilant observer in the
conflict, and let regional stakeholders eke out a peaceful solution. Vietnam and the Philippines have few
alternatives. In its strong condemnation over the non-issuance of the Joint Communiqué, Philippines referred to
China as the ‘northern neighbor’ and plainly spelt out the need for multilateral resolution over bilateral discussions,
a route which China prefers strongly. The troika’s tit-for-tat actions, which witnessed them extending
invitations to oil companies in June/July 2012 to explore in contested overlapping waters in
the SCS, further added fuel to simmering differences. The smaller nations are justifiably worried about
shifting balance of powers in the region. Their attempt at internationalizing the problem is at loggerheads with China’s efforts
at regionalizing the issue. This impasse could swiftly escalate in the absence of proactive dialogue. Vietnam and the
Philippines’ trade dependence on China confer upon these nations weaker negotiating leverage relative to China, on the
economic sphere. Moreover, they lack the individual military might to take China head-on in an
armed confrontation. They have little to gain and much to lose by adopting this course of action. Given the power
differential, the optimal path ahead for the smaller neighbors would be to pursue a course of constructive multilateral
dialogue. In several ways, the smaller nations have a hedge in the USA, should China opt to escalate
confrontational rhetoric. Given the potential of this development, China ought to reconsider overplaying its hand.
Troubles, meanwhile, are brewing between China and Japan over the Senkaku Islands (Diaoyu
Islands) in the East China Sea. The intensity of statements, from China, risks another territorial dispute between the
two historically edgy neighbors spiraling out of control. Chinese activists made their way to the Islands and the Chinese media
promptly seized the situation to fan nationalist sentiments. When Japan activists reciprocated, anti-Japan protests erupted in
China. Territorial questions tend to easily stoke nationalistic feelings among citizens, which
becomes a cagey issue for governments to handle beyond a tipping point. On one hand China
claims this is a question of sovereignty, and thus outside the purview of UNCLOS; on the other hand it
demonstrates an earnestness to assert its territorial claims in the region, so it has a hedge under the
aegis of the UNCLOS. China should resist the urge to escalate military maritime forcefulness and devote energy into regional
security. Its assertiveness would be welcome, if directed at achieving a multilateral solution to the issue and within the
purview of the basic tenets of international law. Some form of equitable distribution and joint development of hydrocarbon
resources appears the best mode of action available to regional participants, who must mutually work towards peaceable
resolution of festering discord. This, in turn, is somewhat predicated on resolution of the claimants’ territorial disputes, a
prospect that appears mired in deadlock. There are no easy solutions. Dithering increases the risk of armed
conflict, accidental or otherwise. International arbitration, presided over by the USA, would dent China’s image as
an emerging responsible leader on the global scale. At a broader level, the issue could signal a subtle, albeit gradual, shift of
influence; from the West to the East. The South China Sea could potentially be a key moment of transition in the relations
between USA and China. The geopolitical epicenter shift from the West to the East, already underway in the economic sphere,
might further gain traction. Battle lines might be drawn but the probability of a full-scale armed conflict appears slim, so far, at
least. This is one opportunity of leadership that China should be loath to squander away.
U.S. attempts to block China investment in oil leads to global conflicts, wars,
and environmental devastation
Shor 11 [Fran Shor-Professor in the Department of Interdisciplinary Studies at Wayne State
University, 2011, “Declining U.S. Hegemony + Rising Chinese Power: A Formula for Conflict?”,
http://www.stateofnature.org/?p=4541]
A defining historical feature of the decline of specific empires in the world capitalist system
has been the conflict surrounding the emergence of a successor. The United States and Germany
engaged in a protracted struggle in the first half of the twentieth century to determine which country would replace Great
Britain as the dominant hegemon. After Germany’s second defeat in a world war in 1945, the U.S. and the U.S.S.R. contended
for global hegemony even though the U.S. was the pre-eminent power in economic and military terms throughout the four
decades of the Cold War. Since the demise of the Soviet Union, the U.S. has attempted to use its unrivaled
military power as a weapon to retain an eroding hegemony. However, given extensive internal
and external contradictions, the U.S. Empire faces global competition and realignment,
especially, but not exclusively, as a consequence of the rise of Chinese power. [1] This essay will focus
on those sites of U.S./China conflict in the present period and project, albeit tentatively, where such conflict may lead in the
future. While it may be that global capital has, to a certain extent, delinked itself from the nation-state, in the case of the United
States, in particular, the state and state apparatus, especially in the form of military neo-imperialism, still perform essential
geostrategic functions. [2] A fully realized deterritorialized and decentered global system, whether envisioned by Hardt and
Negri on the left or Thomas Friedman on the right, does not yet exist. Indeed, the “dialectical relation between territorial and
capitalist logics of power,” which David Harvey identifies as the defining characteristic of the “new imperialism,” still persists.
[3] That persistence of territorial logic, described by Chalmers Johnson as an “empire of bases,” [4] i.e., military neoimperialism, more than a predetermined inter-imperialist rivalry or an emergent transnational capitalist class, underscores
the growing geopolitical conflict between the U.S. and China. Nonetheless, it is necessary to account for both elements in
Harvey’s dialectic in order to demarcate those sites of US/Chinese competition and conflict. While the United States
no longer dominates the global economy as it did during the first two decades after WWII, it still
is the leading economic power in the world. However, over the last few decades China, with all its
internal contradictions, has made enormous leaps until it now occupies the number two spot. In fact,
the IMF recently projected that the Chinese economy would become the world’s largest in 2016.
In manufacturing China has displaced the US in so many areas, including becoming the number one producer of steel and
exporter of four-fifths of all of the textile products in the world and two-thirds of the world’s copy machines, DVD players, and
microwaves ovens. Yet, a significant portion of this manufacturing is still owned by foreign companies, including U.S. firms like
General Motors. [5] On the other hand, China is also the largest holder of U.S. foreign reserves, e.g. treasury bonds. This may be
one of the reasons mitigating full-blown conflict with the U.S. now, since China has such a large stake in the U.S. economy, both
as a holder of bonds and as the leading exporter of goods to the U.S. Nonetheless, “the U.S. has blocked several
large scale Chinese investments and buyouts of oil companies, technology firms, and other enterprises.”
[6] In effect, there are still clear nation-centric responses to China’s rising economic power, especially as an expression of the
U.S. governing elite’s ideological commitment to national security. At the same time, China is now the world’s largest consumer
of essential metals (copper, zinc, platinum) and one of the most voracious importers of hydrocarbons. Essential
investment and trade by China in Saudi Arabia, Iran, and Venezuela, plus engagement with a host of Central
Asian countries, indicates China’s growing need for oil and natural gas, as well as its growing
challenge to U.S. geostrategic interests in these aforementioned countries and regions. [7] With China’s
energy consumption approaching 20% of the world’s total, it may well overtake the U.S. as the largest
hydrocarbon consumer in the next decade or so. It is already the number one producer of greenhouse gasses
although the U.S. is still the per capita leader. Nonetheless, as Michael Klare points out , the scramble for
more oil will lead to extracting what he calls “tough oil,” resulting in more expensive and
environmentally destructive production. [8] Compounding the energy strains and resource
competition are additional environmental catastrophes in the form of global warming and
desertification. As one skeptical analysis of China’s rise warns: “By impinging on the very process of world-systemic
reproduction itself, the mutually interpenetrating character of energy resource bottlenecks and extreme climate perturbations
should make an already unlikely transition in world-systemic leadership between a declining U.S. and a rising China even more
inconceivable – especially considering these bottlenecks and perturbations will both compound China’s well-documented
explosion of peasant and worker protests and hamstring the capacity of the Chinese state to respond to myriad crises.” [9]
Beyond the internal and external environmental crises facing China and the United States , the resource competition
between these two powers will invariably lead to geostrategic conflicts. The U.S. obsession over the
growing Chinese economic and geopolitical threats deliberately obfuscates those factors that have led to a declining global
hegemony. James Petras captures the global contradictions that flow from these differing geostrategic postures in the world: 1.
Washington pursues minor military clients in Asia; while China expands its trading and investment agreements with major
economic partners – Russia, Japan, South Korea and elsewhere. 2. Washington drains the domestic economy to finance
overseas wars. China extracts minerals and energy resources to create its domestic job market in manufacturing. 3. The US
invests in military technology to target local insurgents challenging US client regimes; China invests in civilian technology to
create competitive exports. 4. China begins to restructure its economy toward developing the country’s interior and allocates
greater social spending to redress its gross imbalances and inequalities while the US rescues and reinforces the parasitical
financial sector, which plundered industries (strips assets via mergers and acquisitions) and speculates on financial objectives
with no impact on employment, productivity or competitiveness. 5. The US multiplies wars and troop build-ups in the Middle
East, South Asia, the Horn of Africa and Caribbean; China provides investments and loans of over $25 billion dollars in building
infrastructure, mineral extraction, energy production and assembly plants in Africa. 6. China signs multi-billion
dollar trade and investment agreements with Iran, Venezuela, Brazil, Argentina, Chile, Peru,
and Bolivia, securing access to strategic energy, mineral and agricultural resources; Washington
provides $6 billion in military aid to Colombia, secures seven military bases from President Uribe, backs a military coup in tiny
Honduras and denounces Brazil and Bolivia for diversifying its economic ties with Iran. [10] Given the reactionary political
trends in the U.S. and the continuing commitment to preserving the empire at the expense of necessary major investments in
infrastructure, education, health-care, etc., it is hard to imagine a different trajectory. Indeed, as James Petras contends : “The
U.S. Empire will continue to wallow in chronic stagnation, unending wars and increased
reliance on the tools of political subversion… The U.S., unlike the established colonial powers of an earlier
period, cannot deny China access to strategic raw materials, as was the case with Japan. We live in a post-
colonial world where the vast majority of regimes will trade and invest with whoever pays the market price.” [11] Moreover,
given the global realignment that is emerging in the wake of a declining U.S. empire, other countries, like Brazil and Turkey,
will take the initiative on the global stage to address geopolitical concerns that the U.S. continues to impede and/or neglect. In
addition, global powerhouses, like the BRIC (Brazil, Russia, India, and China), will look for ways
to affirm their own self-interest in trade and geopolitical alignments.
Energy is the core issue of island disputes
Jackson, 1/31/2013 (Allison, The Senkaku Islands Dispute Is Forcing Japan to Rethink How It
Trades With the World, Business Insider, p.
http://www.businessinsider.com/diaoyu-dispute-hurts-sino-japanese-trade2013-1)
Nevertheless, the dispute over the islands will continue to cause
political and economic headaches
for China and Japan, with neither acting to defuse the tensions . Abe warned recently that there
was “ no room for negotiations ” with China over the islands. “My resolve to defend our waters and territories
has not changed at all,” the hawkish Abe said, according to The Daily Yomiuri, shortly after announcing the first increase in
Japanese defense spending in more than a decade. The Chinese also have taken a hard line . Last week, an
editorial in the state-controlled Global Times warned its readers to “prepare for the worst” and said the Chinese military
“shouldn’t be hesitant to take military revenge” in response to Japanese provocations. A mixture of historical
animosity, self-serving politics and energy security is fueling the dispute . As the US increases its
strategic engagement in the Asia-Pacific region, China is eager to use the spat with Japan as an opportunity to show off its
strength and boost its influence in the region. But energy and the control of potentially large hydrocarbon
reserves are at the core of the dispute which ensures lasting tensions between Asia’s
economic giants. “They will give you a long, historical explanation of their sovereignty claim.
But the idea that there are vast resources under the East China Sea just off their coast is a
tremendous motivation for the intensity of their territorial dispute,” Sheila Smith, a senior
fellow at the C ouncil on F oreign R elations in Washington, D.C, told National Geographic late last year.
Chinese energy insecurity causes Asia war
Brandenburg , 3/24/2011 (Colonel James A. – United States Air Force, China’s Energy Insecurity
and the South China Sea Dispute, USAWC Strategy Research Project, p. 6-7)
In 2010, China reasserted ownership to nearly 80 percent of the S outh C hina S ea, supplementing its
claims to the Spratly and Paracel Islands. For China and its neighbors, territorial ownership is
integral to state sovereignty and security. However, overlapping EEZs, disputes over ownership of the Spratly
and Paracel Islands, and China’s
mercantilist approach to securing resources stand to raise the
energy security stakes of interested parties including the US .16 Feelings of insecurity of those with
competing interests in either the EEZ or the Spratly or Paracel Islands could prove challenging especially if China expands its
offshore production of oil/natural gas and extends its control over the vessels or pipelines that deliver them via the South
China Sea. Experts suggest energy shortages provide the
necessary catalyst for arms races ,
nuclear proliferation , and other forms of instability … in essence, greater energy insecurity
equates to the greater probability of geopolitical rivalry .17 Like the US, as China becomes more
dependent on oil imports, its ability to ensure access to energy at an affordable price becomes even more critical and could
prove difficult given increasing global market uncertainty. Ultimately, China’s dependence on imports could
lead to a vicious cycle as it struggles to find ways to mitigate risks and protect its investments
in order to offset its insecurity.18 Given global dependence on China’s economy and the potential impact of
shrinking energy supplies, this warrants special consideration in the geo-political realm.
Chinese economic collapse will trigger nuclear war
Mead 98, Senior Fellow for US Foreign Policy at Council on Foreign Relations
[Walter Russell, “Rule 1: Don’t Panic. Rule 2: Panic first.” Esquire, Oct,
ProQuest]
Few Americans understand just how explosive the situation in China is. As the country
undergoes the biggest economic revolution in world history, it is also in for the wildest ride in world
history on the roller coaster of revolutionary capitalism. State-owned rust-bucket industries from
Maoist times are slowly collapsing, putting heavy demands on the national treasury. Yet China's
banks-which may have the worst balance sheets in the world would go bankrupt if the state cut off
subsidies to the indebted state industries. And if these industries lay off workers faster than the
private economy can find them jobs, China faces mass unrest in the big cities. This is what the
Chinese government fears most, and it has good reason. Already, millions of Chinese, uprooted
from the rural areas where they were born, are flooding into the coastal cities, looking for work.
Many of them are young men-the most volatile group in any society. And in China today, they are
especially volatile. Thanks to the government's one-child policy, many Chinese families have aborted
female fetuses to ensure that their one child is a boy. This preference has led to no boys being born
for every loo girls. Here's a Chinese nightmare: millions of young, poorly educated men who have no
jobs and no girlfriends. It's almost unthinkable that China can escape a prolonged Asian
slowdown. China has also based its whole plan on exportled growth working far into the future; with
the failure of that strategy China's economy must slow dramatically. To survive, the Chinese
government will have to play the nationalist card, taking a tougher foreign-policy line on
issues like Taiwan and whipping up public support by talking about foreign (read: American)
threats to China. Alternatively, China could fall apart as it did earlier in the twentieth century,
going through a period of civil war and anarchy-in a country with nuclear weapons-before a
new and probably very unpleasant government establishes control.
2AC Aff Answers
Non- Unique
China influence is declining in Latin America— Trade and investment deals
are falling through
Tulchin 6-4— PhD in history from Harvard University, Visiting Fellow at the David Rockefeller Center for
Latin American Studies at Harvard University, 25 years teaching experience as Professor of History and Director
of International Programs at the University of North Carolina at Chapel Hill, During his career he has taught or
lectured in nearly every country in the hemisphere, published more than 100 scholarly articles and more than
70 books and has been a consultant to multilateral agencies, such as the World Bank, the OAS and UN-Habitat,
member of the task force on Hemispheric Security Issues at the Center for Hemispheric Policy of the University
of Miami. (Tulchin, Joseph. "World Review | China's Appeal in Latin America Weakens.
"http://www.worldreview.info. N.p., 4 June 2013. Web. 18 July 2013.
<http://www.worldreview.info/content/chinas-appeal-latin-america-weakens>.)
The important market for China, however, was in South America involving Chinese direct investment in the
exploitation of oil, infrastructure, and in the exchange of manufactured goods or loans on favourable terms for
commodities. But China has fallen out of favour in the last few years. Almost none of the
megadeals announced with great fanfare with Venezuela, Ecuador, Bolivia, and other countries has
materialised, particularly as prices of commodities on the international market have levelled off and some,
including copper, have fallen over the past two years. Only Ecuador has benefited, with loans from China in
return for the sale of large amounts of oil. The downside for Ecuador is that China has become Ecuador’s
principal creditor, holding sovereign debt worth 25 per cent of the nation’s GDP. China’s deal with Brazil,
where enormous quantities of grain was bought on favourable terms on the condition that the Brazilian market
would be open to Chinese manufactured goods, became complicated as they ran into political
problems, with Brazil’s domestic manufacturing sector demanding greater protection from Chinese
competition. Argentina is the most striking example of disillusionment with China. The Argentines saw China
as an easy way to re-establish their position in world affairs during the 2003-2007 government of the late
President Nestor Kirchner, husband of the current President Cristina Kirchner. Politically significant
infrastructure projects were negotiated with the Chinese, including a bullet train linking the city of Buenos
Aires with the interior capitals of Rosario and Cordoba. But the project was never started. The project to
replace the subway cars in Buenos Aires was accomplished only as a straight market deal, with no discounts and
no loans. A senior official in the Argentine ministry of commerce suggested in a recent interview that the
Argentine government had ‘lost its enthusiasm’ for deals with the Chinese. This disillusionment
with China complicates matters for the nations of Latin America. As the Chinese economy slows, it buys less.
This has put significant downward pressure on the international price of commodities as diverse as soy and oil.
The result is less money for governments, such as Venezuela and Argentina, which rely on commodity export
windfalls to pay for their social programmes. Failure to complete so many large infrastructure projects in
Venezuela, Bolivia, Argentina and Peru has also fuelled growing disillusionment with China. It
is forcing countries to rethink their strategic plans and to re-engage with the United States and
European countries.
Not Zero Sum
China not a threat to the U.S. in Latin America
Costa 6/20/2013 [Luis Costa-international affairs student at Georgetown
University's School of Foreign Service, June 20, 2013, “U.S. Chins Relations: Should
Washington Be Concerned Over Growing Chinese Trade in Latin America?”,
Policymic.com, http://www.policymic.com/articles/48673/u-s-chins-relationsshould-washington-be-concerned-over-growing-chinese-trade-in-latin-america]
Yet how worried should the U.S. be over these figures? One thing to take into consideration is the fact that the U.S. still
retains a comfortable lead against China in absolute terms: Washington exchanges $800 billion in goods and
services with Latin America annually, more than three times the region's trade with China. Moreover, the fact that most of
China's confirmed investments in Latin America target the extraction of natural resources
raises questions about the sustainability of China's investment in the region. It means that a
sudden change in commodity prices could have serious consequences for Chinese foreign
direct investment into the region. Finally, according to ECLAC data, most of China's trade with Latin America has
been concentrated in a small group of countries, namely Argentina, Brazil, and Peru. This is a key fact that must be taken into
consideration when evaluating China's involvement in the region as a whole. In this way, the U.S. has no reason to
despair over China's involvement in Latin America. U.S. neglect of the region in the past decade is
understandable, given the more pressing domestic and foreign problems it has faced. But the time to change this stance is now,
or else this neglect may come to have a high cost. The political and economic consequences of China out-influencing the U.S. in
Latin America could prove problematic for Washington, especially given the increasing economic and political clout that some
Latin American countries, such as Brazil and Mexico, are growing to have.
China will not challenge U.S. dominance- no interest in fighting
Shixue 11/3/2011 [Jiang Shixue-Deputy Director of the Institute of European
Studies at the Chinese Academy of Social Sciences, November 3, 2011, “The U.S.
Factor in Sino-Latin American Relations”, http://www.chinausfocus.com/foreignpolicy/the-u-s-worry-factor-in-sino-latin-american-relations/]
The U.S. concerns are unnecessary and unfounded. First, both China and Latin America have been opening to
the outside world. In the age of globalization, both should cooperate to promote South-South collaboration. As a matter of fact,
further cooperation between China and Latin America will benefit regional peace and
development in the Asia-Pacific and Latin America. This outcome would certainly be
welcomed by the United States. Second, it is well-known that Latin America has been implementing reforms and
opening to the outside world for almost two decades. It endeavors to attract more foreign investment and liberalize the
market to stimulate growth. As a result, China is only one of the economic partners Latin America has been trying to cooperate
with. Third, China’s relations with Latin America are for economic purposes, not for political outcomes to be
used against the U.S. China well understands that Latin America is the backyard of the United
States, so there is no need for it to challenge American influence. Fourth, China’s cooperation with Latin
America in military and security fields is not targeting any third party and it is hardly a secret issue. China’s first policy paper
on Latin America, published in November 2008, openly set aside one section to deal with the issue. It said: “The Chinese side
will actively carry out military exchanges and defense dialogue and cooperation with Latin American and Caribbean countries.
Mutual visits by defense and military officials of the two sides, as well as personnel exchanges, will be enhanced.” Moreover,
China’s military relations with Latin America are undertaken according to the following principles: 1) to gain better
understanding of the Latin American military; 2) to improve professional expertise by learning from each other; 3) never
target any third party; and 4) never harm regional and hemispheric stability. These principles are not counter to
U.S. national interest and dominance in the western hemisphere. Finally, China does not wish to be
used as a “card” against the United States. It has no enthusiasm for getting entangled in the problems of
U.S.-Latin American relations.
China and the U.S. aren’t zero-sum in Latin America
Global Times 5-31— Chinese newspaper (Global Times. "China, US Not Competing over Latin America:
Expert." Global Times. N.p., 31 May 2013. Web. 18 July 2013.
<http://www.globaltimes.cn/content/785721.shtml#.Uef28I2siSo>.)
Chinese President Xi Jinping heads to Latin America and the Caribbean on Friday, in a state visit aiming at promoting
China's cooperation with the region. Xi's visit to Trinidad and Tobago, Costa Rica and Mexico follows his first foreign
trip to Russia and three countries in Africa, Tanzania, South Africa and Republic of Congo, shortly after taking office
in March. While Xi kicks off his visit, US Vice President Joe Biden is concluding his Latin America visit on the same
day, as he leaves Brazil Friday. Some media reports described "dueling visits" by Chinese and US leaders, and said that
the "competition between the world's two biggest economies for influence in Latin America is on display." Both the
US and China deny they are competing with each other . Chinese foreign ministry spokesperson Hong Lei
said last week that the two countries can "carry out cooperation in Latin America by giving play to
their respective advantages." Tao Wenzhao, a fellow of the Institute of American Studies at the Chinese Academy
of Social Sciences, told the Global Times that it is a coincidence that the two leaders chose to visit Latin America at a
similar time, and that China has no intention to challenge US influence in the area. "It's not like in the
19th century when countries divided their sphere of influence in a certain area. China and the US'
involvement in Latin America is not a zero-sum game," Tao said, explaining that it is a good thing for Latin
America. Chinese and US leaders visit Latin America out of their respective strategic needs, Tao said. All countries
need to interact and cooperate with other countries, and visits of such high-level are usually arranged long
time before they starts, Tao said. China has embarked on a diplomatic drive since completing its once-in-a-decade
leadership transition with Chinese Premier Li Keqiang also visiting India, Pakistan, Switzerland and Germany, and
several high-level visitors to Beijing. After visiting Mexico, Xi travels to the US for his first summit with President
Barack Obama on June 7 to 8 in California.
U.S. and China won’t displace each other in Latin America
Xiaoxia 5-7—Worldcrunch Journalist (Xiaoxia, Wang. "In America's Backyard: China's Rising Influence In Latin
America." - All News Is Global |. N.p., 06 May 2013. Web. 18 July 2013. <http://www.worldcrunch.com/china-2.0/inamerica-039-s-backyard-china-039-s-rising-influence-in-latin-america/foreign-policy-trade-economy-investmentsenergy/c9s11647/>.)
China's involvement in Latin America doesn’t constitute a threat to the U nited States, but brings benefits.
It is precisely because China has reached "loans-for-oil" swap agreements with Venezuela, Brazil, Ecuador and
other countries that it brings much-needed funds to these oil-producing countries in South America. Not only have
these funds been used in the field of oil production, but they have also safeguarded the energy supply of the
United States, as well as stabilized these countries' livelihood; and to a certain extent reduced the impact of
illegal immigration and the drug trade on the U.S. For South America, China and the United States, this is
not a zero-sum game, but a multiple choice of mutual benefits and synergies . Even if China has become
the Latin American economy’s new upstart, it is still not in a position to challenge the strong and diverse
influence that the United States has accumulated over two centuries in the region.
China Econ Resilient
No Impact—China econ resilient
China Daily 4-16 ("GDP Slower but Resilient." GDP Slower but Resilient|Opinion|chinadaily.com.cn. N.p., 16
Apr. 2013. Web. 18 July 2013. <http://usa.chinadaily.com.cn/business/2013-04/16/content_16411597.htm>.)
