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Oil Prices High
Oil prices hit two-month highs – Mideast tensions
AFP 12 (“Oil prices hit two-month high on Mideast tensions”, July 19th,
http://www.google.com/hostednews/afp/article/ALeqM5jVUGja0VYi9Mv7xp2JyjFtiymh
lg?docId=CNG.dc034b77bac4ff30be5f2883ff6f4007.741)
NEW YORK — World
oil prices hit two month highs Thursday as traders fretted over the impact of simmering
geopolitical tensions in the crude-rich Middle East. In New York, light sweet crude for delivery in
August, soared $2.79 to $92.66 a barrel, the highest close since May 17. In London, Brent North Sea oil
for delivery in September jumped $2.64 to $107.80 per barrel, the highest close since May 22 . "Prices
have climbed," said Commerzbank analyst Carsten Fritsch, pointing to rising awareness of "geopolitical
risks." "The conflict in Syria, which has already been under way for 16 months, appears to be escalating. "The Iran
conflict is also coming into increasingly sharp focus, Israel having blamed Iran for the attack on Israeli
tourists in Bulgaria." Tensions in Syria rose as fighting in the capital Damascus entered its fifth day, Syrians fled across the
border into Lebanon in their tens of thousands and the Syrian opposition was said to be in control of all the border crossings between Iraq and
Syria. World
powers remained in deep disagreement on how to end the fighting, with Russia and China
vetoing a Western-backed UN Security Council resolution that paved the way for sanctions and moved
a step closer toward military intervention. US Ambassador to the United Nations Susan Rice said the UN Security Council had
failed on Syria. "We will intensify our work with a diverse range of partners outside the Security Council to bring pressure to bear on the Assad
regime and to deliver assistance to those in need." All this came a day after a devastating bomb attack that killed three of the regime's top
security officials. "Syrian
oil production capacity is only around 400,000 barrels per day but when a suicide
bomber kills a minister who was a close ally of the ruler of the country, it is inevitable that oil prices
go up," said PVM Oil Associates analyst Tamas Varga. Meanwhile, Israel accused Iran and Lebanese group
Hezbollah of carrying out a deadly attack against Israelis in Bulgaria, setting the stage for new tensions
in the Middle East. Israeli Prime Minister Benjamin Netanyahu said "all the signs point to Iran," linking Wednesday's
blast to a string of attempts to attack Israelis around the world. "Israel will respond forcefully to Iranian terror ." Iran
responded by saying it strongly condemns "all terrorist acts." Market sentiment was also boosted after figures showed
American crude stocks sank 800,000 barrels in the week ending July 13 for a fourth weekly decline in a row.
Prices had risen at the start of the week on tensions over major crude producer Iran, which said that US
military deployment in the Gulf was "a source of insecurity." The US navy has been building up its forces in the oil-rich
Gulf region amid mounting tensions with Iran over its controversial nuclear program . Tehran has
warned it could close the Strait of Hormuz, in the southern Gulf, if international sanctions begin to bite,
potentially disrupting shipping and world oil supplies through the strategic waterway.
Fear of supply disruptions and quantitative easing driving up prices
Cattaneo 12 (Claudia, “Oil prices hit 8-week high as Mideast tensions raise fears of
supply disruptions”, July 19th, http://business.financialpost.com/2012/07/19/oil-priceshit-8-week-high-as-mideast-tensions-raise-fears-of-supplydisruptions/?__lsa=dc3697c5)
CALGARY — Oil
prices defied expectations and raced to an eight-week high on Thursday, up for a seventh
straight session, as concerns that Middle East tensions could result in supply disruptions trumped
worries about slumping demand due to the weak global economy. Crude for August delivery jumped US$2.79, or
3.1%, to settle at US$92.66 a barrel on the New York Mercantile Exchange. The price has risen 10% in seven days of gains. Brent oil for
September advanced US$2.64, or 2.5%, to settle at US$107.80 a barrel on the London-based ICE Futures Europe exchange. “People
are
getting wrapped up in some of these geopolitical tensions and that has driven a whole pile of short
covering,” said Martin King, vice-president of institutional research at First Energy Capital Corp. in Calgary.
Also, “there seems to be vague hope floating around in the market that there will be some form of
quantitative easing [by the U.S. Federal Reserve] at some point, and that is feeding on itself.”
8 reasons oil prices will remain high
Ausick and McIntyre 12 (Paul and Douglas, 24/7 Wall St. “8 reasons why gas will hit $5
a gallon this year”, February 25th,
http://bottomline.msnbc.msn.com/_news/2012/02/25/10496561-8-reasons-why-gaswill-hit-5-a-gallon-this-year?lite)
The price of gas is a widely covered news item these days. Oil
prices have moved up from $75 a barrel in October of
last year to more than $100 a barrel currently. And the trend continues to point toward even higher
oil prices. Of course, along with the price of oil, gas prices have also risen, almost in lockstep. The price of gasoline today is 10 percent
higher than it was just two months ago. The average price for a gallon of regular is almost $3.62. Gas prices in January have been the highest
ever recorded price for that month. Many economists and energy analysts believe a rise to $4 a gallon is inevitable. But their estimates could be
grossly understated. Gas will reach $5 a gallon before the end of the year. Two warring trends are pushing and pulling gas prices. On the one
hand, Americans now drive less than at any time in the past 11 years. On the other hand, gasoline and oil
inventories are at very
low levels around the world, and traders believe that supply will tighten significantly . The fact that Americans
drive much less will not offset an interruption of supply from the Middle East, a decision by refineries to charge more to turn oil into gasoline,
or higher demand from emerging economies like China and India. 24/7
Wall St. reviewed the major reasons that gas prices
have risen in the past quarter and analyzed whether the causes will improve or worsen. We have estimated how much each factor
could increase gas prices. Together, those increases would be enough to push gas prices up by another $1.50. 1. Strait of Hormuz
About 20 percent of the crude oil produced in the world is shipped through the Strait of Hormuz, and
Iran has threatened to shut down shipping traffic through the Strait. At its narrowest, the passage is 30 miles wide,
so there is a realistic case that a conflict could close it. Iran has already been isolated as a trade partner by U.S. and EU sanctions. The regime in
the country has made a number of threats about what it might do if its “national interests” were threatened. If Iran follows through with its
threats, the period the passage is closed could be very brief if the U.S. Navy, which has a carrier group in the region, moves to reopen the lane.
But it is not clear that the American government would make that decision without the open support of allies or the United Nations. A closure
of the passage, or any escalation that would make a closure more likely, will drive oil prices higher -- and by extension, gasoline prices. 2.
Iran
Iran contributes to a second problem in terms of global oil supply well beyond that of its ability to
interrupt supply. Because of the embargo against the nation due to nuclear weapons violations, the
U.S. has pressured large oil importers such as Japan to act to isolate Iran by cutting their imports . This
puts Japan in a position in which it has to tap even tighter global supply. Japan apparently has agreed to cut its Iranian crude imports by 20
percent. But as the world’s third largest oil importer, Japan indeed will have to get its oil somewhere other than Iran -- which will put more
pressure on current production. 3.
Refiners raising prices Most of the oil refined on the east coast of the U.S. is
Brent crude, a type of oil produced from the North Sea. The price of Brent -- more than $124 a barrel -- is almost
$16 higher than the price of West Texas Intermediate (WTI) crude, the amount most people read about in the media.
But because Brent has replaced WTI as the global price benchmark, U.S. refiners set prices for gasoline and other
products as if Brent were the only grade of crude used. That allows refiners with access to cheaper WTI to make larger
profits. However, when the prices converge, as happened in the final two months of 2011, WTI refiners lose their edge -- and their hefty profits.
“Refiners were losing money in November and December. You can only lose money for so long,” John Felmy, chief economist for the American
Petroleum Institute, recently said. Many large refineries are owned by public companies that do not have much appetite for posting ongoing
losses. To avoid losses, refiners will have to increase gasoline prices. 4.
Other geopolitical risks Iran does not present the only
geopolitical challenge to oil production. In Nigeria, which is the 14th largest producer of oil in the world, Islamic
terrorist group Boko Haram has continued to attack Christian areas of the country. The Nigerian Army
has reacted by attacking Islamists. Militants have continued to attack pipelines, apparently in a move
to disrupt the government. Meanwhile, there are concerns about supply even from Venezuela. Venezuela is the world’s 11th largest
producer of crude. The regime there has been fairly stable under the 13-year reign of Hugo Chavez. But Chavez is due for a second cancer
surgery later this month. The Miami Herald recently wrote that “some analysts question his ability to hold onto the presidency through the
current election cycle.” Other
parts of the Middle East and Africa are also in turmoil. Analysts recently
mentioned Bahrain, Libya, Iraq, Nigeria and Yemen as political flashpoints. “The world faces oil supply risks from a
multitude of sources, not only in the Middle East but also in Africa. In our view, not since the late 1970s/early 1980s has there been such a
serious threat to oil supply,” Soozhana Choi, Deutsche Bank’s head of Asia commodities research, said in a note to clients recently. All
these
flashpoints translate to further concerns about oil supply. And when oil supplies are tight, the price of
oil -- and gasoline -- increases. 5. The EU may save itself For now, Greece has been bailed out again -- a move that should buoy
confidence in the region and encourage demand for oil. Even with the Greek bailout, however, the eurozone is not out of the woods as nations
continue to implement austerity measures to protect against the risk of default on sovereign debt. While some experts believe the risk of
defaults in the region is overblown, several economies in the eurozone continue to be in trouble. According to a recent European Commission
forecast, the eurozone GDP will contract 0.3 percent, driven in part by deep recessions in several southen EU nations, including Spain and
Portugal. Either way, deepening financial and economic trouble in Europe would drop demand for oil there. However, if leaders in the region
can settle on mechanisms to protect nations with financial problems from default, national budgets will not be cut to extraordinarily low levels - levels that would otherwise kill both consumer demand and business demand for oil. 6.
U.S. economic recovery An improved
U.S. economy means higher oil prices. U.S. GDP, employment and even housing have all staged
unexpected improvements in recent months. Many economists now peg a 2012 GDP increase at more than 2 percent. The new
White House budget assumes growth of 3 percent by 2013. An average of more than 100,000 jobs has been created in
each of the past six months. And an extension of payroll tax cuts through the end of this year may
further aid the employment recovery. An extension of unemployment benefits means that hundreds of thousands of
American who would have no income, will have at least enough to consume basic goods and services .
The argument that Americans now drive less is not a powerful one for gas and oil demand when a healthy economy also means more
consumption of oil for business, petrochemicals and jet fuel. Demand
for oil-based products across the entire economy
will pick up with any recovery. 7. Summer In the U.S., summer vacation driving has historically boosted
demand for gasoline. Over the past three or so years, however, that boost has been small, if present at all. In 2011, U.S. traffic volume
decreased year-over-year in every month except January and February. But that was last year. So long as the U.S. economy
continues to improve, more drivers will be on the road this summer. 8. Supply risk In December 2011, OPEC
members produced nearly 31 million barrels a day, cutting the cartel’s spare capacity capability from 3.18 million barrels per day to 2.85
million. Saudi Arabia accounts for 2.15 million of those daily barrels of spare capacity. Whether this data is accurate is arguable. What is not
arguable is that starting to pump the spare capacity will take time, which will not be very helpful in the event that the Strait of Hormuz is closed
or some other geopolitical risk is realized. Then there is Russia, the world’s first or second largest producer, depending on which day you look at
the data. The OECD is counting on Russian production to make up for some of the short supplies and to grow by 1.4 percent to 10.72 million
barrels a day in 2012. Russia grew its production by 1.2 percent in 2011. An additional gain of 17 percent in 2012 could signify that the OECD is
hoping that Russian production can grow even more. There is no guarantee that Russia will deliver. Supply from Canada, the U.S., Australia and
Brazil is expected to rise in 2012, though North Sea production is expected to fall. The OECD estimates global demand in 2012 of 90 million
barrels a day and global supply essentially equal to projected supply. Nothing about that state of affairs should lead anyone to a conclusion that
prices will fall.
Prices to stay high and stable
Dokoupil 12 (Martin, Reuters, “Saudi to keep oil price stable: central bank chief”,
January 20th, http://www.reuters.com/article/2012/01/20/us-saudi-oil-bankidUSTRE80J0TR20120120)
(Reuters) - Saudi
Arabia's central bank chief said on Friday that his country would offer excess oil production capacity if needed
to balance oil prices, and that he expected prices to stay stable. Brent crude held above $111 on Friday, partly
supported by the prospect of fresh sanctions being imposed on Iranian crude early next week, which could increase demand for oil from other
markets. "If there is pressure on demand, Saudi Arabia will always offer excess capacity to bring balance to supply and demand and to balance
prices throughout," central bank head Fahad al-Mubarak said. Mubarak was speaking to a news conference at the inaugural meeting of the
Financial Stability Board's regional consultative group for the Middle East and North Africa. The FSB is a global body handling financial
regulation. Saudi
Oil Minister Ali al-Naimi said on Monday the world's top oil exporter can pump more oil at
a moment's notice, the day after Iran warned Gulf oil producers not to compensate for any disruption to Iranian output. He
identified $100 a barrel as an ideal oil price for Riyadh. Mubarak reiterated that the balance sheets of Saudi commercial
banks were very strong and that they had only very limited exposure to Europe. Saudi Arabia will continue to ensure its
banks are well-regulated, he added. "Saudi banks are complying with Basel II, as a matter of fact they are already complying in most
of the bank ratios of liquidity and capital adequacy of Basel III. The system of banks in Saudi Arabia was a very strong one well before I became
governor." He
added, "My role is to continue prudent macro measures to make sure the banks continue
to be well-regulated and follow all required rules as well as serving their purpose in the economy ."
Price of oil high now--Norway
Kahn 7/9 (Chris Kahn, energy writer for the Associated Press, “Oil price climbs as Norwegian strike looms”, July 9, 2012,
http://seattletimes.nwsource.com/html/businesstechnology/2018640554_apoilprices.html)
The price
of oil is climbing as Norway prepares for a shutdown of its North Sea crude
production. Norway's oil industry, which produces more than 3.8 million barrels of oil and natural
gas per day, says platforms will switch off after 8 p.m. EDT Monday due to a strike by offshore oil workers
over retirement benefits. The government still may intervene to keep oil and gas flowing. A shutdown would seriously
impact European oil supplies, cutting off a major source of crude as the European Union
officially begins an embargo of Iranian oil. Norway exports most of its crude to the United Kingdom, the Netherlands,
France and Germany. The U.S. also imports a small amount of oil from Norway. Benchmark U.S. crude
rose 87 cents to $85.32 per barrel in New York. Brent crude, which comes from the North Sea
and sets the price for oil imported into the U.S., added $1.13 to $99.32 per barrel in London.
Independent analyst and trader Stephen Schork said oil could jump higher if and when
Norway's production stops. Most traders expect the country's government to force an end to the strike. "There's a lot of
skepticism about this strike," Schork said. "This isn't Libya" where rebels forced oil fields to close for several months last year. He noted
that the pension dispute is a far less serious matter. If the government doesn't intervene, oil would stop flowing shortly after the
deadline. A complete shutdown could take up to four days. The
Norwegian Oil Industry Association estimates
the strike could cost the industry $296 million per day. Meanwhile, gasoline prices rose 2.4
cents over the weekend to a national average of $3.38 per gallon, according to AAA, Wright
Express and Oil Price Information Service. A gallon of regular has risen by an average of nearly 6 cents
since last week, but it's still about 23 cents cheaper than the same time last year. In other futures trading , heating oil rose
2 cents to $2.73 per gallon and wholesale gasoline rose by 3 cents to $2.74 per gallon. Natural gas rose 8 cents
to $2.87 per 1,000 cubic feet.
Oil prices high now and demand expected to rise
Economist 7/7 (The Economist, Authoritative weekly newspaper focusing on international politics and business news and
opinion, “Rollercoaster Another leap. Where next?”, July 7, 2012, http://www.economist.com/node/21558310?fsrc=rss%7Cfec)
BROADLY, two
factors govern the price of oil. One is actual supply and demand, the other market
sentiment about the state of the world. The fundamentals change slowly; the market’s mood is more volatile. Both have
sent the price careering up and down in recent weeks.¶ In March fears that the Iranians might do
something dramatic in the Strait of Hormuz, cutting off supplies to global markets, helped to propel the price of a barrel of
Brent crude to over $128 (see chart). Since then oil has sagged by 30%, to a low of $88 a barrel on June 22nd, as intensifying worries over the euro-area debt
crisis and fears of a sharp slowdown for China’s economy darkened prospects for demand. The supply side also weighed on prices. For some months
Saudi Arabia has been pumping oil at its fastest rate in 30 years to make up for Iranian crude lost to American
and European sanctions, which officially started on July 1st. Plenty of Libyan oil is also back on the market. Oil from
America’s shale fields has all but plugged the gap caused by disruptions to supplies from Syria, Yemen and South Sudan. ¶ The emotional rollercoaster is now
climbing again. On
June 29th oil markets responded to the latest euro summit with undisguised,
and unmerited, glee. The price of Brent crude leapt by 9%, the biggest one-day advance in
three years, and has since risen to around $100 a barrel. The fundamentals and the fear factor
suggest the price will remain there for a while.¶ First, demand remains surprisingly perky even though Europe’s
consumption dropped by over half a million barrels a day (b/d) in the first three months of the year. Japan’s thirst grew by 400,000 b/d (to generate
electricity that nuclear power no longer supplies); Americans
put more petrol in their tanks in April than they did
a year ago, the first such increase for 16 months; and Chinese demand, despite a sluggish
May, has grown by 2.6% in the first five months of the year compared with the same period
in 2011.Demand is expected to strengthen in the second half of the year as a seasonal boost is buttressed by
a recovery in China and the resumption of deferred infrastructure spending there. Most analysts reckon that worldwide consumption is
set to grow by around 1m b/d in 2012.¶ Second, the supply picture is looking less promising. Iranian sanctions could take
more than expected out of the market—perhaps as much 1.4m b/d. The Chinese, hitherto regarded as likely to mop up the Iranian oil that no one else would
buy, have joined other countries in promising to reduce imports in return for a waiver on sanctions from America. Countries like China will be obliged to
take even less Iranian oil over time to continue to avoid American attention. Meanwhile, European action against Iran means that oil tankers insured by
companies operating in the EU—as are nine out of ten vessels in the global fleet—and carrying Iranian oil will lose their coverage if they continue. ¶ There
are signs, too, that Saudi Arabia has stanched the flow of oil a little of late, in order to prop up prices. The country’s oil minister, Ali Naimi, has said that $100
a barrel is fair. The Saudis are reckoned to need $80-85 a barrel to maintain a programme of lavish social spending designed to avoid an “Arab spring” in the
kingdom. Iran, Iraq, Algeria and Venezuela rely on an oil price above $100 to keep spending on track and want the Saudis to cut production more. That they
are unlikely to get their way should help to temper the market’s mood swings for a while.
Oil Demand High
Our evidence is predictive—demand and prices will rise now
Macalister 12 (Terry Macalister, energy editor of the Guardian, “Oil prices could double by 2022, IMF warned”, May 13, 2012,
http://www.guardian.co.uk/business/2012/may/13/oil-price-doubling-decade-imf)
The International Monetary Fund (IMF) has been
warned by its internal research team that there could
be a permanent doubling of oil prices in the coming decade with profound implications for global trade.¶
territory for the world economy, which has never experienced such prices for more than a few
months," the report warns.¶ The new IMF "working paper" come as the value of crude on world markets
remains at the historically high level of $113 a barrel and just after the International Energy Agency
reported that consumption would accelerate for the rest of this year in line with a wider economic
"This is uncharted
recovery.¶ Undertaken amid mounting concerns about "peak oil", the IMF study does not presume that there is a constraint on how much
oil can be taken out of the ground. It prefers to believe that extraction rates will depend on the price that will be able to be charged for
the final product.¶ "While our model is not as pessimistic as the pure geological view that typically holds that binding resource
constraints will lead world oil production on to an inexorable downward trend in the very near future, our prediction
of small
further increases in world oil production comes at the expense of a near doubling,
permanently, of real oil prices over the coming decade," argues the report, entitled The Future of Oil: Geology v
Technology.¶ The paper, which contains a warning that it should not be reported as representing the views of the IMF itself was
nevertheless prepared
by several authors including Jaromir Benes, a former head of
macroeconomic modelling in the Czech National Bank but now employed by the IMF in
Washington.¶ It says that its oil market "models" have been significantly more accurate than
others in a world where predictability has been historically low. But it adds: "Our empirical results also
indicate that if the model's predictions continue to be accurate as they have been over the last
decade… the future will not be easy."¶ Meanwhile, the Paris-based International Energy Agency, which advises industrialised nations,
including the UK on energy policy, said crude prices would remain high in 2012, due to tensions between Iran and the west. "The path of
market fundamentals for the rest of the year remains highly uncertain and geopolitical risks will
likely continue to
keep prices high," the agency said.¶ The agency believes that a period of declining demand – triggered by the
slowdown in the global economy – is now over and the upward trajectory resumed.¶ The Opec oil cartel made
similar statements a week ago, saying that oil demand growth had "stopped its declining trend".
Global oil demand will rise – we’re at the front of the pack – prefer predictive
evidence
Lyon et al, energy policy researcher, 10 – Susan Lyon is a Special Assistant for Energy Policy, Rebecca Lefton is a Researcher, and
Daniel J. Weiss is a Senior Fellow at American Progress [Lyon et al, 4/23/2010, Center for American Progress, “Quenching Our Thirst for Oil,”
http://www.americanprogress.org/issues/2010/04/oil_quench.html/]
Global oil demand—led by the United States and followed by China, Japan, and India—will
dramatically increase over the next two decades. China has made oil deals around the world over the past few years that can deliver a
supply of more than 7.8 billion barrels of oil to the country over the next several years. The United States must meanwhile prepare for
a coming oil price crunch caused by increasing global demand and slowing global production. The safest,
cheapest, and fastest path to energy security is to implement oil savings measures—outlined below—to reduce dependence on foreign oil and protect our
pocketbooks.