China's unexpected slowdown in GDP growth in the first quarter will add to the difficulties policymakers face in
restructuring the economy, but it is far from being unaffordable, especially given the still sound labor situation. The
country's GDP growth for the first three months was 7.7 percent year-on-year, lower than expected. This has sparked
concerns that the nascent recovery that began in last quarter of 2012 has come to a halt. Such concerns have been
aggravated by the latest prediction from the World Bank, which has trimmed its forecast for China's full-year growth
from 8.4 percent to 8.3 percent, citing the country's rebalancing efforts. However, it is still too early to conclude
that China's economy has run out of steam. On the contrary, the domestic demand that can be released by the
ongoing restructuring coupled with the accelerated urbanization drive may unleash another economic boom. Especially
since the restructuring efforts themselves have contributed to the slower growth in the first quarter. The process of
restructuring is coming at a cost, but the gains are worth the pains. The first-quarter data show that China has
made some headway with its restructuring. The value of the tertiary sectors as a proportion of GDP was higher
than the same period last year, and the growth of high-tech value added has also accelerated as first-quarter growth was
faster both quarter-on-quarter and year-on-year. Meanwhile, the western regions have registered faster growth in terms
of industrial output and investment. Also, despite the mild economic slowdown, the job market remains
sound. Official data show that new urban jobs exceeded 3 million in the first quarter while the number of people
moving from the rural areas to find work, another indicator reflecting the health of the job market, increased 1.7 percent
year-on-year. The economy therefore remains resilient, and policymakers should not overreact to the
slower growth. Looser monetary policy, for example, may temporarily bolster growth, but it will sow the undesirable
seeds of trouble in the future. What policymakers and the public alike should bear in mind is that the country's
restructuring is far from complete. Relentless efforts are needed to push forward the country's restructuring and
modernization, and the country should be prepared for setbacks thanks to the still prevalent GDP-centered mindset of
many officials.
China Econ Resilient
No Impact—China econ resilient
China Daily 4-16 ("GDP Slower but Resilient." GDP Slower but Resilient|Opinion|chinadaily.com.cn. N.p., 16
Apr. 2013. Web. 18 July 2013. <http://usa.chinadaily.com.cn/business/2013-04/16/content_16411597.htm>.)
China's unexpected slowdown in GDP growth in the first quarter will add to the difficulties policymakers face in
restructuring the economy, but it is far from being unaffordable, especially given the still sound labor situation. The
country's GDP growth for the first three months was 7.7 percent year-on-year, lower than expected. This has sparked
concerns that the nascent recovery that began in last quarter of 2012 has come to a halt. Such concerns have been
aggravated by the latest prediction from the World Bank, which has trimmed its forecast for China's full-year growth
from 8.4 percent to 8.3 percent, citing the country's rebalancing efforts. However, it is still too early to conclude
that China's economy has run out of steam. On the contrary, the domestic demand that can be released by the
ongoing restructuring coupled with the accelerated urbanization drive may unleash another economic boom. Especially
since the restructuring efforts themselves have contributed to the slower growth in the first quarter. The process of
restructuring is coming at a cost, but the gains are worth the pains. The first-quarter data show that China has
made some headway with its restructuring. The value of the tertiary sectors as a proportion of GDP was higher
than the same period last year, and the growth of high-tech value added has also accelerated as first-quarter growth was
faster both quarter-on-quarter and year-on-year. Meanwhile, the western regions have registered faster growth in terms
of industrial output and investment. Also, despite the mild economic slowdown, the job market remains
sound. Official data show that new urban jobs exceeded 3 million in the first quarter while the number of people
moving from the rural areas to find work, another indicator reflecting the health of the job market, increased 1.7 percent
year-on-year. The economy therefore remains resilient, and policymakers should not overreact to the
slower growth. Looser monetary policy, for example, may temporarily bolster growth, but it will sow the undesirable
seeds of trouble in the future. What policymakers and the public alike should bear in mind is that the country's
restructuring is far from complete. Relentless efforts are needed to push forward the country's restructuring and
modernization, and the country should be prepared for setbacks thanks to the still prevalent GDP-centered mindset of
many officials.
China’s economy is resilient and growing
The Economist 5/26/2012 [The Economist, May 26, 2012, “How strong is
China’s economy?”, http://www.economist.com/node/21555915]
CHINA'S weight in the global economy means that it commands the world's attention. When its
industrial production, house building and electricity output slow sharply, as they did in the year to April, the news weighs
on global stockmarkets and commodity prices. When its central bank eases monetary policy, as it did this month, it creates
almost as big a stir as a decision by America's Federal Reserve. And when China's prime minister, Wen Jiabao, stresses the
need to maintain growth, as he did last weekend, his words carry more weight with the markets than similar homages to
growth from Europe's leaders. No previous industrial revolution has been so widely watched. But rapid
development can look messy close up, as our special report this week explains; and there is much
that is going wrong with China's economy. It is surprisingly inefficient, and it is not as fair as it
should be. But outsiders' principal concern—that its growth will collapse if it suffers a serious
blow, such as the collapse of the euro—is not justified. For the moment, it is likely to prove more
resilient than its detractors fear. Its difficulties, and they are considerable, will emerge later on. Yet the very
unfairness of China's system gives it an unusual resilience. Unlike the tigers, China relies very little on foreign
borrowing. Its growth is financed from resources extracted from its own population, not from fickle foreigners free to flee,
as happened in South-East Asia (and is happening again in parts of the euro zone). China's saving rate, at 51% of GDP, is
even higher than its investment rate. And the repressive state-dominated financial system those savings are kept in is
actually well placed to deal with repayment delays and defaults. That space also gives the government room to
stimulate growth again, should exports to Europe fall off a cliff. China's government spent a lot on infrastructure
when the credit crunch struck its customers in the West. But there is no shortage of other things it could finance. It could
redouble its efforts to expand rural health care, for example. China still has only one family doctor for every 22,000
people. If ordinary Chinese knew that their health would be looked after in their old age, they would save less and spend
more. Household consumption accounts for little more than a third of the economy.
China’s economy continues its resilience despite naysayers
predictions
Gruber 5/11/2013 [James Gruber-Forbes contributor, May 11, 2013, “China
Poised For Surprise Rebound”, FORBES ASIA,
http://www.forbes.com/sites/jamesgruber/2013/05/11/china-poised-forrebound/]
It seems the entire planet is bearish on China and questioning its economic data. But as most
economists missed the bubbles created by China’s 2009 stimulus, they’re now missing signs of
some economic resilience and a likely pick up in short-term growth as abundant liquidity starts to
reach the economy. This means that China could once again defy the naysayers (I’ve been among
them). Any short-term respite though is likely to lead to even greater dependence on debt to drive
economic growth and more serious problems beyond this year. Abundant liquidity to kick in It
appears everyone is an expert on China these days, even though many of these experts have never
visited the country and certainly don’t know the first thing about its economy. And these “experts”
have been befuddled by the recent economic data coming out of China. Other data have been
positive though. Surprisingly, property investment has rebounded after property sales bottomed
at the start of last year. Infrastructure investment remains resilient at close to 20% growth, where
it’s been for much of the past 12 months. There’s also been clear improvement in the production
of key commodities including cement, steel and ethylene. This suggests that commodity
producers have confidence in future demand.
No War
No U.S. China war—Relations check
AFPS ’13- news service provided by the Defense Media Activity , part of the DOD (American Forces Press
Service. "Obama, Xi Emphasize Importance of U.S.-China Relationship." U.S. Department of Defense. N.p., 7 June
2013. Web. 25 June 2013. <http://www.defense.gov/news/newsarticle.aspx?id=120242>.)
President Barack Obama and Chinese President Xi Jinping both highlighted the importance of the U.S.China relationship during their remarks made today before the start of their informal talks at the Sunnylands estate
in Rancho Mirage, Calif. In welcoming the Chinese president, Obama noted that Xi just took office in March. “Our
decision to meet so early, I think, signifies the importance of the U.S.-China relationship,” Obama said. “It’s important
not only for the prosperity of our two countries and the security of our two countries, but it’s also important for the
Asia-Pacific region and important for the world.” Obama said he and Xi thought that meeting in sunny California would provide “the
opportunity for a more extended and more informal conversation, in which we were able to share both our visions for our respective countries and how
we can forge a new model of cooperation between countries based on mutual interest and mutual respect.” The president said he believes “both of us
agree that continuous and candid and constructive conversation and communication is critically important to shaping our relationship for years to come.”
Obama said the United States “welcomes the continuing peaceful rise of China as a world power and that, in fact, it is in the United States’ interest that
China continues on the path of success, because we believe that a peaceful and stable and prosperous China is not only good for Chinese but also good for
the world and for the United States.” And, as two of the largest economies in the world, the U.S. and China are going to have a healthy economic
competition, Obama acknowledged. “But we
also have a whole range of challenges on which we have to cooperate,
from a nuclear North Korea -- or North Korea’s nuclear and missile programs -- to proliferation, to issues like
climate change,” Obama said. The United States seeks an international economy and international economic order,
Obama said, where “nations are playing by the same rules, where trade is free and fair, and where the United States and
China work together to address issues like cybersecurity and the protection of intellectual property.” And, “in
addition to the strategic concerns that we share and the economic challenges that each of our countries face, I will
continue to emphasize the importance of human rights,” Obama said. President Xi, he added, “has spoken of a
nation and a people that are committed to continuous self-improvement and progress, and history shows that upholding
universal rights are ultimately a key to success and prosperity and justice for all nations.” Obama acknowledged there
are “areas of tension” between the United States and China. “But what I’ve learned over the last four years is both the
Chinese people and the American people want a strong, cooperative relationship ,” Obama said, “and that I think
there’s a strong recognition on the part of both President Xi and myself that it is very much in our interest to work together to meet the global challenges that we face.” “And I’m
very much looking forward to this being a strong foundation for the kind of new model of cooperation that we can establish for years to come,” Obama added. Through an
interpreter Xi thanked Obama for the welcome, noting, “This is a wonderful place, a place of sunshine, and it’s very close to the Pacific Ocean. And on the other side of the ocean
is China. When I visited the United States last year, I stated that the vast Pacific Ocean has enough space for the two large countries of China and the United States. I still believe
so.” Xi said he and Obama are meeting “to chart the future of China-U.S. relations and draw a blueprint for this relationship and continue our cooperation across the Pacific
Ocean.” The Chinese president recalled “what happened over 40 years ago when the leaders of China and the United States, with the strategists’ political courage and wisdom,
realized a handshake across the Pacific Ocean and reopened the door of exchanges between China and the United States.” Since then, Xi said, “the China-U.S. relationship has
the
China-U.S. relationship has reached a new historical starting point, Xi said. “Our two countries have
vast convergence of shared interests, from promoting our respective economic growth at home to ensuring the
stability of the global economy; from addressing international and regional hotspot issues to dealing with
all kinds of global challenges,” Xi said. “On all these issues, our two countries need to increase exchanges and
gone through winds and rains and it made historical progress. And our two peoples and the people elsewhere in the world have reaped huge benefits from this.” Today,
cooperation.” And, China and the United States need to take a close look at their bilateral relationship, Xi said. “What
kind of China-U.S. relationship do we both want? What kind of cooperation can our two nations carry out for mutual
benefit?” Xi asked. “And how can our two nations join together to promote peace and development in the
world? These are things that not just the people in our two countries are watching closely, but the whole
world is also watching very closely.” Xi said China and the U.S. should both proceed from the fundamental
interests of their people and to bear in mind human development and progress. “We need to think creatively and act
energetically, so that working together we can build a new model of major country relationship,” Xi said. “President
Obama, I look forward to having in-depth communication with you on major strategic issues of common interest to
deepen our mutual understanding and to push forward all-round cooperation,” Xi said. “I’m confident that our meeting
will achieve positive outcomes and inject fresh momentum into the China-U.S. relationship. Thank you.”
U.S. and China are economically interdependent-deters conflict
Feldman 6/02/2013 [Noah Feldman-professor of constitutional and
international law at Harvard, June 2, 2013, “The Coming Cool War With China”,
Bloomberg News, http://www.bloomberg.com/news/2013-06-02/the-comingcool-war-with-china.html]
The juxtaposition of rising tensions over cyber-attacks and the pork cooperation perfectly captures the paradoxical state of
Chinese-U.S. relations -- and explains why officials on both sides are struggling to come up with a new conceptual
framework to understand the change. Never before has a rising power been so economically
interdependent with the nation challenging it. The ties go beyond the U.S.’s 25 percent
market share for Chinese exports or China’s holdings of 8 percent of the outstanding U.S. national
debt. They include about 200,000 Chinese studying in the U.S. and perhaps 80,000 Americans
living and working in China. The combination of geopolitical competition and economic interdependence sets the
terms for the struggle that won’t be a new Cold War so much as a Cool War. If the Soviet Union and the U.S.
avoided all-out conflict because of mutually assured nuclear destruction, the
relations between China and the U.S. today could be defined by the threat of
mutually assured economic destruction. The economic costs of violent conflict
would be incalculably large.
Globalization prevents U.S.-China war
Holmes 8/6/2011 [James R. Holmes-professor of strategy at the Naval War
College and senior fellow at the University of Georgia School of Public and
International Affairs, August 6, 2011, “Globalization=No War?”, The Diplomat,
http://thediplomat.com/flashpoints-blog/2011/08/06/globalization-no-war/]
Tanned, rested, and ready, Norman Angell lives again—and he now wears US Navy khaki. He’s
doubled down on his thesis that economic interdependence ought to end war, insisting that
globalization has ended war between leading powers like China and the United
States. Writing in the US Naval Institute Proceedings, Lt. Cmdr. Matthew Harper maintains that
those of us who take China’s naval rise seriously gaze ‘through a spyglass, distortedly,’ omitting a
‘glaring detail’ about this momentous development—namely ‘the global economy.
Russia DA
1NC
Russian economy extremely vulnerable to collapse in price of oil, SQUO will
gradually approach brink of $100 per barrel
Adomanis, Forbes Contributor on Russian Economics and Demographics, ’13 (Mark, “Crude Oil is Still
Really Expensive, So Russia Will Probably Stay Stable”, March 14, 2013
http://www.forbes.com/sites/markadomanis/2013/03/14/crude-oil-is-still-really-expensive-so-russia-willprobably-stay-stable/, accessed 7/19/13, JF)
I had mentioned it before, but Ben Judah of the European Council on Foreign Relations recently wrote an
interesting report for the Legatum institute called “Five Traps for Putin.” It shouldn’t exactly come as a
shock that Judah and I don’t see eye to eye on the various issues, I think he severely exaggerates the extent
to which Russia will experience near-term political instability, but he asks many of the right questions and
highlights areas that really could be troublesome for Putin in the future. Judah’s was also one of the first
reports that I’ve yet seen that saw fit to mention Russia’s significantly improved demographics, so I don’t
want to go too over the top in my criticism: anyone with an interest in Russia should scan through the
report as it provides a very useful, if occasionally biased, summary of recent political and economic trends.
Judah, like many Russia watchers, highlights the oil price trap as a potential downfall for Putin. As the
report says: As a result, the Kremlin now must rely on a much higher oil price in order to balance its
budget. In 2007, $40 a barrel would have sufficed. By 2012, more than $110 was required. Should the
price of oil now fall for any substantial length of time, Russia could be forced to return to large scale
borrowing, even cut benefits or implement some form of austerity, thus undermining support for the
regime in the provinces and among low-wage earners. It is ironic, but Putin’s support now depends
upon the one thing he cannot control: the price of oil. I fully agree that a substantial and sustained fall
in the price of oil would be pretty damaging for Putin, just as a substantial and sustained increase in the
yield on Treasury Bills would be a pretty serious problem for the United States or a substantial fall in soy
prices would be a serious problem for Brazil. It doesn’t take a rocket scientist to see that a substantial
portion of Putin’s popularity rests on dolling out natural resource rents, and if those rents were
suddenly to disappear then, yes, the Kremlin would be in real trouble. But you can look at almost any
country in the world and imagine a scenario in which the increase or decrease in price of an important
commodity or financial instrument would prove ruinous: they key question is how likely such a scenario
is. So before we get too caught up in what might happen to Russia when oil prices decline, we should ask
ourselves “how likely is it that oil prices are actually going to decline for any length of time?” Based
on the available evidence I would say “extremely unlikely.” Consider the following charts. Here’s what
has happened to the price for Brent crude since 1988, when Ronald Reagan was still fearlessly leading the
free world to victory in the Cold War: The run-up in oil prices since 2000 doesn’t look like a temporary
blip or an “accident,” it looks like increasingly expensive oil is just a fact of life for an increasingly
dynamic and globalized world economy. So let’s focus on that post 2000 period, a period that,
conveniently, coincides with the entirety of Vladimir Putin‘s time atop the Russian state: Since 2000, the
only really noteworthy and sustained drop in world oil prices coincided with and was caused by an epochal
financial crisis that very nearly crashed the entire global economy. Apart from that, oil prices have either
been slowly increasing or holding steady. Indeed ever since oil prices really started to rebound towards
the end of 2009 I have heard Russia watchers say “OK, oil is expensive now, and that helps Putin survive.
But just wait until the price crashes, which is going to happen any day now!” They said this in 2010. They
said this in 2011. They said this in 2012. And they’re saying it now in 2013. I suppose the oil price
alarmists will be right at some point, we’re likely to eventually get another global recession that will crash
commodity prices, but almost no one takes seriously the idea that commodities, and oil in particular, are
just a lot more expensive now than they used to be and that this probably isn’t going to change any time
soon. Is Russia’s over-reliance on oil a good thing, or is it somehow praiseworthy? No. If I were
running the Kremlin I would be spooked by the increase in the non-oil and gas deficit and the ever
rising price per barrel needed to balance the state budget. But the fact that a sustained and sharp
decrease in the price of oil would be a disaster for the Kremlin does’t mean that such an decrease is any
more likely. And if you look at the Energy Information Agency’s short-term price forecasts, the expectation
in the short term is for an exceedingly gentle and gradual decline in oil prices to $108 a barrel in 2013 and
$101 in 2014, while the long-term reference case is for a sustained and long-term rise in prices. Oil prices
that are expected to average out at over $100 a barrel more than a year from now, and which will then
begin a gradual rise, hardly seem like a harbinger of doom for the Kremlin. Perhaps I’m small-minded
or unimaginative, but it’s very hard for me to conjur a scenario in which Putin’s political position is
seriously threatened so long as oil is over $100 a barrel and in which the most likely scenario is for everrising price in the future. Could oil doom Putin? Yes. But it seems far more likely that, for better or worse,
it’s going to continue to function as a crutch for Russia’s current regime.
Oil prices on the rise now, Oil is k2 Russia’s economy
Schuman 12
(Michael Schuman,“Why Vladimir Putin Needs Higher Oil Prices”, July 05, 2012,
http://business.time.com/2012/07/05/why-vladimir-putin-needs-higher-oil-prices/ )
Falling oil prices make just about everyone happy. For strapped consumers in struggling developed nations,
lower oil prices mean a smaller payout at the pump, freeing up room in strained wallets to spend on other
things and boosting economic growth. In the developing world, lower oil prices mean reduced inflationary
pressures, which will give central bankers more room to stimulate sagging growth. With the global
economy still climbing out of the 2008 financial crisis, policymakers around the world can welcome lower
oil prices as a rare piece of helpful news.
But Vladimir Putin is not one of them. The economy that the Russian President has built not only runs
on oil, but runs on oil priced extremely high. Falling oil prices means rising problems for Russia –
both for the strength of its economic performance, and possibly, the strength of Putin himself.
Despite the fact that Russia has been labeled one of the world’s most promising emerging markets, often
mentioned in the same breath as China and India, the Russian economy is actually quite different from
the others. While India gains growth benefits from an expanding population, Russia, like much of Europe,
is aging; while economists fret over China’s excessive dependence on investment, Russia badly needs more
of it. Most of all, Russia is little more than an oil state in disguise. The country is the largest producer of
oil in the world (yes, bigger even than Saudi Arabia), and Russia’s dependence on crude has been
increasing. About a decade ago, oil and gas accounted for less than half of Russia’s exports; in recent
years, that share has risen to two-thirds. Most of all, oil provides more than half of the federal
government’s revenues.
What’s more, the economic model Putin has designed in Russia relies heavily not just on oil, but high
oil prices . Oil lubricates the Russian economy by making possible the increases in government
largesse that have fueled Russian consumption. Budget spending reached 23.6% of GDP in the first
quarter of 2012, up from 15.2% four years earlier. What that means is Putin requires a higher oil price
to meet his spending requirements today than he did just a few years ago.
Research firm Capital Economics figures that the government budget balanced at an oil price of $55 a
barrel in 2008, but that now it balances at close to $120. Oil prices today have fallen far below that,
with Brent near $100 and U.S. crude less than $90. The farther oil prices fall, the more pressure is
placed on Putin’s budget, and the harder it is for him to keep spreading oil wealth to the greater
population through the government . With a large swath of the populace angered by his re-election to
the nation’s presidency in March, and protests erupting on the streets of Moscow, Putin can ill-afford a
significant blow to the economy, or his ability to use government resources to firm up his popularity.
That’s why Putin hasn’t been scaling back even as oil prices fall. His government is earmarking $40
billion to support the economy, if necessary, over the next two years. He does have financial wiggle room,
even with oil prices falling. Moscow has wisely stashed away petrodollars into a rainy day fund it can tap
to fill its budget needs. But Putin doesn’t have the flexibility he used to have. The fund has shrunk, from
almost 8% of GDP in 2008 to a touch more than 3% today. The package, says Capital Economics, simply
highlights the weaknesses of Russia’s economy:
Economic decline leads to war—diversionary tactics prove
Jedidiah Royal ’10. (Director of Cooperative Threat Reduction at the U.S. Department of Defense.
Economics of War and Peace: Economic, Legal and Political Perspectives p. 213-216. Emma.)
Less intuitive is how periods of economic decline may increase the likelihood of
external conflict. Political science literature has contributed a moderate degree of
attention to the impact of economic decline and the security and defense behavior of
interdependent states. Research in this vein has been considered at systemic, dyadic
and national levels. Several notable contributions follow. First, on the systemic level,
Pollins (2008) advances Modelski and Thompson’s (1996) work on leadership cycle
theory, finding that rhythms in the global economy are associated with the rise and
fall of a pre-eminent power and the often bloody transition from one pre-eminent
leader to the next. As such, exogenous shocks such as economic crises could usher in a
redistribution of relative power (see also Gilpin, 1981) that leads to uncertainty about
power balances, increasing the risk of miscalculation (Fearon 1995). Alternatively,
even a relatively certain redistribution of power could lead to a permissive
environment for conflicts as a rising power may seek to challenge a declining power
(Werner, 1999). Separately, Pollins (1996) also shows that global economic cycles
combined with parallel leadership cycles impact the likelihood of conflict among
major, medium and small powers, although he suggests that the causes and connections
between global economic conditions and security conditions remains unknown. Second,
on a dyadic level, Copeland’s (1996, 2000) theory of trade expectations suggest that
“future expectation of trade” is a significant variable in understanding economic
conditions and security behavior of states. He argues that interdependent states are likely
to gain pacific benefits from trade so long as they have an optimistic view of future trade
relations. However, if the expectations of future trade decline, particularly for
difficult to replace item such as energy resources,` the likelihood for conflict
increases, as states will be inclined to use force to gain access to those resources.
Crises could potentially be the trigger for decreased trade expectations either on its own
or because it triggers protectionist moves by interdependent states. Third, others have
considered the link between economic decline and external armed conflict at a national
level. Blomberg and Hess (2002) find a strong correlation between internal conflict and
external conflict, particularly during periods of economic downturn. They write, The
linkages between internal and external conflict and prosperity are strong and
mutually reinforcing. Economic conflict tends to spawn internal conflict, which in turn
returns the favor. Moreover, the presence of a recession tends to amplify the extent to
which international and external conflicts self-reinforce each other. (Blomberg and
Hess, 2002, p. 89) Economic decline has also been linked with an increase in the
likelihood of terrorism (Blomberg, Hess and Weerapana, 2004), which has the capacity to
spill across borders and lead to external tensions. Furthermore, crises generally reduce the
popularity of a sitting government. “Diversionary theory” suggests that, when facing
unpopularity arising from economic decline, sitting governments have increased
incentives to fabricate external military conflicts to create a “rally around the flag”
effect. Wang (1996), DeRouen (1995) and Blomberg, Hess and Thacker (2006) find
supporting evidence showing that economic decline and use of force are at least
indirectly correlated. Gelpi (1997), Miller (1999), and Kisangani and Pickering (2009)
suggest that the tendency towards diversionary tactics are greater for democratic states
than autocratic states due to the
(CONTINUED BELOW…)
fact the democratic leaders are generally more susceptible to being removed from office
due to lack of domestic
support. De DeRouen (2000) has provided evidence showing that periods of weak
economic performance in the
United States and thus weak Presidential popularity are statically linked to an increase in
the use of force. In summary, recent economic scholarship positively correlates economic
integration with an increase in the frequency of economic crises, whereas political
science scholarship links economic decline with external conflict at systemic, dyadic
and national levels. This implied connection between integration, crises and armed
conflict has not featured prominently in economic-security debate and deserves more
attention. This observation is not contradictory to other perspectives that link economic
interdependence with a decrease in the likelihood of external conflict , such as those mentioned in
the first paragraph of this chapter. Those studies tend to focus on dyadic interdependence
instead of global interdependence and do not specifically consider the occurrence of and
conditions created by economic crises. As such the view presented here should be
considered ancillary to those views.