Demand grows, production slows
Forecasts predict that future global oil demand will rise sharply. BP’s 2009 World Energy Review found
that oil demand from developing countries outside the Organisation for Economic Co-operation and
Development grew in 2008 despite the recession. The International Energy Agency’s newest Oil Market Report forecasts that
global oil demand will hit a record high this year and will keep rising as the global economy recovers.
And the
World Energy Outlook projects that oil demand will grow by almost 25 percent from 85 million
barrels per day in 2008 to 105 million barrels per day in 2030.
All this oil demand growth, according to the World Energy Outlook, “comes from non-OECD countries: OECD demand
actually falls.” Demand among the developed countries in the OECD already peaked, but non-OECD developing countries want
more oil to fuel their burgeoning auto industries caused by a growth in wealth.
More troubling is that a recent New York University study found that official energy agency projections are far too conservative,
saying, “Total oil demand will be 138 mbd in 2030—about 30 mbd greater than what is projected by
DOE, IEA, and OPEC.” They noted, “Our projections…are higher than projections by those three institutions…because we project rest-ofworld growth that is consistent with historical patterns, in contrast to the dramatic slowdowns which
they project.”
The United States will remain the largest oil consumer in the foreseeable future, followed increasingly closely by
China (see figure, "China's growing import needs"). The average American still consumes about 10 times as much oil as
the average Chinese despite persistent growth and rising average income levels in China.
Prefer our evidence – official models are flawed
Lyon et al, energy policy researcher, 10 – Susan Lyon is a Special Assistant for Energy Policy, Rebecca Lefton is a Researcher, and
Daniel J. Weiss is a Senior Fellow at American Progress [Lyon et al, 4/23/2010, Center for American Progress, “Quenching Our Thirst for Oil,”
http://www.americanprogress.org/issues/2010/04/oil_quench.html/]
More troubling is that a recent New York University study found that official
energy agency projections are far too conservative,
saying, “Total oil demand will be 138 mbd in 2030—about 30 mbd greater than what is projected by
DOE, IEA, and OPEC.” They noted, “Our projections…are higher than projections by those three institutions…because we project rest-ofworld growth that is consistent with historical patterns, in contrast to the dramatic slowdowns which
they project.”
Brink
Even if we’re lagging now – a significant price sell-off could kill the market
Biers, Dow Jones writer, 7/23 – writer for Dow Jones [John M., 7/23/2012, Wall Street Journal, “Oil Prices Tumble 4.2%,”
http://online.wsj.com/article/SB10000872396390444025204577544634253052276.html]
"Based on what we're hearing, it's
amazing we're not down more," Mr. Flynn said.
Spain's economy weakened further during the second quarter, hit by a sharp drop in domestic
demand and by intense volatility in financial markets, the Bank of Spain said Monday. In its monthly economic report, the central
bank said preliminary estimates show that Spain's gross domestic product contracted 0.4% in the second
quarter from the first, and dropped 1% in annual terms.
Matt Smith, an analyst at Summit Energy, said that the combination of higher Spanish bond yields with news that the so-called troika—made up of European
Commission, European Central Bank and International Monetary Fund—would visit Greece is setting a "huge negative tone to the day."
The euro-zone crisis has for months stood as an albatross on the oil market because it raises concerns
about the economic growth needed for energy demand. A weaker euro relative to the dollar can also
depress the price of oil, which is traded in dollars. On Monday, the dollar was stronger relative to the euro.
In ruminating about the euro-zone crisis, the market turned its eyes away from the Iran story, which dominated news
last week, sending prices higher for seven days in a row.
After the recent trading, Iranian geopolitical concerns "have been priced in and some stability in the Iranian risk factor is expected," said James Ritterbusch,
president of the oil-trading advisory firm Ritterbusch & Associates, in a note.
Mr. Ritterbusch said that while price lows had largely been reached, "we
are also leaving open the chance of a significant price
selloff that could easily negate as much as 80%-90% of this month's price advance within a 2-3 week
time frame."
Gas Prices High
Prices higher than ever – worries of a second Arab spring will maintain them high
White 12 (Ronald, “Gasoline prices start the year at a high — and rising”, January 6th,
http://articles.latimes.com/2012/jan/06/business/la-fi-gas-prices-20120106)
Not only are we worrying about the end of the world in 2012 — thanks, Maya calendar makers — but this also may
be the year of
the gas-pocalypse, analysts warn. That's because gasoline prices are the highest ever for the start of the
year, and they're on the rise, supercharged by expensive oil and changes in refinery operations. In
California, the average price of a gallon of regular gasoline was $3.666 on Thursday, up 8.1 cents from a
week earlier and up 33.1 cents from a year earlier, which had been a record price for this time of year,
according to the AAA Fuel Gauge Report. Nationally, a gallon of regular was averaging $3.319, up 6.5 cents from a week earlier.
That topped 2011's record-setting start by 24.2 cents a gallon. It's the wrong way to kick off the new year, said Susan Sutter of Anaheim, who
has seen the price of a gallon of gasoline at her local Arco station rise 18 cents, to $3.49, in the last week. "I'm just appalled," said Sutter, 54,
who drives a Honda Civic sedan. Sutter's ire wasn't cooled by the fact that she was paying quite a bit less than the state average. "I just hate
these prices," she said. "Someone is lining their pockets, and it sure isn't me." Of course, current prices don't guarantee future prices, but
analysts are predicting that motorists will be digging deep this year to fuel their vehicles. "Average gasoline prices
are moving up
as we enter the new year, a trend that has held since 2008," said Patrick DeHaan, senior petroleum
analyst for GasBuddy.com, a website that tracks fuel prices. "We're starting 2012 about 20 cents per
gallon higher than 2011, setting up an ugly year for motorists." Energy Department statistics suggest that U.S. drivers
won't be getting any good news on prices soon. In 2010, the year of the smallest recent gap between start-of-year prices and that year's peak,
the rise was 14.5% nationally and 10% in California. That translated into a jump of 38.7 cents a gallon in the U.S.' average gasoline price and 30
cents in California's. The biggest recent start-to-peak increase came in 2009. Nationally, the average gasoline price started the year at $1.684 a
gallon and climbed 60% to $2.694, a jump of slightly more than a dollar. In California, the average price per gallon soared 75%, to $3.287 from
$1.874. And 2011 showed that when prices start out high, it doesn't take a huge percentage increase to add to consumer woes. Average prices
rose 29% nationally in 2011, a jump of 89.5 cents a gallon to the year's peak of $3.965. California prices also rose 29% last year, for a 95-cent
rise to the high of $4.257. The AAA Fuel Gauge Report mirrors the trend shown by the Energy Department's weekly telephone survey of service
stations. The averages reported by AAA are gathered daily by the Oil Price Information Service using credit card receipts from more than
100,000 outlets. This
year's gasoline prices could be significantly higher than in previous years, said Tom
Kloza, chief oil analyst for the Oil Price Information Service. "Somewhere between the Grammys and the Oscars, the
gasoline market and perhaps the crude market will trend considerably higher," Kloza wrote in his blog,
Speaking of Oil. Kloza cited three potential causes: "International worries about a second Arab Spring
will combine with domestic concerns about U.S. refinery maintenance and the closure of at least two
critical East Coast refineries" to push prices higher.
Transportation Infrastructure Oil Dependent
Current transportation policy is still dependent on oil – latest bill proves
Auriolio and Sargent, writers for Environment America, 11 [Anna Aurilio and Rob Sargent, 11/17/2011,
Environment America, “House Transportation Bill Would Deepen Our Oil Dependence,” http://www.environmentamerica.org/news/ame/house-transportationbill-would-deepen-our-oil-dependence]
Today, Speaker
of the House John Boehner (R-OH) announced plans to consider a surface transportation
reauthorization bill alongside Rep. John Mica (R-FL), Rep. Doc Hastings (R-WA), and Rep. Steve Stivers (R-OH). Their plan would include a
number of proposals to expand oil drilling, while doing nothing to make our transportation
infrastructure less dependent on oil.
John Cross, Federal Transportation Advocate with Environment America, issued the following
response:
“Now is the time for us to get off oil, but Speaker Boehner’s bill would only deepen our addiction. Our dependence on oil imposes
intolerable costs on our environment, our health, and our economy. We need a transformative transportation bill that invests in
the projects that move our nation away from oil and toward a brighter, healthier future—not a proposal that
tries to drill its way out of this quagmire.”
Tax structures would devastate oil production –
IPAA 12 – Independent Petroleum Association of America [IPAA, 2012, “American Transportation Infrastructure Fueled by Oil,”
http://oilindependents.org/american-transportation-infrastructure-fueled-by-oil/]
When President
Obama rolled out his plan for jobs in front of Congress this month, he emphasized the importance of
maintaining and improving our nation’s infrastructure: “Building a world-class transportation system is part of what made us an
economic superpower…There’s a bridge that needs repair between Ohio and Kentucky that’s on one of the busiest trucking routes in North America. A public transit
project in Houston that will help clear up one of the worst areas of traffic in the country.”
However, as
President Obama touts the importance of a viable transportation infrastructure, he threatens
to devastate the American oil and gas industry , which makes both the infrastructure and the
transportation possible. As he outlines his plan to create jobs, President Obama threatens to overhaul the historic
tax structure that encourages industry investment— the source of jobs for millions of Americans.
We heartily agree that a “world-class transportation system” and the mobility it brings is an essential piece of our nation’s economic greatness. But here’s what
President Obama missed: energy,
with petroleum in the lead, is the common denominator in our nation’s
transportation system. We need petroleum products and energy to create the asphalt and concrete
which builds our roads, bridges, and tunnels—unless of course we are content with the dirt roads of a bygone era. Most importantly,
according to the Energy Information Administration (EIA), transportation made up almost 28 percent
of our entire energy demand in 2010. Moreover, petroleum leads the way in making transportation
possible as it comprises an overwhelming 93 percent of the energy demanded for transportation.
Due to the energy harnessed by the Industrial Revolution and the buildup of roads after the introduction of the automobile, America’s highways have given us the
ability and freedom to move, trade, and connect across the vast United States. It is absolutely crucial that we maintain and improve this infrastructure that has
given our nation the mobility that is a mark of the freedom of movement so intrinsic to the American way of life. Our nation is not slowing down. By the EIA’s
Annual Energy Outlook (AEO) model, the
vehicle miles traveled in the United States are set to increase between 1.6
– 1.9 percent per year out through 2035. Depending on which vehicle class is analyzed, that’s a 44 – 50 percent growth
rate. We need petroleum to maintain this growth in mobility. We must not be slowed by policies that hamper the
development of petroleum. As the charts above clearly portray, petroleum makes up the lion’s share of transportation demand. Experts duly note this
demand is not going to radically change anytime soon. Based on projections by the EIA’s AEO, which assumes a static policy
scenario, petroleum demand will continue to increase by the year 2035, even while we further diversify the U.S. energy portfolio.
Fortunately, America’s
petroleum demand is far from yesterday’s supply challenge thanks to our nation’s
abundant source of oil reserves—and the American producers are ready to unlock them. In fact, according to the most recent
report by the National Petroleum Council (NPC), America’s oil resources are proving to be much larger
than previously thought. For example, due to increased technologies, oil producers can now access tight oil ,
which resides in the Bakken play for example, and have increased production to about 400,000 barrels per day just within the past three or four years.
Unlike the EIA’s AEO report, the NPC report takes policy changes into account. The report projects that depending on access to new plays and other factors, this
type of oil production is likely to grow to between 2 and 3 million barrels per day. The National Petroleum Council,
which is an official advisory committee to Energy Secretary Steven Chu, also emphasized the point that even with increased efficiency and cheaper alternatives,
“Americans will need natural gas and oil for much of their energy requirements for the foreseeable future.”
This week, Daniel
Yergin, chairman of IHS and renowned petroleum economist, released an article appropriately entitled
“There Will Be Oil,” in which he gives the technologic, geologic, and economic explanations of the world’s increasing oil reserves. In particular, he highlights
the unconventional oil found abundantly in the U.S. Now, due to more sophisticated technology, he
writes that “overall U.S. oil production has increased more than 10 percent since 2008. Net oil imports reached
a high point of 60 percent in 2005, but today, thanks [in part] to increased production, imports are down to 47 percent.”
Petroleum is the fuel of America—our consumers want it, our economy and infrastructure require it, and our companies have the technology to
supply it from home. It’s the fuel of the present, and now it’s proving to be the fuel of the future. But if President Obama overthrows the
historic tax structure to punish America’s oil producers, then Americans will be forced to purchase
more expensive imports from foreign nations who are often hostile to the United States’ free way of
life. However, if lawmakers enact policies that promote the industry investment necessary to unlock these plentiful oil reserves, then our nation can truly be on a
path to energy security and a viable infrastructure. Not to mention, it will actually achieve the goal of President Obama’s plan—
creating millions of sustainable, well-paying American jobs.
Transportation is the vital internal link – and domestic sources can’t fulfill demand
Blumenauer, Congressman, 10
Democrat Representative from Oregon [Earl, 6/21/2010, DC Streets Blog, “To Address Demand for Oil, We Must Focus on Transportation,”
http://dc.streetsblog.org/2010/06/21/to-address-demand-for-oil-we-must-focus-on-transportation/]
The truth is that we
are drilling 150 miles offshore and one mile below the earth’s surface because we have
run out of accessible oil. Most shocking is how small a difference this oil makes to our energy needs. The 3560,000 barrels spewing daily from the Gulf floor would be enough to power our nation’s cars for just four
minutes.
Whether from the Gulf of Mexico or Persian Gulf, we cannot meet our nation’s energy needs by drilling. We are at a precipice, and I
stand firmly with President Obama when it comes to Congress passing legislation that arms the nation with clean energy.
But frankly, we
communities.
need to do more on these issues, especially by addressing transportation and how we build in our
The transportation
sector accounts for almost three-quarters of U.S. oil consumption and one-third of
our carbon emissions. If we really want to break our dependence on oil and improve our global competitiveness, we must focus on the way people
commute and move goods.
Improving efficiency hugely reduces consumption
Department of Treasury 12 – Department of Treasury and Council of Economic Advisers [DoT, 3/23/2012, “A New Economic Analysis of
Infrastructure Investment with the Council of Economic Advisers,” http://www.treasury.gov/resource-center/economicpolicy/Documents/20120323InfrastructureReport.pdf]
A more efficient transportation infrastructure system will reduce our dependence on oil, saving families
time and money. Traffic congestion on our roads results in 1.9 billion gallons of gas wasted per year, and
costs drivers over $100 billion in wasted fuel and lost time. More efficient air traffic control systems would save
three billion gallons of jet fuel a year, translating into lower costs for consumers. Finally, new research indicates that Americans who
were able to live in “location efficient” housing were able to save $200 per month in lower costs,
including paying less at the pump, over the past decade.
Links
Generic Links
A shift away from oil causes a drop in prices
DeCiantis 8 (Devin, Masters candidate in Public Policy at Harvard’s JFK School of
Government, specializing in development economics and international trade, March,
http://www.freedom24.org/rationalpost/2008/03/25/speculations-on-a-25-oiltariff/)
In the mid-term, as
industries and generators begin to shift away from higher-cost imported oil, domestic oil
producers might begin building out untapped Arctic capacity and utilities might begin diversifying their energy portfolios into
lower-cost fossil fuels and alternative energy technologies. Together, these processes should cause a more
substantial decline in import volumes. In the long-run, a more fundamental shift away from a high-carbon, high-cost, oildependent economy is likely to unfold, at which point oil imports would begin to decline more precipitously as
demand for energy is almost completely replaced with lower-cost substitutes. This progression is an example of a typical
“adjustment lag”. b. The world price of oil? Again, in the very short-term we might expect a modest decline, partially offsetting the
cost of the tariff. Given that America is one of the world’s largest energy importers (importing roughly 2/3rds of its
annual consumption), it would still need to source oil externally or risk seizing up its industrial capacity. Thus, aggregate import demand would
remain relatively stable and prices would likely settle somewhere between $75 and $100. Over the mid-to-long-term, major OPEC suppliers
would have room to lower prices given their lower relative cost of production, while growing demand from China and India would partially
offset declining American demand. Finally, as
the U.S. begins to substitute away from oil as a key energy input in
the long-run, global aggregate demand for oil will inevitably decrease, assuming that emerging market demand
doesn’t continue to grow at its current pace in perpetuity. This will put considerable downward pressure on prices over
time as oil exporters adjust to a situation of extended excess supply-at least while total global oil reserves remain relatively plentiful.
The plan reduces oil demand – lowers prices
Stevenson 8 (Andy, Natural Resources Defense Council Switchboard: Natural Resource
Defense Council Blog, “What Does the American Consumer Say About the Fall in Oil
Prices? You're Welcome!”, August 27th,
http://switchboard.nrdc.org/blogs/astevenson/what_does_the_american_consume.ht
ml)
Oil prices hit an all-time high of $147/barrel in July. Up until this time, global oil supply had failed to keep up
with rising global demand, allowing speculators to push oil prices higher and higher without penalty. That was their thinking anyway,
before the American consumer spoiled the party. Now oil is at $113/barrel and the markets are still wondering
what happened. Since we are by far the largest buyer of oil in the global marketplace, it shouldn’t have
come as a complete surprise to energy traders that a change in our behavior could have a meaningful
impact on oil prices. Yet the fact that the US had reduced oil consumption by 860,000 barrels a day during the first half of this year did
not seem to get much attention from the markets. It didn’t actually matter much as global demand, lead by China, continued to grow at a pace
of 1.2mln barrels a day, leaving oil production in deficit. This all changed in July of course when new Saudi Arabian crude came on line and the
US’s hard won reduction in demand finally tipped the scale in favor of supply. In fact, as can be seen in the table below, without the US
consumers’ efforts to reduce oil consumption, the world would still be in a supply/demand imbalance. An imbalance that would have allowed
speculators to continue to push oil prices higher and higher. Moreover, as vehicle sales data continues to point out, a structural change in the
US vehicle fleet is taking place that should provide additional demand side reductions coming out of the US over the next several years. While it
might seem strange that the US has been the main driver of reduced oil demand over the past few months, it should be noted that the US
consumer is far more exposed to higher gas prices than consumers in other countries. As can be seen in the graph below, lower fuel taxes and a
weakening dollar have made higher oil prices far more painful at the pump for Americans than Europeans over the past several years. Indeed as
Americans, it should be rewarding to know that we as consumers can actually influence global oil prices directly
by changing our behavior. This demand-side response is far superior, for example, to the potential
supply side impacts of drilling, which would have no impact on prices for the next decade and then
only offer marginal relief thereafter. This ability of the US to influence oil prices from the demand side,
even with China showing little sign of slowing their demand for oil, must be remembered by those
scrambling to develop an effective policy response. The desire to open up unavailable OCS for drilling is a case in point on
how limited our supply side options actually are in practice. OCS drilling is being touted as a meaningful step to increase our national security
and reduce American’s pain at the pump. This rhetoric is in direct contrast to EIA’s analysis of the impacts of opening up OCS to more drilling. In
this analysis the EIA concluded that even at peak production, the additional 200,000 barrels of oil produced by additional OCS drilling would
have an “insignificant” impact on wellhead prices. This is a far cry from the claims of the “Drill here! Drill now! Pay less!”crowd. The only one
getting paid in their scenario is Exxon and the other large oil companies. In sum, with less than 2% of global supply we simply do not have the
energy resources needed to combat this problem effectively. What
is needed is to continue pressing for additional
demand side responses such as more aggressive government fuel-economy standards for cars, higher
mileage standards for heavy duty trucks and more government investment for public transportation. In addition to this,
efforts should be made to acknowledge that the most effective way to develop both demand and supply side responses is by establishing a cap
and trade policy that would put a price on carbon emissions. Not only would such
a program accelerate investment in new
technologies that would reduce our dependence on oil, it would help transform our economy into an exporter of energy
technology that would create jobs and reduce harmful greenhouse gas emissions. Let’s not settle for meaningless supply side gestures. We
have just proven demand side responses work, now its time to up the ante.
Energy efficient infrastructure investment reduces oil dependence
NRDC 4 (Natural Resources Defense Council, “Reducing America's Energy
Dependence”, July 2nd, http://www.nrdc.org/air/transportation/gasprices.asp#head3)
For years, OPEC kept prices within a band of $22 to $28 per barrel,23 enough to maximize profits without triggering serious reductions in
demand by oil consumers. But OPEC prices started going up in early December of 2003. OPEC's decision to tighten production then helped drive
up prices to today's $40 per barrel. This suggests that cartel leaders have decided that higher prices can be sustained without inducing oil
importing countries to start getting serious about reducing demand. But just as we did in the 1970s, America
can break OPEC's grip
on the oil market by using well-known technologies and policies. The most crucial step on the path to
independence is to raise the bar on energy efficiency of our cars, pickups, minivans and SUVs. These
passenger vehicles currently account for 40 percent of our petroleum consumption,24 and the
transportation sector as a whole is projected to account for a whopping 89 percent of the growth in
petroleum demand through 2020.25 Raising fuel economy performance to 40 mpg over the next 10 years alone could cut
passenger vehicle oil demand by about one-third or 4 million barrels per day by 2020. By 2015, increased fuel efficiency would
save 2 million barrels of oil each day (see Figure 5, below) -- about equal to current daily imports from Saudi Arabia and Kuwait
(see Table 1).
Transportation accounts for three-quarters of U.S. oil consumption
Blumenauer 10 (Earl, Congressmen, “To Address Demand for Oil, We Must Focus on
Transportation”, June 21st, http://dc.streetsblog.org/2010/06/21/to-address-demandfor-oil-we-must-focus-on-transportation/)
The transportation sector accounts for almost three-quarters of U.S. oil consumption and one-third of our
carbon emissions. If we really want to break our dependence on oil and improve our global competitiveness, we must
focus on the way people commute and move goods. Being truly aggressive about where and how we
build can save even more money and energy -- with the potential to cut carbon pollution 12-16 percent by 2030 and save more than a
million barrels of oil a day.
Plan drastically decreases oil consumption – increases public transportation options to
households with no prior access
Bailey 7 (Linda, ICF International, “Public Transportation and Petroleum Savings in the
U.S.: Reducing Dependence on Oil”, January,
http://www.apta.com/resources/reportsandpublications/Documents/apta_public_tr
ansportation_fuel_savings_final_010807.pdf)
This section explores the effects of a
dramatic expansion of public transportation service and usage across the U.S. Public
a significant opportunity for households in the U.S. to reduce their
petroleum consumption, and for the nation to reduce its dependence on petroleum as a fuel source.
However, that opportunity is limited by the lack of public transportation services in many areas of cities,
suburbs, and rural regions. The figure below shows the current distribution of households in terms of proximity to public
transportation currently provides
transportation (defined as within three quarters of a mile), within the larger area (defined as within 30 miles), and far from any public
transportation (beyond 30 miles). The NHTS 2001 showed that approximately 51
percent of households have access to public
transportation within ¾ mile of their home. The research team constructed a hypothetical extension
and improvement of public transportation services that would double public transportation use in an
undefined time frame from 2004 levels. We then examined the effect of this expansion on total service level and on residential access to public
transportation, focusing on the effects at the household level. Fuel savings from this expansion are hypothesized to parallel the fuel savings
currently, as presented above. Total national fuel savings depend on how new services are provided – whether through diesel, electricity, or
other fuel sources. Efficiency per railcar mile or vehicle mile would also depend on how consistently service provision matches up with
consumer demand. This is discussed in more detail below. Doubling Public Transportation Usage: A Profile of Expanded Services The research
team hypothesized an expansion of public transportation ridership to double its 2004 levels. This growth in ridership would fall into two
categories: the first would be an increase in frequency or capacity of service, and the second would be an expansion of high-quality public
transportation routes. The relative distribution of the two types of growth is 1/3 on improvements to existing routes, and 2/3 on new highquality public transportation service. This distribution was based on an assessment of the ridership growth patterns from 1999 through 2004,
from the National Transit Database. Ridership growth from expanded service on an existing line was found to account for a third of total
growth, and new route miles accounted for another two-thirds. The
ratio of ridership to new public transportation
routes is based directly on the ridership experience of recent extensions, both on high-quality bus
routes and rail-based public transportation. The extensions used are from a range of cities, including Los Angeles, Kansas City,
Portland, Minneapolis, Dallas, Denver, and Salt Lake City. Some were completed as late as 2005, while others have been operational since the
1990s. The ridership figures for each extension were taken for the year after operations began. This is a conservative ridership measure, since
ridership typically grows over time as services mature, and as stores, offices and homes are built near stations. Table 11, below, lists the
extensions researched for the analysis. We calculate that for this sample, for each directional mile of new route created, there are an average
of 274,475 unlinked trips per year. We assume that new routes hypothesized under this scenario achieve the same ridership on average, which
is a conservative measure; the better a route is laid out and coordinated with local land use, the higher the ridership. The public transportation
planners of the future are thus expected to do no better and no worse than their recent counterparts. The average of existing rail systems in
2004 is actually higher (315,991 unlinked trips per directional route mile, unweighted), but since this includes some very well-established rail
systems, using a new system average was considered a better prediction of future extensions. Because there were few high-quality bus line
extensions in our sample, we amalgamated all the extensions listed above to create an average number of unlinked trips relative to the size of
the extension. This may overstate the potential ridership of these new bus systems, depending on the level of quality in the new bus systems.
Of the two high-quality bus extensions in our sample, one was in the same range as the rail extensions (Los Angeles Orange Line), while the
other, in Kansas City, fell at the low end of the range. Next, we made the following calculations to distribute the ridership growth onto
improvements to existing routes and new routes. Calculations In this hypothetical public
transportation expansion plan, the goal is
to double ridership across the country. Ridership is defined as unlinked trips per year. In 2004, there were approximately 9.6
billion unlinked trips per year. One-third of the growth in ridership would occur on existing routes; this is discussed in more detail below. First,
we begin with the two-thirds of new ridership (6.4 billion unlinked trips) that would be taken on new routes. New routes would serve both
additional residences and additional offices, stores, and other destinations. For this analysis, however, we focus on how new services affect
residences. Based on the experiences of the sampled new routes, we find an average of 274,475 unlinked trips per new directional route mile.
We assume that 20 percent of the trips taken on the new route would actually be former public transportation users who are moving from
another route or service to the new one. This deficit in users of existing routes is accounted for below, in the growth in ridership on existing
routes. Dividing the number of new unlinked trips per year (6.4 billion) by the average new unlinked trips per directional route mile (274,475),
we find that the expansion would require 23,401 new directional route miles. We assume that directional route miles (e.g., one going north,
another going south) are generally paired. The total number of route miles would then be half the directional route miles, or 11,700 total route
miles. The area served by these new routes is calculated by multiplying the linear miles of route length by a 1.5-mile buffer, meaning that the
buffer extends three-quarters of a mile around each stop. Assuming that no stops would be more than 1.5 miles apart, this covers the entire
area around each station. The total area served would then be 17,550 square miles. Assuming that existing areas would overlap with the new
route areas to some extent – for example, when a rail line runs parallel to another for a portion of its route, or parallel to a bus line – the new
area served is calculated as a portion of the total service area of the new route. We assume that there would be a 25 percent overlap rate. This
reduces the total new area served by the new routes by 25 percent, to 13,163 square miles. The average residential density of the 452
urbanized areas in the U.S., as defined by the 2000 Census, was 1,073 dwelling units per square mile in 2000. This equates to approximately 2.4
dwelling units per buildable acre (30 percent of land is set aside for roads and other public space), or housing lots of approximately 18,200
square feet each. This is a fairly low density for an area served by public transportation, and so gives a conservative estimate of the number of
households served. Multiplying this density by the new area that would be served by the new routes, we find that an additional 14.1 million
households would have public transportation service within ¾ mile of their home with these extensions. The additional households served are
assumed to come mainly from areas that are somewhat close to public transportation currently (i.e., within 30 miles). By
adding these
services, we would see a new distribution of households close to public transportation, as shown in the
graph below. Our assumption about housing density near public transportation services was quite conservative here. The standard of
practice in public transportation planning, and Federal Transit Administration requirements, dictate
that land use plans in the areas served by public transportation be molded to provide more housing
units near stations, and more development in general around those stations. The standards of “transitoriented
development” are not set in stone, but building housing in a more efficient way near public transportation
stations could dramatically change the number of households with access to public transportation
under this scenario. Below, we show the new household distribution based on an assumption that housing near public transportation stations is
built at 65 percent higher density, or one house on each quarter acre. With this assumption of density, an additional 23 million households
would have public transportation available to them within three-quarters of a mile, or a total of 73 percent of households. This graph shows
that coordinating land use planning with this large and coordinated expansion of public transportation services would
dramatically
increase the number of households with public transportation service options. In addition to the availability of
public transportation to households as a place of origin, the expansion described here would also expand the number of
destinations that could be reached by public transportation, which would in turn increase the
likelihood that households currently within the three-quarter mile buffer could replace automobile trips with public
transportation regularly or when gas prices are at higher levels.
Transportation infrastructure displaces oil consumption – especially true in the context
of megaregions
Bailey 7 (Linda, ICF International, “Public Transportation and Petroleum Savings in the
U.S.: Reducing Dependence on Oil”, January,
http://www.apta.com/resources/reportsandpublications/Documents/apta_public_tr
ansportation_fuel_savings_final_010807.pdf)
*Note: Brackets added for grammar
The average price of gasoline in the U.S. was $2.73 per gallon for the year through September, including taxes (EIA, September 4, 2006). The
majority of Americans continue to have few choices but to pay at the pump to get where they need to go. According to the 2001 National
Household Transportation Survey (NHTS 2001), only half of all households [[that]]have access to public transportation.
Of those residents, not all have service that can deliver them to their destinations for work, school, shopping, and socializing. Of those who can,
many have seized the opportunity to save money on fuel consumption by taking public transportation.
Since 1995, public transportation ridership has gone up by 25 percent. In the first quarter of 2006,
public transportation use increased by 4 percent over 2005, with light rail ridership growing in double
digits (more than 11 percent). This trend was evident in regions with some of the country’s largest bus
systems – Los Angeles bus ridership grew by 8.8 percent, Detroit bus ridership rose by 18.7 percent, and
Houston and Seattle bus riders grew by 10.8 and 10.0 percent, respectively. Households have been doing the math – the
savings that households see when they use public transportation and live in the areas the systems support are significant, as discussed in this
report. Beyond the household level, the nation is collectively saving a significant amount of petroleum by using public transportation. Transit
riders rode over 46 billion miles in 2004, reducing fuel use for private automobile travel proportionately. Public
transportation
generally saves energy by carrying multiple passengers in each bus or rail car . In addition, public
transportation can displace travel-related energy demand from imported petroleum to other forms
of energy that are generated using domestic resources, such as coal, wind, hydropower, and nuclear
power.
Transportation infrastructure is seventy percent of our oil consumption
Bradley et al, Carnegie Endowment, 11 - researchers at the Carnegie Endowment for International Peace [Bill, Tom Ridge, David
Walker, July 2011, Carnegie Endowment for International Peace, “Road to Recovery: Transforming American Transportation,”
http://carnegieendowment.org/2011/07/11/road-to-recovery-transforming-america-s-transportation/3e1h]
Not only is there an enormous fiscal burden, but the system’s dependence on oil intensifies the problem. Oil
represents 94 percent of
transportation fuels and transportation is responsible for nearly 75 percent of U.S. oil consumption. In
2010, our national bill for oil dependence came to $323 billion—2.2 percent of GDP. This includes the importation of
foreign crude oil and petroleum byproducts, and the dollar amount equals 17 percent of all import costs. 5, 6 This dependence
comes with a national security risk: Some 4.75 million barrels per day (about 50 percent of total imports) were purchased from nine countries categorized by the
State Department as unstable.7
Public transit reduces demand for oil
Public Transportation.org 12 (publictransportation.org, Publictransportation.org is your one-stop shop for all things
public transportation; website was designed to be your online resource for information on the benefits and importance of transit, “FACTS
AT A GLANCE”, 2012, http://www.publictransportation.org/news/facts/Pages/default.aspx)
Facts at a Glance¶ From big cities, to small towns and everywhere in between public transportation is a vital resource to Americans, and a
cornerstone of the nation’s economy. Relying on transit for their daily mobility needs Americans use local public transportation systems
to get to and from work, or school, the doctor’s office, shopping, or visiting with family and friends; providing a vital link between
residents and their communities.
Public transportation reduces the nation’s dependence on foreign oil .
It saves gas, and reduces congestion, all while helping reduce our carbon footprint. ¶ Quick Facts¶ In 2011, Americans took 10.2
billion trips on public transportation.¶ 35 million times each weekday, people board public transportation.¶ Public transportation is a
$54 billion industry that employs more than 400,000 people. ¶ More than 7,700 organizations provide public transportation in the United
States.¶ Public Transportation Provides Economic Opportunities and Jobs¶ Every $1 invested in public transportation generates
approximately $4 in economic returns.¶ Every $1 billion invested in public transportation creates or supports 36,000 jobs.¶ Every $10
million in capital investment in public transportation yields $30 million in increased business sales. ¶ Every $10 million in operating
investment yields $32 million in increased business sales. ¶ Public transportation not only gets people to work it puts people to work. ¶
Public Transportation Enhances Personal Opportunities¶ Public transportation provides personal mobility and freedom for people from
every walk of life.¶ Access to public transportation gives people transportation options to get to work, go to school, visit friends, or go to a
doctor’s office.¶ Public transportation provides access to job opportunities for millions of Americans. ¶ 83% of older Americans
acknowledge public transit provides easy access to things they need in everyday life.¶ Public transit is a vital link for the more than 51
million Americans with disabilities.¶ Public Transportation
Saves Fuel, Reduces Congestion¶ Access to bus and rail lines
reduces driving by 4,400 miles per household annually.¶ Americans living in areas served by public
transportation save 785 million hours in travel time and 640 million gallons of fuel annually in
congestion reduction alone.¶ Without public transportation, congestion costs would have been an additional $19 billion.¶
Public Transportation Saves Money¶ Public transportation provides an affordable, and for many, necessary, alternative to driving. ¶
Households that take public transportation, and live with one fewer car can save more than $9,900 per year.¶ Public
Transportation Reduces Gasoline Consumption¶ Public transportation’s overall effects save
the United States 4.2 billion gallons of gasoline annually¶ Households near public transit drive an average of
4,400 fewer miles than households with no access to public transit. This equates to an individual household
reduction of 223 gallons per year.¶ Public Transportation Reduces Carbon Footprint¶ Communities that invest in public
transit reduce the nation’s carbon emissions by 37 million metric tons annually.¶ One person switching to public transit can reduce daily
carbon emissions by 20 pounds, or more than 4,800 pounds in a year. ¶ A single commuter switching his or her commute to public
transportation can reduce a household’s carbon emissions by 10% and up to 30% if he or she eliminates a second car. When compared to
other household actions that limit CO2, taking public transportation can be 10 times greater in reducing this harmful greenhouse gas.
Public transit radically reduces U.S. oil consumption
APTA 10 (American Public Transportation Association, APTA is the leading force in advancing public transportation. APTA
members are public organizations that are engaged in the areas of bus, paratransit, light rail, commuter rail, subways, waterborne
passenger services, and high-speed rail , “Public Transportation: Moving America Forward”, 2010,
http://www.apta.com/resources/reportsandpublications/Documents/APTABrochure_v28%20FINAL.pdf)
With public support for expanded public transportation¶ services, the public transit
industry will be able to make¶ an even larger contribution to helping our nation become¶
energy independent.¶ This “leverage effect” of public transportation, supporting¶ efficient land use patterns, saves 4.2 billion gallons of
¶
gasoline¶ annually—more than three times the amount of gasoline¶ refined from the oil we
import from Kuwait .10,11¶ People living in households within one-quarter mile of rail and¶ one-tenth of a mile from a bus
stop drive 4,400 fewer miles¶ annually than persons in households with no access to public¶
transit.12¶ Energy conservation is a national priority. More and more people¶ are discovering that public transportation can offer significant¶ energy savings. As an inherently energy-efficient travel¶ mode
that uses an average of one-half the oil consumed by¶ the typical automobile user , public transportation is
already¶ leading the way. Just by taking public transportation, people¶ can help reduce our country’s dependence on foreign oil.¶
Benefits of Public Transportation:¶ Reduces Dependence on Foreign Oil¶ Benefits of Public Transportation:¶ Cuts Air Pollution and Carbon Emissions¶ Public transportation in the
U.S. saves:10¶ 4.2 billion gallons of gasoline, representing¶ 11.5 million gallons of gasoline
per day.¶ The equivalent of 102 supertankers of oil, or a¶ supertanker leaving the Middle East
every 4 days.¶ The equivalent of 420,000 fewer service station¶ tanker trucks clogging our
streets each year.¶ The equivalent of 900,000 fewer automobile fill-ups¶ each day.
Perception Link Magnifiers
Oil prices are perception based—the plan triggers a massive sell-off.
Shiller 4 – Robert Shiller, 11/8/2004. Prof. Econ @ Yale. “The perception of declining prices triggers a massive sell-off and price collapse,” The Edge
(Malaysia), Lexis.
But what
matters for oil prices now and in the foreseeable future is the perception of the story, not the ambiguities behind it. If
there is a perception that prices will be higher in the future, then prices will tend to be higher today. That is
how markets work. If it is generally thought that oil prices will be higher in the future, owners of oil reserves will tend to postpone costly investments in exploration
and expansion of production capacity, and they may pump oil at below capacity. They would rather sell their oil and invest later, when prices are higher, so they
restrain increases in supply. Expectations
become self-fulfilling, oil prices rise and a speculative bubble is born.
But if owners of oil reserves think that prices will fall in the long run, they gain an incentive to explore for oil
and expand production now in order to sell as much oil as possible before the fall. The resulting supply
surge drives down prices, reinforces expectations of further declines, and produces the inverse of a speculative
bubble: a collapse in prices.
Herd mentality means the link snowballs
Globe and Mail 7 – The Globe and Mail (Canada), 10/12/2007. “Speculating on the future of those pesky oil and gas speculators,” Lexis.
Probably not. Oil
analysts vary widely on this subject, but a sample of respected ones says the speculative
premium in crude adds between $20 and $35 a barrel. What if these investment funds - and they're not all hedge funds
- decide they want to short the market? Since they tend to move in a herd fashion, that would mean a big drop in oil prices.
Perceptions are the drivers of prices – proven by the squo
Termeer, citing OPEC, 12 – independent analyst [Chris, 4/18/2012, “Market perception drives crude oil prices up,”
http://christermeer.com/market-perception-drives-crude-oil-prices-up/]
OPEC’s latest monthly report suggest that the
supposed oil shortage is merely a market perception, and that actual oil
supply is enough to sustain demand.
According to OPEC, crude oil prices for March 2012 were about 4.7 percent above February 2012 prices.
OPEC added that this “was supported by supply glitches in the North Sea and East Africa, improving
economic data from the U.S. and China, and persistent geopolitical factors which were further amplified by speculative
activities”.
OPEC said that the current supply of crude oil is greater compared with last year’s supply. It also projected that oil
demand within the oil cartel alone may reach an average of 30M BDP – exactly the same figure reported by OPEC in its latest report.
Meanwhile, the
oil cartel predicts that demand for crude oil will relax a bit, prompting them to adjust its
forecast lower by 900,000 barrels a day. The foreseen slack in demand supports OPEC’s observation that the oil
market supply is very stable. However, if low demand continues to prevail, oil firms may be forced to
think twice before further investing in oil exploration and drilling ventures.
Oil prices, on the other hand, had been far from stable with the mounting pressure on Iran; the country has had growing sanctions on its energy and financial
sectors, and has reacted to these in a somewhat hostile manner. This in turn led the International Energy Agency to report a conceivable cut in Iranian oil supply by
approximately 1 million barrels a day.
OPEC further stressed that geopolitics is the main reason for the prevailing steep oil prices.
notion of an oil shortage and not actual market forces.
What keeps it up really is the market’s
Speculators drive prices – proven by the latest fluctuations
Phillips 6/4 – Writer for BusinessWeek [Matthew, 6/4/2012, BusinessWeek, “Falling Oil Prices Are No Mystery,”
http://www.businessweek.com/articles/2012-06-04/falling-oil-prices-are-no-mystery]
The price
declines have coincided with a steep selloff in oil futures contracts over the last two months.
Speculators cut their net-long positions—bets that the price will rise—to the equivalent of 136 million
barrels of oil, the lowest level since September 2010, according to the Commodity Futures Trading Commission. This follows
a huge speculative buying binge. Oil prices spiked from October through March—a six-month bull run fueled
by speculative worry over an Iranian supply disruption.
Alternative Energy Link
Alternative energies result in lower oil prices
Kole 7 (William, “Despite rising prices, OPEC appears to be in no rush to raise its
output targets,” September 8th,
http://www.nwitimes.com/business/local/article_65239e6b-bf00-5602-b6a4036eb072ef56.html
If you remember what happened in the 1970's (look it up if you don't) you will find the biggest fear OPEC has.
It is that oil prices will go up and stay high long enough to fuel investment into conservation and
alternative energy sources to the point that a critical mass is reached and the need for their oil is
greatly diminished or replaced by other energy sources they don't control. That's exactly what started
happening in the 1970's and it took OPEC opening up the tap to make oil cheap again over a decade to
reverse the trends. The result was that interest in conservation and alternative energy waned and investments dried up in the face of
cheap oil again. We are once again nearing that point and you can expect to see OPEC flood the market again if they
see us getting serious with conservation and alternative energy sources that compete with, or worse yet,
actually replace demand for their oil. OPEC walks the fine line between price and demand and wants to keep us hooked up to their
oil like a bunch of junkies on drugs while making as much money as possible.
Air Traffic Control Link
Air traffic management saves 50,000 barrels per day
NRDC 4 (Natural Resources Defense Council, “Reducing America's Energy
Dependence”, July 2nd, http://www.nrdc.org/air/transportation/gasprices.asp#head3)
For years, OPEC kept prices within a band of $22 to $28 per barrel,23 enough to maximize profits without triggering serious reductions in
demand by oil consumers. But OPEC prices started going up in early December of 2003. OPEC's decision to tighten production then helped drive
up prices to today's $40 per barrel. This suggests that cartel leaders have decided that higher prices can be sustained without inducing oil
importing countries to start getting serious about reducing demand. But just as we did in the 1970s, America
can break OPEC's grip
on the oil market by using well-known technologies and policies. The most crucial step on the path to
independence is to raise the bar on energy efficiency of our cars, pickups, minivans and SUVs. These
passenger vehicles currently account for 40 percent of our petroleum consumption,24 and the
transportation sector as a whole is projected to account for a whopping 89 percent of the growth in
petroleum demand through 2020.25 Raising fuel economy performance to 40 mpg over the next 10 years alone could cut
passenger vehicle oil demand by about one-third or 4 million barrels per day by 2020. By 2015, increased fuel efficiency would
save 2 million barrels of oil each day (see Figure 5, below) -- about equal to current daily imports from Saudi Arabia and Kuwait
(see Table 1). This goal is achievable using technology already on the road today, including new, more powerful hybrid versions of Ford, Toyota
and Lexus SUVs hitting showrooms later this year, as well as simple improvements in conventional drive train design. Other measures include:
Mass-producing gasoline-electric hybrid vehicles, which get double the mileage of today's cars. Toyota and Honda already have hybrids on the
road, and more are coming. Lawmakers should provide consumer tax credits to support the transition to this new technology. Expanding use of
renewable, non-petroleum fuels, such as ethanol made from crop wastes, by steadily increasing requirements for "renewable content" in
gasoline. A renewable fuels standard ramping up to 5 billion gallons per year would save 175,000 barrels of oil per day by 2013.26 Encouraging
"smart growth" instead of suburban sprawl to increase our transportation choices, reduce the need to drive and enhance our quality of life.
Ensuring that replacement tires are as fuel efficient as original vehicle tires. This alone could save 270,000 barrels oil per day.27 Keeping tires
properly inflated. If motorists kept their tires properly inflated, total savings in 2013 could be as much as 200,000 barrels of oil per day.28 This
would have the added benefits of longer tire life and improved safety. Using fuel-efficient engine oil. Selecting the proper grade of motor oil
and using motor oils with additives that reduce friction may increase a vehicle's fuel economy by 1 percent to 2 percent.29 Widespread use of
efficient motor oils could reduce fleet-wide gasoline consumption by 1 percent in 2013, saving 100,000 barrels per day.30 In addition to
passenger vehicles, we can reduce our dangerous dependence on oil through a wide variety of measures to increase the efficiency of heavyduty vehicles, buildings and industry. There
are simple measures that together could produce additional oil
savings in these sectors. Specifically, NRDC recommends that the United States: Reduce heavy duty truck idling.