Uniqueness
Prices are high now—market’s stable
The Economist, July 15th, 2013 (Associated Press—covers international news, politics, business,
finance, science and technology, The Economist; “The triple-digit barrel: Are high oil prices here to stay?”;
The Economist; pg. 1; http://www.economist.com/news/finance-and-economics/21579471-are-high-oilprices-here-stay-triple-digit-barrel) JM
SCRATCH the surface of the planet and the chances that hydrocarbons will spew forth appear to
grow by the day. This week America’s Energy Information Administration (EIA) released new estimates of the
amount of gas in the world’s shale beds. It reckons that there are 7,299 trillion cubic feet, 10% more than its
2011 estimate. The EIA’s estimates for shale oil, not included in the 2011 numbers, are a staggering 345 billion barrels,
adding a tenth to the world’s total oil resources.¶ Shale oil is already gushing out of the ground in America, displacing
imports to the world’s largest consumer. New supply is not yet showing up in prices: Brent crude, the global benchmark,
sells for $103 a barrel after averaging $111 in both 2011 and 2012. But Paul Stevens of Chatham House, a thinktank, is among those who see parallels with the price crash of 1986 caused when high prices hit demand and brought forth new sources
of supply from the North Sea and Alaska. Are they right?¶ In this section¶ The end of the affair¶ Quality street¶ The triple-digit
barrel¶ It ain’t over yet¶ Darkness at midnight¶ Boon or burden?¶ Start me up¶ Taking credit for nothing¶ Correction: Free exchange¶
Reprints¶ Related topics¶ BP¶ Fossil fuels¶ Industries¶ Energy industry¶ Alaska¶ The most notable recent price surges
were rooted in supply shocks in a fractious Middle East. Arab-spring uprisings culminated in the loss of Libyan
crude from the markets in 2011 after the outbreak of civil war. Brent hit $127 a barrel. Markets back then were
tight. Demand was brisk in emerging markets and even small supply disruptions had a
disproportionate effect. A slowdown in China and the euro crisis have since dampened global thirsts. Forecasts see relatively
weak demand growth of around 800,000 barrels a day (b/d) in 2013, a little slower than in 2012.¶ Saudi Arabia has the swing
vote on the oil price. It is happy with oil at around $100 a barrel . The world economy seems able to
cope with prices at that level, which also deliver the revenues needed to buy off restive populations. Saudi Arabia boosted
output last year to offset any Iranian shortfall as sanctions took hold. Since then, as Libyan crude came back onto the market and
supplies of shale oil from North America expanded by at least 1m b/d, the Saudis have cut output by 700,000 b/d. These cuts, and the
start up of the Manifa field earlier this year, means that spare capacity, the amount of production that can quickly be brought on
stream, is building.¶
Prices high now
Saefong and Mozee, July 10th, 2013 (Myra Saefong—assistant global markets editor, MarketWatch; Carla
Mozee—Markets Reporter at MarketWatch; “Oil surges past $106 to close at 15-month high: U.S. supply drops; prices tap intraday
high after FOMC minutes”; Market Watch, WSJ; pg. 1; http://www.marketwatch.com/story/oil-prices-top-104-on-sharp-inventorydecline-2013-07-09) JM
Prices briefly touched an intraday high of $106.66 a barrel shortly after the Federal Reserve released
minutes of its June monetary policy meeting.¶ Crude oil for August delivery CLQ3 +0.43% jumped
$2.99, or 2.9% to settle at $106.52 a barrel on the New York Mercantile Exchange .¶ Based on the mostactive futures contracts, that was the highest settlement since late March 2012, according to FactSet data. ¶ August Brent oil rose
70 cents, or 0.6%, to $108.51 a barrel on ICE Futures — a level not seen for a most-active contract
since April of this year. The price differential between Brent and West Texas Intermediate crudes has narrowed to below $3 a
barrel, the lowest levels since 2010. It traded above $20 in February.¶ Nymex crude futures were trading at just above
$105 right before the U.S. Energy Information Administration reported a 9.9 million-barrel decline
in crude stockpiles for the week ended July 5. Analysts polled by Platts were looking for a 3.8 million-barrel decline.¶
The latest decline follows a decline of more than 10 million barrels reported by the EIA for the week ended June 28. ¶ The American
Petroleum Institute late Tuesday had reported a 9-million-barrel drop for last week.¶ Crude supply levels are still above
the five-year averages, but the “expectations of further inventory draws in the weeks to come” due to
the movement of crude out of Cushing, Okla., the trading hub for Nymex oil futures, are helping prices go higher,” said Tariq
Zahir, managing member at Tyche Capital Advisors.¶ Still, “crude has technically broken out to the upside but are
getting toward short-term overbought levels,” he said. “We wouldn’t be surprised to see some profit taking at these
levels.Ӧ The EIA also said Wednesday that gasoline supplies fell by 2.6 million barrels while distillate
stockpiles, which include heating oil, increased by 3 million barrels. Gasoline stockpiles were expected
to rise by 1.2 million barrels, while forecasts called for an increase of 1.4 million barrels for
distillates.¶ On Nymex, August gasoline RBQ3 +0.68% rose 9 cents, or 3%, to almost $3.02 a gallon, and August
heating oil HOQ3 -0.32% rose nearly 2 cents, or 0.5%, to $3 a gallon. Both reached $3 for the first time since
April.¶ Rounding out action in the energy market, August natural gas NGQ13 -1.08% rose 2 cents, or 0.6%, to $3.68 per million
British thermal units. The EIA will release its weekly data on natural-gas supplies on Thursday. Analysts polled by Platts forecast an
increase of between 80 billion cubic feet and 84 billion cubic feet.
Prices high now—Egyptian Violence
BBC News, July 3rd, 2013 (Associated Press, BBC News; “Egypt unrest pushes the price of oil to a 14-month high”;
BBC News; pg. 1; http://www.bbc.co.uk/news/business-23156854) JM
The price of US light crude oil hit a 14-month high on Wednesday to over $100 a barrel on concerns
over political turmoil in Egypt.¶ The benchmark US crude rose $1.64 to $101.2 a barrel, its highest since
May 2012, while Brent crude rose 1.76% to $105.76 a barrel .¶ As well Middle East worries, rising US
demand for oil also boosted prices.¶ The US Energy Department said that weekly US crude supplies fell by 10.3 million
barrels.¶ That was the biggest fall in 13 years and was more than three times the drop that had been expected. ¶ It was partly due to a
temporary reduction in supplies from Canada as well as increased demand from a refinery in Indiana that had just restarted work.¶
Flows¶ Traders also worried that the volatile political situation in Egypt could interrupt oil flows
through the Suez Canal and the wider Middle East, which account for around 25% of the world's
oil output .¶ The Egyptian president, Mohammed Morsi, is facing protests from millions of protesters, and the
Egyptian military is threatening to disband parliament and put in place a new leadership .¶ The Suez
Canal sees just over 2% of world oil needs pass through it daily.¶ The Suez Canal Authority, which operates the waterway, said it "has
all the authorities needed for running the Canal without being limited by the laws and the systems of the [Egyptian] government".¶
The rises came despite economic signals from China earlier on Wednesday which suggested
construction activity in the country was slowing down - the latest sign of weakening growth - and weakening growth
in demand for raw materials - from the country.
Unrest in oil-producing countries leads to rising prices
Toni Johnson ’11 (“Oil Market Volatility.” Council on Foreign Relations. <ttp://www.cfr.org/oil/oilmarket-volatility/p15017>. Emma.)
Introduction.A growing number of analysts say oil-price trends can no longer be explained simply through
supply and demand. While energy analysts still see those factors as the foundation of the oil market, they
also view oil investor behavior as a factor in recent prices. Increasingly speculative behavior by a more
diverse set of investors outside the oil industry--including hedge funds, pension funds, and investment
banks--has made oil-market trends harder to predict, say analysts. Many believe speculative investments
from financial firms contributed to record-high global oil prices seen in early 2008, and that a selloff
by firms contributed to the subsequent massive price decline later in the year. As major political events
rock the Middle East, analysts also worry about market speculation in 2011, which has already experienced
the largest increase in oil's history. ¶ Share¶ 0¶ Share¶ 0¶ Tweet¶ A 2010 U.S. financial reform law was
intended to curtail trading by non-industry players to lessen volatility, but attempts to craft new regulations
under the law could be hampered by federal budget pressures and other issues. ¶ Supply and Demand¶ The
past few years have seen sharp volatility in oil prices. During 2008, oil prices set record highs during the
early part of the year, jumping to a high of over $147 per barrel in July. Oil prices then fell sharply in 2008
at the outset of the global financial crisis, plunging to less than $40 a barrel by December 2008. Prices
started rising again gradually over the next two years, and were more than $90 a barrel at the beginning of
2011. Protests in the Middle East and North Africa, particularly in Libya, caused an even steeper jump
in prices as investors grew concerned about the region's stability. The rise in prices was followed by a
"massive sell-off" (WSJ) of oil in May, which some analysts say was partially caused by concerns demand
that is falling and the U.S. economic recovery is slowing down. ¶ Supply and demand remain among the
most influential components of oil-market behavior. Unlike in most other markets, though, drastic changes
in oil price do not necessarily kindle changes in demand. "Prices can fall a long way without stimulating
demand," says Tim Evans, an energy analyst at Citigroup. While lessening demand does have an impact on
price, the continuing increase in oil consumption by developing countries coupled with steady high demand
from the United States mean that demand is not likely to ease in the near future, analysts say. ¶ Supply
issues, on the other hand, can have considerable impact on oil prices. Geopolitical events that threaten
oil supplies, such as troubles between Venezuela and the United States or Turkey and Kurdish Iraq, can
spook investors and lead to price volatility. Concerns that a major supply disruption could result from
ongoing unrest in the Middle East in early 2011 drove up prices within a few weeks and led to
estimates that oil could reach above $200 per barrel (CNBC) within the year. "Two factors determine the
price of a barrel of oil: the fundamental laws of supply and demand, and naked fear," the Economist wrote
in March 2011.¶ However, evidence suggests the price increases of 2008 did not reflect major changes in
market fundamentals or political instability. Saudi officials noted that in the year between 2007 and 2008,
when oil prices more than doubled, increases in oil supplies outstripped the rise in oil demand (PDF),
according to a January 2010 report prepared for the International Energy Forum. ¶ Oil markets also do not
entirely act like other commodities markets. Evans, who calls the market "a volatile beast," says the
Organization of the Petroleum Exporting Countries (OPEC) cartel is a major reason the oil market is not
truly competitive like other markets. Up until the mid-1980s, OPEC set crude oil prices. Now it simply
influences the market by adjusting production levels for its members, which supply about 40 percent of the
market. Such actions can have a significant impact on prices. OPEC supply cuts in 2003 and 2007 resulted
in gradual but significant increases in prices in the following months. But when crude prices rose in 2007,
OPEC officials often contended that the market had enough supply and blamed rising prices on oil-market
investors.¶ Energy expert Philip Verleger argues market unpredictability is not the fault of investors.
Instead, he says oil analysis has become "lazy" and has not adapted to the fact that the oil market now
behaves more like other financial markets where supply and demand factors prevail. Evans agrees
somewhat, but says increased "financially driven oil trading has given the price a greater independence to
swing further away from a fair market or equilibrium price for a longer period of time." ¶ During previous
times of market turmoil, large producers such as the United States and Saudi Arabia would raise production
and stabilize prices. CFR's Michael Levi says to expect more volatility in oil markets in part because there
is no longer a big producer step in. "That means prices have to swing far to balance supply and demand," he
says
Unrest in one country could spread to the region—another Arab Spring--disrupts oil prices.
History shows unrest in oil-producers causes price spike
Kimberly Amadeo. (How Are Oil Prices Determined?” About.com. Amadeo has 20 years of senior-level
experience as an economic analyst. Emma.)
Question: How Are Oil Prices Determined?
Answer: Commodity traders are responsible for oil prices by bidding on oil futures contracts. These
contracts are basically agreements to buy or sell oil at a specific date in the future for an agreed-upon price.
These futures contracts are executed on the floor of a commodity exchange by traders who are registered
with the Commodities Futures Trading Commission. Commodities have been traded for more than 100
years, and have been regulated by the CFTC since the 1920s.Commodities traders fall into two categories.
Most are representatives of companies who actually use oil. They buy oil for delivery at a future date at the
fixed price. That way, they know the price of the oil, can plan for it financially, and therefore reduce (or
hedge) the risk to their corporations. Traders in the second category are actual speculators. Their only
motive is to make money from changes in the price of oil. What Factors Do Traders Use To Determine Oil
Prices?¶ There are many factors that commodities traders look at when developing the bids that create oil
prices:¶ Current supply in terms of output, especially the production quota set by OPEC. If traders believe
supply will decline, they bid the price up. If they believe supply will increase, they willing to pay as much
for oil, and the price falls.¶ Oil reserves, including what is available in U.S. refineries and what is stored at
the Strategic Petroleum Reserves. These reserves can be accessed very easily, and can add to the oil supply
if prices get too high. Saudi Arabia also has a large reserve capacity. If it promises to tap those reserves,
traders allow oil prices to fall.¶ Oil demand, particularly from the U.S. These estimates are provided
monthly by the Energy Information Agency . Demand usually rises during the summer vacation driving
season. To predict summer-time demand, forecasts for travel from AAA are used to determine potential
gasoline use. During the winter, weather forecasts are used to determine potential home heating oil use. ¶
The Effect of World Crises on the Price of Oil¶ Of course, potential world crises in oil-producing
countries can also dramatically increase oil prices. That's usually because traders anticipate the crisis
will limit supply. This happened in January 2012, after inspectors found more proof that Iran was
closer to building nuclear weapons capabilities. The U.S. and European Union began financial sanctions,
which escalated to Iran threatening to close the Straits of Hormuz. The U.S. responded with a promise to
reopen the Strait with military force if necessary. The possibility of an Israeli strike was also a concern. ¶ As
a result, oil prices bounced around $95-$100 a barrel from November through January. In mid-February,
oil broke above $100 a barrel and stayed there. Gas prices also went to $3.50 a gallon. Forecasts were that
gas would be at least $4.00 a gallon through the summer driving season. (Source: New York Times, Iran
News; Energy Information Administration, Cushing WTI Spot Price) ¶ World unrest also caused oil prices
to rise in the spring of 2011. In March 2011, investors became concerned about unrest in Libya, Egypt
and Tunisia in what became known as the Arab Spring. Oil prices rose above $100 a barrel in early
March, reaching its peak of $113 a barrel in late April. ¶ The Arab Spring revolts lasted through the summer,
and resulted in an overturn of dictators in those countries. At first, commodities traders were worried that
the Arab Spring would disrupt oil supplies. However, as that didn't happen, the price of oil returned to
below $100 a barrel by mid-June.¶ Oil prices also increased $10 a barrel in July 2006 when the IsraelLebanon war raised fears of a potential threat of war with Iran. Oil rose from its target of $70 a barrel in
May to record-high of $77 a barrel by late July.¶ Effect of Disasters on Oil Prices¶ Natural and man-made
disasters can drive up oil prices if they are dramatic enough. Hurricane Katrina caused oil prices to rise $3 a
barrel, and gas prices to reach $5 a gallon in 2005. Katrina affected 19% of the nation's oil production. It
came on the heels of Hurricane Rita. Between the two, 113 offshore oil and gas platforms were destroyed,
and 457 oil and gas pipelines were damaged.¶ In May 2011, the Mississippi River flooding caused gas
prices to rise to $3.98 a gallon. Traders were concerned the flooding would damage oil refineries. ¶ On the
other hand, the Exxon-Valdez oil spill did not cause oil prices to rise. One reason was because oil prices in
1989 were only around $20 a barrel. The other was that only 250,000 barrels were spilled. Although this
had a devastating impact on the Alaskan coastline, it didn't really threaten world supply. ¶ The BP oil spill
spewed more than 18 times the oil than did the Exxon Valdez. Yet, oil and gas prices barely budged as a
result. Why? For one thing, global demand was down thanks to a slow recovery from the 2008 financial
crisis and recession. Second, even though 174 million gallons of oil was spilled, it was over a long period
of time, and it wasn't a large percentage of total oil used by the U.S. In fact, it was only about 9 days worth
of oil. The U.S. consumed 6.99 billion barrels in 2010, according to the U.S. Energy Information
Administration. That's a little over 19 million barrels per day. (Article updated February 22, 2012)
OPEC Chief says political tensions are driving high oil prices
Chika Amanze-Nwachuku ’12. (“OPEC: Political Tension Responsible
for High Oil Prices.”
ThisDayLive.com.http://www.thisdaylive.com/articles/opec-political-tension-responsible-for-high-oilprices/113886/ Emma.)
The Organisation of Petroleum Exporting Countries (OPEC) has said it is supplying the market with enough
crude oil but political situations are responsible for the current high oil prices.¶ President of the
organisation cum Iraq's Oil Minister, Abdul Kareem Luaiby, told reporters in Baghdad that oil prices
were affected more by political instability than by production matters. He however noted that OPEC
was seeking to achieve a balance in world oil prices. ¶ "OPEC has exerted all it can to produce a quantity
of oil that is balancing demand, but political situations are governing prices”, Dow Jones Newswires
quoted the OPEC Chief to have told reporters in Baghdad.¶ But hope of a reprieve from soaring oil prices
mounted at the weekend as Saudi Arabia claimed fellow members of the OPEC were working on bringing
down the cost of crude.¶ Oil continued its week-long surge at the weekend, sending Brent crude above $120
a barrel and fuelling fresh concerns about the cost of petrol.¶ "We are seeing a prolonged period of high oil
prices," the Saudi Oil Minister, Ali al-Naimi, was quoted by The Independent to have said. He added: "We
are not happy about it. Saudi Arabia is determined to see a lower price and is working towards that goal." ¶
Higher output from the Saudis helped to break a two-year cycle of tightening supply conditions in the oil
market, according to the International Energy Agency's latest report. ¶ But Brent crude has still risen about 13
per cent this year, with oil trading above $100 for all but a handful of days, stirring fears the surging cost will
threaten the global economy's recovery.¶ Concern about the tensions in Iran have supported oil prices
for months, with some analysts estimating they have added $10-$15 a barrel. Other factors include
concerns about a supply shortage due to production problems.
Oil prices will remain high despite U.S. boom—developing world increases demand
Andrew Holland 5/2/13. (“Why Oil Prices Will Remain High Despite the U.S. Oil Boom.” American Security Project.
http://americansecurityproject.org/blog/2013/why-oil-prices-will-remain-high-despite-the-u-s-oil-boom/ Andrew
Holland is the ASP Senior Fellow for Energy and Climate. He is a Washington-based expert on energy, climate, and
infrastructure policy. He has a Master’s Degree in International Strategy and Economics from the University of St.
Andrews and a Bachelor’s Degree in History and Economics from Wake Forest university in North Carolina.)
The U.S. is experiencing a boom in the production of oil. Only since the beginning of 2011, oil production in the U.S.
has gone up by 30%, from 5.5 million barrels per day (mbd) to 7.2 mbd. Just this week, the U.S. Geological Survey
announced that the amount of technically recoverable oil in North Dakota was tripled from a previous estimate – so this
boom is unlikely to fall away in the short term.¶ At the same time, U.S. and European demand for petroleum products
are declining. The economic troubles in the Euro zone have dampened economic activity (and petroleum demand),
while in America, economic growth has returned, but the consumption of petroleum products are down as consumers
change habits and lifestyles to drive less. At the same time, the low price of natural gas, particularly in the United
States due to the boom in shale gas production, has some analysts predicting that gas will increasingly act as a
substitute for oil whenever possible.¶ Given all this – an increase in production of oil coupled with a decline in
demand – an elementary Economics 101 class would say that prices should be in a steep decline. Over the past several
months, there have been a slew of articles predicting that oil prices are bound to drop.¶ However, while there was a
dip in oil prices in April, prices for Brent Crude are back up above $100 per barrel. And, while there has been a
persistent price spread between the American-based WTI and the global-based Brent (reflecting the U.S. oil boom, and
infrastructure problems in getting it out), the price has stayed remarkably steady throughout the boom in the last
two years.¶ Limited Vision¶ The problem is that our vision is limited only to what we see. The media is focusing on
what is close to home – and by doing that we’re missing the entirety of the global market for oil. Even though
production of oil from new fields in the U.S. is booming, there is a consistent decline in production from old
fields around the world, and OPEC members have not increased production. Meanwhile, though demand for oil
is falling in the U.S., it continues to grow around the world.¶ For detailed charts on the total world supply of oil, see
Lou Gagliardi’s excellent post, 2013 Crude Oil Outlook. He makes the case visually better than I could: oil demand is
declining within the OECD, but growing overall, while oil supply is failing to meet the demand.¶ We Americans are
myopic: we only see what is directly in front of us. This does us a disservice when we talk about oil because the market
for oil is essentially a global bathtub – more production in one area raises the total supply only so far. We have
forgotten that the price of oil is more closely connected with geopolitics and the world economy than with what is
happening in Texas or North Dakota.¶ Insatiable Emerging Economy Demand¶ In Lou’s post, he showed that sometime
in 2013 or ‘14 the total consumption of oil within the OECD will be surpassed by consumption of oil outside the
developed country group.¶ The truth appears to be that demand for oil in the developing world – particularly (but not
exclusively) in Asia – is effectively insatiable (at least over the medium term). These are fast growing economies with
rising middle classes. For every new barrel or oil produced by the United States, there are refiners in China willing to
buy it to satiate their country’s ever-growing demand.¶ While the story of China’s growth is well-told, it deserves to be
told again. Since 2000, Chinese oil demand has grown at what Lou calls “a torrid 6.7% per annum rate.” A post by
Brad Plumer in Wonkblog illustrates that China is using up oil faster than we can produce it. While there are limits
to that growth, China’s immense population means that we are not there yet. ¶ And, the story continues outside of China
– India and Southeast Asian countries like Vietnam, Indonesia, and the Philippines have had lower growth rates
than China, but they are showing signs of taking off. Behind them, but finally growing, is sub-Saharan Africa: a
major unknown in future oil demand. As a region, Sub-Saharan Africa posted the word’s fastest growth rate in 2012.¶
So, even though Americans are driving less and European economic woes mean that there is less oil needed, the
demand from the rest of the world is set to outstrip these concerns.¶ Tight Global Control of Oil Supplies¶ What then,
about the ‘booming’ production of oil in the U.S.; certainly that should help to moderate prices? Unfortunately, the
boom in the U.S. has not been matched by a boom around the world.¶ The boom has been great for American-based
refiners, who can buy crude oil at reduced North American prices, and then turn around and sell gasoline or diesel at
the higher world price.¶ It is also important for America’s balance of trade. For example, in 2010 the total value of oil
imports was $680 billion – larger than the total trade deficit of $497 billion. Today, oil is a declining share of a
declining deficit – and some are predicting that the next battle in Washington will be over allowing crude oil to be
exported. Paying for oil from North Dakota and Texas instead of Nigeria and Saudi Arabia will keep American dollars
at home – helping them to cycle through our domestic economy. ¶ However, the American oil boom is not affecting
prices because total world oil production is not matching America’s boom. There is one word that can explain that:
OPEC. The oil cartel was set-up to restrict supplies of oil in order to keep prices high. While there have been several
periods of failure in their 40 year history, they have been mostly successful. ¶ Yesterday, the Saudi Oil Minister,
speaking in Washington, indicated that the Kingdom had no plans to expand production, saying “We’re pleased to see
production coming from so many other suppliers, and see no need to go beyond our 12.5 million b/d capacity.” Surely,
if the Saudis applied some of the new technology being used in the United States, they could increase production – but
that would actually reduce prices, an outcome they do not desire. ¶ Recently, I have heard the argument several times
that we are entering a period that is akin to the early 1980s in oil prices. At the time, the high prices of the 1970s had
incentivized American drillers to get back to work in Texas, and a boom in production there caused a bottoming out of
the price of oil. I don’t subscribe to this theory – mostly because in the 1980s, the Saudis had a geopolitical incentive to
cut the price of oil: the USSR – then, as now, a major producer of oil. Saudi Arabia and its main ally, the United States,
know that high oil prices were subsidizing the Soviet Union with much-needed hard currency. So, the Saudis opened
their taps, and the rest is history.¶ Today, the geopolitical incentives go the other way. After the Arab Spring, the Saudis
significantly increased the subsidies (in both direct and implicit grants) to its people. They know that they need high oil
prices in order to keep their population happy.