Reducing truck idling at overnight truck stops by providing electrical hookups or fitting trucks with fuel cell auxiliary power units could save
50,000 barrels of oil per day.31 Weatherize homes that use home heating oil. Oil-heated homes are generally older and are often not well
insulated. One study found that weatherization of houses heated by fuel oil produced average net savings of 18 percent. If all oil-heated homes
achieved this level of savings by 2013, total oil savings would be about 80,000 barrels per day.32 Reduce oil use in industry. Improvements to
industrial processes could produce substantial oil savings. For example, greater use of gasification technology would allow industry to produce
more useful products and fuels from the "bottom of the barrel," i.e. residual oil and petroleum coke. Increased recycling of plastics would also
Improve air traffic management . New communications, navigation and air traffic
management procedures and technologies can rationalize air traffic and reduce time wasted waiting
for take-off and landing slots.33 A study by DOE labs estimated that these air traffic management
improvements could save the equivalent of 50,000 barrels per day in 2013.34
reduce oil use.
Backstopping Link
The plan lowers the expected future demand for oil—this causes an immediate
decline in the price and an increase in consumption
Feldstein, ‘8 - Martin Feldstein, 7/1/2008. Chairman of the Council of Economic Advisers under President Reagan, is a professor at Harvard and a member of
The Wall Street Journal's board of contributors. “We Can Lower Oil Prices Now,” The Wall Street Journal,
http://online.wsj.com/article/SB121486800837317581.html?mod=opinion_main_commentaries.
Unlike perishable agricultural products, oil can be stored in the ground. So when
will an owner of oil reduce production or increase
inventories instead of selling his oil and converting the proceeds into investible cash? A simplified answer is
that he will keep the oil in the ground if its price is expected to rise faster than the interest rate that could be
earned on the money obtained from selling the oil. The actual price of oil may rise faster or slower than is expected, but the
decision to sell (or hold) the oil depends on the expected price rise. There are of course considerations of risk, and of the
impact of price changes on long-term consumer behavior, that complicate the oil owner's decision – and therefore the behavior of prices. The Organization of
Petroleum Exporting Countries (the OPEC cartel), with its strong pricing power, still plays a role. But the
fundamental insight is that owners
of oil will adjust their production and inventories until the price of oil is expected to rise at the rate of
interest, appropriately adjusted for risk. If the price of oil is expected to rise faster, they'll keep the oil in
the ground. In contrast, if the price of oil is not expected to rise as fast as the rate of interest, the owners
will extract more and invest the proceeds. The relationship between future and current oil prices implies that an expected change
in the future price of oil will have an immediate impact on the current price of oil. Thus, when oil producers concluded that
the demand for oil in China and some other countries will grow more rapidly in future years than they had previously expected, they inferred that the
future price of oil would be higher than they had previously believed. They responded by reducing supply and raising the spot
price enough to bring the expected price rise back to its initial rate. Hence, with no change in the current demand for oil, the
expectation of a greater future demand and a higher future price caused the current price to rise. Similarly,
credible reports about the future decline of oil production in Russia and in Mexico implied a higher future global price of oil – and that also required an
increase in the current oil price to maintain the initial expected rate of increase in the price of oil. Once this relation is understood, it
is easy to see
how news stories, rumors and industry reports can cause substantial fluctuations in current prices – all
without anything happening to current demand or supply. Of course, a rise in the spot price of oil triggered by a
change in expectations about future prices will cause a decline in the current quantity of oil that consumers
demand. If current supply and demand were initially in balance, the OPEC countries and other oil producers would respond by reducing sales to bring
supply into line with the temporary reduction in demand. A rise in the expected future demand for oil thus causes a current
decline in the amount of oil being supplied. This is what happened as the Saudis and others cut supply in 2007. Now here is the good news.
Any policy that causes the expected future oil price to fall can cause the current price to fall, or to rise less
than it would otherwise do. In other words, it
is possible to bring down today's price of oil with policies that will have their
physical impact on oil demand or supply only in the future. For example, increases in government subsidies to
develop technology that will make future cars more efficient, or tighter standards that gradually
improve the gas mileage of the stock of cars, would lower the future demand for oil and therefore the price
of oil today. Similarly, increasing the expected future supply of oil would also reduce today's price. That fall in
the current price would induce an immediate rise in oil consumption that would be matched by an increase
in supply from the OPEC producers and others with some current excess capacity or available
inventories. Any steps that can be taken now to increase the future supply of oil, or reduce the future
demand for oil in the U.S. or elsewhere, can therefore lead both to lower prices and increased consumption
today.
As oil and related energy prices soared to record highs over the past two years, interest in alternative fuels soared, too. Hybrid cars have appeared seemingly
We need to remember, however,
that all this action has one cause—high oil prices—and progress could grind to a halt if those prices fall again.
overnight, and proposals for solar, wind and other renewable technologies are being made everywhere.
It might seem ridiculous to worry about such a thing; don’t we all want to spend less on oil? And isn’t hoping for that just whistling in the dark? Not
necessarily. At present, it
is virtually axiomatic in the popular press that growth in demand from the U.S., China,
India and elsewhere will keep oil prices high forevermore. But this common wisdom ignores the possibility of recession, or even
depression, reducing demand growth to near zero, just as new drilling (mostly overseas) increases supply. Recession is already upon the U.S., and China’s
economy is slowing rapidly. As Wall Street collapsed in October, oil
prices dropped to around $70 a barrel. Saudi Arabia’s stated
goal of maintaining a price floor of $80 a barrel or higher suddenly seemed optimistic. So what is the problem? In the
short run, nothing. But sustained development of new energy sources always rests on the condition of the old ones. Coal did not arise as Europe’s main energy
source until Europeans had cut down virtually all their forests for fuel, and the later switch to oil did not occur until the scarcity of coal drove its price high. In
the 1970s Americans responded to high oil prices with alternative energy projects and more fuel-efficient cars. But when prices dropped in the 1980s, we
threw caution to the wind—along with the energy projects. We purchased ever larger cars and SUVs and moved to ever more distant suburbs. Sure enough,
now that oil prices have spiked again, we are looking at the same alternatives we had relegated to niche markets then. Today renewable technologies such as
wind and solar are close to being competitive with fossil fuels. But we can say good-bye to that prospect if oil prices decline to $60 to $70 a barrel, which could
easily happen in a recession, as we witnessed in October. Two years of lower prices can turn hybrid cars into a bad financial proposition for consumers, and
green technology start-up companies could go bankrupt as demand for their goods dries up. Even a temporary decrease in petroleum prices would undermine
the long-term development of the alternatives we all know we need. Happily, there is a solution. If investors could rely on a certain lower limit to oil prices,
they would have a fixed goal to work toward for making alternatives cost-effective. Knowing the goal removes a large element of risk for entrepreneurs and
their financiers, providing a huge incentive to continue development. A lower limit is easy to accomplish: the federal government has to impose a variable levy
on oil to guarantee a floor price. Revenues from that tax could help fund research into alternative energy and offset adverse consequences for lower--income
people, who would be hardest hit by the sustained high expense of oil. Higher taxes? Unthinkable! That sentiment certainly rules in the current political
climate. But one thing is certain: the federal government is already running a deficit on the order of $400 billion for this year, and many more billions are
promised to save Wall Street; that money will have to come from somewhere. Why not a tax that benefits both the environment and the economy?
Biofuels Link
Biofuels reduce oil dependency
Sandalow 7 (David, Energy and Environment Scholar at The Brookings Institution. He is
writing a book on oil dependence, “Ending Oil Dependence”, January 22 nd,
http://www.brookings.edu/views/papers/fellows/sandalow20070122.pdf)
Over the next several decades, biofuels
have the potential to replace a significant fraction of the United States’
oil use. Estimates range from 25 to 100 billion gallons per year by 2025 (roughly 20%-70% of 2005
consumption).25 Ethanol imported from the Caribbean, Latin America or Brazil could add to these totals. In 2006, the U.S. industry
produced roughly 5 billion gallons of ethanol – more than 3% of U.S. liquid fuels.26 Almost all ethanol in the U.S. is blended into gasoline. A
small but growing number of U.S. gas stations are selling E85, a fuel made up of 85% ethanol and 15% gasoline. The U.S. ethanol industry is
growing rapidly, with double digit growth rates and at least 73 plants under construction. (At a recent conference, former CIA Director Jim
Woolsey quipped that “You can’t stand on a street corner in the Silicon Valley today without some venture capitalist throwing money at you for
an ethanol plant.”) When plants currently under construction are complete – projected for 2008-2009 -- total capacity of the U.S. industry will
exceed 11 billion gallons per year.27 Many
experts think 15 billion gallons per year is the capacity for corn-based
ethanol production in the U.S. Almost all ethanol in the United States today is made with corn. Last year, 20% of the corn crop was
used for ethanol production – a percentage expected to grow in the next few years. Beyond this, there are two sources. The first is ethanol
from cellulosic sources, such as switchgrass, farm waste such as corn stalks, and fast-growing trees. There is tremendous interest in cellulosic
ethanol among politicians and the investment community. However, the cost of making ethanol from cellulose remains high and, at present,
there are no commercial plants producing ethanol from cellulose in the United States. The other potential source is sugar. Brazil currently
makes ethanol from sugar and there is considerable potential for Caribbean and Central American nations to do the same. In 2005, imports
from Brazil and the Caribbean totaled 212 million gallons. Fuel blenders currently receive a 51 cent exemption from the federal excise tax for
every gallon of ethanol purchased. This credit is set to expire in 2010. Imported ethanol is subject to a 54 cent per gallon tariff, intended to
prevent foreign producers from benefiting from the excise tax exemption. The tariff expires in 2007.
Busing Link
Busing reduces foreign oil consumption
Addison 12 (John Addison, publishes the Clean Fleet Report, speaks and participates in cleantech and transportation conference
panels; for five years he has researched and written about electric vehicles and the smart grid / renewable energy infrastructure that
ideal supports them, “Record Public Transit Ridership Reduces U.S. Oil Dependency”, March 14, 2012,
http://www.cleantechblog.com/2012/03/record-public-transit-ridership-reduces-u-s-oil-dependency.html)
The United States is reducing its dependency on oil as we now consuming 18.3 million barrels a day, down from our peak of 21 million
barrels a few years ago. Record use of public transit is a major factor – less solo driving in gridlock and we use less oil.
Other major factors, of course, include high gasoline prices and more fuel-efficient cars. Since 96 percent of our transportation is from oil
refined into gasoline, diesel, and jet fuel, we will take all the help we can get. ¶ According to a report released today by the American
Public Transportation Association (APTA), Americans
took 10.4 billion trips on public transportation in
2011, the second highest annual ridership since 1957. Only ridership in 2008, when gas rose to more than $4 a
gallon, surpassed last year’s ridership. With an increase of 2.3 percent over the 2010 ridership, this was the sixth year in a row that more
than 10 billion trips were taken on public transportation systems nationwide. During 2011, vehicle
miles of travel (VMTs)
declined by 1.2 percent.¶ A number of U.S. regions demonstrated leadership in improving bus and rail systems, often doing
more with less. The best systems use rail as the backbone of the system integrated with more cost-effective bus.¶ Light rail systems that
showed major increases in 2011 include these regions: Seattle, WA up 37.2%, Dallas, TX up 31.2%; Buffalo, NY up 15.6; North San Diego
County up 14.8%; Salt Lake City, UT up 14.4%. These rail systems use local electricity, not foreign oil.¶ Cities with
highest transit ridership use heavy rail (subways and elevated trains) to move millions. Heavy rail systems 2011 ridership growth was
greatest in Cleveland, OH (12.3%), San Juan, PR (12%), Baltimore, MD (8.7%), Boston, MA (7.2%), San Francisco, CA (5.6%), Chicago, IL
(5%), Miami, FL (4.9%), New York, NY (4.9%), and Philadelphia, PA (4.7%). ¶ Buses, including
bus rapid transit, are
the heart of getting riders to their final destination. Cleaning the air and improving U.S. energy
independence, most new buses are hybrid or run on natural gas. Bus systems with largest 2011 growth include Columbus, OH
(10.1%), Saint Louis, MO (10%), Orlando, FL (8.4%), Miami, FL (8.3%), Washington, DC (7.1%), San Diego, CA (6.8%), San Antonio, TX
(6.3%), Arlington Heights, IL (4.6%), Minneapolis, MN (4.3%), and Baltimore, MD (3.9%). ¶ “U.S. public transportation ridership in 2011
is now the second highest ridership since 1957,” said APTA President and CEO Michael Melaniphy. “What is exciting is that the uptick in
ridership occurred in large, medium and small communities, showing the broad support that public transportation has nationwide. In
fact, the largest rate of growth was in rural communities with populations under 100,000 where public transit use increased by 5.4
percent.”¶ “Two top reasons for the increased ridership are higher gas prices and in certain areas, a recovering economy with more
people returning to work,” said Melaniphy. “Since nearly sixty percent of trips taken on public transportation are for work commutes, it’s
not surprising to see ridership increase in areas where the economy has improved.” ¶ Transit also helps car drivers by relieving gridlock.
Transit helps reduce the burden on taxpayers to widen highways and expressways. Most tax-payer transportation funds go to widen
highways. Transit is funded by federal, state, local, and rider fares.¶ It is an election year. Congressional Republicans tried and failed to
only continue funding transit only if states were forced to approve offshore drilling everywhere and approve eminent domain for the XL
pipeline. That effort failed, but transit is still threatened with budget cuts and regional shutdowns. “There should be no doubt Americans
need and want public transportation,” said Melaniphy. “Congress needs to pass a well funded, multimodal, multi-year transportation bill
that will help meet current and growing demand.Ӧ Fortunately, Americans act smart, even when Congress acts dumb. Millions look at
smart apps like Google Maps and compare driving with transit. In a given week, more people intelligently mix transit, driving solo,
driving with others, and some healthy walking. More smarts, less oil.
Conventional Efficiency Technology Link
Technologies reduce oil demand
Sandalow 7 (David, Energy and Environment Scholar at The Brookings Institution. He is
writing a book on oil dependence, “Ending Oil Dependence”, January 22 nd,
http://www.brookings.edu/views/papers/fellows/sandalow20070122.pdf)
Many existing technologies can improve fuel efficiency. Most important is the “conventional” hybrid
engine. The fact that hybrid engines can now be considered “conventional” reflects the technology’s remarkable success in the past few
years. The first hybrid engines were introduced into the U.S. market several years ago amidst some
skepticism they would find a market. Since then consumers have regularly sought more hybrids than
are available on the market, and the technology is rapidly moving into new models. Analysts at Alliance
Bernstein state that: “The world is on the cusp of a major transition to hybrid-power vehicles…This is a gamechanging technology that promises to increase energy efficiency substantially, make a broad range of
fuels available for powering vehicles, and meaningfully reduce demand for oil from the
transportation sector.” 28 These analysts see a long-term decline in global oil demand as a result of the
rapid penetration of conventional hybrid engines (noting that the advent of plug-in hybrids would accelerate this trend).
Beyond hybrid engines, there are many existing or emerging technologies that can substantially reduce fuel consumption without sacrificing
performance, safety or comfort. The National Academy of Sciences released a comprehensive assessment of these technologies in 2002,
concluding that “Technologies
exist that, if applied to passenger cars and light-duty trucks, would significantly reduce fuel
consumption within 15 years. Auto manufacturers are already offering or introducing many of these technologies in other markets
(Europe and Japan, for example)...” 29 According to the National Academies, options include low-friction lubricants (estimated savings of 1%),
variable valve timing (2-3%), cylinder deactivation (3-6%), five-speed automatic transmissions (2-3%), continuously variable transmissions (48%), and many more.30 Based on this data, the Union of Concerned Scientists found that raising the average fuel economy of new passenger
cars and light trucks from today’s level of 24 miles per gallon to 37 miles per gallon within 10 to 15 years would be technically feasible and cost
effective for the consumer with gasoline at $2.50 a gallon.
Hybrids Link
Hybrids reduce dependence by 40% by 2025
Sandalow 7 (David, Energy and Environment Scholar at The Brookings Institution. He is
writing a book on oil dependence, “Ending Oil Dependence”, January 22nd,
http://www.brookings.edu/views/papers/fellows/sandalow20070122.pdf)
To reduce oil dependence, nothing would do more good more quickly than making cars that could
connect to the electric grid. The United States has a vast infrastructure for generating electric power. However, that infrastructure is
essentially useless in trying to cut oil dependence, because modern cars can't connect to it. If we could build cars that ran on
electricity and plugged into the grid, the potential for displacing oil would be enormous. Fortunately, we
can. Several small companies are already doing this, with a first generation of “plug-in hybrid” engines designed to run both on gasoline and
electricity from the grid.19 General Motors recently announced plans to produce light duty plug-ins. Historically, electric cars have been limited
by several factors, including a short driving range (think golf carts), battery weight and cost. The driving range problem is solved by hybrid
engines, which draw energy first from the battery packs and then from the gas tank when batteries are
depleted. The weight problem is being addressed with new kinds of batteries made with nickel or lithium. Upfront costs are still high –
roughly $5,000-$6,000 more than a standard internal combustion engine – but well within range of commercial acceptability. (Conventional
hybrids cost $2,000-$3,000 more than a standard internal combustion engine and have demonstrated strong consumer appeal.) Purchase costs
are expected to drop sharply once plug-in hybrid electric vehicles (PHEVs) are in mass production.20 The potential benefits are enormous.
Electric utilities typically have substantial unused capacity each night, when electricity demand is low. Furthermore, utilities maintain reserve
generating capacity – known as “peaking power” – for days of unusually high demand. This unused and excess capacity could provide an
important cushion for vehicles in case of a sudden disruption in oil supplies or steep rise in oil prices. Furthermore, driving on electricity is
cheap. Even a first-generation plug-in hybrid car would travel about 3-4 miles per KwH -- equivalent to about 75 cents per gallon.21 Plug-in
hybrids would dramatically cut local air pollutants and would even be better from a global warming standpoint than a standard internal
combustion engine. True, the energy to recharge a plug-in vehicle needs to come from somewhere, and in much of the United States that
somewhere would be a coal-fired power plant. However, the thermal efficiency of even an old-fashioned pulverized coal plant is roughly 3334%, while the thermal efficiency of an internal combustion engine is roughly 20%.22 In terms of heat-trapping gases emitted, plugging a car
directly into a coal plant is better than running it on oil in an internal combustion engine. Plugging a car into the average U.S. grid (50% coal) -or, better yet, the much cleaner grids of some states such as California – would generate substantial greenhouse gas savings. How
much
oil could plug-in hybrids displace how quickly? A lot – although the data available on U.S. driving habits only allows a rough
estimate. According to the Department of Transportation, 40% of Americans travel 20 miles or less per
day and 60% of Americans travel 30 miles or less each day.23 Table 1 below sets forth one possible scenario, in which
plug-ins hybrids replace one-third of the oil in U.S. light duty vehicles by 2025. This assumes strong policies
supporting early deployment of plug-ins and steady penetration in the vehicle fleet thereafter.
HSR Link
HSR solves dependence – largest internal link to US consumption
USHSRA 12 - US High Speed Rail Association [USHSRA, 2012, “Energy Security: Rail – The Solution to Rising Gas Prices,”
http://www.ushsr.com/benefits/energysecurity.html, DS]
A national high speed rail system ends our oil dependency quickly & permanently
Building an electrically-powered national high speed rail network across America is the single most
powerful thing we can do to get the nation off oil and into a secure, sustainable form of mobility. A
national network of high speed trains can be powered by a combination of renewable energy sources
including wind, solar, geothermal, and ocean/tidal energy.
America's dependency on oil is the most severe in the world, and inevitably pulls us into costly resource wars. It also pushes us into exploring for oil in extreme
locations such as 10,000 feet deep below the Gulf of Mexico. We use 25% of the entire world's oil supply, yet we only have 5% of the world's population. We use 810 times more oil per person per day than Europeans, and they have faster, easier and better mobility than we do. The extremely high daily oil consumption of
Americans is not due to a higher standard of living, but because of the extremely inefficient nature of our national transportation system – based on individual
vehicles powered by internal combustion engines, combined with our sprawling community designs that force people into cars for every trip.
As the world oil supply begins to peak and then irreversibly declines, prices will rise faster, and the situation will get far worse for America if we don't quickly reduce
Oil provides 95% of the energy to
grow, process and deliver food to the nation. Our entire national transportation system is powered
mostly by oil. Numerous daily products we use are made from oil. We use 20 million barrels of oil every day - just in
America - 70% of it for transportation. Of the 20 million barrels we consume, we import 2/3 of this oil (13 million barrels per day) from
our national oil dependency. This dependency cuts across our entire society and affects our daily survival.
foreign sources, many in unstable places. No combination of drilling off our coasts, hydrogen fuel cells, natural gas, biofuels, and used french fry oil will solve this
and carry 300 million Americans into the future. None of these fuels can be scaled up to anywhere near the amount of liquid fuel we use daily in any practical,
economical, or sustainable way.