Oil prices are high—unrest in the Middle East holds prices
Schneider and Geewax. 6/20/13. (“If Supplies of Oil Are Up, Why is Gas Still Pricey?.” National Public Radio.
http://www.npr.org/2013/06/20/193612572/if-supplies-of-oil-are-up-why-is-gas-still-pricey. Andrew Schneider is a
Business journalist for KUHF News. He has degrees in history from the University of Chicago and Duke University.
Marilyn Geewax is the Senior Editor of NPR’s National Desk. She was a 1994-1995 Nieman Fellow at Harvard, where
she studied economics and international relations and has a Master’s Degree from Georgetown University for
international economic affairs. Emma.)
Supplies of oil have been surging this year, and U.S. drivers, who have been switching to more fuelefficient cars, are using less gasoline.¶ That would seem to be the right economic combination to push
down prices at the pump, but gasoline prices have remained stubbornly high this summer.¶ Even some
people in the industry are wondering whether the law of supply and demand somehow has been
repealed.¶ "I'm actually quite dumbfounded," says Azam Zakaria, vice president of Lone Star Petroleum,
a family owned company that owns and operates 15 gas stations in the Houston area.¶ Zakaria, who has
been in the business for nearly three decades, used to believe that more oil would mean lower prices,
but he hasn't been seeing that lately.¶ The disconnect between supply and demand seemed to get even
wider Wednesday, when the U.S. Energy Information Administration released its latest data, showing
that U.S. crude oil inventories rose by 0.3 million barrels last week. Most experts had been expecting the
oil inventory to decline by 0.6 million barrels.¶ That sort of surprise keeps happening as more and more
domestic oil gets pumped. In fact last year, the United States saw the largest-ever yearly rise in oil
production, according to a statistical review released last week by BP, the global oil giant.¶ At the
same time, global oil reserves continue to grow, the BP report says.¶ The price of crude oil,
however, continues to hover around $100 a barrel, and an average gallon of regular gasoline is still
running above $3.62 nationwide. At the start of this year, the price was about $3.20 a gallon.¶ Zakaria
worries that speculators are pushing up prices beyond what the usual balance of supply and demand
would dictate. "Just to be blunt with you, I think that it's a commodity now that is being exchanged at
Wall Street," he says.¶ Related NPR Stories¶ IEA chief Maria van der Hoeven, seen in a 2011 photo, said
that North American production has set off a "supply shock that is sending ripples throughout the world." ¶
The Two-Way¶ Huge Boost In U.S. Oil Output Set To Transform Global Market¶ Oil pump¶ Planet Money¶
Energy Independence Wouldn't Make Gasoline Any Cheaper¶ Industry experts generally cite unrest
in the Middle East as a key reason why oil prices remain at relatively high levels. Violence in that
region could disrupt production or transport, and that makes a lot of people want to buy oil now
and stockpile it.¶ Jim Burkhard, vice president of oil market research at IHS CERA, says he's
surprised prices aren't even worse given the spreading violence from Syria's civil war.¶ "If you
look at the turbulence in the Middle East and look at the oil price, you could wonder, 'Gee, why aren't oil
prices higher?' " Burkhard says. "One very important reason why that's the case is this very strong
growth in production from the United States."¶ But a lot of that additional domestic fuel is being turned
into diesel fuel to support global trucking fleets. Matt Piotrowski, Washington bureau chief for Energy
Intelligence, looks at it from the point of view of the refiners.¶ "If the margins are better for diesel, both
inside the U.S. and also outside [refineries are] going to want to maximize their output of diesel instead
of gasoline," Pietrowski said.¶ So this summer, U.S. drivers are faced with these realities: They're driving
more fuel-efficient cars, and their country produces a lot more oil. That helps hold down gas prices.
But in a world thirsty for oil — and still so dependent on producers in the turbulent Middle East
— it's hard to restrain prices at the pump.
Egyptian political instability heightens prices—traders uncertain for major oil
shipping route.
Aaron
Smith
7/5/13
(“Oil
Prices
at
2013
high
above
$103
a
barrel.”
CNN
Money.
http://money.cnn.com/2013/07/05/investing/oil-prices-egypt/index.html. Aaron Smith is a staff
writer for CNN Money. Emma.)
U.S. oil futures for the August contract rose $1.98, or nearly 2%, to settle at $103.22 a barrel. That's the highest
closing price since May 2, 2012, when oil settled at $105.22 per barrel.¶ The Egyptian army seized control of the
government Wednesday amid violent protests, deposing the country's first democratically elected president,
Mohamed Morsy of the Muslim Brotherhood. On Friday, the African Union announced that it was suspending
Egypt.¶ Egypt produces a negligible amount of oil. But the Suez Canal, which passes through the north African
nation, is a major thoroughfare for oil shipping that links the Mediterranean Sea with the Red Sea and the
Persian Gulf.¶ "I think most folks don't believe that violence in Egypt is going to cause a shutdown of the Suez
Canal," said Tom Kloza, chief oil analyst for Gasbuddy.com. ¶ But he also said that military coups make
traders nervous about energy supply, prompting them to buy oil and drive up prices.¶ Related: Beware dire
predictions on Obama's war on coal¶ Oil was on the rise even before the Egyptian coup. Oil prices have climbed
more than 8% in the last month, driven by economic growth.¶ Brent crude, the benchmark for oil prices in Europe,
rose $1.67, or 1.6%, to $107.43 a barrel.
Oil prices driven by political instability/speculation—empirics prove
Metcalf and Wolfram ’10.
(“Cursed Resources? Political Conditions and Oil Market Volatility.”
University of Michigan Erb Institute. Gilbert E. Metcalf is associated with Tufts University and with the
National Bureau of Economic Research. Catherine Wolfram is associated with UC Berkeley and the National
Bureau
of
Economic
research.
WolframOilMarch.pdf. Emma)
http://erb.umich.edu/Research/Initiatives/colloquiaPapers/Metcalf-
I. Introduction¶ Many energy markets are characterized by extremely inelastic short-run supply ¶ and
demand, meaning that even small fluctuations in either can lead to large swings in ¶ price. The supply
of fossil fuels, which provide 85% of U.S. and 86% of world energy ¶ needs (IEA, 2008), is largely controlled
by the governments under whose soil the natural ¶ resources rest. The markets, as a result, are
susceptible to short-run changes in fossil fuel ¶ supplies, which can be influenced by the political
agendas of the controlling ¶ governments. From a U.S. perspective, this is no truer than for oil, which is
supplied ¶ from countries ruled by both stable and unstable regimes into a world market. ¶ While much has
been written about how systematic shifts in oil demand or supply ¶ affect prices (see, for example, Hamilton
(2009a) for a recent assessment), less is ¶ understood about the underlying determinants of short-run
changes in supply. In this ¶ paper, we analyze how the political conditions in a country affect its oil
production ¶ activities. ¶ For our main empirical analysis, we first construct several measures of oil ¶ volatility,
which take different approaches to controlling for market factors which should ¶ drive changes in a country’s
oil output. We next document a pronounced negative effect ¶ of political conditions on our measures
of oil volatility, and this result is robust to
different measures of political
¶
¶
including a dummy for OPEC membership, using several
conditions and using a range of volatility measures. We also address the
potential ¶ endogeneity of political structure, as suggested by the literature on the “resource curse.” ¶ We run
two-stage least-squares regressions where we instrument for recent political 90 ¶ conditions with political
conditions before oil was commercialized, and we find that the ¶ negative relationship is even more
pronounced in these specifications. ¶ We argue that this result has implications both for understanding world
oil ¶ markets and for interpreting recent findings on the role of political conditions in ¶ determining rates of
macroeconomic development. To explore the implications for world ¶ oil markets, we construct aggregate
measures that summarize the political conditions of ¶ oil producing regimes using different measures of a
country’s political stability. ¶ Generally, our indexes depict a reduction in the political conditions of oil
producing ¶ countries between 1965 and 1978, followed by an increase that peaks sometime in the ¶ late
1990s or early 2000s, depending on which index is considered. In recent years most ¶ of the indexes show a
modest decline starting around 2003. ¶ We next decompose the measure into “production” and “internal
conditions” ¶ indexes to show how changes in the aggregate measure are driven by changes across ¶
countries in their share of world oil production and changes within countries in political ¶ conditions. In the
early part of our sample, changes in oil political conditions were ¶ mainly driven by changes in the production
share, as Middle Eastern countries accounted ¶ for a larger and larger share of total production. Recent
trends, however, appear to be ¶ driven by changes in internal conditions in addition to changes in
the location of oil
¶
production.
¶
Our focus is on short-run supply volatility since this is generally the
source of ¶ price volatility. Price volatility makes business planning difficult and raises the cost of ¶ hedging
risk. It is particularly difficult for energy-dependent industries such as the ¶ airlines and automakers. It also
raises concerns for many that speculation is contributing 90¶ to price volatility and spikes causing many to
call for tighter regulation of energy ¶ markets.1¶ Seemingly trivial events can cause significant price shifts.
In June of 2009, for ¶ example, insurgents in Nigeria's Niger delta announced an attack against one of
Royal ¶ Dutch Shell's two export terminals in that country. News of the raid help drive up oil ¶ prices by
over three percent in one day according to a report in the Washington Post ¶ (Mufson (2009)). A Swiss
oil analyst warned of "legitimate geopolitical concerns ... We ¶ will need to keep an Iranian risk premium for
the weekend and to it we will add a ¶ Nigerian risk premium" (Mason (2009)). To put this in perspective,
Nigeria's share of ¶ world production is less than three percent and the amount of oil that had been ¶
temporarily shut in by insurgents in that country accounted for just over one percent of ¶ world production
(BP (2009)).
Oil market and demand is increasing now
Wang, 6/09
“BRIAN WANG , “if oil prices were to drop the important geopolitical impact would be on Russia”
http://nextbigfuture.com/2013/06/if-oil-prices-were-to-drop-important.html”
IEA oil projection to 2035 was for $125/barrel in real terms Global oil demand grows by 7 mb/d to
2020 and exceeds 99 mb/d in 2035, by which time oil prices reach $125/barrel in real terms (over
$215/barrel in nominal terms). A surge in unconventional and deepwater oil boosts non-OPEC supply
over the current decade, but the world relies increasingly on OPEC after 2020. Iraq accounts for 45%
of the growth in global oil production to 2035 and becomes the second-largest global oil exporter,
overtaking Russia.Oil demand was projected to increase by 14 percent between now and 2035.
Links
Russia specific
Russia depends on oil revenue—susceptible to rise and fall.
Leon Aron. May 2013 (“The political economy of Russian oil and gas.” American Enterprise Institute.
http://www.aei.org/outlook/foreign-and-defense-policy/regional/europe/the-political-economy-of-russianoil-and-gas/ Emma.)
One of the two largest oil producers in the world, Russia accounts for 12 percent of global output. Last year it
again surpassed Saudi Arabia by pumping almost 10.4 million barrels per day (BPD). It is also one of the world’s
largest exporters of oil, with nearly 5 million BPD. With the world’s largest proven reserves of natural gas, Russia is
also the top producer of natural gas, accounting for about 20 percent of the world’s total. The centrality of
hydrocarbons to Russia’s economy is hardly a new issue, but it is one well worth revisiting today. On the one hand,
new technologies are making natural resources cheaper and more abundant, threatening billions of dollars of
the Russian state’s revenue. At the same time, to maintain the current level of production, not to mention
increase it, Russia must make huge investments in exploring and recovering oil from virgin deposits
(“greenfields”) of the east Siberian region and the Arctic shelf. Russia’s ability to meet both challenges will affect not
only its preeminence as an energy supplier but also its ability to wield oil and gas as geostrategic tools. With a likely
significant thinning of oil and gas rents, at stake might be the stability of the regime and perhaps even its
survival.¶ Key points in this Outlook:¶ One of the world’s two largest oil producers and the leading provider of natural
gas to Europe, Russia has increasingly used its revenues from energy exports to strengthen the Putin regime. ¶ As
new, cheaper energy providers emerge and the market becomes leaner and more competitive, Russia needs to
lessen its dependence on profits from these resources if it is to avoid stagnation and possibly an economic crisis. ¶
The regime needs to implement deep institutional reforms to create a better investment climate and diversify the
economy, but in doing so it risks undermining the authoritarian “vertical of power.”¶ ¶ Vladimir Putin’s commitment to
oil and gas as the mainstay of Russia’s progress stems from a deep and abiding conviction about its importance to the
nation’s economy. Long before he came to power, he had believed that “the restructuring of the national [Russian]
economy on the basis of mineral and raw material resources” was “a strategic factor of economic growth in the near
term.”[1]¶ In an article published a year before he became president, he reiterated that Russian mineral
resources would be central to the country’s economic development, security, and modernization through “at least
the first half” of the 21st century.[2] In Putin’s view, the only way for Russia to achieve economic growth of 4 to 6
percent per year—the tempo he deemed minimally necessary for Russia to reduce its lag behind the developed
countries—was via “extraction, processing and exploitation of mineral raw resources.” This was the key to
Russia’s becoming “a great economic power,” Putin believed.[3]¶ For Putin, oil and gas were also paramount politically
as guarantors of the security and stability of the Russian state. As he put it, “The country’s natural resource endowment
is the most important economic and political factor in the development of social production.” Furthermore, the “raw
material complex” was the “basis for the country’s military might” and an “essential condition” for
modernization of the military-industrial complex.[4] Finally, he believed the mineral extraction sector of the
economy “diminishes social tensions” by raising the “level of well-being” of the Russian population.[5]¶ Oil, Gas,
and the “Putin Doctrine”¶ State control or outright ownership of the oil and gas industry became a central element in the
“Putin Doctrine,” which postulated the recovery of the state’s political, economic, and geostrategic assets following the
antitotalitarian revolution of late 1987–91.[6] The state was to become again the only sovereign political and economic
actor in Russia, with the private sector, civil society, and its institutions mere objects.¶ Putin saw as nonnegotiable the
state’s control of “rent flows” from the sale of mineral resources, with nonstate property rights remaining
“contingent.”[7] Almost a decade and a half later, the authors of an influential analytical report on the composition and
division of labor in the Kremlin’s Politburo singled out “long-term natural gas contracts, and the management of the
natural gas industry in general and Gazprom in particular” as one of only two areas “under Putin’s direct control.”[8]
(The other sector was the largest banks.) ¶ In pursuit of this agenda, the Putin regime has effected a steady accretion of
the state’s sway over the oil industry. (Unlike oil, Russia’s natural gas production escaped large-scale privatization in
the 1990s. As a result, the majority-state-owned Gazprom dominates the sector with 78 percent of the national output
and has a pipeline and export monopoly.[9]) The key to the effective state takeover of more than half of Russian oil
output was a dramatic expansion of the majority state-owned Rosneft, headed since 2010 by Putin’s confidant and
former KGB officer Igor Sechin. Starting as a minor company that the government tried and failed to sell in 1998
because nobody wanted it, Rosneft skyrocketed in 2004 after it took over the key assets of Russia’s formerly largest
and privately owned oil corporation, Yukos, which the Kremlin had bankrupted, broken up, and sold at rigged
auctions.[10]¶ "For Putin, oil and gas were also paramount politically as guarantors of the security and stability of the
Russian state."Since Rosneft bought Russia’s third-largest private company, TNK-BP, for $55 billion this past March,
it has become the largest publicly traded oil company in the world by output.[11] As a result, the state share of Russia’s
oil production increased from 20 percent in the early 2000s to 56 percent today, with Rosneft accounting for 48 percent
of the total.[12] The increase in the state ownership paralleled a steady rise in overall production, which reached a post-
Soviet record of 10.5 million barrels per day, or 518 million tons per year, in November 2012.[13] ¶ The Rise of the
Russian Petro-Gas State¶ From less than 50 percent in the mid-1990s,[14] the share of commodities in Russian exports
has grown to 70 percent today, with oil accounting for more than half of the export income.[15] Representing up to 30
percent of the country’s GDP and half of its GDP growth since 2000,[16] hydrocarbons provided at least half of the
state’s budget revenues last year.[17] Five years ago, Russia needed oil prices of $50 to $55 a barrel to balance its
budget, but Alexei Kudrin, former first deputy prime minister and finance minister, estimated the breakeven price at
$117 per barrel last year.[18]¶ Russia’s dependence on energy exports—and, consequently, its economy’s vulnerability
to commodity price fluctuation—was highlighted by the 2009 world financial crisis. As oil plunged from $147 to $34
per barrel, the resource-based economy contracted by almost 8 percent—the largest drop among the G20 top industrial
nations.¶ Russia has begun to exhibit the signs of what economists call the “Dutch disease,” when overreliance on
commodity exports depresses other sectors of the economy by starving them of investments and modernization while
the increasing value of the national currency makes exports of other goods and services more expensive and thus less
competitive in world markets. Industrial stagnation has even spread to the military-industrial complex, which, like in
Soviet times, continues to be the state’s favorite sector and enjoys its continuous and very generous support. Despite
this, according to a recent survey, only 20 percent of the Russian defense enterprise qualified as “modern.”[19] ¶ As in
virtually every other petro-gas state, the rise of the Russian one has been attended by corruption likely unprecedented
even in the country’s far-from-pristine history. Venality and extortion have come close to ¶ subverting or even
paralyzing governance, social institutions, justice, and entrepreneurial activity. In Transparency International’s 2012
Corruption Perception Index, Russia was 133rd among 176 countries, worse than Belarus, Vietnam, and Sierra Leone
and on par with Honduras, Iran, and Kazakhstan.[20] ¶ Yet the most dangerous political legacy of the Russian petro-gas
state is the centrality of oil and gas revenues, which amounted to $215 billion last year,[21] to the loyalty of two groups
that are essential for the regime’s survival: the lower-income and elite segments. Trillion-ruble transfers help to
maintain social peace in what is known as “Russia-2”[22]—poorer regions, especially the volatile and increasingly
violent Muslim North Caucasus, small towns and rural areas, and the rusting “monotowns” (one-company towns) of
Stalinist industrialization.[23]¶ The sporadic raising of meager pensions and salaries for the millions of Russians on the
government payroll, including doctors and teachers (usually in the run-up to the Duma or presidential elections) is part
of the same strategy. At the same time, oil and gas rents are a vital component in elite management under Putin’s
neopatrimonial regime: a tacit but ironclad agreement between the Kremlin and the bureaucracies from top to bottom
that permits the latter to enrich themselves at the treasury’s expense in exchange for their loyalty.¶ So long as the
regime continues to regard export revenues as a palliative, if not a panacea, for economic, social, and political
problems, they will impede or even obviate the need for economic and political modernization. “The problem of being
a petro-state is that the natural resources trend corrupts the institutions,” said Sergei Guriev, rector of the New
Economic School in Moscow and a leading expert on Russian political economy. “This is what is called the ‘resource
curse.’ This is a trap, where democratic political and economic institutions do not develop because rents coming from
natural resources provide incentives to the elite not to develop institutions.”[24] ¶ Challenges to the Status Quo: Oil¶ But
this status quo may not be sustainable indefinitely. After two decades of essentially living off the Soviet Union’s
“legacy fields,” the “brownfields” (exploited deposits, as opposed to newly discovered ones, or “greenfields”) of
western Siberia are “entering a long-term decline.”[25] Although Russia is not running out of oil, a leading expert
believes it may be running out of cheap oil.[26] Instead, oil will have to be pumped from places that are “colder,
deeper and more remote,”[27] such as the continental shelf in the Arctic, the ever more remote regions of eastern
Siberia, the “deeper horizons” of western Siberia, or the Black Sea.[28] ¶ "Although Russia is not running out of oil, a
leading expert believes it may be running out of cheap oil."Yet the enormous upfront investments that such an effort
would require are hard to come by when taxes on oil companies’ profits have greatly reduced the incentive to invest in
new technology and greenfield exploration. After they pay the profit tax, value-added tax, mineral extraction tax, asset
tax, charges for the use of subsoil resources, mandatory contribution to social funds, and export duties, Russian oil
companies are effectively taxed at a 70 percent rate.[29] (By comparison, in 2011, Chevron and ExxonMobil were
taxed at an effective rate of 42–43 percent in the United States.[30])¶ This policy leaves massive capital and technology
transfers from Western multinational corporations as the key to sustaining the present levels of oil production. Among
the more notable of such ventures was ExxonMobil’s agreement last year to invest, in a joint venture with Rosneft, $3.2
billion into the exploration and development of the Black Sea and the Kara Sea in the Arctic. In addition, with
Rosneft’s acquisition of TNK-BP, BP ended up with almost a 20 percent stake in the Russian company.[31] (Rosneft
promptly proceeded to “borrow” $10 billion from TNK-BP subsidiaries, in the process effectively robbing minority
shareholders who held shares in these firms.[32])¶ Yet such deals fall far short of what is needed to ensure Russia’s
continued status as an “energy superpower,” and the barriers to large-scale Western investments are formidable, if not
prohibitive. Shale oil and environmentally “cleaner” liquefied natural gas (LNG) will likely push down oil prices,
making greenfield investments less profitable. The worsening of relations between Russia and the West increases the
risks as well. Then there is the 2008 law that restricts foreign control over companies operating in Russia’s “strategic
industries” (certainly including oil and gas), in effect banning non-Russian energy firms from a majority ownership of
any significant venture. (In the ExxonMobil-Rosneft deal, ExxonMobil owns only one-third of the venture.) Last but
far from least, there is the memory of the Russian government’s forcing Royal Dutch Shell in 2006 to give up a
controlling stake in its liquefied gas production project, known as Sakhalin-2, after Royal Dutch Shell and other
members of the consortium had invested $9–11 billion in the venture over 12 years.¶ Tall Barriers and Belated
Incentives¶ Russia has plenty of “tight oil,” (oil found in “low permeability” reservoirs, such as shale or tight sandstone,
and usually requiring horizontal drilling and fracturing to access) including the brownfields of western Siberia. Yet its
production faces severe structural constraints. Shale extraction requires technological and entrepreneurial agility (as
well as strict cost control), which are associated with small and medium-sized independent companies operating in
relatively benign legal regimes.[33] Instead, Russian shale oil is likely to be developed by the giant Rosneft, which is
hampered by very strict regulations.¶ Absent an expansion into new fields or the successful adoption of new
technologies for maintaining the old ones, Russia’s production may shrink by as much as one-fifth, from the current
10.4 million BPD to 8 million BPD as early as 2020.[34] In the opinion of a top expert, Thane Gustafson, sometime in
the coming decade, the Russian state “could well see oil revenues decline, even as its reliance on them grows,” and the
“tide of money” that has enabled the Kremlin to meet “everyone’s growing expectations” may vanish.[35] ¶ In the last
two years, the growing awareness of such gloomy eventualities has prompted the Kremlin to ease the tax burden on oil
companies to stimulate investment in exploration and new technologies. In 2011, the government lowered crude oil
export duties from 65 to 60 percent.[36] Tax relief seems also in the cards for shale and other “tight rock” energy
production, as present draft legislation aims to reduce the mineral extraction tax to between 50 and 100 percent of the
current tax.[37] In May 2012, Putin also suggested tax incentives for exploring offshore oil reserves.[38] ¶ Click on the
image for a larger, detailed look¶
-If Russia collapses—it produces wars.
The price of oil climbed toward $96 a barrel Tuesday, extending gains as supply
concerns outweighed uncertainty about economic growth in the United States and
China.¶ By early afternoon in Europe, benchmark oil for August delivery was up 57
cents to $95.75 a barrel in electronic trading on the New York Mercantile Exchange.
The contract jumped $1.49 to close at $95.18 on Monday.¶ Supply risks were
increasingly in focus as traders voiced concerns about the escalating civil war in
Syria and the temporary closure of two major oil pipelines in Canada due to
damage probably caused by heavy flooding.¶ "The oil markets are still in the grip of
fears about an imminent end to the Fed's bond purchasing program and a
slowdown in Chinese growth," said a report from Commerzbank in Frankfurt. "All
that prevented the price from falling even further were the supply risks."¶ Oil sank
by $4.55 a barrel, or 4.7 percent, on Thursday and Friday after the Federal Reserve
spooked investors by signaling the end of a bond-buying program that has boosted
the economy.¶ On Monday, oil dropped as low as $92.67 a barrel because of
growing worries that China's decision to clamp down on informal lending could
hamper growth in a major energy consuming country.¶ But it rebounded after Wall
Street indexes clawed back losses and then kept climbing Tuesday in Asia and
Europe as some markets returned to positive territory. Oil trading is often
influenced by stock market trends which can reflect the state of confidence in the
economic outlook.¶ Markets will also be paying attention to a series of U.S.
economic indicators to be released later Tuesday, including data on consumer
confidence, new-home sales, home prices and orders for durable goods.¶ Brent
crude, which is used to set prices for oil used by many U.S. refineries to make
gasoline, was up 39 cents at $101.55. Russian domestic stability reliant upon
sustained rise in oil prices
Hill, Korea Times Writer, ’13 (Fiona, Korea Times, July 8, 2013, lexisnexis.com, accessed 7/18/13, JF)
Meanwhile, the global economy continues to pose risks for the Russian state .
Since first coming to
power, Putin sought to cement Russia's status and its global standing on the basis of
superior economic performance. As Putin has stressed in several speeches, he believes
that the Soviet Union, by focusing on an economically ruinous arms race with the U.S.,
fought the wrong battle against the West during the Cold War.
In Putin's view, the Soviet Union collapsed under the weight of its debts. So the survival of the
Russian state depends on its fiscal and economic strength, which also guarantees its sovereignty .
In the 2000s, largely thanks to high oil prices, Putin paid off the state's debts. He built up
enormous foreign-currency reserves, which cushioned the blow of the 2008 global
economic crisis. As oil prices rose from 2000 to 2008, Putin presided over a period of
rapid GDP growth that put Russia on track to become the world's fifth-largest economy.
and
earned it a spot in the so-called BRICS grouping of the world's major emerging
economies, alongside Brazil, India, China, and South Africa. Russia's growth generated
jobs, boosted incomes, and contributed to a decade of domestic stability.
Economic growth replaced military might as Russia's most important indicator of success
The future looks far less rosy. The economy has slowed. Most economists now believe that Russia
cannot maintain annual GDP growth at a rate above 2 percent without another sustained rise in oil
prices. But 2 percent growth (a respectable rate for an advanced economy) would represent a
major blow to Russia's standing and Putin's personal prestige, and could endanger domestic
stability if jobs are lost in critical manufacturing sectors.
Russian dependence on oil not sustainable
Aron, AEI Scholar, ’13 (Leon, AEIdeas, May 29, 2013 http://www.aei-ideas.org/2013/05/oil-gas-andrussian-petro-gas-state-qa-with-leon-aron/, accessed 7/19/13, JF)
Aron: The status quo is certainly not sustainable indefinitely. Although Russia is nowhere close to
running out of oil, it may be running out of cheap oil. The effective tax rate for Russian oil companies
is 70% (compared with roughly 42-43% in the US), so there is not much appetite for the enormous
upfront investments that would be required to develop oil fields in ever-remoter regions of eastern
Siberia and the continental shelf in the Arctic. At the same time, shaky rule of law, limitations on how
much foreign companies could own in the “strategic sectors” of the economy (first and foremost energy)
and the memory of past grabs of domestic and foreign companies by the state make Western
multinationals pause as well, preventing massive capital and technology transfers that are key to
sustaining the present levels of production.
.
Russian economy entirely dependent upon oil for revenue, stagnation and growth
slowdown brink now
Eyal, European Correspondant, ’13 (Jonathan, The Straits Times, June 26, 2013,
lexisnexis.com, http://www.lexisnexis.com/hottopics/scholastic/, accessed 7/18/13, JF)
Russian President Vladimir Putin hates being rushed. It does not go well with the
unflappable, macho image which he carefully nurtured throughout his 13 years in power.
Yet there is an air of a panic about his recent measures to kick-start the Russian economy. For he
knows that, unless he moves fast, Russia will be condemned to a long period of stagnation which
could doom his own political legacy. Mr Putin's latest move has been the appointment on
Monday of Mr Andrei Belousov, until now Russia's economy minister, as chief economic
aide, giving the President a closer grip over financial matters. This reshuffle came on top
of a recent announcement by Mr Putin that Russia will be dipping into its national
pension fund in order to finance massive infrastructure projects which he hopes will spur
economic activity. And more startling still has been his decision to proclaim an amnesty
for people under investigation for financial crimes or tax evasion; the measure is
supposed to boost investors' confidence. Traditionally, Russian presidents do not concern
themselves with the daily management of the economy: that is left to prime ministers
who are fired at the slightest whiff of public discontent. But matters are different this
time, partly because current Prime Minister Dmitry Medvedev is Mr Putin's closest
associate and cannot be dismissed so easily, but also because of the sheer gravity of the
challenge facing Russia. The Russian economy has failed to diversify away from its dependence
on exports of oil and gas. Sales of energy products still account for the bulk of revenues and the
manufacturing sector has actually shrunk since Mr Putin came to power in 1999. With demand
for oil dropping because of the global recession and shale gas competing with Russia's natural gas by
driving energy prices down, Mr Putin's treasury can no longer balance the books: Russia will have a
budget deficit for the next three years. Economic growth is now running at 1.8 per cent a year, the
slowest pace in five years. There is little Mr Putin can do to boost global oil and gas prices.
But he can begin to divert energy exports away from economically-sluggish Europe and
towards China, the world's biggest single potential customer. And that's precisely what
Russian oil giant Rosneft - which is run by Mr Igor Sechin, Mr Putin's close ally - did by
recently concluding a mega-deal to supply oil to China. The deal, reported to be worth US$270
billion (S$345 billion) over the next 25 years, was hailed by Mr Putin as
"unprecedented". He failed to mention that he consistently opposed such deals in the past,
fearing that they would make Russia too dependent on Chinese markets. Now, however, such
qualms are forgotten.
Russia does not have sufficient crisis management capacity to survive an oil shock
IMF, ’13 (International Monetary Fund, “Russian Federation—Concluding Statement 2013 Article IV
Consultation Mission”, June 17, 2013, http://www.imf.org/external/np/ms/2013/061713.htm, accessed
7/19/13, JF)
Calls for near-term policy stimulus threaten newly minted macroeconomic anchors, and rapid
unsecured consumer credit growth has increased financial stability risks. Russia could be affected by
a sharp decline in oil prices or an acceleration of capital outflows if global economic and financial
conditions or the domestic business environment worsen. At the same time, Russia is better equipped
to handle such shocks than previously, given a more flexible exchange rate, improving crisis
management capacity, and narrower balance sheet mismatches. However, the current level of the
Reserve Fund is not sufficient to counter revenue shortfalls in the event of large and lasting oil price
decline. Rebuilding the Reserve Fund to no less than 7 percent of GDP, as envisaged in the fiscal rule,
would help support the near-term policy response to revenue shortfalls.
Latin American Stability Links
Latin American oil demand skyrocketing
Petroleum Economist 13 (Petroleum Economist, “Latin America Hits the Road,” May, 2013, Lexis Nexis)
IN BRAZIL'S financial capital Sao Paolo the roads have become so clogged with cars that those who can afford it now
take to the sky. Executives and officials ride helicopters from rooftop to rooftop for meetings and lunches to avoid the
crippling gridlock below.Sao Paolo's problem is extreme, but traffic-choked highways are a familiar sight in cities
across Latin America. As strong economic growth over the past decade has improved the fortunes for
many in the region, demand for cars, trucks and buses -" and the fuel to keep them moving - has soared. The
trend is likely to continue.Across Latin America, vehicle ownership rose by more than 40% from
2000 to 2010, from 107 to 150.4 vehicles per 1,000 people. Only East Asia's booming economies saw faster growth
over the period. Between 1990 and 2010, fuel demand for the transport sector doubled from 1.4 million barrels a
day (b/d) to 2.8 million b/d, according to the International Energy Agency (IEA). The rapid rise has come in spite
of surging international oil prices. This is because all of Latin America's major economies, in one
way or another, shield drivers from the pain of higher prices at the pump. Opec-member Venezuela,
where petrol is cheaper than water, is the poster child for fuel subsidies. While high oil prices have seen drivers in
Europe and the US turn to smaller, more fuel-efficient cars, gas-guzzling SUVs still rule the road in Caracas. ¶ Rising
costsGovernments are paying an increasingly steep price for those subsidies, which are draining funds from budgets
that could be spent on cash-starved education, health and welfare systems. Venezuela's spending on fuel subsidies rose
from $10.4 billion in 2009 to nearly $22 billion in 2011, around 7.5% of the country's GDP, according to the IEA. In
Mexico, the cost of fuel subsidies has increased five-fold from $3.17 billion in 2009 to $15.9 billion in 2011.
Argentina's subsidy bill has tripled over the period from around $500 million to $1.7 billion.In Brazil, the rising cost of
the country's fuel subsidies has caused a rift between the government and state-controlled Petrobras, which pays
international prices to import fuel but has to sell it at a lower government-fixed price in the domestic market. The
company has warned that the losses could hinder its ability to develop major offshore oil discoveries.But that does not
mean reform is necessarily on its way. The subsidies are politically popular, and efforts by governments around the
region to reduce them have been met by protests. In 2011, Bolivia's Evo Morales was forced to backtrack from a pledge
to slash such handouts after protests turned to riots and he was threatened with a nationwide transport strike that could
have brought the country to a halt. No other countries have shown a serious appetite to tackle subsidy
reform.Governments also fear the inflationary effects of allowing fuel prices to rise. Central bankers and policy makers
still have fresh memories of the fiscal crises that racked the region periodically throughout the past three decades. Most
governments are now enjoying the fruits of relative economic stability.Without reforms to encourage greater efficiency
or innovative mass transit systems, fuel consumption is expected to grow steadily as more and more cars hit the road.
The IEA expects fuel demand in the transport sector to rise more than 50% over the next 20 years, from
2.8 million b/d in 2010 to 3.7 million b/d in 2020 and 4.3 million b/d in 2030 (see Figure 1).For the most part , the
region is expected to keep relying on conventional gasoline and diesel fuels. Research and development
investment in alternative fuels and public transport infrastructure is low in the region, and without significant outside
investment no transformations are expected. Brazil is the clear exception to this trend. In an effort to boost its energy
security, and maximise oil exports, significant investment in sugar-derived biofuel production is expected. The IEA
expects biofuel's share of overall transportation fuel in Brazil to rise from 20% in 2010 to a third by 2035.
Unrest in Venezuela spikes oil prices—history proves
Reuters ’13 (“Instant View: Oil analysts’ reaction to death of Venezuela’s Chavez.” Reuters. March 5,
2013. <http://www.reuters.com/article/2013/03/06/us-venezuela-chavez-oilmarketidUSBRE92500820130306> Emma.)
NEW YORK (Reuters) - Venezuelan President Hugo Chavez died on Tuesday after 14 years in power,
during which he remodeled the OPEC country's oil sector and nationalized foreign-run oil fields.¶ Oil
production fell sharply during his era, dropping from some 3.5 million barrels per day when he was elected.
After years of decline, Venezuela pumped just 2.34 million barrels per day last month, according to a
Reuters survey of analysts who track OPEC output levels.¶ Venezuelan government estimates on production
are higher, around 3 million barrels a day, but they are largely discredited in oil industry circles. ¶ Amid
refinery woes, Venezuela has also been importing more fuel products from the United States, which remains
a big buyer of Venezuelan crude exports.¶ Oil prices rose slightly, by some 30 cents a barrel, in the hour
following the announcement of Chavez's death late on Tuesday. ¶ AMY MYERS JAFFE, ENERGY AND
GEOPOLITICS EXPERT, University of California at DAVIS IN CALIFORNIA:¶ "Chavez's death may
result in a period of political instability and uncertainty in Venezuela. That is never a good thing for
oil exports."¶ "Venezuela's oil industry has had major setbacks during the Chavez era. Venezuela has
mortgaged its future and, like Mexico, it depends so heavily on oil (revenue) that it will have little choice but
to do whatever it can to boost exports."¶ "Venezuela needs money. Whatever comes next, it won't have the
kind of charismatic leader that Chavez was. It will have to get serious about rebuilding its oil industry." ¶
DANIEL YERGIN, VICE CHAIRMAN OF IHS, INC., ENERGY AUTHOR:¶ "It's too soon to say what Hugo
Chavez's death means for oil prices, but it is certainly true that oil prices are what made Hugo Chavez
possible."¶ "The collapse of oil prices in 1997-8 and the resulting discontent in Venezuela gave him
the opening to become president, just seven years after he was sent to jail for leading a coup. And it was
rising oil prices since 2000 that gave him the financial resources to consolidate power, court public
opinion and try to turn his Bolivarian revolution into a global campaign for "twenty-first century socialism."¶
"He leaves behind an economy greatly weakened by spending, intervention, inflation capital flight, and
shortages. And, beyond Cuba, his effort to create an alliance against what he called "the U.S. empire"
managed only to enlist a few countries.¶ "Without his charisma and force of character, it is not all clear how
his successors will maintain the system he created."¶ TIM EVANS, ENERGY FUTURES SPECIALIST, CITI
FUTURES PERSPECTIVE, NEW YORK CITY¶ "I don't think anybody gets a windfall out of this. If it opens
the country up to more investment, that may be an opportunity for profit, but it's also a risk. Chavez was not
the first one to nationalize oil operations in Venezuela. ¶ "There was a prior cycle of nationalization in the
1970s so the country has this history of some periods where international investment is welcome and
encouraged and other periods in which the government of the day decides they don't like the terms of the
investment and they take it back.¶ "So I don't know how eager oil companies would be to return to
Venezuela."¶ KATHERINE SPECTOR, HEAD OF COMMODITY STRATEGY AT CIBC WORLD MARKETS
IN NEW YORK¶ "My expectation is that we will see the status quo, with a transition to a similar style of
government from Chavez's successor.¶ "On the off chance that we do see the opposition make some
headway, with a move to a more liberal government, the key thing for oil is that even if some in the market
think this might weigh on prices in expectations of increased supplies, the reality is that the industry needs
the kind of investment that takes years, not months. ¶ "On the flip side, we may see some oil traders decide
this is bullish if they expect there might be a period of instability after Chavez's death, but I don't think that's
the most likely outcome."¶ ANDREW LIPOW, PRESIDENT, LIPOW OIL ASSOCIATES, HOUSTON, TEXAS¶
"Venezuelan imports of petroleum products have been rising from the U.S. and in fact in December
Venezuela imported a record amount of petroleum products from the U.S., 197,000 barrels per day, about
half of which happened to be gasoline ... So what we see is Venezuela has actually increased its
dependence on the U.S. while, vice-versa, the U.S. is reducing its dependence on Venezuelan oil." ¶ "I don't
expect any change in Venezuelan production in the near term." ¶ JAMES L. WILLIAMS, ENERGY
ECONOMIST, WTRG ECONOMICS, LONDON, ARKANSAS¶ "The uncertainty in Venezuela is going to give
us a short-term increase in prices and whatever it contributes to prices because of that uncertainty should go
away in 30 to 60 days if the election is peaceful and the transition to a new government is okay ... On the
other hand, we've got bad economies in Europe, pretty weak in the U.S., and China with a housing bubble to
put downwards pressure on prices."¶ (Reporting by Joshua Schneyer, Cezary Podkul, Erwin Seba, Matthew
Robinson and David Sheppard; Editing by Toni Reinhold)
Latin America historically unstable
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
Ranked as the third most unstable region in the world in the post-war era, political instability has
been a pervasive problem in Latin America. In our sample of 18 Latin American countries from
1971-2000, there were 20 coups d’etat, 451 political assassinations, 217 riots, and 113 crises that
threatened to bring down the sitting government. Only three Latin American countries were
consistently democratic over the thirty year period: Costa Rica, Colombia, and
Venezuela. All of the rest of the countries switched from a democracy to an autocracy (or vice
versa) at least once. In sum, political instability is a persistent and pernicious problem in the region
Latin American instability is directly linked to length of regime and ethnic diversity, not
macroeconomics
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
In this paper we analyze the determinants of political instability in a panel of 18 Latin
American countries from 1971 to 2000. Not only is Latin America an interesting region
to study because of it’s unusually persistent problems with instability, but focusing on a
small sample helps us to avoid potential problems with pooling data from a large set of
very different countries. We find three main interesting results: First, regime type is a
significant determinant of instability in
the area. Countries with higher democracy scores also have lower average political instability,
which indicates that recent moves to increased democracy in the region may bring about less
instability in the future. This result is tempered though by our finding that long lived democracies
have a greater chance of experiencing instability than equally long lived autocracies. Second,
we find that income inequality and ethnic fractionalization are both important factors
behind instability. Countries with low (or high) levels of inequality have less average instability
than countries with average levels of inequality, and ethnic fractionalization has a non-linear
effect on political instability. Increases in ethnic fractionalization lower instability until a certain
level of diversity, at which point any increases in diversity are associated with higher political
instability. Third, we find that many of the macroeconomic variables included in our
estimation (including the level and standard deviation of inflation and government budget
deficit) are only weakly significant at best. Only lagged values of trade openness and
investment are helpful in explaining current political instability.
Political instability directly and significantly decreases the economic development and growth of
Latin American countries: literature consensus proves
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
Political instability hinders economic development through its effect on the accumulation of physical
and human capital. Investments are often difficult to reverse, which means that investors will
postpone new capital projects until the policy environment clarifies. Pindyck & Solimano
(1993) originally argued that economic instability, in the form of high inflation, is more
damaging to new investment, than political instability. Since then, however, many other
papers in the iterature have found political instability to be equally harmful . Collier (1999)
shows that under extreme cases of political instability, such as civil war, a country’s existing
capital stock will suffer from both the physical destruction and the general neglect during wartime.
Investors will
delay all new capital investments and either resort to purely speculative activities or
move their money abroad. Most empirical studies of the effects of political instability
investigate the relationship between instability and economicgrowth. For instance,
Alesina et.al. (1996), in a sample of 113 countries from1950 to 1982, analyze the joint
determination of political instability and per-capita GDP growth and find that instability
has a negative and significant effect on growth rates. Several other papers specifically test the
relationship between political instability
and investment rates or productivity. Barro (1991) finds that instability negatively affects
economic growth and investment and argues that property rights are not enforced in
politically unstable environments. Alesina & Perotti (1996) show that political instability
has a negative effect on investment in a sample of 70 countries from 1960 to 1985.
Venieris & Gupta (1983) confirm their results using a different sample of countries and
time period. Edwards (1998) and Berthélemy& Söderling (2001), however, both report
either statistically weaker or mixed empirical results. Edwards, in a panel of 93 countries
from 1960 to 1990, finds a negative, but relatively weak, relationship between instability
and productivity growth. Berthélemy & Söderling show that coups d’etat and revolutions
negatively and significantly affect investment rates in Sub-Sahara Africa, although the
finding is not robust to the inclusion of productivity measures.
Political instability is regional and does spill over in Latin America
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
B. Neighborhood Instability Political instability can be contagious since revolutionary groups and
ideologies can cross borders. Countries in “bad neighborhoods” might suffer from neighboring
instability, especially if that instability causes a flood of refugees into the country or if
guerilla armies use a country as a base from which to attack their home country. Goldstone
et.al. (2004) find that countries with four or more political unstable neighbors are more likely to
experience political instability, while Schatzman (2005) finds that political instability in
neighboring countries increases the probability of a country experiencing collective protests . We
create a variable thatis equal to the number of neighbor countries that experienced
political instability during each five-year period. We follow Goldstone et.al.’s approach
and consider a country as politically unstable if there was either an ethnic conflict or a
revolutionary war during the year, since these are the types of instability that are most
likely to affect neighboring countries. Figure 1 illustrates the “bad neighborhoods” in Latin
America and shows that countries in trouble tend to be clustered in the same region. There are
two main blocs: the first is in Central America and includes Guatemala, El Salvador, and
Nicaragua; the second is in northwestern South America and includes Colombia and
Peru.
Political instability in Latin America decreases production due to exploratory
risk
Natural Gas Europe, ’13 (“Feature: Clouds over South America for Secure Gas Development”, January 5,
2013, http://www.naturalgaseurope.com/south-america-natural-gas-development, accessed 7/17/13, Jf)
Argentina has abundant natural gas, and produces both gas products and oil. But policies to regulate
the industry, and cushion consumers at both federal and state level, mean that oil and gas production
are on downswing, according to the US Energy Information Administration (EIA). “Political risks are
the great problem, ” Lockhart-Smith reiterates of the entire continent. “Outright expropriation is still a
risk in many countries.” Apart from Venezuela, a number of other countries are led by governments which
are left-leaning or avowedly socialist, including that of Evo Morales in Bolivia and Rafael Correa in
Ecuador.
A stable Latin America means increased oil production—Colombia proves
Abrantes, ’12 (Dayse, World Oil, “Regional Report - Latin America: Latin America presents severe contrasts with discoveries in
Brazil and Colombia attracting investment, but Venezuela and Argentina looking inward due to nationalism. Cuba has opened
licensing to the West, but Falklands exploration activity fuels political tension”, Vol. 233 No. 5, May 2012, lexisnexis.com, accessed
7/16/13, JF)
COLOMBIA:
New oil discoveries and rising production in Colombia are helping to fuel one of the
fastest-growing economies in the region, and onshore oil production over the next six years could
nearly double from current levels. That's a big turnaround from early in the millennium, when oil
production had fallen so sharply that Colombia faced the prospect of importing oil. Ecopetrol S.A. is not
only the largest producer in Colombia, it's the largest company in the country, with annual revenue of more than $30 billion.
Geological conditions are favorable for oil and gas production in Colombia, but the once thriving industry was held back
by political instability, insurgents, drug trafficking and kidnappings. High royalty rates and low oil prices were
another hurdle. Over the last few years, insecurity subsided sharply as the Army inflicted severe defeats
upon guerrilla forces. The country became safer, the economy improved and investments in oil
increased.Ecopetrol says that financial and operating results for 2011 were the highest in its history with consolidated average
production of 724.1 million bopd, an increase of 17.6% compared to 2010. Ecopetrol's reserve replacement ratio in 2011 was 164%.
The main reserve increases came from the Castilla, Cupiagua and Chichimene fields operated directly by Ecopetrol, plus the Rubiales
and Quifa fields, operated in partnership. The acquisition of Equion also contributed to increasing the reserves. With an investment of
$1.419 billion in 2012, Ecopetrol plans to drill 42 exploratory wells, of which 36 will be in Colombia. Most of these wells will be in
Llanos Orientales, while others will be drilled in the Magdalena valley, Catatumbo, Piedemonte and the Caribbean offshore. Six wells
will be drilled internationally along the U.S. Gulf Coast and in Brazil. The company also plans to continue to develop shale gas
resources in the Mid-Magdalena area.
Latin American stability is crucial to United States energy security
Noreiga, AEI, ’13 (Roger, “Latin America is Crucial to United States Competitiveness”, July 17, 2013,
http://www.aei-ideas.org/2012/10/latin-america-is-crucial-to-us-competitiveness/, accessed
7/17/13, JF)
A stable and prosperous Americas is indispensable to US economic success and
security. However, the US economic and fiscal crises and preoccupation with two
controversial wars distracted policy makers in Washington and undermined US
leadership in the region. Although access to the US market, investment, technology,
and other economic benefits is valued in most countries in the region, the United
States is not the only partner to choose from– with China’s influence growing. Latin
America historically unstable
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
Ranked as the third most unstable region in the world in the post-war era, political instability has
been a pervasive problem in Latin America. In our sample of 18 Latin American countries from
1971-2000, there were 20 coups d’etat, 451 political assassinations, 217 riots, and 113 crises that
threatened to bring down the sitting government. Only three Latin American countries were
consistently democratic over the thirty year period: Costa Rica, Colombia, and
Venezuela. All of the rest of the countries switched from a democracy to an autocracy (or vice
versa) at least once. In sum, political instability is a persistent and pernicious problem in the region
Latin American instability is directly linked to length of regime and ethnic diversity, not
macroeconomics
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
In this paper we analyze the determinants of political instability in a panel of 18 Latin
American countries from 1971 to 2000. Not only is Latin America an interesting region
to study because of it’s unusually persistent problems with instability, but focusing on a
small sample helps us to avoid potential problems with pooling data from a large set of
very different countries. We find three main interesting results: First, regime type is a
significant determinant of instability in
the area. Countries with higher democracy scores also have lower average political instability,
which indicates that recent moves to increased democracy in the region may bring about less
instability in the future. This result is tempered though by our finding that long lived democracies
have a greater chance of experiencing instability than equally long lived autocracies. Second,
we find that income inequality and ethnic fractionalization are both important factors
behind instability. Countries with low (or high) levels of inequality have less average instability
than countries with average levels of inequality, and ethnic fractionalization has a non-linear
effect on political instability. Increases in ethnic fractionalization lower instability until a certain
level of diversity, at which point any increases in diversity are associated with higher political
instability. Third, we find that many of the macroeconomic variables included in our
estimation (including the level and standard deviation of inflation and government budget
deficit) are only weakly significant at best. Only lagged values of trade openness and
investment are helpful in explaining current political instability.
Political instability directly and significantly decreases the economic development and growth of
Latin American countries: literature consensus proves
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
Political instability hinders economic development through its effect on the accumulation of physical
and human capital. Investments are often difficult to reverse, which means that investors will
postpone new capital projects until the policy environment clarifies. Pindyck & Solimano
(1993) originally argued that economic instability, in the form of high inflation, is more
damaging to new investment, than political instability. Since then, however, many other
papers in the iterature have found political instability to be equally harmful . Collier (1999)
shows that under extreme cases of political instability, such as civil war, a country’s existing
capital stock will suffer from both the physical destruction and the general neglect during wartime.