HSR will vastly decrease US demand for oil
Perl 10 (Anthony Perl, professor of Urban Studies and Political Science at Simon Fraser University in Vancouver, British Columbia,
Canada, “Reducing U.S. Oil Consumption”, June 11, 2010, http://www.cfr.org/energyenvironment/reducing-us-oilconsumption/p22413)
America's biggest oil spill has shown us the dark side of pushing the search for oil beyond the frontier of our experience. Going forward,
we face a crucial choice that will have profound consequences for America's future. We can either reinvent our energy infrastructure to
obtain extreme oil more safely or we can reposition our society to use much less of it. Both options will cost more than Americans have
grown accustomed to paying for energy, but the end of cheap oil is inevitable. ¶ A
key difference between redesigning
our transportation system to enable post-carbon mobility and introducing infrastructure to bring us more
extreme oil--like the Gulf of Mexico's deepwater reserves--can be found in the state of technology. Moving
people and freight without oil can be done with mature technology. Conversely, the technology to safely
produce extreme oil on a large scale remains to be perfected, as events in the Gulf have made obvious. ¶ High-speed trains have
revolutionized the way that people move between cities hundreds of miles apart. These trains
are powered by electricity--
the ideal medium to facilitate a transition away from oil because it can blend energy
sources and thus shift from non-renewable carbon based fuels like coal and natural gas to
renewable sources like solar, wind, and water as soon as the infrastructure to generate them
can be built.¶ In "Transport Revolutions," Richard Gilbert and I illustrated one scenario whereby the United States
could reduce oil-powered transportation by 40 percent between 2010 and 2025 while obtaining roughly the
same levels of ton-miles in freight transportation and passenger-miles in local and intercity travel. Around half of today's car travel
would shift to electric propulsion, mostly aboard local buses and trains, while about one-third of domestic flying would be substituted by
electric trains, mostly running at 125 miles per hour or faster. Electric cars also would play a modest, but growing role in providing local
mobility. Similar shifts would occur in freight transportation.¶ The pace of this change would be governed less by the availability of
technology and more by the capacity to plan and execute the needed infrastructure. We propose the creation of a Transportation
Redevelopment Agency (TRA), a new federal entity that could play a role of banker and infrastructure entrepreneur similar to the
Tennessee Valley Authority. Progress on modifying America's existing rail infrastructure will be slow without a new organization that
can accelerate innovation.¶ Meanwhile, the costs required to unleash this transport revolution in time to preclude the need for extreme
oil might appear daunting. But the alternative path--that of developing infrastructure that can safely produce large volumes of extreme
oil--will require just as much government initiative to oversee, and it will certainly cost more when the environmental impacts are taken
to account.
HSR will collapse oil demand
Magee 12 (Erin Kent Magee, writer for TBQY news; has worked for the Department of Defense and Department of the Treasury,
“High Speed Rail: The Time is Now”, March 17, 2012, http://tbqy.com/?p=2236)
Why all of the discussion concerning High Speed Rail? ¶ ¶ According to CBS News, 6.2 million Americans, forty-five percent (45%) of all unemployed workers in this country, have
been unemployed for more than 6 months. This is the highest rate we’ve seen since the Great Depression. High Speed Rail is the catalyst that will put Americans back to work.¶ ¶ A
nationwide system will generate millions of jobs, and help revive our manufacturing sector by creating a new industry producing the trains, steel and related components.¶ ¶ HighSpeed Rail will spur the revitalization of cities by encouraging high density mixed-use real estate development around the stations.¶ ¶ High-Speed Rail will extend the reach of
Americans looking for work and help workers get to their workplace on time!¶ ¶ High-Speed Rail is extremely reliable, and will run on schedule under all weather conditions.¶ HighSpeed Rail is not subject to congestion and can operate daily without delay, even during rush hour and peak travel times.¶ High Speed Rail is self-supporting.¶ ¶ The cost of operation
will decline each year to the point where the savings will exceed the estimated $800 billion cost of construction. The system will eventually pay for itself.¶ ¶ In short, High-Speed Rail
=¶ ¶ No Traffic,¶ No Tolls &¶ No New Taxes¶ High Speed Rail is an economic necessity and a matter of national security.¶ ¶ The American economy is extremely vulnerable to oil price
We use 20 million barrels of oil everyday in
America, 70% of which is for transportation. We import 2/3 of our oil, much of it from unstable regions
hikes, supply disruptions, and shortages due to our huge daily oil dependency.
half way around the world. Current events across the Middle East and North Africa make our oil supply that much more vulnerable. ¶ ¶
The countries that produce oil, many of which have been steadily declining in overall production numbers, are producing less and less oil
each year. This is due to the fact that many of the world’s leading oil fields have, or are currently maxing out and in decline. This makes
it increasingly difficult to meet current American oil demand, and impossible to meet future increases in demand - expected to double
over the next 20 years.¶ ¶
High-Speed Rail will allow us to expand transportation options as we
reduce our daily demand for oil . ¶ ¶ Since increasing oil supply is proving to be practically impossible, reducing demand
Ramping up forms of transportation that consume little or no oil is the
heart of the solution. Creating a national transportation network based on a system of
electric trains throughout the country will take a huge bite out of our unsustainable appetite for
oil, while increasing mobility, efficiency, global competitiveness and national security.¶ ¶ In conjuction with butanol production, HighSpeed Rail will reduce our dependence on foreign oil by more than 50% (2,3)¶ ¶ High-Speed Rail is the
large-scale, comprehensive solution to the oil supply problem, and is the most significant way to reduce our daily
consumption of oil quickly and efficiently while maintaining our prosperity and economic growth.¶ ¶ High-Speed Rail will
is the only viable solution.
mean:¶ ¶ Less Money Spent on Gasoline,¶ More Business &¶ Real Jobs for Real People¶ With so many advantages, when should we commit
ourselves to a national High-Speed Rail system? The time is now.
HSR reduces oil demand
Tutton 11 (Mark Tutton, CNN news correspondent, “How green is high-speed rail?”, November 19, 2011,
http://www.cnn.com/2011/11/18/world/how-green-is-hsr/index.html)
High-Speed Rail (HSR) has been around been around for decades, but it's back in the transport spotlight ¶ amid a surge of interest from
the United States and China.¶ Despite cuts to President Obama's original plan to spend $53 billion on HSR over the next 25 years, an
ambitious¶ scheme for HSR to connect U.S. cities is still on the agenda. ¶ China has built more than 8,000 kilometers of high-speed rail
lines in recent years and plans to spend over $400¶ billion on its program in the next five years, while the United Kingdom is
contemplating plans to extend its more¶ modest HSR network.¶ Supporters of
HSR often list environmental
sustainability among its virtues. Some argue it's a greener alternative to¶ car and air travel and see it as an easy
win in weaning people of fossil fuels . But just how green is HSR? Two¶ experts with different views give their
opinions.¶ Dr. Anthony Perl is Professor of Urban Studies and Political Science at Simon Fraser University in Vancouver, ¶ British
Columbia, Canada, where he directs the Urban Studies Program. His latest book, co-authored with Richard¶ Gilbert, is "Transport
Revolutions: Moving People and Freight Without Oil."¶ Any debate about the future of high-speed rail must consider where this mobility
option fits into the 'big picture' of¶ how transportation systems meet looming economic, energy and environmental challenges. In
a
world where 95% of¶ motorized mobility is currently fueled by oil, high-speed rail offers a
proven means of reducing dependence on this¶ increasingly problematic energy source.¶ This
value of using proven electric propulsion technology should not be underestimated when both the time and ¶ money to deploy energy
alternatives are in short supply.¶ In our recent book Transport Revolutions, Richard Gilbert and I documented the economic,
environmental and¶ political dividends to be gained from replacing the internal combustion engines powering today's aircraft, cars, and ¶
motor vehicles with traction motors that can
be powered by multiple energy sources delivered through
the electric¶ grid.¶ Since electricity is an energy carrier, it can be generated from a mix of sources that incorporate the growing
share of¶ geothermal, hydro, solar, and wind energy that will be produced in the years ahead. And because electric motors are¶ three to
four times more efficient than internal combustion engines, an immediate
improvement will precede¶
introducing renewable energy into transportation.¶ Grid-connected traction offers the only realistic option for
significantly reducing oil use in transportation over the¶ next 10 years.¶ If such a shift does not begin during this decade, the risk of a
global economic collapse and/or geo-political conflict¶ over the world's remaining oil reserves would become dangerously elevated.
Making a significant dent in¶ transportation's oil addiction within 10 years is sooner than
fuel cells, biofuels, battery-electric vehicles and other¶ alternative energy technologies will
be ready to deliver change.¶ Biofuels that could power aircraft now cost hundreds of dollars per gallon to produce. Batteries that a big enough¶ charge to
power vehicles between cities are still too big and expensive to make electric cars and buses affordable. ¶ But grid-connected electric trains have been operating at scale and across
continents for over a century. And when¶ the Japanese introduced modern high-speed trains through their Shinkansen, in 1964, the utility of electric trains was¶ greatly extended.¶
Since the 1980s, countries across Asia and Europe have been building new high-speed rail infrastructure to deploy¶ electric mobility between major cities up to 1,000 kilometers
apart. For intercity trips between 200 and 1,000¶ kilometers, high-speed trains have proven their success in drawing passengers out of both cars and planes, as well as¶ meeting new
travel demand with a much lower carbon footprint than driving or flying could have done.¶ If we are serious about reducing oil's considerable risks to global prosperity and
sustainability, we will not miss the¶ opportunity offered by high-speed rail to decrease transportation's oil consumption sooner, rather than later.¶ Tony Bosworth is a campaigner for
Friends of the Earth, in its energy and climate team. He has a long track record¶ of working on environmental issues, including a spell as transport campaigner for the environmental
campaigning¶ charity.¶ Across the world governments are looking to high speed rail to provide fast, modern transport systems fit for the 21st¶ century.¶ By the end of 2012 China is
expected to have more high speed rail lines than the rest of the world combined, while¶ President Obama aims to give 80 per cent of Americans access to fast rail travel within 25
years.¶ But if governments want high speed rail to spearhead the drive towards a cleaner transport system they must look¶ further than simply providing faster trains.¶ The UK is
currently mulling over a high speed rail link between London and Birmingham, a city about 160¶ kilometers north-west of the capital. But according to official estimates, it's unlikely
to lead to significant carbon¶ dioxide cuts -- and may even increase climate-changing emissions.¶ So what's stopping high speed rail being a major part of a greener transport future in
Britain?¶ First there's the electricity to power the trains. Over two thirds of the world's electricity comes from fossil fuels so¶ until (or unless) power stations are weaned off fossil
fuels, electric trains will still have a significant climate impact¶ -- although rail travel is still better than flying or driving.¶ Secondly, will high speed rail entice people off the roads and
short-haul flights? French TGVs and the Channel¶ Tunnel rail link have succeeded, but official calculations estimate that only 16 per cent of anticipated passengers for¶ the London to
Birmingham line will have swapped from planes or cars.¶ One of the main factors is cost. Despite soaring fuel prices, motoring and flying are still expected to be cheaper than¶ high
speed rail. If faster rail travel is to become a realistic alternative it must be affordable too.¶ The UK's high speed rail link is expected to cost a whopping $54 billion. But living as we do
in cash-strapped times¶ there's surely a strong case for investing some of that that money in less grandiose, but more effective, projects.¶ Perhaps some high speed rail money could
be diverted to upgrade commuter and longer-distance services, making¶ life easier and cheaper for ordinary passengers -- and making a bigger and fast contribution to cutting
emissions.¶ High speed rail can play a major role in tackling climate change around the world -- if it's affordable, powered by¶ clean energy and gets people out of their cars and off
planes, we really will be speeding in the right direction.
Inland Waterways Link
Expanding inland waterways reduces foreign oil dependence
MARAD, No date [US Maritime Administration, “America’s Marine Highway Program”
http://www.marad.dot.gov/documents/Marine_Highway_Program_brochure_(final).pdf]
America’s Marine Highways together consist of more than 25,000 miles of coastal, inland, and intracoastal waterways. It moves only about 2 percent of our
domestic freight and is currently underutilized. Expanding
the use of this valuable resource will help dramatically
reduce landside congestion and offer significant opportunities to help reduce emissions, decrease
oil dependence, and find alternatives to maintenance and construction costs of highway and railroad
infrastructure.
Mass Transit Link
Increasing mass transit ridership reduces oil demand
Sandalow 7 (David, Energy and Environment Scholar at The Brookings Institution. He is
writing a book on oil dependence, “Ending Oil Dependence”, January 22 nd,
http://www.brookings.edu/views/papers/fellows/sandalow20070122.pdf)
Americans are driving more and enjoying it less. Between 1993 and 2003, vehicle miles traveled in the U.S. increased 26%. Drivers report
spending more time in their cars each day – up from 49 minute average in 1990 to 62 minutes today. Traffic
congestion is a growing
frustration for millions. 32 More sensible growth patterns could help improve quality of life while reducing oil
dependence. “Transit-oriented development” – building mixed-use communities around transit stations – is one increasingly popular
approach. A recent study found that doubling ridership on mass transit nationally could save 1.4 billion
gallons of gasoline per year.33 Longstanding federal subsidies for urban highway construction have contributed to the current mix of
traffic congestion, driver unhappiness and oil consumption. Ironically, repeated experiences in major U.S. cities demonstrate that building more
roads fails to solve traffic congestion. One expert summed it up by saying: “Trying to cure traffic congestion by building more roads is like trying
to cure obesity by loosening your belt.”34 The most recent federal highway bill, passed in August 2005, provides four times more funding for
highways than mass transit.35
More transit = less oil
Addison 12 (John, publishes the Clean Fleet Report, speaks and participates in
cleantech and transportation conference panels. For five years he has researched and
written about electric vehicles and the smart grid, “Record Public Transit Ridership
Reduces U.S. Oil Dependency”, March 14th,
http://www.cleantechblog.com/2012/03/record-public-transit-ridership-reduces-u-soil-dependency.html)
The United States is reducing its dependency on oil as we now consuming 18.3 million barrels a day, down from our peak of 21 million barrels a
few years ago. Record use of public transit is a major factor – less
solo driving in gridlock and we use less oil. Other major factors,
percent of our transportation is from oil
of course, include high gasoline prices and more fuel-efficient cars. Since 96
refined into gasoline, diesel, and jet fuel, we will take all the help we can get. According to a report released today by the
American Public Transportation Association (APTA), Americans took 10.4 billion trips on public transportation in 2011, the second highest
annual ridership since 1957. Only ridership in 2008, when gas rose to more than $4 a gallon, surpassed last year’s ridership. With an increase of
2.3 percent over the 2010 ridership, this was the sixth year in a row that more than 10 billion trips were taken on public transportation systems
nationwide. During 2011, vehicle miles of travel (VMTs) declined by 1.2 percent. A number of U.S. regions demonstrated leadership in
improving bus and rail systems, often doing more with less. The best systems use rail as the backbone of the system integrated with more costeffective bus. Light rail systems that showed major increases in 2011 include these regions: Seattle, WA up 37.2%, Dallas, TX up 31.2%; Buffalo,
NY up 15.6; North San Diego County up 14.8%; Salt Lake City, UT up 14.4%. These rail systems use local electricity, not foreign oil. Cities with
highest transit ridership use heavy rail (subways and elevated trains) to move millions. Heavy rail systems 2011 ridership growth was greatest in
Cleveland, OH (12.3%), San Juan, PR (12%), Baltimore, MD (8.7%), Boston, MA (7.2%), San Francisco, CA (5.6%), Chicago, IL (5%), Miami, FL
(4.9%), New York, NY (4.9%), and Philadelphia, PA (4.7%). Buses,
including bus rapid transit, are the heart of getting
riders to their final destination. Cleaning the air and improving U.S. energy independence, most new
buses are hybrid or run on natural gas. Bus systems with largest 2011 growth include Columbus, OH (10.1%), Saint Louis, MO
(10%), Orlando, FL (8.4%), Miami, FL (8.3%), Washington, DC (7.1%), San Diego, CA (6.8%), San Antonio, TX (6.3%), Arlington Heights, IL (4.6%),
Minneapolis, MN (4.3%), and Baltimore, MD (3.9%). “U.S. public transportation ridership in 2011 is now the second highest ridership since
1957,” said APTA President and CEO Michael Melaniphy. “What is exciting is that the uptick in ridership occurred in large, medium and small
communities, showing the broad support that public transportation has nationwide. In fact, the largest rate of growth was in rural communities
with populations under 100,000 where public transit use increased by 5.4 percent.” “Two top reasons for the increased ridership are higher gas
prices and in certain areas, a recovering economy with more people returning to work,” said Melaniphy. “Since nearly sixty percent of trips
taken on public transportation are for work commutes, it’s not surprising to see ridership increase in areas where the economy has improved.”
Transit also helps car drivers by relieving gridlock. Transit helps reduce the burden on taxpayers to widen highways and expressways. Most taxpayer transportation funds go to widen highways. Transit is funded by federal, state, local, and rider fares. It is an election year. Congressional
Republicans tried and failed to only continue funding transit only if states were forced to approve offshore drilling everywhere and approve
eminent domain for the XL pipeline. That effort failed, but transit is still threatened with budget cuts and regional shutdowns. “There should be
no doubt Americans need and want public transportation,” said Melaniphy. “Congress needs to pass a well funded, multimodal, multi-year
transportation bill that will help meet current and growing demand.” Fortunately, Americans
act smart, even when Congress acts
look at smart apps like Google Maps and compare driving with transit. In a given week,
more people intelligently mix transit, driving solo, driving with others, and some healthy walking.
More smarts, less oil.
dumb. Millions
NextGen Link
NextGen reduces huge amounts of oil consumption
Dubie, lieutenant governor, 7 – lieutenant governor of Vermont, Chair of Aerospace States Association [Brian, 10/2/2007, Aerostates, “We
Need NextGen This Gen,” http://aerostates.org/wp-content/uploads/10_2_07_nextgen_this_gen-1.pdf,]
The FAA’s Joint Planning and Deployment Office (JPDO) estimates that delays in our air transportation system result in 22 billion dollars in lost productivity and
billions gallons of wasted fuel. Modernizing
our outdated Air Traffic Control system is one way our aviation sector
could use less oil. The FAA Air Traffic Management modernization initiative is called NextGen, and is a component of the FAA reauthorization legislation,
which Congress is currently debating. Much of the debate has focused on who will pay for the FAA and how will they pay -- on “who wins and who loses”. We need
to redirect the focus toward what NextGen can save -- in jet fuel, in time and productivity. How much will the FAA save by
eliminating current costly ground components under modernization? How much will the airlines and general aviation save in fuel? How much will our economy
save? How much will we gain?
The goal of NextGen is to handle triple the air traffic by the year 2025. This projected growth will make infrastructure upgrades like NextGen a necessity. NextGen is
not just about better technology. It’s about providing pilots and air traffic controllers with the tools they will need to manage the projected growth in our skies and
at our airports. Ultimately, it’s the human factor -- our pilots and air traffic control professionals -- utilizing the NextGen system technology, to achieve better service
for the public.
NextGen enables aircraft to fly more precisely, and enhance the air traffic control system through the use of on-board systems. For example, NextGen
enhancements have already been implemented at Louisville International Airport in Kentucky. The FAA, working with UPS Airlines, has designed what is
called a “Continuous Descent Approach”. These procedures are significantly quieter and save up to 500 lbs. of fuel per
flight.
In another partnership, the FAA, Southwest Airlines and Naverus are developing RNP (Required Navigation Performance), which combines the accuracy of GPS
(Global Positioning System), the capabilities of advanced aircraft avionics, and new flight procedures to achieve safer, more efficient, and environmentally friendly
flight operations. “RNP is a cornerstone of the FAA’s Next Generation Air Traffic System,” said Mike Van de Ven, Southwest EVP and Chief of Operations. “We
applaud the FAA’s forward thinking and are eager to work with them as we deploy RNP and provide our industry with operational efficiencies including reduced fuel
burn, lower greenhouse gas emissions, less congestion and fewer delays.” NextGen
savings like these are projected to reduce jet
fuel usage by 146 million barrels a year, in turn eliminating 57.5 million metric tons of CO2 emissions
per year.
NextGen reduces fuel consumption
SNS 11 (State News Service, Forefront of news reporting, 2/28, “AVIATION NOISE AND AIR QUALITY SYMPOSIUM”, Lexis)
NextGen is also helping us to improve efficiency and to provide benefits through the deployment of
precision-based navigation procedures that save fuel and emissions. If you think time is money, NextGen is for you. We are
working in collaboration with Alaska Air Group on a program called Greener Skies Over Seattle to deliver reduced emissions and
fuel burn through optimized descents and Required Navigation Performance approaches.
Thats another couple of acronyms to remember, RNP: required navigation performance, and RNAV: area navigation. We expect that
Greener Skies will demonstrate the same positive results that weve seen with similar initiatives within the National Airspace System.¶ To
date, weve published more than 900 performance-based navigation arrival and departure routes and procedures. Again, making the
business case, performance-based
navigation pays for itself, having already saved millions of
dollars in fuel at major U.S. airports. Southwest Airlines is a prime example. It is estimated that for every single minute
of time saved on each flight, their annual savings quickly add up to 156,000 metric tons in emissions a year, which translates into a
savings of $25 million. Seconds do count. Time ismoney indeed.¶ NextGen also changes things on the ground. Surface management is a
prime benefactor. As youll hear quite a bit during this conference, airports need to manage not only aircraft but the many other types of
vehicles that service the aircraft and airport. Imagine a parking lot with Lamborghinis and tricycles. Weve deployed the latest airport
surface detection radar ASDE-X at 32 airports, with another three scheduled to receive it by this May. Initiatives at
JFK and
Memphis demonstrate that the technologies and procedures put in place reduced taxi times
by about 2-4 minutes. When youre buying fuel by the pound, seconds count. But in addition to cost
savings, ASDE-X provides another layer of safety by improving situational awareness for both operators and controllers. ¶ As you can see,
weve been able to take major strides in lessening the environmental effects of aviation over the past several decades. Even so, aircraft
noise continues to be the environmental impact of most concern to communities. Aircraft emissions contribute to air quality related
health effects, as do emissions from all combustion processes, and at times are causing heightened concerns locally and globally. The
potential effects of aircraft emissions on the climate of our planet may be the most serious long term environmental consequence facing
aviation. In fact, aviation environmental impacts could be the principal constraints on capacity and operations in the United States.
Further, as I noted earlier, energy supply and its cost, not to mention associated climate change issues, could increasingly shape the
future growth and operations of U.S. aviation.¶ These combined environmental and energy challenges must be successfully managed and
mitigated for the U.S. to meet aviation transportation needs of the 21st century.
NextGen reduces fuel required
FastLane 9 (fastlane.dot.gov, the official blog of the U.S. Secretary of Transportation—Ray LaHood, “NextGen; improving airways
through increased safety, reduced delays, fuel use, and emissions”, September 14, 2009, http://fastlane.dot.gov/2009/09/nextgenimproving-airways-through-increased-safety-reduced-delays-fuel-use-and-emissions-.html#.UA4Fj4518oQ)
If you ran an agency where safety is the number one priority, you'd welcome a traffic control system that reduces the risk of
aircraft collision. If
that system also made air travel and air shipping more efficient--reducing delays,
fuel-consumption, and emissions--you would do what you could to implement that system as soon as possible.¶ That's the
enviable position I find myself in as the Next Generation Air Transportation System (NextGen) continues to come
on-line.¶ Today, I was pleased to announce that, by the end of December, air traffic controllers will begin tracking aircraft flying over the
Gulf of Mexico using one of NextGen's core technologies, ADS-B.¶ NextGen
is really nothing less than a
transformation of our National Airspace System. In a nutshell, the system transitions us from a ground-based air
traffic control system to a satellite-based system using aviation-specific applications for existing technologies like GPS, new airport
infrastructure, and new procedures. It is being hailed as the most important innovation in air traffic control since World War II.¶ Over the
Gulf of Mexico, the satellite-based system fixes the problem of radar's 150-mile range constraint over large water bodies.¶ This allows air
traffic controllers to see aircraft throughout their Gulf crossings. Which means that air traffic controllers no longer need to ensure a 100mile buffer around aircraft traversing the Gulf. In turn, this allows more flights across the Gulf at the same time, adding badly needed
capacity to the Gulf's commercial aviation network.¶ And this also allows the many helicopters servicing Gulf oil platforms to see the
aircraft around them as well. Which means these helicopters are no longer constrained by the Visual Flight Rules that essentially ground
helicopters in bad weather. With about 9,000 oil rigs in the Gulf being serviced by 5,000-9,000 flight operations a day, you can see how
this system dramatically opens up low-altitude capacity.¶ NextGen will allow airports to increase capacity while decreasing costly delays
by 35-40% by 2018--without undergoing disruptive runway expansions.
By 2018, NextGen will allow aircraft
operators to reduce fuel consumption by about a billion gallons a year .¶ Yet even those benefits pale in
comparison to the safety improvement NextGen promises. Aircraft in southwest Alaska have been using ADS-B, a crucial NextGen
element. By providing pilots and air-traffic controllers with better, more complete situational awareness, this NextGen component has
already reduced the accident rate in that region by an astonishing 47%.¶ This evolution is vital to meeting future demand and avoiding
gridlock in the sky and at our nation’s airports. NextGen will open America’s skies to continued growth, enhanced efficiency, and
increased safety while reducing aviation’s environmental impact. Everyone wins. ¶ The stakeholders in air operations recognize the
importance of NextGen--Congress and the Obama Administration are committed to working together, and the airline CEOs--ask any of
them, and they'll tell you how important this is to their industry. Everyone is committed to making this happen, and we're looking
forward to working in public-private partnerships to move NextGen along.¶ Curious? Please visit the FAA's great set of NextGen web
pages at www.faa.gov/nextgen. I particularly like the page on NextGen in 2018 because it shows where our staggered rollout is leading,
and it discusses NextGen's role in each stage of a flight from gate to gate. If you're not in the mood to read, they've even got a page
showing a half dozen very informative videos.¶ I'm not the kind of guy to lose his head over every technology that comes down the pike.
But a program that delivers safety-improvements, fuel-conservation, and delay-reductions--that just makes sense.
NextGen cuts fuel use
Naylor 5/26 (Brian Naylor, NPR correspondent--covers politics and federal agencies, including transportation and homeland
security, “Delayed At The Airport? They're Working On It”, May 26, 2012, http://www.npr.org/2012/05/26/153733128/delayed-at-theairport-theyre-working-on-it)
When the summer travel season begins, airline passengers typically brace for delays as vacationers fly in larger numbers and the
inevitable weather-related disruptions occur.¶ The Federal Aviation Administration, which oversees the nationwide system of air traffic
control, is hoping to make some of those delays a thing of the past. It's developing what it calls "Next Generation" technology. The
NextGen program will modernize the air traffic control system, transforming it from radar to GPS-based
technology.¶ But as the government works out the details, questions remain about its cost and viability. ¶ Aiming For Efficiency¶ It's a
bright, sunny day at Dallas/Fort Worth International Airport. From the control tower, "we're looking out the window at the east airfield
... where there are four runways that are in active operation," says Michael Huerta, the FAA's acting administrator. ¶ Except it's not really
Dallas/Forth Worth. Huerta is in a government lab in New Jersey, looking at a computer-generated simulation.¶ "What this enables us to
simulate is how controllers would use technology to control traffic, in this case at Dallas/Forth Worth airport," he says.¶ The William J.
Hughes Technical Center, located next to the Atlantic City airport, is where the government is developing the NextGen system, including
the equipment that air traffic controllers use in towers at airports across the country. ¶ There are hundreds of technicians in the Atlantic
City lab working on everything from how to transmit up-to-the-second weather information to pilots to the kinds of equipment or
avionics that the airlines will need to install in their jets. ¶ The goal, Huerta
says, is an air traffic control system
that allows more flights in the sky, better fuel efficiency and more closely spaced takeoffs and landings.¶
"Right now, conventional descent into an airport looks a lot like walking down the stairs, and a pilot will throttle
up, throttle back, throttle up and throttle back. It's the aviation equivalent of stop-and-go driving in traffic, and
it's very fuel inefficient," he says. "It also is rather noisy."¶ Huerta says NextGen allows a smooth, steady glide descent, akin to
sliding down the banister. The F AA estimates the new technology will save over 1 billion gallons of
fuel
and reduce carbon dioxide emissions by 14 million metric tons by 2020. ¶ Getting The Big Picture¶ At one lab in the complex, new
ways of tracking flights are tested by air traffic controllers who are brought in from the field. ¶ Their responses are closely watched by
Nick Marzelli. "What we can do is we can train a camera on them and then, as we introduce these anomalies in the system, to see how
they're handled by the controllers," he says. "We're sort of recording them. We're recording their voice, if they're bantering about a little
bit. We're recording what they're doing ambient-wise."¶ There is also a cockpit simulator, where pilots can try their hand at the controls
of an Airbus jet.¶ Huerta says the point is to understand how the pilot and the air traffic controller can best share information. With
NextGen, pilots will have a better sense of who and what is in the sky around them. ¶ "What we're really trying to understand," Huerta
says, through technology like the tower simulator and radar room simulator, is: "How is that whole interface working?" ¶ A Long-Term
Proposition¶ Transitioning from 1940s radar to current-day satellite-based technology isn't cheap.¶ The cost has been estimated at some
$40 billion, to be shared by the government and the airlines. Congress this year agreed to spend some $4 billion over the next four years
on NextGen.¶ But the private sector remains wary, says Joshua Schank, president of the ENO Center, a transportation think tank.¶ "The
private sector is very risk-averse when it comes to making investments that they don't see an immediate return on — particularly the
airline industry, which is an industry that has been suffering and really never made money its entire history," Schank says. "For them to
go out on a limb and invest in a new technology with questionable benefits — it's just not going to happen."¶ Still, progress is being made.
The FAA and some of the airlines are testing new landing approaches to take advantage of the more efficient technology at a handful of
airports, including Seattle-Tacoma and Atlanta's Hartsfield. And NextGen has enabled controllers to track helicopter traffic to and from
the Gulf of Mexico's oil rigs for the first time.¶ Huerta says nobody really opposes modernizing the air traffic control system, but he
cautions it's going to be a long-term transformation.
Rail Link
Rail reduces foreign oil consumption
Addison 12 (John Addison, publishes the Clean Fleet Report, speaks and participates in cleantech and transportation conference
panels; for five years he has researched and written about electric vehicles and the smart grid / renewable energy infrastructure that
ideal supports them, “Record Public Transit Ridership Reduces U.S. Oil Dependency”, March 14, 2012,
http://www.cleantechblog.com/2012/03/record-public-transit-ridership-reduces-u-s-oil-dependency.html)
The United States is reducing its dependency on oil as we now consuming 18.3 million barrels a day, down from our peak of 21 million
barrels a few years ago. Record use of public transit is a major factor – less solo driving in gridlock and we use less oil.
Other major factors, of course, include high gasoline prices and more fuel-efficient cars. Since 96 percent of our transportation is from oil
refined into gasoline, diesel, and jet fuel, we will take all the help we can get. ¶ According to a report released today by the American
Public Transportation Association (APTA), Americans
took 10.4 billion trips on public transportation in
2011, the second highest annual ridership since 1957. Only ridership in 2008, when gas rose to more than $4 a
gallon, surpassed last year’s ridership. With an increase of 2.3 percent over the 2010 ridership, this was the sixth year in a row that more
than 10 billion trips were taken on public transportation systems nationwide. During 2011, vehicle
miles of travel (VMTs)
declined by 1.2 percent.¶ A number of U.S. regions demonstrated leadership in improving bus and rail systems, often doing
more with less. The best systems use rail as the backbone of the system integrated with more cost-effective bus.¶ Light rail systems that
showed major increases in 2011 include these regions: Seattle, WA up 37.2%, Dallas, TX up 31.2%; Buffalo, NY up 15.6; North San Diego
County up 14.8%; Salt Lake City, UT up 14.4%. These rail systems use local electricity, not foreign oil.¶ Cities with
highest transit ridership use heavy rail (subways and elevated trains) to move millions. Heavy rail systems 2011 ridership growth was
greatest in Cleveland, OH (12.3%), San Juan, PR (12%), Baltimore, MD (8.7%), Boston, MA (7.2%), San Francisco, CA (5.6%), Chicago, IL
(5%), Miami, FL (4.9%), New York, NY (4.9%), and Philadelphia, PA (4.7%). ¶ Buses, including
bus rapid transit, are
the heart of getting riders to their final destination. Cleaning the air and improving U.S. energy
independence, most new buses are hybrid or run on natural gas. Bus systems with largest 2011 growth include Columbus, OH
(10.1%), Saint Louis, MO (10%), Orlando, FL (8.4%), Miami, FL (8.3%), Washington, DC (7.1%), San Diego, CA (6.8%), San Antonio, TX
(6.3%), Arlington Heights, IL (4.6%), Minneapolis, MN (4.3%), and Baltimore, MD (3.9%). ¶ “U.S. public transportation ridership in 2011
is now the second highest ridership since 1957,” said APTA President and CEO Michael Melaniphy. “What is exciting is that the uptick in
ridership occurred in large, medium and small communities, showing the broad support that public transportation has nationwide. In
fact, the largest rate of growth was in rural communities with populations under 100,000 where public transit use increased by 5.4
percent.”¶ “Two top reasons for the increased ridership are higher gas prices and in certain areas, a recovering economy with more
people returning to work,” said Melaniphy. “Since nearly sixty percent of trips taken on public transportation are for work commutes, it’s
not surprising to see ridership increase in areas where the economy has improved.” ¶ Transit also helps car drivers by relieving gridlock.
Transit helps reduce the burden on taxpayers to widen highways and expressways. Most tax-payer transportation funds go to widen
highways. Transit is funded by federal, state, local, and rider fares.¶ It is an election year. Congressional Republicans tried and failed to
only continue funding transit only if states were forced to approve offshore drilling everywhere and approve eminent domain for the XL
pipeline. That effort failed, but transit is still threatened with budget cuts and regional shutdowns. “There should be no doubt Americans
need and want public transportation,” said Melaniphy. “Congress needs to pass a well funded, multimodal, multi-year transportation bill
that will help meet current and growing demand.Ӧ Fortunately, Americans act smart, even when Congress acts dumb. Millions look at
smart apps like Google Maps and compare driving with transit. In a given week, more people intelligently mix transit, driving solo,
driving with others, and some healthy walking. More smarts, less oil.
Ridership Link
More ridership means less oil
Bailey 7 (Linda, ICF International, “Public Transportation and Petroleum Savings in the
U.S.: Reducing Dependence on Oil”, January,
http://www.apta.com/resources/reportsandpublications/Documents/apta_public_tr
ansportation_fuel_savings_final_010807.pdf)
The dramatic increase in ridership over the past decade demonstrates Americans’ clear desire for
more public transportation options. So what would happen if public transportation services were
expanded so that ridership doubled? Total national fuel savings from public transportation would
double to 2.8 billion gallons per year, or more if improved coordination between land use plans and
public transportation could replace even more car travel.
Reduction in congestion means less oil consumption
Konrad 10 (Tom Konrad, PhD., CFA is a financial analyst and portfolio manager specializing in renewable energy and energy
efficiency; is a blogger on Forbes.com, and Editor at AltEnergyStocks.com, “The Best Peak Oil Investments: Smart Transportation”, June 6,
2010, http://www.altenergystocks.com/archives/2010/06/smarttransport.html)
What the Smart Grid will do for electricity, "Smart Transportation" will do for road-based travel. Here are eight companies making Smart
Transportation a reality.¶ Congestion and Peak Oil¶ In
late 2005 Houston was evacuated as hurricane Rita
approached. The memory of Hurricane Katrina was still fresh in everyone's mind, and Houston, also called the Oil Capitol of the
World, is extremely car-dependent. 100-mile traffic jams quickly formed on all the major routes out of
the city. Many people were stranded as their cars ran out of gas from driving for hours just to
go a few miles. In the end, the evacuation turned out to be unnecessary as Rita turned and missed the city.¶ The Rita
evacuation is one graphic example of how traffic congestion wastes gasoline to no purpose.
As we look for companies that may benefit from declining oil supplies, one good place to look is companies that help reduce congestion. ¶
Reducing congestion does a lot more than save oil: it saves everyone time and aggravation, as
well as reducing vehicle emissions. Everyone wants less congestion, but few people want to reduce their
own driving, they would prefer that other people get off the road instead. A 2000 Salt Lake County,
Utah referendum on light rail passed in large part because of an advertising campaign that focused on the benefits of light rail to the
people who don't use it [pdf, p.7]. The main benefit cited was reduced congestion. I've heard similar stories about Denver's FasTracks
project: the initial polling showed support among commuters not because they wanted to take light rail themselves, but because they
wanted other people to take the train and make their driving commute quicker.¶ Along with buses and road building, light
rail
projects such as the two referenced above are usually the first options that come to mind when people think about
ways to reduce congestion. Unfortunately, with the exception of bus rapid transit, such projects take a long time to
implement. They are also quite expensive. FasTracks authorization was passed in 2004, and the project is not scheduled to be completed
until 2016. Although initially cited as a model, it's now billions over budget. ¶ Congestion as Market Failure¶ The first solutions that come
to mind are not often the best solutions. ¶ Understanding the economic
causes of congestion can lead to
insights as to the best solutions.¶ Congestion is an instance of market failure. In particular,
it's a combination of the tragedy of the commons and incomplete information. The tragedy of the
commons occurs when many individuals (drivers in this case) share a common resource (road space) but do not individually pay the
incremental cost of using that resource. Each individual driver benefits by driving, but imposes costs on all other drivers by
incrementally slowing traffic and increasing the risk of accidents. Further, drivers have incomplete information because they typically
must chose a route without knowing if the route is congested or blocked by an accident. ¶ The reason that adding lanes and building new
roads does not reduce congestion is that these solutions do nothing to address the underlying market failure: they simply increase the
size of the common resource, giving drivers a larger incentive to over consume. Mass transit also increases the common resource
(transport services), but, since it is typically not free, mass transit is typically
more effective at reducing
congestion. Yet, since mass transit only provides a new option to driving, the congestion benefits of mass transit in the absence of
road pricing tend to be small. Mass transit gives drivers the option of leaving their cars at home, but unless they also have an incentive,
only a few drivers will switch to mass transit. ¶ Enter the Invisible Hand¶ The most cost effective approaches to
reducing congestion address the underlying market failures. ¶ One way to address the tragedy of the commons is to price the common
resource. The pay per mile pricing programs (also known as Pay as You Drive, or PAYD) for auto insurance and registration I discussed in
part X of this series improve the market signal and help reduce congestion. Electronic ticketing systems can also improve transit
ridership by making it easier to pay, effectively lowering the cost of mass transit when compared to driving. In April, a US Department of
Transportation (USDOT) report identified several strategies that produce large net savings while reducing CO2 emissions from
transportation. USDOT found urban center cordon pricing, where people are charged to drive into a congested city center, produces
$530-640 per tonne in net savings, while congestion based road pricing produces $440-570 per tonne in net savings. There are relatively
few ways to cut CO2 emissions that produce net savings, let alone savings in the hundreds of dollars per ton. By definition, when a
market is efficient, there can be no net gains from changing the market structure. The large gains found in the USDOT report are the
result of massive market failure, and also a sign that congestion based road pricing and urban center cordon pricing both improve the
market structure. ¶ Tackling the problem of incomplete information can also reduce congestion. New York City has a system of stop lights
that respond to traffic conditions and leave fewer people waiting at red lights. Navigation systems (GPS) with traffic information can help
users avoid congestion and accidents, reducing congestion for everyone. GPS systems without traffic information can also reduce driving
by helping drivers find the shortest route to their destinations and make fewer wrong turns. Routing buses around congestion and signal
priority systems can help them arrive on time, encouraging ridership, while satellite tracking systems can keep riders updated about the
next arrival time. ¶ Smart Transportation¶ I call methods of addressing transportation market failures "Smart Transportation" because
they typically apply information technology (IT) to transportation, just as the Smart Grid is the applies IT to the electric grid. Although
not obviously IT, pricing structures to address the tragedy of the commons require information about vehicle locations over time in
order to charge appropriate prices.¶ Like most IT, Smart Transportation is scalable: variable costs that come from added vehicles are
small compared to the cost of the project. Smart Transportation requires only relatively cheap tags or navigation systems (from about
$30 for tags and $100 to $500 for navigation systems, with prices falling constantly) for each vehicle. There are even navigation systems
for smart phones from Google (GOOG) and TeleNav (TNAV), which had its IPO on May 13th. Smart phone based navigation is even more
scalable than navigation systems, since it requires no new hardware. ¶ Most Smart Transit project also require sensors, cameras, and/or
tag readers placed throughout the covered area. GPS navigation can benefit from sensors that detect traffic and road conditions, although
traffic data can also come from the GPS devices themselves: Trafficmaster (TFC.L) has developed such as system, which becomes more
effective the more people use it. Even when infrastructure is required for Smart Transportation, once it is in place, the infrastructure can
service any number of vehicles.
A2 Less Demand =/= Lower Prices
The law of supply and demand drives prices
Green 12 (Kenneth, resident scholar at the American Enterprise Institute, “Why Are
Gasoline Prices High (And What Can Be Done About It)?”, March 11th,
http://american.com/archive/2012/march/why-are-gasoline-prices-high-and-what-canbe-done-about-it/)
Oil Supply and Demand Setting aside conspiracy theories about oil company collusion—a perennial favorite of politicians of all stripes—the
primary reason for high gasoline prices, as any economist will tell you, is very simple: world demand
for oil (from which gasoline is made) is high, and the available supply is limited. The cost of crude oil as a share of the retail
price of gasoline varies over time, but in January 2012, it was 76 percent.
Prices are driven by demand
NEW YORK (AP) — Drivers and businesses will use a little less
fuel than previously thought this year, and that hurt international
crude prices on Monday. Brent crude, which is used to price many international oil varieties, fell 52 cents
to end at $112.25 a barrel in London. Prices fell after the Organization of Petroleum Exporting Countries sharply cut
its forecast for world oil demand, saying it saw slower economic growth "in almost every major economy." The 12-nation group
expects global oil consumption to average 88 million barrels a day in 2011, about 140,000 barrels a day fewer than it forecast earlier. Demand
in 2012 is expected to average 89.3 million barrels per day, or 180,000 barrels fewer. "The global economy is losing momentum," OPEC said in
its monthly forecast for oil demand. One
big area of concern remains Europe. The European Commission said
that Greece's budget shortfall will be more than expected, increasing fears of a sustained slowdown in
the region. Greece's deficit as a percentage of national income is now expected to hit 9.5 percent, up from an earlier estimate of 7.6
percent. European Central Bank chief Jean-Claude Trichet said European bankers are watching Greece's situation closely. Trichet, who spoke to
reporters in Switzerland, added that the global economy doesn't appear to be headed for another recession. Overall
global demand
remains strong and consumption, even at slightly lower levels, could reach a record high this year. That could
keep prices oil prices from tumbling.
A2 Short Term Benefits
Even if there are short term benefits – it’s still worse long-term
Inviglio, then-editor Atlantic, 10 – associate editor at The Atlantic from 2009 through 2011, now columnist at Reuters [Daniel, 8/16/2010,
The Atlantic, “Why OPEC Doesn’t Mind Low Oil Prices,” http://www.theatlantic.com/business/archive/2010/08/why-opec-doesnt-mind-low-oil-prices/61557/]
Is this good or bad for consumers? Analyzing
it from a strictly economic perspective, it may depend on the time
horizon. On one hand, if OPEC allows the lower market price to prevail, then consumers will have an easier
time paying for their gasoline and more money to spend on other things. On the other hand, if green energy technologies are
set back due to those low prices, then the lack of alternatives could result in a serious economic shock
if gas prices spike in the future due to the oil supply running low. So in the short term, this is probably
good. But in the long term, it could be a problem.
Miscellaneous
Link Turns the Aff
Lower prices mean people don’t transition
Inviglio, then-editor Atlantic, 10 – associate editor at The Atlantic from 2009 through 2011, now columnist at Reuters [Daniel, 8/16/2010,
The Atlantic, “Why OPEC Doesn’t Mind Low Oil Prices,” http://www.theatlantic.com/business/archive/2010/08/why-opec-doesnt-mind-low-oil-prices/61557/]
This counterintuitive notion was explained by energy
industry analyst Stephen Schork this morning on CNBC's Squawk Box. Asked whether
OPEC would allow oil prices to sink below $70, Schork responded:
OPEC is more concerned about long-term market share than they are about short-term price gains.
Therefore with lower oil prices, what you're actually doing is raising the entry barrier for alternative fuels. I speak
with OPEC regularly, and this is consistently their main concern is about the political shift of the sentiment in the
U.S. especially towards alternative fuels. The cheaper you make OPEC oil, the harder you make it to
bring alternative fuels to bring on.
So no, I don't think OPEC is that concerned.
(The full video is below. He comes in around at 2:10 and begins talking OPEC at around 3:42.)