Investors will
delay all new capital investments and either resort to purely speculative activities or
move their money abroad. Most empirical studies of the effects of political instability
investigate the relationship between instability and economicgrowth. For instance,
Alesina et.al. (1996), in a sample of 113 countries from1950 to 1982, analyze the joint
determination of political instability and per-capita GDP growth and find that instability
has a negative and significant effect on growth rates. Several other papers specifically test the
relationship between political instability
and investment rates or productivity. Barro (1991) finds that instability negatively affects
economic growth and investment and argues that property rights are not enforced in
politically unstable environments. Alesina & Perotti (1996) show that political instability
has a negative effect on investment in a sample of 70 countries from 1960 to 1985.
Venieris & Gupta (1983) confirm their results using a different sample of countries and
time period. Edwards (1998) and Berthélemy& Söderling (2001), however, both report
either statistically weaker or mixed empirical results. Edwards, in a panel of 93 countries
from 1960 to 1990, finds a negative, but relatively weak, relationship between instability
and productivity growth. Berthélemy & Söderling show that coups d’etat and revolutions
negatively and significantly affect investment rates in Sub-Sahara Africa, although the
finding is not robust to the inclusion of productivity measures.
Political instability is regional and does spill over in Latin America
Blanco, Grier, Department of Economics at the University of Oklahoma, No Date Provided (Luisa, Grier,
“Long Live Democracy: The Determinants of Political Instability in Latin America”,
http://www.ou.edu/cas/econ/wppdf/instabilityinla%20rg.pdf, accessed 7/17/13, JF)
B. Neighborhood Instability Political instability can be contagious since revolutionary groups and
ideologies can cross borders. Countries in “bad neighborhoods” might suffer from neighboring
instability, especially if that instability causes a flood of refugees into the country or if
guerilla armies use a country as a base from which to attack their home country. Goldstone
et.al. (2004) find that countries with four or more political unstable neighbors are more likely to
experience political instability, while Schatzman (2005) finds that political instability in
neighboring countries increases the probability of a country experiencing collective protests . We
create a variable thatis equal to the number of neighbor countries that experienced
political instability during each five-year period. We follow Goldstone et.al.’s approach
and consider a country as politically unstable if there was either an ethnic conflict or a
revolutionary war during the year, since these are the types of instability that are most
likely to affect neighboring countries. Figure 1 illustrates the “bad neighborhoods” in Latin
America and shows that countries in trouble tend to be clustered in the same region. There are
two main blocs: the first is in Central America and includes Guatemala, El Salvador, and
Nicaragua; the second is in northwestern South America and includes Colombia and
Peru.
Political instability in Latin America decreases production due to exploratory
risk
Natural Gas Europe, ’13 (“Feature: Clouds over South America for Secure Gas Development”, January 5,
2013, http://www.naturalgaseurope.com/south-america-natural-gas-development, accessed 7/17/13, Jf)
Argentina has abundant natural gas, and produces both gas products and oil. But policies to regulate
the industry, and cushion consumers at both federal and state level, mean that oil and gas production
are on downswing, according to the US Energy Information Administration (EIA). “Political risks are
the great problem, ” Lockhart-Smith reiterates of the entire continent. “Outright expropriation is still a
risk in many countries.” Apart from Venezuela, a number of other countries are led by governments which
are left-leaning or avowedly socialist, including that of Evo Morales in Bolivia and Rafael Correa in
Ecuador.
A stable Latin America means increased oil production—Colombia proves
Abrantes, ’12 (Dayse, World Oil, “Regional Report - Latin America: Latin America presents severe contrasts with discoveries in
Brazil and Colombia attracting investment, but Venezuela and Argentina looking inward due to nationalism. Cuba has opened
licensing to the West, but Falklands exploration activity fuels political tension”, Vol. 233 No. 5, May 2012, lexisnexis.com, accessed
7/16/13, JF)
COLOMBIA:
New oil discoveries and rising production in Colombia are helping to fuel one of the
fastest-growing economies in the region, and onshore oil production over the next six years could
nearly double from current levels. That's a big turnaround from early in the millennium, when oil
production had fallen so sharply that Colombia faced the prospect of importing oil. Ecopetrol S.A. is not
only the largest producer in Colombia, it's the largest company in the country, with annual revenue of more than $30 billion.
Geological conditions are favorable for oil and gas production in Colombia, but the once thriving industry was held back
by political instability, insurgents, drug trafficking and kidnappings. High royalty rates and low oil prices were
another hurdle. Over the last few years, insecurity subsided sharply as the Army inflicted severe defeats
upon guerrilla forces. The country became safer, the economy improved and investments in oil
increased.Ecopetrol says that financial and operating results for 2011 were the highest in its history with consolidated average
production of 724.1 million bopd, an increase of 17.6% compared to 2010. Ecopetrol's reserve replacement ratio in 2011 was 164%.
The main reserve increases came from the Castilla, Cupiagua and Chichimene fields operated directly by Ecopetrol, plus the Rubiales
and Quifa fields, operated in partnership. The acquisition of Equion also contributed to increasing the reserves. With an investment of
$1.419 billion in 2012, Ecopetrol plans to drill 42 exploratory wells, of which 36 will be in Colombia. Most of these wells will be in
Llanos Orientales, while others will be drilled in the Magdalena valley, Catatumbo, Piedemonte and the Caribbean offshore. Six wells
will be drilled internationally along the U.S. Gulf Coast and in Brazil. The company also plans to continue to develop shale gas
resources in the Mid-Magdalena area.
Latin American stability is crucial to United States energy security
Noreiga, AEI, ’13 (Roger, “Latin America is Crucial to United States Competitiveness”, July 17, 2013,
http://www.aei-ideas.org/2012/10/latin-america-is-crucial-to-us-competitiveness/, accessed
7/17/13, JF)
However,
the US economic and fiscal crises and preoccupation with two controversial wars
distracted policy makers in Washington and undermined US leadership in the region.
Although access to the US market, investment, technology, and other economic benefits
is valued in most countries in the region, the United States is not the only partner to
choose from– with China’s influence growing.
A stable and prosperous Americas is indispensable to US economic success and security.
The United States must recover its own credibility by making bold decisions to restore
fiscal responsibility, aggressive trade promotion, energy interdependence, and economic
growth.
The security challenges in the Americas are very real and growing more complicated every day .
Illegal narcotics trafficking, transnational organized crime, and radical populism fueled by
Venezuela’s petrodollars and allied with dangerous extra-regional forces pose a daunting set of
challenges. Alongside a positive economic engagement, assessing and addressing threats
is an indispensable obligation to US security and regional leadership.
Expanding Regional Economic Cooperation and Trade Integration
An aggressive trade promotion and foreign investment strategy in today’s hypercompetitive
globalized economy are imperatives.
Mexico, Chile, Peru, Brazil, and Colombia have been at the forefront in modernizing
their economies, liberalizing trade, opening their economies to investment, and becoming
more competitive overall. Since 2003, an estimated 73 million Latin Americans have
risen out of poverty. Moreover, between then and 2010, the average Latin American
income increased by more than 30 percent, meaning that today nearly one-third of the
region’s one-billion population is considered middle class. And in just the next five years,
regional economies are projected to expand by one-third. That macroeconomic stability
generates even greater opportunities for US business.
Already the Western Hemisphere supplies one-quarter of the world’s crude oil, one-third of the
world’s natural gas, nearly one-fourth of its coal, and more than a third of global electricity , while
offering tremendous potential for the development of renewable energy technologies.
Three of the United States’ top four foreign sources of energy are in the Americas.
Geopolitical conflicts and political instability drive up oil prices
Council on Foreign Relations, ’11 (Toni Johnson, “Oil Market Volatility”, May 6, 2011,
http://www.cfr.org/oil/oil-market-volatility/p15017, accessed 7/17/13, JF)
Supply issues, on the other hand, can have considerable impact on oil prices. Geopolitical events that
threaten oil supplies, such as troubles between Venezuela and the United States or Turkey and
Kurdish Iraq, can spook investors and lead to price volatility. Concerns that a major supply
disruption could result from ongoing unrest in the Middle East in early 2011 drove up
prices within a few weeks and led to estimates that oil could reach above $200 per barrel
(CNBC) within the year. "Two factors determine the price of a barrel of oil: the fundamental
laws of supply and demand, and naked fear," the Economist wrote in March 2011.
Oil price spikes and drops influence levels of political instability
Tivnan, ’09 (Daniel, “A Case Study of Kuwait, Nigeria, and Venezuela and the
Relationship between Oil and Political Stability”, 2009,
http://www.anselm.edu/Documents/NHIOP/Working%20Papers/WorkingPaper18Tivnan
.pdf, accessed 7/17/13, JF)
In the article named “The Perils of the Petro-State: Reflections on the Paradox of the
Plenty” Terry Lynn Karl further investigates the effect of the resource curse on the
political institutions in a state. High levels of capital cause the political institutions and structures
to change more rapidly in a short period of time to accommodate the influx of revenue as opposed to
countries without
abundant resources in which political institutional chances occur gradually over an extended period
of time. This quick fluctuation is partly due to the heavy reliance on oil revenues to fund
government spending and to pay for public programs. The author draws the connection
that politics in these resource rich countries have based their political support off of the
patron-client relationship in which political support is gained by the spending of revenue
funds in the public sector. The author takes this connection one step further by stating that with
the fluctuation of resource prices it increases the instability within a country . Instability is triggered
not only by drops in the price of the resource but also when the price jumps. There are often
incidents of fighting when there are not enough resources to go around and at the same
time when resources are in great abundance. This argument supports my main thesis because it
shows that there has been a proven connection between the ebb and flow of oil prices and the adverse
occurrences of violence and fighting in response to those spikes and dips in the prices.
I/L
Latin American oil crucial to U.S. economy/leadership—stability is key.
Roger Noriega ’12. (“Latin America is crucial to US competitiveness.” American Enterprise Institute.
http://www.aei-ideas.org/2012/10/latin-america-is-crucial-to-us-competitiveness/ Emma.)
A stable and prosperous Americas is indispensable to US economic success and security. However, the
US economic and fiscal crises and preoccupation with two controversial wars distracted policy makers in
Washington and undermined US leadership in the region. Although access to the US market, investment,
technology, and other economic benefits is valued in most countries in the region, the United States is
not the only partner to choose from– with China’s influence growing.¶ The United States must recover
its own credibility by making bold decisions to restore fiscal responsibility, aggressive trade promotion,
energy interdependence, and economic growth.¶ The security challenges in the Americas are very real
and growing more complicated every day. Illegal narcotics trafficking, transnational organized
crime, and radical populism fueled by Venezuela’s petrodollars and allied with dangerous extra-regional
forces pose a daunting set of challenges. Alongside a positive economic engagement, assessing and
addressing threats is an indispensable obligation to US security and regional leadership.¶ Expanding
Regional Economic Cooperation and Trade Integration¶ An aggressive trade promotion and foreign
investment strategy in today’s hypercompetitive globalized economy are imperatives. ¶ Mexico, Chile, Peru,
Brazil, and Colombia have been at the forefront in modernizing their economies, liberalizing trade, opening
their economies to investment, and becoming more competitive overall. Since 2003, an estimated 73
million Latin Americans have risen out of poverty. Moreover, between then and 2010, the average Latin
American income increased by more than 30 percent, meaning that today nearly one-third of the region’s
one-billion population is considered middle class. And in just the next five years, regional economies are
projected to expand by one-third. That macroeconomic stability generates even greater opportunities for US
business.¶ Already the Western Hemisphere supplies one-quarter of the world’s crude oil, one-third of
the world’s natural gas, nearly one-fourth of its coal, and more than a third of global electricity,
while offering tremendous potential for the development of renewable energy technologies. Three of the
United States’ top four foreign sources of energy are in the Americas. ¶ The US administration must
recognize this reality and act to take full advantage of the opportunities.
Aff causes Latin-American x—causes unrest—causes war---
Internal Link: Russia’s economic decline leads to Putin unpopularity.
Ellyatt & Ahmed 4/18/2013. (“Putin’s Popularity Wanes as Russia’s Boom Ends.” CNBC.com. Holly
Ellyat and Shai Ahmed. http://www.cnbc.com/id/100651504/print. Emma.)
Cracks are showing in Russia's leadership as a slowdown in the economy is beginning to
cause rifts at the heart of the government, with one academic telling CNBC on Thursday
that the economy poses the biggest threat to the country's leadership.¶ Prime Minister
Dmitry Medvedev warned on Wednesday that while Russia's economy had not performed
badly in 2012, falling commodity prices risked pushing the country into a recession, but the
government will stick to its adopted fiscal rule, he told parliament on Wednesday.¶
Medvedev's comments came after the Russian economic ministry cut the country's economic
growth forecasts for 2013 to 2.4 percent this year from 3.6 percent. Russia's economy has
posted slower growth for five consecutive quarters.¶ (Read More: Russia Cuts 2013
Economic Growth Forecast by a Third)¶ Putin Out?¶ Richard Edgar Pipes, professor of
Russian History at Harvard University, told CNBC that there was a danger that
prolonged weakness in the economy could harm Putin, whose popularity among the
Russian electorate has been waning for some time.¶ "Around 52 percent of Russians do
not want him to run for presidency again, which is astonishing," Pipes told CNBC at a
meeting of the Russia Forum, an annual business and investment conference, held in
Moscow.¶ "If the economy begins to weaken there will be a demand for big change.
Whether it's liberal or anti-liberal depends on whoever promises the improvement in the
economy," he told CNBC on Thursday.¶ (Read More: Putin Threatens to Sack Officials Over
Social Spending)¶ According to Pipes, foreign investors who were apprehensive about
Russia as a "safe" place to invest would be more receptive to a Russia with Medvedev at the
top.¶ "Foreign investors are loathe to invest in this country because they are not sure the
investment is good. Investors are [easily scared]and they like to invest in Switzerland or the
U.S. because they like to guarantee that their investments are safe. If Medvedev were to
become the top man in Russia, investments would flow more readily than under Putin," he
said, adding that their styles were very different.¶ "I think Putin is more autocratic and
Medvedev is more liberal. Medvedev has said things that Putin would not have said. The rift
maybe about more authority or less authority and more democracy or less democracy.
Medvedev conforms to the western idea of a president," Pipes said.¶ Criticism Grows¶
Russia's industrial output was flat in the first quarter and the world's largest oil producer
has been hit by a decline in oil prices.¶ The economy's decline has prompted fears of
another recession with some criticizing the fiscal rule brought in under Putin that
bases spending plans on the long-term average oil price and caps the budget deficit at one
percent of gross domestic product (GDP).¶ In a sign the government could change its stance,
Medvedev said the government would consider other stimulus measures to push growth
closer to the target rate of 5 percent this year, if the economic slowdown continued.¶ His
comments came after President Vladimir Putin threatened to fire senior officials if they did
not follow his orders over social spending, prompting media speculation that Putin's
comments were a thinly-disguised attack on Medvedev's leadership. On Wednesday, the
Moscow Times newspaper reported that there could be a cabinet reshuffle soon.¶ Russia's
next central bank chief, Elvira Nabiullina, who takes over in June, said that Russia's
economy was performing below its potential level of 3 to 4 percent growth. But she added
the central bank should not sacrifice its main policy goals, such as lower inflation, for the
sake of higher economic growth.¶ "I am against boosting economic growth at the expense of
... inflation," Nabiullina told reporters late on Wednesday. Russia is fighting a battle against
inflation which rose to 7.3 percent in February, up from 3.7 percent a year before.¶ By
CNBC's Shai Ahmed and Holly Ellyatt; Follow them on Twitter @shaicnbc & @hollyellyatt¶
Correction: An earlier version of this story stated that Russia was the world's second-largest
oil producer. However, based on recent data from the IEA, Russia is, in fact, the world's
largest oil producer, ahead of Saudi Arabia.
Russian oil revenues are critical to both economic and political stability of the Putin
regime
Aron, American Enterprise Institute, ’13 (Leon, “The political economy of Russian oil and gas”, May
29, 2013, http://www.aei.org/outlook/foreign-and-defense-policy/regional/europe/the-political-economyof-russian-oil-and-gas/, accessed 7/18/13, JF)
From less than 50 percent in the mid-1990s,[14] the share of commodities in Russian exports
has grown to 70 percent today, with oil accounting for more than half of the export income .[15]
Representing up to 30 percent of the country’s GDP and half of its GDP growth since 2000,[16]
hydrocarbons provided at least half of the state’s budget revenues last year .[17] Five years ago,
Russia needed oil prices of $50 to $55 a barrel to balance its budget, but Alexei Kudrin,
former first deputy prime minister and finance minister, estimated the breakeven price at
$117 per barrel last year.[18]¶ Russia’s dependence on energy exports—and, consequently, its
economy’s vulnerability to commodity price fluctuation—was highlighted by the 2009 world
financial crisis. As oil plunged from $147 to $34 per barrel, the resource-based economy
contracted by almost 8 percent—the largest drop among the G20 top industrial nations.¶
Russia has begun to exhibit the signs of what economists call the “Dutch disease ,” when
overreliance on commodity exports depresses other sectors of the economy by starving them of
investments and modernization while the increasing value of the national currency makes exports
of other goods and services more expensive and thus less competitive in world markets. Industrial
stagnation has even spread to the military-industrial complex, which, like in Soviet times,
continues to be the state’s favorite sector and enjoys its continuous and very generous
support. Despite this, according to a recent survey, only 20 percent of the Russian
defense enterprise qualified as “modern.”[19] ¶ As in virtually every other petro-gas state,
the rise of the Russian one has been attended by corruption likely unprecedented even in
the country’s far-from-pristine history. Venality and extortion have come close to
subverting or even paralyzing governance, social institutions, justice, and entrepreneurial
activity. In Transparency International’s 2012 Corruption Perception Index, Russia was
133rd among 176 countries, worse than Belarus, Vietnam, and Sierra Leone and on par
with Honduras, Iran, and Kazakhstan.[20] ¶ Yet the most dangerous political legacy of the
Russian petro-gas state is the centrality of oil and gas revenues, which amounted to $215 billion last
year,[21] to the loyalty of two groups that are essential for the regime’s survival: the lower-income
and elite segments. Trillion-ruble transfers help to maintain social peace in what is known as
“Russia-2”[22]—poorer regions, especially the volatile and increasingly violent Muslim North
Caucasus, small towns and rural areas, and the rusting “monotowns” (one-company towns) of
Stalinist industrialization.[23] ¶ The sporadic raising of meager pensions and salaries for the
millions of Russians on the government payroll, including doctors and teachers (usually
in the run-up to the Duma or presidential elections) is part of the same strategy. At the
same time, oil and gas rents are a vital component in elite management under Putin’s neopatrimonial
regime: a tacit but ironclad agreement between the Kremlin and the bureaucracies from
top to bottom that permits the latter to enrich themselves at the treasury’s expense in
exchange for their loyalty.¶ So long as the regime continues to regard export revenues as a
palliative, if not a panacea, for economic, social, and political problems, they will impede
or even obviate the need for economic and political modernization. “The problem of being a
petro-state is that the natural resources trend corrupts the institutions ,” said Sergei Guriev,
rector of the New Economic School in Moscow and a leading expert on Russian political
economy. “This is what is called the ‘resource curse.’ This is a trap, where democratic political and
economic institutions do not develop because rents coming from natural resources provide incentives
to the elite not to develop institutions.”
Egypt and decreased US oil supply ensure short-term survival of vulnerable Russian
economy
Voice of Russia, interviewing Daria Pichugina, a Russian macroeconomic analyst, ’13 (“Russian economy
stable while investments in emerging markets plummet-expert", July 10, 2013,
http://english.ruvr.ru/2013_07_10/Russian-economy-stable-while-investments-in-emerging-marketsplummet-expert-3357/, accessed 7/19/13, JF)
The situation in the Russian economy can be briefly described as more or less stable because we really
see that inflation is not so high, not so far above predicted levels and the levels on which the Central Bank
concentrates, so it is 7%, a little bit more than 7%. And also the oil prices recently thanks to the
problems in Egypt have been up and also thanks to decrease in oil supply in the US. So, we see that oil
now is more than 107 dollars a barrel. So, more or less the economy is stable now. We don’t see any
signs of depression but also we can say that at the same time Russia economy is quite vulnerable
because we depend a lot on the oil prices and there are no internal forces of growth.
Fall of oil would be devastating for Putin but is not likely going to happen, oil prices
have been slowly increasing or holding steady
Adomanis 3/14
(Mark Adomanis Specialize in Russian economics and demographics, Forbes, “Crude Oil Is Still Really
Expensive, So Russia Will Probably Stay Stable”, 3/14/2013,
http://www.forbes.com/sites/markadomanis/2013/03/14/crude-oil-is-still-really-expensive-so-russia-willprobably-stay-stable/)
I fully agree that a substantial and sustained fall in the price of oil would be pretty damaging for Putin,
just as a substantial and sustained increase in the yield on Treasury Bills would be a pretty serious problem
for the United States or a substantial fall in soy prices would be a serious problem for Brazil. It doesn’t take
a rocket scientist to see that a substantial portion of Putin’s popularity rests on dolling out natural
resource rents, and if those rents were suddenly to disappear then, yes, the Kremlin would be in real
trouble. But you can look at almost any country in the world and imagine a scenario in which the increase
or decrease in price of an important commodity or financial instrument would prove ruinous: they key
question is how likely such a scenario is. So before we get too caught up in what might happen to Russia
when oil prices decline, we should ask ourselves “how likely is it that oil prices are actually going to
decline for any length of time?” Based on the available evidence I would say “extremely unlikely.”
Consider the following charts. Here’s what has happened to the price for Brent crude since 1988, when
Ronald Reagan was still fearlessly leading the free world to victory in the Cold War:¶ The run-up in oil
prices since 2000 doesn’t look like a temporary blip or an “accident,” it looks like increasingly expensive
oil is just a fact of life for an increasingly dynamic and globalized world economy. So let’s focus on
that post 2000 period, a period that, conveniently, coincides with the entirety of Vladimir Putin‘s time atop
the Russian state:¶ Since 2000, the only really noteworthy and sustained drop in world oil prices
coincided with and was caused by an epochal financial crisis that very nearly crashed the entire
global economy. Apart from that, oil prices have either been slowly increasing or holding steady.
Indeed ever since oil prices really started to rebound towards the end of 2009 I have heard Russia watchers
say “OK, oil is expensive now, and that helps Putin survive. But just wait until the price crashes, which is
going to happen any day now!” They said this in 2010. They said this in 2011. They said this in 2012. And
they’re saying it now in 2013. I suppose the oil price alarmists will be right at some point, we’re likely to
eventually get another global recession that will crash commodity prices, but almost no one takes
seriously the idea that commodities, and oil in particular, are just a lot more expensive now than they
used to be and that this probably isn’t going to change any time soon.¶ Is Russia’s over-reliance on oil
a good thing, or is it somehow praiseworthy? No. If I were running the Kremlin I would be spooked by the
increase in the non-oil and gas deficit and the ever rising price per barrel needed to balance the state
budget. But the fact that a sustained and sharp decrease in the price of oil would be a disaster for the
Kremlin does’t mean that such an decrease is any more likely. And if you look at the Energy
Information Agency’s short-term price forecasts, the expectation in the short term is for an
exceedingly gentle and gradual decline in oil prices to $108 a barrel in 2013 and $101 in 2014, while
the long-term reference case is for a sustained and long-term rise in prices .¶ Oil prices that are
expected to average out at over $100 a barrel more than a year from now , and which will then begin a
gradual rise, hardly seem like a harbinger of doom for the Kremlin. Perhaps I’m small-minded or
unimaginative, but it’s very hard for me to conjur a scenario in which Putin’s political position is seriously
threatened so long as oil is over $100 a barrel and in which the most likely scenario is for ever-rising
price in the future. Could oil doom Putin? Yes. But it seems far more likely that, for better or worse, it’s
going to continue to function as a crutch for Russia’s current regime.
Oil prices on the rise now, Oil is k2 Russia’s economy, Russia key to our econ
Schuman 12
(Michael Schuman,“Why Vladimir Putin Needs Higher Oil Prices”, July 05, 2012,
http://business.time.com/2012/07/05/why-vladimir-putin-needs-higher-oil-prices/ )
Falling oil prices make just about everyone happy. For strapped consumers in struggling developed nations,
lower oil prices mean a smaller payout at the pump, freeing up room in strained wallets to spend on other
things and boosting economic growth. In the developing world, lower oil prices mean reduced inflationary
pressures, which will give central bankers more room to stimulate sagging growth. With the global
economy still climbing out of the 2008 financial crisis, policymakers around the world can welcome lower
oil prices as a rare piece of helpful news.