This makes a lot of sense when you think about it. Back in 2005, a WIRED magazine article ached for higher gas prices, because they meant a renaissance for
alternative fuel sources. The article concludes:
So what's a price-shocked, carbon-afflicted highway jockey to do? Keep driving. In fact, drive more. The
longer gas stays expensive, the
higher the chance we'll see alternatives. Put that pedal to the metal. And smile when you see a big black $3 or $4 out in front at the gas
pump. Those innovators need all the encouragement they can get. Shale oil, uranium, sunlight - there's enough energy out there for
a dozen planets. Where we'll all park is another matter.
OPEC essentially has the same logic, but wants the opposite result: low oil prices will keep down new
technologies that might reduce consumers' need for gasoline.
A few new vehicles will be hitting the market this year that rely on less gas, including the Chevy Volt Plug-In hybrid and the Nissan Leaf electric
car. Right now, their price tags are pretty high -- even with the lofty government subsidy. A quick analysis shows that
you would have to drive around a hundred thousand miles per year to begin justify the Volt's high $41,000 price tag -- as long as gas prices stay
low. If they climb above $5 per gallon, however, its total cost (including gas) suddenly becomes more
competitive with the Toyota Corolla.
OPEC doesn't want that to happen. Every hybrid, plug-in, and electric vehicle sold means fewer
gallons of oil burnt. Over the past few years, political pressures have been propping up the emerging market for autos that use little gasoline. But if
the gas price remains low for too long, consumers may not embrace the new technology, because it's
just so expensive. As a result, in the short term, lower gas prices might make OPEC very better off, if they kill a
revolution for electric cars, fuel cell technology, or other novel approaches to engines needing little or
no gasoline. Automakers will only flirt with these new vehicles as long as it looks like the market can flourish.
A2 Price Band solves
Price band will fail – countries wont agree to it
Parraga 12 (Marianna, Reuters, “Exclusive: Venezuela wants OPEC price band
restored”, June 27th, http://news.yahoo.com/exclusive-venezuela-wants-opec-priceband-restored-133410745--finance.html)
CARACAS (Reuters) - Venezuela on Wednesday proposed
that OPEC set an oil price band of $80 to $120 a barrel,
Energy Minister Rafael Ramirez told Reuters, bidding to restore a policy the cartel tried 12 years ago in a failed
attempt to control prices in a tight range by adjusting supply. The Organization of the Petroleum Exporting Countries
in 2000 adopted a $22 to $28 price band, requiring its members to cut or raise output in an effort to keep prices in that range
for an OPEC basket of crudes. The policy quickly proved unworkable, however, and increasing demand from
China pushed prices irreversibly through $30 in 2004. "We need to restore the band system," Ramirez told Reuters late
Tuesday. "It could be between $80 and $120 right now, that would be sufficiently wide to allow flexibility." A Middle East OPEC
official immediately dismissed the idea as a non-starter. " Having a band was never successful in the
past and won't be successful now ," the official said. "Its OK to have a band when the prices are going up,
but what happens when the price goes down? You'll have to keep cutting production? This is out of
the question."
Iran Strikes Turn Econ
Strikes kill the economy
Fontevecchia 11 – writer at Forbes [Agustino, 12/13/2011, Forbes, “Oil: Iran’s Hormuz Strait Threats Could Wreak Global Economic Havoc,”
http://www.forbes.com/sites/afontevecchia/2011/12/13/oil-irans-hormuz-strait-threats-could-wreak-global-economic-havoc/]
On the markets front, Iran
Stratfor:
could cause substantial crude oil price movements if it chose to take action.
From
A single ship striking a naval mine (or even a serious Iranian move to sow mines) could quickly and dramatically drive up
global oil prices and maritime insurance rates. This combination is bad enough in the best of times. But the Iranian threat to
the Strait of Hormuz could not be more effective than at this moment, with the world just starting to
show signs of economic recovery. The shock wave of a spike in energy prices — not to mention the
wider threat of a conflagration in the Persian Gulf — could leave the global economy in even worse
straits than it was a year ago.
Leads to a double dip – at worst, turns stimulus offense
Oxford Analytica 2/27 – global analysis and advisory firm [OA, 2/27/2012, CNN Blogs, “A strike on Iran could lead to another recession,”
http://globalpublicsquare.blogs.cnn.com/2012/02/27/a-strike-on-iran-could-lead-to-another-recession/]
1. Easing tensions
Easing of tensions over Iran would reverse oil prices, probably back to around 100 dollars per barrel, boosting global
growth prospects.
2. Limited damage
Sanctions and targeted military action could lead to the loss of all oil exports from Iran during 2012 ,
potentially sustaining oil prices of around $150 per barrel. This would undermine any global economic recovery. As they did
last year, advanced countries would probably coordinate to release part of their strategic reserves to
alleviate high prices.
3. Recession
Tightening sanctions on Iran or even a limited military strike on Iran may have only a relatively small effect on global oil trade. But if
any attack on Iran
leads to conflict in the wider region, or prolonged and substantial disruptions to regional supply, this would send prices
soaring well beyond past peaks. A global double-dip recession would be almost inevitable. Europe and Asia
would be the most affected regions, while North America might be quick to return to growth after a temporary dip.
***Impacts – High Prices Bad
Agriculture
High oil prices stimulate agricultural demand via ethanol
FAO 9 – Food and Agriculture Organization of the United Nations [FAO, 2009, “THE RISE IN CRUDE OIL PRICES STIMULATES ETHANOL-RELATED DEMAND FOR
AGRICULTURAL COMMODITIES,” http://www.fao.org/es/esc/en/15/106/highlight_107.html]
Worldwide interest in ethanol fuel
With crude oil prices reaching historically high levels, the global prospects for ethanol fuel use are
growing. Ethanol production, derived from starch and sugar crops such as sugar cane and cereals, expanded by 53 percent from
30 billion litres in 2000 to about 46 billion litres in 2005. It is expected that world ethanol consumption will reach 54 billion litres
by 2010, accounting for about 1 percent of world oil consumption (which is estimated to exceed 5 151 billion litres by 2010 according to the World Energy Council
[2005]). Apart from concerns over high oil prices, the
growing interest in ethanol fuel has other notable motives. These
include: the need to diversify energy sources, the desire of many countries to meet their greenhouse
gas abatement targets under the Kyoto Protocol, and the need to stabilize commodity prices and cut
down on agricultural subsidies in line with WTO provisions. Thanks to advances in technology and policy incentives, the
ethanol fuel industry is no longer restricted to a few countries (i.e. Brazil, Japan and the United States)
but is building momentum in other parts of the world, including China, India and Thailand. The increase in
ethanol use has the potential to create a substantial demand for energy related agricultural products, and to further impact on commodity markets.
Ethanol policies
In general, countries use market regulation, through mandatory blends with gasoline and tax incentives to support ethanol fuel production and consumption.
Mandatory blend ratios range from 5-10 percent (China, Thailand) to 20-25 percent (Brazil). Additional
support is provided through
credits for storing ethanol, a lower excise tax on ethanol fuel than on gasoline and investment
concessions for new plant construction. Most cars produced today can run on low-level blends, while high-level mixes and pure biofuel
require small engine adjustments. In Brazil, the dominant producer and consumer of ethanol fuels in the world, the national ethanol programme (PROALCOOL)
began in 1975 with the aim of reducing the country's oil import bill. Two institutions played a vital role in implementing the national ethanol programme. The
Institute of Sugar and Alcohol (IAA) controlled sugar and ethanol production and exports through a
production quota and fixed purchasing price of ethanol, while Petrobas controlled domestic ethanol sales and distribution.
Inadequate ethanol supply and demand management caused serious market disruptions in the early
1990s. Consequently, the Government made radical policy changes over the 1997/1999 period. In 1997, the price of hydrated ethanol was liberalized, followed
by anhydrous ethanol in 1999, Petrobas' distribution monopoly was abolished and subsidies to ethanol blend gasoline producers were reduced. The Government no
longer exercises direct control over ethanol production and exports, but sets the ethanol to fuel blend ratio, and periodically provides support in the form of
purchases and sales from ethanol strategic reserves.
In the United States, the second largest producer of biofuels, a variety of federal and state level incentives, including excise tax exemption and subsidies, exists for
mostly maize based ethanol fuel. In addition, ethanol is likely to be one of the main beneficiaries of the Renewable Fuels Standard (RFS) provision, part of the
recently adopted United States Energy Bill. The RFS did not provide any liability protection for the use of MTBE (methyl tertiary butyl ether), an octane enhancer in
gasoline which is banned in several states and considered a main substitute for ethanol.
In the EU, where the biofuel market is dominated by biodiesel produced from vegetable oils, ethanol accounts for about 20 percent of
the biofuel market. France and Spain are the main producers. In 2003, the EU issued a directive for the use of renewable transport fuels with established
targets and guidelines. It set the share of renewable fuels in total transport at 2 percent, rising to 5.75 percent by 2010. An additional directive allowed member
states to exempt biofuel from fossil fuel taxes. EU member states were also given the flexibility to design tailor-made energy policies to achieve target guidelines. In
France, the Government set production quotas along with tax incentives for biofuel production. In 2005, a progressive tax rate was implemented on petrol
distributors to encourage blending biofuels with gasoline. Similarly,
Spain, the largest EU producer of ethanol, together with
Germany, Italy, Portugal and Sweden all provided either partial or full exemptions from excise duties
applied to petroleum products, along with laws to encourage biofuel production.
India's bioenergy programme was intended to create an alternative to sugar producers in the face of
depressed prices. In 2002, the Sugar Development Fund was revised to include provisions on ethanol use. The Government approved the sale of E5 (5
percent blend with gasoline) across several states, and introduced a Rs 0.75 excise duty exemption for ethanol sales. The Government of China also provides
subsidies for ethanol production, and mandates the use of E10 ethanol blends in several provinces. Tax incentives also apply in Thailand to promote the use of E10
fuel mixes, while Australia, Canada and Japan provide investment and production subsidies, under certain conditions. Currently, most countries have high
importation tariffs on biofuel to make imported fuel uncompetitive with domestic supply.
Impact of rising oil prices on ethanol-related demand for agricultural commodities
Normally, when
crude oil prices increase, two main factors affect agricultural commodity markets. First, the
production costs for the crop increase; under competitive conditions, this leads to a contraction in
supply and hence raises commodity prices. Second, depending on the economics (including government incentives) of biofuel production,
the increase in oil-based fuel prices provides an incentive to biofuel producers to expand production,
which in turn expands demand for agricultural feedstock crops causing prices to increase further. At the
same time, the expansion in biofuel supply may also be dampened by the parallel rise in commodity prices. The overall net impact on commodity markets will
depend on the degree of increase in biofuel prices relative to the increase in total crop production cost. Recent analysis has shown that the
effect of oil
prices on production costs is comparatively much stronger than that on increased demand for biofuel
related commodities, partly because the world share of bioenergy in total transport fuel consumption and the existing production capacity of biofuel
remain relatively limited (Agricultural market impacts of future growth in the production of biofuels, OECD, Paris [2006]).
The impact of oil prices is likely to be greatest, however, for commodities that constitute an important
source of demand for bioenergy. The best example of this is that of sugar (from sugarcane), which is currently the most
economic of significant feedstock crops. In the case of sugar, there is evidence of a strong co movement between crude oil and sugar prices. A standard statistical
test examined whether a long run relationship exists between these two prices and if so, how strong it is. The results showed that such a
relationship
does exist and it is much stronger than the price links between other seemingly unrelated
commodities. In addition, it was established that signals from the oil market are transmitted much faster to the sugar market than in the reverse direction,
leading to the conclusion that on average, sugar prices tend to follow oil prices. Figure 1 illustrates the linkage between oil and sugar prices while Table 1 shows the
parity prices between sugar and oil, based on a simulation of the oil-sugar price relationship.
The co-movement between sugar and crude oil prices has developed mostly because of the strong link
between ethanol and sugar production in Brazil, the world's largest sugar producer and exporter accounting for about 38 percent of
world exports and 19.5 percent of production. The growing number of Brazilian flex-fuel vehicles which can run on any combination of gasoline and ethanol directly
influences the demand for ethanol. As consumers react to the relative price differential between ethanol and gasoline, any increase in the price of gasoline
stimulates demand for ethanol, reduces sugar exports and raises world sugar prices. Similarly, a decline in crude oil prices would result in reduced ethanol
consumption, a greater diversion of sugar volumes onto the world market, and a downward pressure on world sugar prices. At the world level currently, it is
estimated that about 15 percent of sugar crops are converted into ethanol rather than sugar.
Prospects for expansion of biofuel production
With existing technologies, production
of ethanol from sugarcane and from maize has been the most economic
compared with ethanol from other feedstocks, and with biodiesel from vegetable oils. However, if crude oil prices
remain high, incentives to produce both ethanol and other biofuels from different feed-stocks will
increase further. This may benefit many developing countries that produce sugarcane or which have excess supplies of cereals or vegetable oils,
particularly countries that are landlocked and import energy.
The emergence
of carbon trading programmes in accordance with the ratification of the Kyoto Protocol may also enhance the
competitiveness of biofuels, particularly ethanol, in comparison to fossil fuels. Since ethanol consumption results in
a significant reduction in carbon dioxide emissions, users can obtain carbon credits that can be sold to large polluters ,
leading to a reduction in the costs of producing ethanol while increasing that of fossil fuels. Several countries have already advanced carbon-trading programmes,
including Japan and the EU, and it is likely that similar carbon trading schemes will emerge around the world.
It is important for many resource-constrained developing countries wanting to produce biofuel to
assess the cost of drawing resources away from food and feed production against the expected
benefit from lower crude oil imports. For example, the OECD study of the impact of oil prices on bioenergy production looked at the resource
requirement in terms of land. It estimated that the EU would need to convert about 70 percent of its agricultural land to provide 10 percent of its energy need,
while the United States, Brazil, and Canada would require about 30, 3, and 0.3 percent of agricultural land, respectively. The rate of such conversion varies across
countries and is dependent on feedstocks used to produce bioenergy and per capita transport fuel consumption: the higher the latter, the greater the land
requirement, given current technology. In the long run, technology advances and productivity gains could allow the use of less land per unit of energy produced. It
should be kept in mind that technological advances may also permit the production of biofuels from cheaper feedstocks such as ethanol from cellulose-based
feedstocks, such as stalks, woody materials and leaves. This could allow more ethanol to be produced at a lower cost, and at the same time, reduce the market
impact on food commodities.
Aviation
High oil prices key to aerospace
Watkins, ‘8 – Senior Correspondent at Oil and Gas Journal [Eric, 7/21/2008, Oil & Gas Journal, “Shedding light on a dark market,” Lexis, DS]
High oil prices will be no impediment to that growth , according to another Boeing executive. To the contrary, says Boeing
CEO James McNerney, soaring oil prices are an "opportunity" that will actually speed up orders for new aircraft
that consume less fuel. "The high price of oil is speeding up the process of the oldest, least efficient planes
being taken out of service because they are no longer profitable," McNerney told the weekly Journal du Dimanche. "We
are already seeing it in the US and it's starting to happen in Europe," he said, adding that the phenomenon was "an
opportunity" that "will speed up orders for more recent models, which consume 30%-40% less than the
oldest planes still in service." He also told the paper that Boeing planned to launch a successor to its 737 "at the end of the next
decade" with the aim of producing a plane "15% more economical" than existing aircraft. Hardly was the ink dry on those reports when
news emerged that Bombardier Inc. was expected to launch its long-awaited 100-130 seat C Series aircraft--which promises to be 20%
more fuel efficient than similar aircraft--ahead of the Farnborough Air Show. Attractive attributes Why would that happen? According
to industry insiders, it's because the dramatic rise in world oil prices has made the aircraft's fuel-saving
attributes even more attractive.
Oil prices key to aviation sector transition – generates more growth over the next
decade
Al-Bawaba, 8
Reporting group [Al Bawaba, 2008, RedOrbit, “Silver Lining in High Oil Prices for Low Cost Carriers and Airport Industry,”
http://www.redorbit.com/news/business/1407282/silver_lining_in_high_oil_prices_for_low_cost_carriers/]
As the aviation world shudders at the prospect of oil soaring to US$200 a barrel, an industry expert has said
that budget carriers and low cost airports could benefit indirectly and ultimately help shape the future
of air travel. Simon Morris, Director of UK-based airport specialists, Jacobs Consultancy, said today, companies whose business models
have not factored in rising fuel costs will be pressured into cutting expenses in other areas, such as flying with
premium airlines, particularly in Europe and America. “As times get tight, more people will fly low-cost,” said Morris, who will analyse the
prospects for low cost airlines and airports at next week’s ‘Future Airports’ conference in Dubai, which runs alongside the Airport Show, the biggest aviation
exhibition in the world this year.” Rising
fuel prices will also encourage airlines to use low cost terminals, where 1520 per cent of the cost can be negotiated for the use of less sophisticated facilities. Low cost terminals
will play an important part in the future of the aviation industry. Reducing airport facilities, such as eliminating transfer
baggage systems and encouraging online check-in, can bring substantial savings for the aviation industry at a time of tightening budgets.” As rising fuel
prices impacts on travel trends in the west by forcing cost cutting, the effects of the oil boom on the
Middle East economy is seen as having a trickle down effect, not only encouraging more people to fly
more often, but also bringing budget travel within reach for the lower paid.
Morris’ views about the growing influence of low cost carriers and airports, is shared by another speaker at the ‘Future Airports’ conference, Adel Ali, Board
member and Chief Executive Officer of Air Arabia, the first low cost carrier in the Middle East and North Africa region. Air Arabia has carried over 6 million
passengers since its launch in October 2003 and Ali said: “The
aviation industry in the Middle East is now very open for
change. People want to travel more often to more places with the best value for money. Hence the
future of low cost travel in this region is very promising and so are low cost terminals.”
"High oil prices and increasing inflation is putting pressure on the transport sector across the globe, but the rapid and strong economic
growth of the Middle East region contributes to a sustained market for travel growth,” Ali added. The growing
role for low cost carriers and terminals in the future of aviation is accentuated by the Centre for Asia Pacific Aviation, which says low cost airlines in
the Middle East and Asia Pacific region will experience 40 per cent capacity growth over the next four
years. “This trend has been highlighted by announcements of several new low cost carriers in the region and that the new terminal set to open next year at
Dubai World Central’s Al Maktoum International Airport will provide special facilities for low cost carriers,” said Nick Webb, Chief Executive Officer of Streamline
Marketing Group, organisers of the Airport Show. “This
is an important time for industry leaders to meet and discuss the
common challenges and find solutions, as well as see the latest technology and services, all in the one
place”. Running for the first two days of the Airport Show, the ‘Future Airports’ conference will address topical issues within the region’s aviation industry such
as airspace management, environmental challenges, security and safety, airport infrastructure and operations. Among the other key speakers will be Khalifa Al
Zaffin, Executive Chairman, Dubai World Central, and Andreas Schimm, Director, Economics and Programme Development, Airports Council International. Now in its
eighth year, the Airport Show is well established as a major forum for the selection and pre- qualification of suppliers for regional airport development, attracting
the world’s leading airport contractors and suppliers. Taking place from 2 – 4 of June at the Airport Expo Dubai, the Airport Show also features three other
specialised conferences on Ground Handling, Aviation Security and Air Traffic Control.
Dollar Heg
High prices are key to dollar hegemony – people invest in the US
Stratfor 8
1/8/2008. “Annual Forecast 2008,” web.stratfor.com/images/writers/STRATFOR_Annual_1_08.pdf.
Quietly developing in the background, the
global economy is undergoing a no less dramatic transformation. While we
prices to retreat somewhat in 2008 after years of surges, their sustained strength continues to shove a great deal
of cash into the hands of the world's oil exporters -- cash that these countries cannot process internally and that
therefore will either be stored in dollars or invested in the only country with deep enough capital
pools to handle it: the United States. Add in the torrent of exports from the Asian states, which generates nearly identical cashmanagement problems, and the result is a deep dollarization of the global system even as the U.S. dollar gives
ground. The talk on the financial pages will be of dollar (implying American) weakness, even as the currency steadily shifts from
the one of first resort to the true foundation of the entire system.
expect oil
Environment
High prices are key to renewable transitions – it’s empirically proven, and even a small
change triggers the impact
Kyle, prof econ, 8 – professor of applied economics and management at Cornell, specializing in energy policy [Steven, 12/16/2008, Scientific
American, “For Alternative Energy’s Sake – Keep Oil Prices High,” http://www.scientificamerican.com/article.cfm?id=keep-oil-prices-high]
As oil and related energy prices soared to record highs over the past two years, interest in alternative
fuels soared, too. Hybrid cars have appeared seemingly overnight, and proposals for solar, wind and other renewable
technologies are being made everywhere.
We need to remember, however, that all this action has one cause—high oil prices—and progress could grind to a
halt if those prices fall again. It might seem ridiculous to worry about such a thing; don’t we all want to spend less on oil? And isn’t hoping for that
just whistling in the dark?
Not necessarily. At present, it
is virtually axiomatic in the popular press that growth in demand from the U.S.,
China, India and elsewhere will keep oil prices high forevermore. But this common wisdom ignores the
possibility of recession, or even depression, reducing demand growth to near zero, just as new drilling (mostly overseas) increases
supply. Recession is already upon the U.S., and China’s economy is slowing rapidly. As Wall Street collapsed in October, oil prices dropped to around $70 a barrel.
Saudi Arabia’s stated goal of maintaining a price floor of $80 a barrel or higher suddenly seemed optimistic.
So what
is the problem? In the short run, nothing. But sustained development of new energy sources
always rests on the condition of the old ones. Coal did not arise as Europe’s main energy source until
Europeans had cut down virtually all their forests for fuel, and the later switch to oil did not occur until the scarcity of coal drove
its price high.
In the 1970s Americans responded to high oil prices with alternative energy projects and more fuel-efficient cars. But when prices dropped in the 1980s, we threw
caution to the wind—along with the energy projects. We purchased ever larger cars and SUVs and moved to ever more distant suburbs. Sure enough, now
that oil prices have spiked again, we are looking at the same alternatives we had relegated to niche
markets then.
Today renewable technologies such as wind and solar are close to being competitive with fossil fuels.