But Vladimir Putin is not one of them. The economy that the Russian President has built not only runs
on oil, but runs on oil priced extremely high. Falling oil prices means rising problems for Russia –
both for the strength of its economic performance, and possibly, the strength of Putin himself.
Despite the fact that Russia has been labeled one of the world’s most promising emerging markets, often
mentioned in the same breath as China and India, the Russian economy is actually quite different from
the others. While India gains growth benefits from an expanding population, Russia, like much of Europe,
is aging; while economists fret over China’s excessive dependence on investment, Russia badly needs more
of it. Most of all, Russia is little more than an oil state in disguise. The country is the largest producer of
oil in the world (yes, bigger even than Saudi Arabia), and Russia’s dependence on crude has been
increasing. About a decade ago, oil and gas accounted for less than half of Russia’s exports; in recent
years, that share has risen to two-thirds. Most of all, oil provides more than half of the federal
government’s revenues.
What’s more, the economic model Putin has designed in Russia relies heavily not just on oil, but high
oil prices . Oil lubricates the Russian economy by making possible the increases in government
largesse that have fueled Russian consumption. Budget spending reached 23.6% of GDP in the first
quarter of 2012, up from 15.2% four years earlier. What that means is Putin requires a higher oil price
to meet his spending requirements today than he did just a few years ago.
Research firm Capital Economics figures that the government budget balanced at an oil price of $55 a
barrel in 2008, but that now it balances at close to $120. Oil prices today have fallen far below that,
with Brent near $100 and U.S. crude less than $90. The farther oil prices fall, the more pressure is
placed on Putin’s budget, and the harder it is for him to keep spreading oil wealth to the greater
population through the government . With a large swath of the populace angered by his re-election to
the nation’s presidency in March, and protests erupting on the streets of Moscow, Putin can ill-afford a
significant blow to the economy, or his ability to use government resources to firm up his popularity.
That’s why Putin hasn’t been scaling back even as oil prices fall. His government is earmarking $40
billion to support the economy, if necessary, over the next two years. He does have financial wiggle room,
even with oil prices falling. Moscow has wisely stashed away petrodollars into a rainy day fund it can tap
to fill its budget needs. But Putin doesn’t have the flexibility he used to have. The fund has shrunk, from
almost 8% of GDP in 2008 to a touch more than 3% today. The package, says Capital Economics, simply
highlights the weaknesses of Russia’s economy:
Russia econ dependent on oil
Aron 13
(Leon Aron, American Enterprise Institute, May 29 2013, http://www.aei.org/outlook/foreign-and-defensepolicy/regional/europe/the-political-economy-of-russian-oil-and-gas/)
One of the two largest oil producers in the world, Russia accounts for 12 percent of global output. Last
year it again surpassed Saudi Arabia by pumping almost 10.4 million barrels per day (BPD). It is also
one of the world’s largest exporters of oil, with nearly 5 million BPD. With the world’s largest proven
reserves of natural gas, Russia is also the top producer of natural gas, accounting for about 20 percent
of the world’s total. The centrality of hydrocarbons to Russia’s economy is hardly a new issue, but it is
one well worth revisiting today. On the one hand, new technologies are making natural resources cheaper
and more abundant, threatening billions of dollars of the Russian state’s revenue. At the same time, to
maintain the current level of production, not to mention increase it, Russia must make huge investments in
exploring and recovering oil from virgin deposits (“greenfields”) of the east Siberian region and the Arctic
shelf. Russia’s ability to meet both challenges will affect not only its preeminence as an energy supplier but
also its ability to wield oil and gas as geostrategic tools. With a likely significant thinning of oil and gas
rents, at stake might be the stability of the regime and perhaps even its survival.
Oil k2 russian economy
Aron 13
(Leon Aron, American Enterprise Institute, May 29 2013, http://www.aei.org/outlook/foreign-and-defensepolicy/regional/europe/the-political-economy-of-russian-oil-and-gas/)
From less than 50 percent in the mid-1990s,[14] the share of commodities in Russian exports has grown
to 70 percent today, with oil accounting for more than half of the export income.[15] Representing up
to 30 percent of the country’s GDP and half of its GDP growth since 2000,[16] hydrocarbons provided at
least half of the state’s budget revenues last year.[17] Five years ago, Russia needed oil prices of $50 to
$55 a barrel to balance its budget, but Alexei Kudrin, former first deputy prime minister and finance
minister, estimated the breakeven price at $117 per barrel last year.[18]¶ Russia’s dependence on
energy exports—and, consequently, its economy’s vulnerability to commodity price fluctuation—was
highlighted by the 2009 world financial crisis. As oil plunged from $147 to $34 per barrel, the resourcebased economy contracted by almost 8 percent—the largest drop among the G20 top industrial nations. ¶
Russia has begun to exhibit the signs of what economists call the “Dutch disease,” when overreliance on
commodity exports depresses other sectors of the economy by starving them of investments and
modernization while the increasing value of the national currency makes exports of other goods and
services more expensive and thus less competitive in world markets. Industrial stagnation has even spread
to the military-industrial complex, which, like in Soviet times, continues to be the state’s favorite sector and
enjoys its continuous and very generous support. Despite this, according to a recent survey, only 20
percent of the Russian defense enterprise qualified as “modern.”[19]¶ As in virtually every other petrogas state, the rise of the Russian one has been attended by corruption likely unprecedented even in the
country’s far-from-pristine history. Venality and extortion have come close to subverting or even
paralyzing governance, social institutions, justice, and entrepreneurial activity. In Transparency
International’s 2012 Corruption Perception Index, Russia was 133rd among 176 countries, worse than
Belarus, Vietnam, and Sierra Leone and on par with Honduras, Iran, and Kazakhstan.[20]Yet the most
dangerous political legacy of the Russian petro-gas state is the centrality of oil and gas revenues,
which amounted to $215 billion last year,[21] to the loyalty of two groups that are essential for the
regime’s survival: the lower-income and elite segments. Trillion-ruble transfers help to maintain social
peace in what is known as “Russia-2”[22]—poorer regions, especially the volatile and increasingly violent
Muslim North Caucasus, small towns and rural areas, and the rusting “monotowns” (one-company towns)
of Stalinist industrialization.[23]
Oil k2 russian economy
Aron 13
(Leon Aron, American Enterprise Institute, May 29 2013, http://www.aei.org/outlook/foreign-and-defensepolicy/regional/europe/the-political-economy-of-russian-oil-and-gas/)
"Although Russia is not running out of oil, a leading expert believes it may be running out of cheap
oil."Yet the enormous upfront investments that such an effort would require are hard to come by
when taxes on oil companies’ profits have greatly reduced the incentive to invest in new technology and
greenfield exploration. After they pay the profit tax, value-added tax, mineral extraction tax, asset tax,
charges for the use of subsoil resources, mandatory contribution to social funds, and export duties, Russian
oil companies are effectively taxed at a 70 percent rate.[29] (By comparison, in 2011, Chevron and
ExxonMobil were taxed at an effective rate of 42–43 percent in the United States.[30])¶ This policy leaves
massive capital and technology transfers from Western multinational corporations as the key to
sustaining the present levels of oil production. Among the more notable of such ventures was
ExxonMobil’s agreement last year to invest, in a joint venture with Rosneft, $3.2 billion into the
exploration and development of the Black Sea and the Kara Sea in the Arctic. In addition, with Rosneft’s
acquisition of TNK-BP, BP ended up with almost a 20 percent stake in the Russian company.[31] (Rosneft
promptly proceeded to “borrow” $10 billion from TNK-BP subsidiaries, in the process effectively robbing
minority shareholders who held shares in these firms.[32]) ¶ Yet such deals fall far short of what is needed to
ensure Russia’s continued status as an “energy superpower,” and the barriers to large-scale Western
investments are formidable, if not prohibitive . Shale oil and environmentally “cleaner” liquefied
natural gas (LNG) will likely push down oil prices, making greenfield investments less profitable .
The worsening of relations between Russia and the West increases the risks as well. Then there is the 2008
law that restricts foreign control over companies operating in Russia’s “strategic industries” (certainly
including oil and gas), in effect banning non-Russian energy firms from a majority ownership of any
significant venture. (In the ExxonMobil-Rosneft deal, ExxonMobil owns only one-third of the venture.)
Last but far from least, there is the memory of the Russian government’s forcing Royal Dutch Shell in 2006
to give up a controlling stake in its liquefied gas production project, known as Sakhalin-2, after Royal
Dutch Shell and other members of the consortium had invested $9–11 billion in the venture over 12 years.¶
Tall Barriers and Belated Incentives¶ Russia has plenty of “tight oil,” (oil found in “low permeability”
reservoirs, such as shale or tight sandstone, and usually requiring horizontal drilling and fracturing to
access) including the brownfields of western Siberia. Yet its production faces severe structural constraints.
Shale extraction requires technological and entrepreneurial agility (as well as strict cost control),
which are associated with small and medium-sized independent companies operating in relatively
benign legal regimes.[33] Instead, Russian shale oil is likely to be developed by the giant Rosneft,
which is hampered by very strict regulations.¶ Absent an expansion into new fields or the successful
adoption of new technologies for maintaining the old ones, Russia’s production may shrink by as much
as one-fifth, from the current 10.4 million BPD to 8 million BPD as early as 2020.[34] In the opinion
of a top expert, Thane Gustafson, sometime in the coming decade, the Russian state “could well see
oil revenues decline, even as its reliance on them grows,” and the “tide of money” that has enabled
the Kremlin to meet “everyone’s growing expectations” may vanish.[35]¶ In the last two years, the
growing awareness of such gloomy eventualities has prompted the Kremlin to ease the tax burden on oil
companies to stimulate investment in exploration and new technologies. In 2011, the government lowered
crude oil export duties from 65 to 60 percent.[36] Tax relief seems also in the cards for shale and other
“tight rock” energy production, as present draft legislation aims to reduce the mineral extraction tax to
between 50 and 100 percent of the current tax.[37] In May 2012, Putin also suggested tax incentives for
exploring offshore oil reserves.[38]
Russia Econ dependent on Oil
Wang, 6/09
“BRIAN WANG , “if oil prices were to drop the important geopolitical impact would be on Russia”
http://nextbigfuture.com/2013/06/if-oil-prices-were-to-drop-important.html”
If shale oil, shale gas and synthetic biofuels were to rapidly scale and significantly lower the price of
oil this would have interesting geopolitical impacts on Russia. The Iran, Saudi Arabia impacts would
also be interesting but a weaker Russian economy would matter more for geopolitics. 20-25% of Russia's
GDP is tied to the oil and gas sector.
The importance of oil exports and hydrocarbon exports in general to the Russian economy arises
along several channels. Income from crude has accounted for a significant share of Russian export
revenues increasing from 25 per cent in 2000 to more than 35 per cent in 2008. Total hydrocarbon
exports (inclusive natural gas and petrochemicals) accounted for 65 per cent of total export revenues in
2008. Fjærtoft (2008) found evidence that the price of crude is a key driving force behind Russia’s
trade flow driven exchange rate. This finding is supported in the present paper. Hydrocarbon exports
generated 50 per cent of federal budget revenues in 2008 (EEG 2009) and the governments scope of
manoeuvre is directly linked to the price of crude. On a larger scale the oil and gas sector is estimated to
account for 20–25 per cent of GDP (Anker and Sonnerby 2008). The oil and gas sector also accounts
for an important share of investment demand (World Bank 2008).
Impacts
Economic decline leads to war—diversionary tactics prove
Jedidiah Royal ’10. (Director of Cooperative Threat Reduction at the U.S. Department of Defense.
Economics of War and Peace: Economic, Legal and Political Perspectives p. 213-216. Emma.)
Less intuitive is how periods of economic decline may increase the likelihood of
external conflict. Political science literature has contributed a moderate degree of
attention to the impact of economic decline and the security and defense behavior of
interdependent states. Research in this vein has been considered at systemic, dyadic
and national levels. Several notable contributions follow. First, on the systemic level,
Pollins (2008) advances Modelski and Thompson’s (1996) work on leadership cycle
theory, finding that rhythms in the global economy are associated with the rise and
fall of a pre-eminent power and the often bloody transition from one pre-eminent
leader to the next. As such, exogenous shocks such as economic crises could usher in a
redistribution of relative power (see also Gilpin, 1981) that leads to uncertainty about
power balances, increasing the risk of miscalculation (Fearon 1995). Alternatively,
even a relatively certain redistribution of power could lead to a permissive
environment for conflicts as a rising power may seek to challenge a declining power
(Werner, 1999). Separately, Pollins (1996) also shows that global economic cycles
combined with parallel leadership cycles impact the likelihood of conflict among
major, medium and small powers, although he suggests that the causes and connections
between global economic conditions and security conditions remains unknown. Second,
on a dyadic level, Copeland’s (1996, 2000) theory of trade expectations suggest that
“future expectation of trade” is a significant variable in understanding economic
conditions and security behavior of states. He argues that interdependent states are likely
to gain pacific benefits from trade so long as they have an optimistic view of future trade
relations. However, if the expectations of future trade decline, particularly for
difficult to replace item such as energy resources,` the likelihood for conflict
increases, as states will be inclined to use force to gain access to those resources.
Crises could potentially be the trigger for decreased trade expectations either on its own
or because it triggers protectionist moves by interdependent states. Third, others have
considered the link between economic decline and external armed conflict at a national
level. Blomberg and Hess (2002) find a strong correlation between internal conflict and
external conflict, particularly during periods of economic downturn. They write, The
linkages between internal and external conflict and prosperity are strong and
mutually reinforcing. Economic conflict tends to spawn internal conflict, which in turn
returns the favor. Moreover, the presence of a recession tends to amplify the extent to
which international and external conflicts self-reinforce each other. (Blomberg and
Hess, 2002, p. 89) Economic decline has also been linked with an increase in the
likelihood of terrorism (Blomberg, Hess and Weerapana, 2004), which has the capacity to
spill across borders and lead to external tensions. Furthermore, crises generally reduce the
popularity of a sitting government. “Diversionary theory” suggests that, when facing
unpopularity arising from economic decline, sitting governments have increased
incentives to fabricate external military conflicts to create a “rally around the flag”
effect. Wang (1996), DeRouen (1995) and Blomberg, Hess and Thacker (2006) find
supporting evidence showing that economic decline and use of force are at least
indirectly correlated. Gelpi (1997), Miller (1999), and Kisangani and Pickering (2009)
suggest that the tendency towards diversionary tactics are greater for democratic states
than autocratic states due to the
(CONTINUED BELOW…)
fact the democratic leaders are generally more susceptible to being removed from office
due to lack of domestic
support. De DeRouen (2000) has provided evidence showing that periods of weak
economic performance in the
United States and thus weak Presidential popularity are statically linked to an increase in
the use of force. In summary, recent economic scholarship positively correlates economic
integration with an increase in the frequency of economic crises, whereas political
science scholarship links economic decline with external conflict at systemic, dyadic
and national levels. This implied connection between integration, crises and armed
conflict has not featured prominently in economic-security debate and deserves more
attention. This observation is not contradictory to other perspectives that link economic
interdependence with a decrease in the likelihood of external conflict , such as those mentioned in
the first paragraph of this chapter. Those studies tend to focus on dyadic interdependence
instead of global interdependence and do not specifically consider the occurrence of and
conditions created by economic crises. As such the view presented here should be
considered ancillary to those views.
A2 stuff
A2 Shale
Laundry list of advantages for shale gas will force oil prices down in the long
term and cap oil price growth
Reuters, ’13 (“Shale estimates cement shift from oil to gas”, June 11, 2013,
http://www.reuters.com/article/2013/06/11/column-kemp-shaleidUSL5N0EN18N20130611?feedType=RSS&feedName=everything&virtualBrandChannel=11563,
accessed 7/18/13, JF)
The main reason why hydraulic fracturing and horizontal drilling are expected to have a
bigger impact on gas is that gas flows much more easily through fractured rock
formations. "Based on U.S. shale production experience, the recovery factors used in this report for
shale gas generally ranged from 20 percent to 30 percent ," EIA wrote. "Because of oil's greater
viscosity and capillary forces, oil does not flow through rock fractures as easily ... Consequently,
the recovery factors for shale oil are typically lower than they are for shale gas, ranging from 3
percent to 7 percent of the oil in place," the agency wrote. Even in the best shale plays, such
as Bakken in North Dakota and Eagle Ford in Texas, producers have recovered less than
10 percent of the oil and liquids originally in place. Shale formations outside the United States
could contain as much as 5.8 trillion barrels of crude and liquids, according to EIA, but just 287
billion may be recoverable, an average recovery factor of 5 percent. DISTRIBUTION"
Much of the shale resource exists in countries with limited endowments of conventional oil and gas
...(or) countries where conventional hydrocarbon resources have largely been depleted,"
according to the study. Exploiting shale could therefore reduce these countries' risks of
intentional or unintentional disruptions due to war or embargoes. Shale oil and gas resources
are more widely distributed than their conventional counterparts. But a slightly larger share of
the shale oil resource is concentrated in countries such as Russia, Libya and Venezuela
that are already major conventional producers, whereas more gas is concentrated in
countries that are big importers such as China. Assuming countries without large conventional
deposits have a stronger incentive to develop shale, the distribution suggests shale gas could be
developed slightly more quickly than oil. The distribution of resources also suggests growing shale
gas supplies will continue to pose a strong challenge to oil producers and exert long-term downward
pressure on prices. CHEAPER GAS In the United States, gas currently costs less than a quarter of
crude after differences in their energy content are taken into account. Much of that advantage
stems from the gas drilling boom in 2004-2008 as well as the relative isolation of the U.S.
gas market. Unlike oil, which trades in a global market, the international gas market is
small, and gas prices show big regional variations. Gas and oil prices are much more
closely aligned in the rest of the world. Even in the United States, the gap is likely to
narrow once a new set of LNG terminals awaiting regulatory approval are built.
Nonetheless, if the shale report is right, natural gas should still retain some of its cost advantage in
the medium and long term. Seasoned industry observers have already noted that the current
differential is unsustainable. "Something's got to give if that differential stays around for too long,"
Total Chief Executive Christophe de Margerie said last year. Until now it has not been
clear whether the gap will close mostly through a rise in the price of gas, a fall in the
price of oil or some combination of the two. The comparative abundance of shale gas suggests
oil prices are much more likely to converge down to gas, rather than the other way around. Given
the geological differences, natural gas looks set to be the lower cost way of adding reserves over
the next couple of decades. Many international
oil companies already have significant gas
assets. Natural gas accounted for 50 percent of Shell's total production in 2012.
At some point, the international oil companies will need to find better ways to monetise
their gas assets. The majors have the resources to push gas deeper into the transport
market by helping pay for infrastructure and promoting gas-fuelled vehicles, according to
one analyst.
Shale oil resources may delay the transition to the more widespread use of gas as a transport fuel, but
given the relative abundance of the two fuels, some switch to gas seems inevitable in the longer term,
and the threat will help keep a lid on long-term oil prices.
Oil prices rise despite shale, supply disruptions in Middle East and North
Africa combined with Eastern demand check back production increase
Halligan, ’13 (Liam, The Telegraph, 13 July, 2013,
http://www.telegraph.co.uk/finance/comment/liamhalligan/10178088/This-oil-price-rise-will-driveinflation-upwards.html, accessed 7/18/13, JF)
As the global economy has deteriorated, oil prices have risen. Ordinarily,
a growth slowdown
would cause a fall, with global energy demand expected to slow or, more accurately, to
rise at a slower rate. At the moment, though, there are fears on the supply side, with traders
worrying about geopolitics, particularly in the Middle East . Although Egypt produces very little oil,
the military’s ousting of President Morsi has raised concerns about the disruption of shipments from
the Middle East to Europe. The Egyptian-controlled Suez Canal facilitates the transit of
around 10pc of global seaborne crude exports daily. The Suez-Mediterranean pipeline is
also among the world’s most important energy arteries. Concerns about Egypt come on top of
supply disruptions in Nigeria, Libya, Iraq and Iran — where sanctions on oil shipments are starting
to bite. In total, OPEC production fell by 370,000 barrels, around 1.3pc, in June. Such supply
issues have helped push up oil prices in recent weeks. What about shale oil, I hear you say? Well,
its true that by extracting hydrocarbons using the hydraulic fracturing — or “fracking” —
of underground shale formations, America’s energy industry is employing millions of
extra workers and helping a manufacturing recovery through cheap energy. When it comes
to natural gas, shale is indeed a “game-changer” for the US. American gas production has risen
from 580bn cubic metres in 2009 to 620bcm in 2012, with shale now accounting for 30pc
of US gas output, up from 1pc in 2000. That’s significant, given that America produces
about a fifth of the world’s natural gas. In terms of oil, though, shale is far less significant. Yes,
shale production has allowed America to build up a large stockpile, so keeping local prices below
those on world markets. Yet, for all the triumphalism, the amounts produced have been pretty
tiny in the global context. The exploitation of “tight” oil formations in North Dakota and
Texas has certainly helped US shale — plus Canadian tar sands — drive a rise in North
American production averaging about 500,000 barrels per day over the past three years,
once falling output at other North American fields is included. This sounds impressive
and visitors to booming oil regions such as Bakken and Eagle Ford will see a lot of
activity. Yet given that the world economy consumes upwards of 90m barrels a day, a 0.5m
increase — equal to the oil production of Ecuador, OPEC’s smallest producer by far — is not going
to redraw the energy map of the world. This is particularly true at a time when geopolitical concerns
are looming large. Supply disruptions in the Middle East and North Africa have “already provided a
major offset to rising North American supply and may continue to do so ” said the International
Energy Agency, the oil-importers think tank, in a report last week. Recent increases in North
America oil production are actually too small even to replace production falls registered by other
non-OPEC producers. Back in 2002, producers outside the exporters’ cartel pumped 36.1m
barrels of oil a day. Today that total is just 35.1m. What’s more, the current non-OPEC
number would look a great deal worse had Russia (which remains outside OPEC) not
raised its production from 7.8m to 10.5m barrels over the same 10-year period. The bigger
picture is that in each of the last four years, the annual rise in oil production due to shale and tar
sands combined had been totally blown away by the increase in oil demand from the rest of the world
— not least the fast-growing, oil-thirsty emerging markets. Such nations are now growing
slower than they were, but the IMF predicts they’re still on course to expand on average by 5pc
or more over the next two years. All that smelting, building, driving and consuming needs an
awful lot of oil. Even if Western oil demand falls over the coming years, the emerging giants of the
East are sucking up crude so fast that global demand will keep rising , and at a rate much faster than
“fracking” could hope to meet. Once subsidies are removed, shale oil is anyway far from cheap,
not least because it requires the continuous drilling of small wells, rather than the long exploitation
of big wells. So constant — and costly — drilling is needed just to maintain shale output, let alone
increase it. Let’s not kid ourselves, then, that shale oil will bring the Western world “energy
independence” or usher in an era of cheap energy. It won’t. In 2010, oil prices averaged $79 a
barrel. That figure rose to $111 in 2011 and $112 in 2012 — with triple-digit oil becoming
“normal”, as some of us predicted it would. This year, too, a combination of rampant demand
from the emerging markets and geopolitical unrest will keep crude around the same elevated level.
Price of US Crude rises: http://www.ibtimes.com/us-crude-oil-prices-surged-23-past-three-months-middleeast-instability-plus-new-access-us-oil
Brent Crude @ 108: http://www.upstreamonline.com/live/article1332407.ece
http://www.bloomberg.com/news/2013-05-22/russia-faces-widening-2014-budget-deficit-siluanovsays.html
Russia will probably require an average Brent oil price of $117.8 a barrel this year to balance its
budget, the fifth straight year it’s needed crude above $100 and compared with break-even prices of
$90.3 for Saudi Arabia and $65 for Kazakhstan, Deutsche Bank AG said in a May 10 report.
Aff answers
Russia won’t collapse—oil prices are stabilizing now
Pablo Gorondi June 25, 2013. (“Oil rises to near $96 as stock markets stabilize.” Associated Press. <
http://bigstory.ap.org/article/oil-above-95-stock-markets-stabilize> Emma.)
Russian economic decline not tied to oil price decrease: laundry list of bureaucratic alt causes
BBC, ’13 (“Russian pundit says Kremlin economic policies ‘even worse’ than EU leaders”, April 1, 2013,
lexisnexis.com, accessed 7/18/13, JF)
Russian authorities made a serious error when they gloated over the economic problems incurred by
Western European nations. This Kremlin conducts roughly the same economic policy as the
European Union, and so it was inevitable that Russia would eventually experience the same negative
consequences. In some ways, Russia's policies are even worse than those employed by Western leaders.
For example, both Russian and Western governments are making deep spending cuts on health care and
education, dismantling what remains of the welfare state and privatizing elements of the social
infrastructure. Both are eliminating support to local governments and forcing them into debt. The
difference is that Western states are responding to an acute shortage of funds, whereas Russia's liberal
economists have convinced leaders to implement the same measures even when the budget is
overflowing with money. The collapse of the banking sector in Cyprus pushed the mounting but
hidden problems in the global economy into the open. Cyprus has been able to avoid total disaster, but
Russia's current economic woes can be traced to a different problem. For five years, analysts and business
professionals have been reading signs in stock market data indicating fluctuations in the price of oil,
warning that it could one day develop into a full-blown crisis. If Russia's economic decline was based
solely on a drop in global oil prices, as it was in 2008, it would have been less alarming than what is
happening today. But the current drop in production is due to deep structural imbalances in the
Russian economy, problems that no amount of petrodollars can rectify. This recession was brought
on by a depleted domestic market, outdated manufacturing equipment, a lack of investment in
industry and the high cost of credit. Russia's accession to the World Trade Organization only
aggravated the situation. It led to serious problems in the agricultural sector and a reduction in
industrial orders. Businesses experienced additional difficulties obtaining loans when financiers slowed
lending as they waited to see how manufacturing companies would adapt to the new circumstances. Taken
alone, many of these difficulties would ordinarily be temporary or "transitional," but combined with
more fundamental economic troubles, they tend to exacerbate the overall problem. The Moscow
leadership is watching events with Olympian calm, apparently hoping that the economic downturn will
die out on its own, just as the previous economic growth also dried up. They prefer weakening the
rouble to even the simplest and most conservative measures, such as lowering the Central Bank's
interest rate on credit. Their logic employed is simply mind-boggling. They argue that the interest rate
cannot be lower than the rate of inflation, which is expected to hit 6 per cent. But for some reason, they do
not realize that expensive credit and a weak rouble will themselves accelerate inflation, especially
when they occur simultaneously. At the Moscow Economic Forum in late March, opponents of WTO
accession and critics of the current economic policy lashed out at the government. In early April, liberal
economists who gathered at the Higher School of Economics made their own diagnosis of the problem.
They said the crisis was caused by bureaucracy, the judicial system and the authorities. In effect, two
separate approaches for economic recovery have been formulated by society. Liberals propose
continuing the current economic course and complementing it with much-needed political reforms. Their
opponents argue that serious changes are needed, but they look to the same old political leadership to
implement them. Meanwhile, the authorities' inability to make needed corrections to economic policy
is clearly the result of the government's internal workings, the rules governing the bloated state
bureaucracy, the existing balance of powers within the ruling elite and the closed nature of authority
that makes it impossible for the lower classes - or even the middle class -to influence the decision-making
process
Alt cause: Russian economic stagnation caused by inability to attract foreign capital
and investment, underdeveloped sectors and reliance on commodities
Herszenhorn and Kramer, International Herald Tribune, ’13 (“The iron fist could hold up a Russian
resurgence; Putin’s toughness may be biggest obstacle to economic restructuring”, June 22, 2013,
http://www.lexisnexis.com/hottopics/scholastic/, accessed 7/18/13, JF)
In many respects, analysts say, the same iron fist that Mr. Putin wielded to public approval in
the early years of his presidency could be the biggest obstacle to a badly needed economic
restructuring and could even turn public opinion against him. Russia's economy, the world's
eighth-largest, slowed to a near standstill in the first months of this year, and the Kremlin is
preparing to dip into its $171 billion rainy-day fund in a bid to encourage growth. On
Friday, Mr. Putin announced an ambitious and risky economic stimulus program in which up to
$43.5 billion in reserve funds would be spent on three big infrastructure projects. But the
problems for Russia's economy run deeper than its overwhelming dependence on oil and gas
revenues, which now account for more than half the federal budget. Despite the
conspicuous consumption of oligarchs and the growing middle class in Moscow, most of
Russia's goods-producing economy has been languishing for decades. Many provincial cities and
towns have grown shabby, the factories that sustained them decrepit. Young people have
moved away. With flattening revenues, the government badly needs to attract foreign capital , but
the Kremlin's recent move to tighten its grip on the oil industry through Rosneft, the national oil
company, was just the latest warning flag to potential investors. (Rosneft made a $270 billion
deal to double oil supplies to China on Friday, one of the biggest deals in the history of
the oil industry, Reuters reported.) ''The fundamental problem in this economy is still the politics
of the country,'' said Bernard Sucher, the former head of Merrill Lynch in Russia, who
serves on the board of Aton, an investment company. ''The way power is organized in this
country dooms the economy to underperformance, '' he said. ''The state is too big, it's involved in too
many areas of activity and involving itself in too many more areas of activity, and by its
nature discourages private investment. '' As Russia's senior political officials, business leaders
and foreign investors convened in St. Petersburg on Thursday at an economic forum that
serves as an annual gathering of the country's top financial minds, the task facing Mr. Putin
was how to create sustainable growth in a country where commodities, taken together, now account
for 80 percent of exports. Mr. Putin made the new stimulus plan the centerpiece of his
speech Friday at the forum. The program would lend money from the national pension
reserves to modernize the storied Trans-Siberian Railway, which runs to Moscow from
Vladivostok in the Russian Far East; to construct an 800-kilometer, or 500-mile, highspeed rail line to Moscow from Kazan, the capital of the Tatarstan region; and to build a
superhighway ringing Moscow. ''Our key challenge in the coming years is to remove
many infrastructure constraints that literally stifle our country, and prevent unlocking the
potential of entire regions,'' Mr. Putin said. ''Investors are hugely interested in
infrastructure projects, especially if the state is ready to provide guarantees, minimize the
risks and act as a co-investor.'' In addition to the infrastructure program, Mr. Putin
outlined additional steps to bolster Russia's economy, including a plan to restrict
increases in tariffs on utilities and to encourage lower interest rates on commercial loans.
The growth in tariffs has often outpaced the rise in inflation in recent years. Mr. Putin
also said Russia would continue efforts to reduce inflation, which he said had been
successful in recent years but perhaps not enough. There have been blunt warnings
against tapping the reserve funds, which now total $171 billion, or about 8 percent of
annual economic output. “Fiscal stimulus at this time would likely be ineffective, and
merely intensify inflation pressures,'' Antonio Spilimbergo, who led an International
Monetary Fund team that recently completed a fact-finding mission in Russia, said before
the announcement Friday. At the same time, Mr. Spilimbergo and other analysts say
Russia is better positioned than many other big economies, and could thrive if needed
changes were made. ''Improving Russia's business climate would provide needed impetus
to investment, diversification and growth,'' he said. Some experts at the forum said they
were confounded by Russia's contradictory problems: low growth and high inflation.
''Financial policy is weird,'' said Yu Yongding, a senior fellow at the Institute of World
Economics and Politics in Beijing. He was on a panel with Elvira Nabiullina, an aide to
Mr. Putin who has been tapped to lead Russia's central bank, and Russia's economic
development minister, Andrei Belousov. ''Where is your industry?'' Mr. Yu asked. ''You
can produce super-excellent jet fighters, but what else?'' Energy prices, while still relatively
high, are expected to flatten or decline in the years ahead. Gazprom, the Russian energy
behemoth, has been cutting prices and renegotiating contracts, under pressure from cashpoor clients in Europe and rising competition globally, caused in part by market shifts
like the development of shale gas in the United States. Discounts to customers cost
Gazprom $4.2 billion, or about 7 percent of pretax earnings, according to Renaissance
Capital, an investment bank. Oil revenues are also projected to decline long-term as production
grows more costly and new technology curbs demand. And more than a decade of efforts to
diversify the economy have largely failed. There is little to show for government-sponsored
programs aimed at developing a technology sector, for instance, or reviving Soviet
manufacturing. Ksenia Yudaeva, an economist who is Mr. Putin's liaison to the Group of
20 developed and emerging nations, said Russia was hardly alone in struggling to find
new sources of growth. ''The significant problem is uncertainty above all,'' she said. ''Before the
crisis, it was clear that Russia has natural resources and Russia has significant demand, which
was based largely on oil profits.'' Now, she said, investors are not sure where to look for
opportunities. ''It's not clear yet for investors which sectors, other than the traditional ones, will
be most profitable.'' Other economists said investment was the key. ''If you look at growth
performance, the weakest part of the economy is investment,'' Yaroslav Lissovolik, chief
economist at Deutsche Bank, said in an interview. ''To revitalize Russia's growth, measures
need to be taken on the structural front, to boost investmen t.'' The Russian finance minister,
Anton G. Siluanov, who is leading the response to the slowdown, said that Russia was
suffering partly because of continuing problems in Europe, which collectively is Russia's
main trading partner, but that the government was poised to act. ''There is a question what
measures have to be taken in order to stimulate the investment activity, stimulate the
business activity, make the Russian economy more attractive for foreign investors,'' he
said. ''This is exactly what the Russian government is working on now.'' Mr. Siluanov
said the infrastructure program - high-speed railroads, major investment projects and
improvements to road networks in Moscow - would benefit the country on many levels.
Without new sources of growth, the government will struggle to meet demands for
increased social spending, particularly on pensions for the country's aging population.
And if the stimulus plan fails, Mr. Putin could find his political support eroding in the
Russian heartland, where it remained strong even during the large street protests against
him in Moscow last year. Some of his critics are expecting, if not quite hoping for, that
result. ''I don't really think the economy is heading toward collapse, more likely longterm stagnation - a lost decade, if you will,'' said Vladimir Milov, a former deputy energy
minister and now a leader in the political opposition. ''This will not lead to an immediate
surge in protests, but it will be very difficult for Mr. Putin to stage another successful
election in 2018, should the economy be dead.'' Mr. Putin envisions Russia as a global
economic powerhouse, and the ruble as perhaps a reserve currency someday. But what
economists almost universally cite as a precondition - a political overhaul that produces
effective and reliable institutions that investors trust, and a resilient, diversified economy
- so far remains out of reach.
Absent policy change, Russian oil and gas production set to decline
IMF, ’13 (International Monetary Fund, “Russian Federation—Concluding Statement 2013 Article IV
Consultation Mission”, June 17, 2013, http://www.imf.org/external/np/ms/2013/061713.htm, accessed
7/19/13, JF)
Russia has a clear potential for growth in the energy sector but investment has lagged, weakened by a
revenue-based taxation scheme that inhibits investment in more-difficult-to-reach energy projects. Tax
regime changes, together with strengthened property rights and distribution access, are needed to
attract foreign technical expertise and nimble domestic players. Improvement in the efficiency of
publicly-owned companies is also necessary. Without such reforms, oil and gas production will decline
soon. Economic diversification is also necessary to lift potential growth and reduce vulnerability to
shocks. In pursuing regional development initiatives, the authorities should rely on market-based
mechanisms and carefully consider the costs and benefits and remove impediments to labor mobility. Given
adverse demographics, it will be especially important to adopt measures to enhance the participation rate
and efficiency of the labor force through measures such as encouraging later retirement in the context of the
pension system, and reforming education and training to facilitate better matching of skills with market
demands.
Russian economy already prepared for prices as low as $93 per barrel, Alt causes
ensure continued energy sector decline
Geopolitical Weekly, ’13 (“The Past Present and Future of Russian Energy Strategy”, February 12, 2013,
http://www.stratfor.com/weekly/past-present-and-future-russian-energy-strategy, accessed 7/19/13, JF)
Russia's top concern is its vulnerability to fluctuations in the price of energy. With half of the Russian
budget coming from energy revenues (of that, 80 percent is from oil and 20 percent comes from natural
gas), the government could be crippled should energy prices fall. The Kremlin has already decreased
its budget projections for oil prices to $93 per barrel instead of $119 -- though even at that price, the
government is playing a game of chance. Stratfor is not in the business of forecasting oil prices, but
historical patterns show that major international crises and fluctuations in global consumption and
production patterns repeatedly have had sufficient impact on oil prices and on Moscow's revenues to
destabilize the country. Natural gas export revenues are also currently in question. With alternative
natural gas supplies coming online for Russia's largest consumer, Europe, the Kremlin has been
forced to lower its prices in recent months. This year, Gazprom expects to give European consumers
$4.7 billion -- approximately 10 percent of Gazprom's net revenues -- in rebates due to price cuts. In its
current configuration, Russia's energy sector is under strain. The consolidation of the sector mostly
under two large state firms had many benefits for the Kremlin, but after a decade of consolidation the
disadvantages are piling up. With little competition for Russia's natural gas giant, Gazprom, the firm
is lagging in technology and is considered unfriendly to outside investment. Russia's oil giant, Rosneft,
recently began evolving into a larger monopoly like Gazprom, which could lead it to fall into a
similar trap. With future energy projects in Russia requiring more advanced technology (due to their
location and environment) and more capital, both Gazprom and Rosneft need modernization and
foreign investment. Corruption is also a major factor, with varying estimates of 20 to 40 percent of
Gazprom's revenues lost to either corrupt or inefficient practices. Rosneft has similar problems. This
loss would be sustainable with Moscow's previous high energy revenues, but it will not be sustainable
in the future should energy prices fall or the maintenance and expansion of the energy sector become
more expensive. The Kremlin is probing Gazprom, although with a culture of corruption rampant
throughout Russian history there is little the Kremlin will be able to do to eliminate wrongdoing within the
natural gas firm. Moreover, Europe's dependence on Russian energy is decreasing. The natural gas
shortages experienced throughout Europe during the Russian-Ukrainian crises of 2006 and 2009 were a
stark reminder of how vulnerable European nations were because of their dependence on Russian
natural gas exports. Both unilaterally and through the European Union, European countries began
developing strategies that would allow them to mitigate not only Europe's vulnerability to disputes
between Moscow and intermediary transit states, but also its general dependence on energy from Russia.
The accelerated development of new and updated liquefied natural gas import facilities is one such effort.
This will give certain countries -- Lithuania and Poland, most notably -- the ability to import natural gas
from suppliers around the globe and bypass Russia's traditional lever: physical connectivity. This is
particularly significant in light of the accelerated development of several unconventional natural gas plays
in the world, particularly the shale reserves in the United States. The development of a pipeline project that
would bring non-Russian Caspian natural gas to the European market is another attempt -- albeit less
successful so far -- to decrease European dependence on Russian natural gas. Additionally, a set of EUwide policies, including the Third Energy Package, has begun giving EU member nations the political
and legal tools to mitigate Gazprom's dominance in their respective natural gas supply chains. This
common framework also allows European nations to present a more unified front in challenging certain
business practices they believe are monopolistic -- the latest example being the EU Commission probe into
Gazprom's pricing strategy in Central Europe. This, coupled with the EU-funded efforts to physically
interconnect the natural gas grids of EU members in Central Europe, has made it increasingly difficult for
Russia to use natural gas pricing as a foreign policy tool. This is a major change in the way Moscow has
dealt with the region for the past decade, when it rewarded closer ties with Russia with low gas prices (as
with Belarus) and increased rates for those who defied it (the Baltics). Finally, Russia faces the simple yet
grave possibility that the escalating financial and political crisis in Europe will continue to reduce the
Continent's energy consumption, or at least preclude any growth in consumption in the next decade.
Oil prices set to fall at least $20 and continue declining well into the future
Conerly, Forbes Contributor, ’13 (Bill, Forbes, 5/01/13, After getting a Ph.D. from Duke and working for three years as a professor, I
found my calling in the business world. I began as a corporate economist (PG&E, Nerco, First Interstate Bank) before entering
consulting, helping business leaders connect the dots between the economy and business decisions. I wrote Businomics: From the
Headlines to Your Bottom Line—How to Profit in Any Economic Cycle to help corporate executives and small business owners
understand how the economy impacts their companies. I’m the longest-tenured member of the Oregon Governor’s Council of
Economic Advisors, chairman of the board of Cascade Policy Institute and senior fellow at the National Center for Policy Analysis,
http://www.forbes.com/sites/billconerly/2013/05/01/oil-price-forecast-for-2013-2014-falling-prices/, accessed 7/17/13, JF)
Oil prices are headed down, and I mean down at least $20 a barrel. The key reason is that prices have been
high. It’s not a paradox, but a result of the long time lags in oil production. Oil prices were fairly stable from 1986
through 2001, averaging just $20 per barrel. Then prices started rising, spiking to $134 just as the recession began . The price of
oil has been above $80 for the past two and a half years. With rising prices has come a dramatic increase in
exploration activity. During the era of low prices, the number of drilling rigs in operation around the world was 1,900 on average; now
we are at nearly double that pace, and we have been for nearly three years. Drilling activity results in oil production,
lasting for many years after the drilling is over. Take a look at the accompanying chart of drilling rigs and total
production. Drilling jumped up after the oil price hikes of 1973 and 1979. By 1986, increased oil production brought prices crashing
down. Oil exploration quickly followed suitProduction, however, continued to grow long after new drilling
declined. When drilling was high, much of the activity was exploratory —trying to find the oil. When prices
fell, the riskiest drilling made no sense. What was left was in-fill. The oil field had been identified, and further wells
were needed to best utilize the resource. These wells are fairly low risk, with high rewards compared to the cost of the
drilling rig. As a result, even low levels of drilling activity led to substantial increases in global production.
Today we’ve had moderately strong drilling activity for several years . New fields have been identified and
delineated. Now we’ll see fairly mild drilling activity but continually increasing production. In the past year
production has been soft, barely growing, but that’s a reflection of weak demand. In the short run, production can
be dialed back to save more oil for the future. In the long run, though, production capacity rules the roost. What of demand?
Demand should grow a little slower than the global economy . Unless the world starts to boom—an
unlikely scenario, given problems in Europe and the United States—production capacity will grow faster than
demand, pulling prices down. What of peak oil worries? The concept is often sound when looking at one well—but
even a single well will sometimes be re-worked to increase its output. For the world as a whole, the peak oil theory
fails to consider that higher prices lead to greater exploration for new oil fields, greater in-fill drilling of established
fields, better care of older wells, and development of new technology for all of these functions. The world’s oil production will peak
when the cost of finding new oil rises and the development of alternative energy makes the value of oil decline. Over the coming few
years, look for oil prices to decline at least below $80 a barrel and quite possibly more.
Russia’s economy won’t collapse—able to draw on foreign reserves and
balanced spending.
Mark Adomanis 1/7/13. (“Why Russia’s economy isn’t going to collapse.” Forbes. Emma.
http://www.forbes.com/sites/markadomanis/2013/01/07/why-russias-economy-isnt-going-tocollapse/print/).
Hating Russia‘s economy is a full­time job for many people. Owen Matthews in Newsweek is perhaps the
most colorful of the bunch, but the difference between Matthews and other Western journalists is primarily
one of degree not of kind. I’ve been following Russia very closely for about a decade now, and I’ve simply
lost count of the number of analyses I’ve read arguing that the end is nigh and that the economy’s final
implosion is mere months away. These articles vary greatly in quality, but the basic indictment of Russia’s
economy consists of a number of actually quite reasonable observations on the country’s corruption, red
tape, and over-reliance on natural resources. ¶ However, after getting decimated during the worse days of the
financial crisis, Russia’s economy has been plugging along with steady and unremarkable growth in the
3-4% range, hardly world beating but actually faster than almost every country in the EU. As more time
has passed and Russia’s economy has defied predictions by continuing to not collapse, I’ve become
increasingly convinced that its economic stability has been somewhat underrated and that, despite its many
faults, its basic economic model is quite likely to endure through the short and medium terms. I certainly
don’t think that Russia is going to become some sort of economic hegemon, but it seems far more likely
than not that it will evolve gradually, and not through some titanic rupture or revolutionary upheaval. ¶ But
my hunches and inclinations aren’t very good evidence, so I thought I would put a few charts together
which show why I think that Russia’s economy is basically going to stay stable over the next several years
and that it’s a huge mistake to predict a cataclysm which will sweep away the dread Putin.¶ 1.The price of
Brent crude has stayed remarkably robust despite chronic economic weakness in the developed world.¶ I
suppose it’s possible that the EU will never emerge from its current doldrums, but I think that the
developed world will eventually get out of its funk and start to grow again. When it does that growth will
likely drive the price of oil even higher, or at least prevent it from going much lower. ¶
www.forbes.com/sites/markadomanis/2013/01/07/why-russias-economy-isnt-going-to-collapse/print/ 1/57/18/13 Why Russia's
Economy Isn't Going To Collapse - Forbes¶ 2. Russia still has very large foreign reserves, some of the largest in
the
entire world¶ Although you often hear, as in Matthews’ piece, that “the Russians used to be responsible with
their oil money, now they’re become totally reckless and irresponsible,” Russia still has very large foreign
reserves that amount to almost 25% of its GDP. Note the similarity between the oil price graph and
Russia’s foreign reserves, their shapes are almost identical¶ www.forbes.com/sites/markadomanis/2013/01/07/whyrussias-economy-isnt-going-to-collapse/print/ 2/5¶ 7/18/13 Why Russia's Economy Isn't Going To Collapse - Forbes¶ While the
utility of foreign reserves can often be overstated, they can be very handy in averting economic
catastrophes, and, as you might expect, the Russians drew heavily on their foreign reserves during the worst
days of the 2008-09 crisis. I think that the reserves provide a cushion that will help to shield Russia from a
future shock, such as a rapid and massive decline in the price of oil. Of course there’s still the chance that
Russia will suffer a slow and gradual decline in competitiveness, but what I’m pushing back against is not
that argument but the argument that the whole house of cards is going to collapse in the next couple of
years.¶ 3. The Russian government still runs a budget surplus, and its spending as a percentage of GDP is
not very high¶ From January-October 2012 Russia ran a budget surplus of about 1.4%, smaller than the
2011 figure (3.2%) but a surplus nonetheless. Russia’s total level of government spending (about 32% of
GDP) hardly seems outrageous or unsustainable. Additionally, despite a lot of loose and foolish talk from
the Russian defense ministry about it looming re­armament campaign, Russia’s budget spending is more
weighted towards the social sphere than the military industrial complex. Courtesy of the Gaidar institute,
here’s a graph showing where Russia’s consolidated government spending was directed in the first ten
months of 2012:
Oil prices stable now-but expected to fall
Platts June 10, 2013. “AOGC 2013: Analysts see crude oil prices stabilizing around $80/lb by 20152016.” Platts McGraw Hill Finance.
Singapore (Platts)--10Jun2013/834 am EDT/1234 GMT¶ ¶ Crude oil prices are expected to drift lower and
stabilize around $80/barrel by 2015-2016, industry analysts said Monday, adding that in the near term,
however, prices are expected to stay around $100/b. "The house of oil has a $120/b ceiling and a $80/b
floor. We have been staying at the high end for many, many years and now we are sliding towards the floor,"
Fereidun Fesharaki, chairman of Facts Global Energy, said at his Crystal Ball session at the Asia Oil & Gas
Conference in Kuala Lumpur. "The crystal ball says that sometime around 2015-2016, we will come down to
the $80-85 range. We can't go lower than that because if we go lower than that, a lot of unconventional will
stop manufacturing," he said. Once oil prices hit $80/barrel, a lot of projects have to be re-examined,
Fesharaki said, adding that "many LNG projects which have run forward today, would not have run forward
had we seen and looked at the world of $80/b oil." Wood Mackenzie Chairman David Morrison told
delegates that oil prices are unlikely to see a dramatic collapse, but they may drift lower and if that happens
some of the projects may get deferred. "When you think of fundamentals, there are a number of
downward pointers. Perhaps, the most important of these is that a combination of anaemic demand
and increasing US output means that OPEC spare capacity is set to rise," Morrison said. The US has
been producing around 7 million b/d for the last several years, but is set to produce 12 million b/d by the end
of this decade. "That is the equivalent of adding two Nigerias or two Venezuelas. This is an absolutely
fundamental change -- the US will become the world's largest oil producer," he said. According to
Wood Mackenzie, OPEC's spare capacity is set to rise from around 2 million b/d in 2010 to over 6 million b/d
by 2020. "This [OPEC spare capacity] is not a very pretty picture," said Morrison. "It raises very serious
questions about OPEC behaviour and of course the oil price in particular for the two top OPEC producers -Saudi Arabia and Iraq." Morrison said oil prices could go lower to around $80/barrel by 2015-2016.
David Hewitt, co-head oil and gas equity research at Credit Suisse, echoed a similar sentiment,
saying his bank does not see a fundamental effect of US shale oil capacity in 2013. "For the second
half of the year, we are at $115, we don't see a significant weakening," Hewitt said. Citi Investment
Research's senior associate of Commodities Research, Eric Lee, said the amount of supply coming online in
the coming years would likely push oil prices down to a "$90/b ceiling by the end of the decade." "At $90 you
can really get a huge amount of new production that's coming online -- and at those prices you can bring on
the kind of supply to keep prices at that level," he said. Citi expects Brent to average $104/b this year.
"There's a bit of upside going into the summer so our Q3 outlook is somewhere around $105/b -- and next
year moving down to the lower nineties." The bank sees the spread between Brent and WTI narrowing
significantly going forward due to new US pipelines coming online and take-or-pay contracts negotiated
between US producers and buyers.
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