But we can say good-bye to that prospect if oil prices decline to $60 to $70 a barrel, which could easily happen in a recession, as
we witnessed in October. Two years of lower prices can turn hybrid cars into a bad financial proposition for
consumers, and green technology start-up companies could go bankrupt as demand for their goods
dries up. Even a temporary decrease in petroleum prices would undermine the long-term
development of the alternatives we all know we need.
Oil prices encourage environmentally beneficial behavior – turns the advantage
Investopedia 11 Respected financial summary site [Investopedia, 7/5/2011, “Why High Oil Prices Are Good For the Environment,”
http://www.investopedia.com/financial-edge/0711/Why-High-Oil-Prices-Are-Good-For-The-Environment.aspx#axzz21IDAMbuF]
High gas prices may be a frustrating side effect of the nation's oil crisis, but there's actually an upside
to sticker shock at the pump - it's good for the environment. Here are three ways this summer's high gas
prices are helping Mother Earth.
1. We're Driving Less
As of March 2011, the U.S Department of Transportation reported that highway travel had declined 1.4% from a year ago,
making it the first year ever that there was a year-over-year driving decline. In fact, on the West Coast, highway travel
decreased by 2.4%.
The less we drive, the less oil we consume. Moreover, since we're so reluctant to drive our cars around, more of us are taking public
transportation. Public transportation is not only cheaper than driving your own car, it also uses less energy and emits fewer
greenhouse gasses per person.
The American Public Transportation Association reports that a single person who switches to public transport can reduce their daily carbon emissions by 20lbs, or
4,800lbs per year. And, public
transportation in the United States saves 4.2 billion gallons of gasoline every
year.
2. We're Buying More Efficient Cars
The higher gas climbs, the less we love huge SUVs. Sales of larger SUVs keep falling, which is great because not only are they
expensive to fill up, they also emit 30% more carbon monoxide and hydrocarbons, and 75% more nitrogen
oxides, than passenger cars.
In fact, many large SUVs are exempt from "light truck" emission standards because they're so heavy. So even though we drive them as much as we do a light car,
they pollute like a heavier industrial truck.
But people aren't just down-grading from SUVs to smaller cars - sales
of fuel-efficient cars and hybrids are steadily increasing.
Ford and Toyota both posted higher sales for their fuel efficient cars and hybrids this spring. (To learn how
the price of gas has affected you decision making process, see How Rising Gas Prices Affect Consumer Decisions.)
3. Businesses Conserve More Energy
Businesses, too, change their habits as gas prices rise. For instance, many businesses and even some city and state governments
have made the transition to a four-day work week. This way, their employees wouldn't have to commute, and buy gas, for
that extra day. If workers don't do any driving on their extra day off, this means they're using 20% less
gas every week.
Oil prices stimulate renewable energy – supply shock theory proves – that turns the
aff
Matthews 11 – writer for the Green Market [Richard, 5/15/2011, The Green Market, “High Oil Prices Stimulate Renewable Energy,”
http://thegreenmarket.blogspot.com/2011/05/high-oil-prices-stimulate-renewable.html]
Higher oil prices stimulate renewable energy. Renewable energy enables the world economies to
grow sustainably, where our current reliance on fossil fuels is entirely unsustainable.
To stimulate renewable energy we must see what is known as supply shock. A supply shock is an event that
suddenly changes the price of a commodity or service. In the case of oil this will be caused by a sudden
decrease in the supply relative to demand. This sudden change affects the equilibrium price.
When oil approaches $200 per barrel we should get the shock and a stimulus effect on renewable
energy. This will occur when the oil supply out paces demand by something like 10 percent.
Instability in the Middle East may very well be the catalyst that causes oil prices to go sharply higher , which in turn will create
the shock that will stimulate renewable energy.
There are a great many unknowns, but renewable energy will be driven by how market demand reacts to higher oil
prices.
Oil prices will stimulate clean energy – prefer clean tech firms
Almeida 7/19 – writer for Bloomberg [Henrique, 7/19/2012, Bloomberg News, “Rising Oil Prices to Bolster Demand for Clean Energy, EDP Says,”
http://www.bloomberg.com/news/2012-07-19/rising-oil-prices-to-bolster-demand-for-clean-energy-edp-says.html]
EDP Renovaveis SA (EDPR), the renewables unit of EDP-Energias de Portugal SA, expects higher oil prices to boost demand for
cleaner and cheaper sources of energy.
“The renewable energy business model is based fundamentally on the need to produce cleaner and
cheaper energy,” Chief Executive Officer Joao Manso Neto said in an interview in Lisbon yesterday. “The bigger the rise in oil prices
the more it becomes evident that this tendency for the medium term is correct.”
Oil advanced for a seventh day in New York, the longest run of gains since February, to $90.65 a barrel
in electronic trading. EDP, which says its renewable energy unit is the world’s third-biggest wind power producer, is investing in dams and wind turbines
to cut reliance on fossil fuels.
Housing Market
Oil prices turn the housing market
Stewart, citing Coffman, 12 – Seattle area real estate, citing a loan officer [Mimi, 2/27/2012, PugetSoundHomesBlog, “High oil prices mean
low interest rates,” http://pugetsoundhomesblog.net/tag/buyerseller-tips/]
Every cloud has a silver lining. That popular idiom is one way to look at the headlines last week, both here in the U.S. and overseas. Read on for
the details and what they may mean for home loan rates.There was good news on Friday as Consumer Sentiment rose to 75.3, which is the best level since February
of 2011. However, this news was tempered by the rise in oil prices that we have been seeing. There’s a good side and a bad side to
higher oil prices. On the one hand, high oil prices are very detrimental for the fragile U.S. economy, as consumers have to put more of their discretionary dollars into
their gas tanks…meaning they have less to spend elsewhere. High oil prices are also inflationary as the added shipping and material costs apply upward price
pressures on Producer or Wholesale goods that either have to be absorbed by the producer, thus hurting profits and the ability to expand or hire. Or the added
costs get passed onto to the consumer…a la a rise in consumer inflation.
The silver lining is that high oil prices could actually be good news for home loan rates, as the
dampening effect on economic growth produces a sluggish economic environment in which Bonds
(including Mortgage Bonds, to which home loan rates are tied) thrive. This is an important topic to
continue watching in the weeks and months ahead.
In silver linings overseas, after seemingly endless negotiations, Greece, investors and central bankers came to an agreement to provide Greece with 130Billion Euros
($172 Billion) in financial aid. This will help the country fund itself through March and into the future… as long as it institutes economic reform, austerity measures
and meets deficit targets. Any deal with Greece will be very tough to implement and a default could still occur…which makes this another important topic to keep
close watch on.
Between some of this uncertainty from overseas being lifted, a lower unemployment rate, and better than expected economic reports, home
loan rates
have struggled to improve beyond some of the best levels seen over the past two weeks. But yet
another silver lining is that home loan rates remain near historic lows, and now continues to be a
great time to purchase or refinance a home.
Iraqi Stability
Oil prices are key to Iraqi stability – it’s reverse causal
Gartenstein-Ross and Goodman, directors at CTR, 9 – *director of the Center for Terrorism Research at the Foundation
for Defense of Democracies and **CTR deputy director [Daveed and Joshua D., Summer 2009, inFocus Quarterly, “The Global Economic Crisis and Iraq’s Future,”
http://www.jewishpolicycenter.org/966/global-economic-crisis-iraq-future,]
Last summer, when
oil prices reached all-time highs virtually every day, it seemed that one of the few silver
linings was a more stable future for Iraq. Surging oil prices appeared to give Iraq a windfall; experts
forecast an improving economy that could diminish support for the insurgency and increase resources
for Iraq's nascent security forces. But now that the collapse in the world's economy has caused oil prices to plummet, what does the future hold
for Iraq?
While estimates of Iraq's dependence on oil revenues vary wildly, oil
clearly lies at the heart of the country's economy. Indeed,
median estimates hold that oil accounts for more than 80 percent of its revenues. Iraq now faces several challenges spawned by the
global recession. These challenges come just as the U.S.—pursuant to agreements with Iraq's government—is due to cease its patrols of cities. While a
spiral into chaos is not inevitable, there is a clear opening for insurgent factions.
Impeding Iraqi Security
The decline in oil prices has left Iraq short of revenues. Speaking at a London-based think tank in early May, Iraqi deputy
prime minister Barham Saleh said that the economic crisis "has had a serious impact" on Iraq's
economy, with "plummeting oil prices" forcing the country "to constrain our government spending."
Accordingly, Iraq's government slashed its 2009 budget by about 25 percent, from $80 billion to nearly $60
billion. Yet, despite this reduction in expenditures, around $20 billion of that figure will be deficit spending. This is made possible in part
by the fact that a budgetary surplus of around $35 billion remains from the 2008 oil boom.
Jim Durso, who served in the transportation ministry of the Coalition Provisional Authority, predicts that Iraq will try to "make that money
last as long as they can, spend it on essential services, and hope that foreign investment can pay for
infrastructure."
Oil prices are key to stability – greater revenues fund security, quell dissent, and spur
investment
Gartenstein-Ross, VP of research, 8 – the vice president of research at the Foundation for Defense of Democracies and the author of,
"My Year Inside Radical Islam." He reported from Baghdad while embedded with the 2nd Battalion, 32nd Field Artillery, in May and June of 2007 [Daveed,
7/29/2008, Bipartisan Policy Center, “What Do High Oil Prices Mean for Iraq's Future?,” http://bipartisanpolicy.org/news/articles/2008/07/middle-east-timesspecial-report-what-do-high-oil-prices-mean-iraqs-future]
There are very few silver linings to current record-high oil prices — but a more stable future for
embattled Iraq may be one of them. Many experts believe that the country's growing oil revenues will yield
three benefits: an improving economy that can diminish some support for the insurgency, more
money to develop Iraq's security forces, and a greater willingness by other countries to invest in Iraq's
future.
The U.S.'s Energy Information Administration projects that crude oil prices will average about $127 a barrel in 2008 and $133 in 2009, up from the $72 average in
2007. With
the world's third largest proven reserves, and production having finally returned to 2.5
million barrels per day, Iraq's revenues will surely be greater than in past years. Iraq is expected to
draw $70 billion in oil revenue this year alone, and its government has announced plans to further
increase oil production.
This brings us to the first benefit that analysts foresee: a growing Iraqi economy.
One of the first things Iraq
will need to do is upgrade its equipment used for oil production. Much of this
infrastructure is antiquated, and there have been over 450 attacks on Iraq's pipelines, oil installations,
and oil personnel since the insurgency began.
Michael Makovsky, foreign policy director at the Bipartisan Policy Center and former special assistant for Iraqi energy policy in the Office of the Secretary of
Defense, told me that the funding needs of Iraq's oil infrastructure are tremendous.
"Some can come from foreign investors," he said, "but Iraq will have to put in a lot of money."
There are also multiple spending needs inside the country — including building power plants, meeting
Iraqis' healthcare needs, and undertaking a housing reconstruction project for displaced people.
Iraqi government spokesman Ali al-Dabbagh recently told Iraqi media outlet Buratha News that "next year's budget will focus on
economy, investment and services [while] the focus was security in previous phases."
A large federal budget means that funds should now be available to address Iraq's little-mentioned
healthcare crisis; currently each Iraqi receives an average of only $68 a year in medical services. It also means, as reported by Iraq's Radio Sawa, that the
government-sponsored food coupon program will receive additional support through a recent $21 billion supplementary federal budget.
Iraq's federal government will also be able to expand provincial budgets. According to Iraq's Al-Sabah newspaper, the
government's 2009 budget apportions $13.6 billion to provincial ministries — which will likely increase the national government's influence at a regional level.
The combination of expanded social programs and a generally improving Iraqi economy will signal to
citizens that the country's future is not destitute.
Iraqis, shaken by years of violence, may have a reason to participate in the reconstruction process; improving conditions may diminish both
direct and also "soft" support for the insurgency as citizens economically invested in Iraq's future.
Danielle Pletka, the American Enterprise Institute's vice president of foreign and defense policy studies, said, "The problem we had in Iraq
related to the space in which a relatively few extremists could operate, tolerated by locals. They will
no longer be tolerated if the locals are employed and invested in Iraq's success."
Some observers hope that a growing Iraqi economy may even diminish Iran's influence. A senior American military
intelligence officer expressed hopes that this new oil wealth could help incumbent Shias fund their campaigns in the next round of elections, and thus reduce Iran's
financial hold over them.
He argues that one
reason the Islamic Supreme Council of Iraq (formerly the Supreme Council for Islamic
Revolution in Iraq) was able to break with Iran was that the group began to run a budgetary surplus,
and could thus provide for its own funding needs.
The second benefit that many analysts see for Iraq from high oil prices is the government's ability to
invest in the security forces.
Bill Roggio, a civilian military affairs analyst and my colleague at the Foundation for Defense of Democracies, told me that the security forces want to upgrade.
"The Iraqi army is currently a motorized infantry force," he said. "It appears that the ministry of defense is
looking to transform several motorized divisions into mechanized and armored divisions. This can cost
billions per division, but now the Iraqi government will have the money to purchase the equipment."
Michael O'Hanlon, a senior fellow at the Brookings Institution, told me that as increased oil revenues allow Iraq's government to
spend more on its military, "it might help deflect the U.S. political pressure that Iraq isn't spending
enough money on its security forces."
The third benefit is that other countries will be more likely to help ensure Iraq's continued stability.
Perhaps this can be glimpsed in Kuwait recently naming its first ambassador to Iraq since the 1991 Gulf War, and in Norway, Bahrain, and the United Arab Emirates
considering reopening their embassies in Iraq.
The intelligence source quoted above said, "This
is likely due to a combination of oil prices and the improving security
situation in Iraq."
Makovsky said, "In a world where more oil is needed on the market, Iraq has the potential to be one of the
largest producers in the world."
As Iraq's oil production capacity increases through infrastructure investments, Iraq may earn not only a better seat in the global oil
market, but also at the diplomatic table.
However, the road paved with oil is slippery. One reason improvements should not be seen as inevitable is the possible return of heavy insurgent violence, while
another factor is the political situation and the government's ability to effectively spend its newfound wealth.
Marina Ottoway, director of the Middle East program at the Carnegie Endowment for International Peace, told me: "They key is the security situation, which is in
turn tied to the political situation."
Pointing out that there is currently a debate about how successfully Iraq's government is spending its budget, Ottoway said, "Greater revenue will not make a
difference unless the government is organized well enough to spend it."
Iraq may also face challenges specifically related to its increased oil wealth, as greater amounts of money pouring into the country will have an inflationary effect.
Lowering interest rates may help Iraq cope with the rising costs of consumer goods, but only for so long. The government must develop a long-term strategy for
stabilizing the economy
But despite
these uncertainties, high oil prices seem to be a significant boon for Iraq. They will provide
the country with unprecedented economic leverage that can in turn enhance stability.
Oil prices are key to Iraqi economy and stability – prefer macro models
Fezzani, prof econ, and Nartova 11 – *professor of economics at Taylor’s University in Malaysia, **professor of general education at
KIMEP in Kazakhstan [Brahim, Dilyara, 2011, European Journal of Social Science, “Oil Prices Fluctuation Impact on Iraq’s Economy,”
http://www.europeanjournalofsocialsciences.com/ISSUES/EJSS_26_4_14.pdf]
The fluctuations
of crude oil price in the global market have a direct impact on Iraq's economy (captured by
real GDP). A 1 % increase in WTI spot price at a given year entails an increase in Iraq's real GDP in the subsequent year by 0.17%, ceteris paribus. Positive
surges in the price of crude oil boost Iraq's real GDP in the subsequent period of time.
Exchange rates impact was found to be positive. That is, a 1% increase in the exchange rate of a given year generates an increase in Iraq's real GDP in the
subsequent year by 0.07%, ceteris paribus.
Increases in exchange rate theoretically should have a negative impact on the real GDP due to their negative
impact on exports, since relative prices of exported goods become higher. However, the positive relationship between exchange
rate and Iraq's real GDP can be explained by the fact that Iraq is a one-commodity exporting country,
namely oil, over which the highly global demand is inelastic to changes in lnExRate, exchange rate.
The dummy variable that accounts for wartime and peacetime showed a negative impact of wartime on Iraq's real GDP. Real GDP found to be
lower in times of war than periods of political stability.
Manufacturing
High prices key to US manufacturing – drive up production costs of outsourcing
De Meyer and Holweg, ‘8 – [Arnoud and Matthias, Financial Times, 7/30/2008, “A silver lining to high oil prices,”
http://www.ft.com/cms/s/0/6c0c2dd0-5c12-11dd-9e99-000077b07658.html#axzz1TWp4oIbq]
There seems little that can be positive for the UK manufacturing sector in oil prices above $120 a barrel, rising costs of other natural resources, inflation and
growing environmental pressure. But there
may be a silver lining. Increased transport costs resulting from higher energy
prices and carbon taxes may create an opportunity for a revival in western manufacturing. Most strategic decisions
in companies are influenced by new “paradigms”, or path-breaking new concepts, and globalisation was certainly the paradigm of the past decade. However,
the application of such paradigms tends to behave like a pendulum, swinging towards one extreme, and
eventually swinging back. Is it possible that the pendulum may swing back for global manufacturing? The
premise of global sourcing and exploiting lower labour costs for manufacturing in eastern Europe and the Bric countries – Brazil, Russia, India, China – was
largely built on the cost of transport, which dropped by a third between 1960 and the turn of the millennium. This was partly the result of the introduction of
containers and the rise of third-party logistics providers, which can ship goods reliably from one end of the world to the other without owning any of the
transport assets in between. Trade liberalisation and agreements further helped, as did stable currencies that reduced the risks in establishing global supply
lines. Yet in our and others’ research we found that none
of the companies that had gone global achieved the full cost
efficiencies they had envisaged. Some even found that “offshoring” their operations was more expensive than
sourcing or manufacturing locally, and subsequently returned to their home country. The cost of logistics may be a lot
more important than originally estimated. In a recent interview with the Financial Times (“Oil costs force P&G to rethink its supply network”, June 27) P&G
management claims that the company’s storage
and transport costs are currently higher that the operating expenses of
its factories. Others found that product cost was indeed much lower, yet this cost reduction was traded off with much reduced
quality. The recent highly publicised product recalls are but the tip of an iceberg. We found that companies commit two common mistakes when deciding
to source components from abroad. First, they tend to only calculate the “static” cost of a supply chain, which basically adds the unit cost ex-supplier factory
and the transport cost together. Here, the lower labour cost reduces the unit cost of the product, which generally offsets the higher transport cost of bringing
it into the UK from China. Often other costs are not considered or underestimated. An example of this is the additional cost for buffer stocks, as the supply
chain is inherently less able to respond to swings in demand or changes in technology. Also the risk of obsolescence or running out of stock drastically
increases, yet often is not factored into the calculation. The cost of quality defects rises tremendously when a defect is discovered in a shipped batch arriving in
Europe and costly air freight has to be used to refill the supply line. And the co-ordination cost of working over long distances is often taken for granted.
Second, companies tend to assume that costs remain stable and do not account for what we call “dynamic” costs. The
perception is that
countries in eastern Europe, China and India have inexhaustible labour pools that one can tap into at low
cost. While this is certainly still true for China and India, the assumption that all these workers are trained to
the needed level is naïve. Recent experiences in eastern Europe should serve as a warning sign: car manufacturers relocating to Slovakia, for
example, will find that local labour pools of trained workers have been virtually exhausted and inflation in the cost of trained labour is in double-digits as
manufacturers are competing for labour. The salary increases that Renault had to grant to its Romanian workforce in the Dacia factories suggest the same. In
India, trained staff will change jobs several times per year if they see the prospect of higher salaries elsewhere, with annual turnover of 20 per cent being
normal and labour cost inflation rising to 25 per cent a year in some regions, such as Bangalore or Pune. In China, a trained middle manager in the car sector,
Another factor that will gain increasing
importance is the carbon footprint: global supply lines might be cost-competitive but they certainly are not
carbon-competitive. With rising consumer conscience about the impact of patterns of consumption,
manufacturers with offshored operations will find it increasingly hard to justify sending products half-way
around the globe if they can be made as easily close by. So, despite all the gloom about a possible recession and rising energy costs,
there is indeed a surprising glimmer of hope in this that ties in with the recovery of competitiveness in the
manufacturing sector – which had long been dismissed as an obsolete part of a “service economy”. This is what
fluent in English and Mandarin, will earn more in Shanghai than in Wolfsburg or Birmingham.
we call “backshoring”: manufacturing will increasingly come back to where the markets are. This does not mean that all of it will come back, as the emerging
countries are also enormous markets and local production will serve local consumption there. Yet companies
will have to think increasingly
in terms of networks or portfolios of plants, and narrowly defined production costs will become less
important in deciding where to locate manufacturing. In order to develop this opportunity in the UK we will need to preserve the
skills and the tacit knowledge that is needed for manufacturing. And we may have to learn how to efficiently operate smaller flexible units that produce the
customised products for the local market.
US-China Trade
Oil prices encourage US-China trade
Wolverson 11 – writer at TIME Business [Roya, 5/12/2011, TIME Business, “Are High Oil Prices Good for U.S.-China Trade?”
http://business.time.com/2011/05/12/are-high-oil-prices-good-for-u-s-china-trade/]
In fact, when
it comes to trade with manufacturing-heavy countries like China, in some ways the uptick in oil
prices actually plays to the U.S.’s advantage. Even though the trade gap widened, U.S. exports grew at a record
4.7%, their biggest month-over-month gain in 17 years, while the trade deficit with China dropped by
4%. That’s because increased trade with China is driven by exports of U.S. services like insurance, banking,
and education (in other words, Chinese families sending their children to U.S. schools), which are far less commodity-intensive
than the factory-churned goods that give China its competitive export advantage. The steep rise in
commodity prices also helps U.S. export competitiveness by increasing pressure on China to use the
yuan’s value to fight inflation, a tool it has so far dismissed due to fears it may tank China’s export machine.
***Russia DA***
1NC Russia DA
Russian econ is growing
Bush 12 (Jason, “UPDATE 1-Wages power Russian economy, stoke inflation risk”, July
18th, http://www.xe.com/news/2012-07-18%2012:35:00.0/2811973.htm)
Data released by the Federal Statistics Service on Wednesday showed that already-rapid wage growth
accelerated further in June. Wages rose by 17.7 percent in nominal terms, and 12.9 percent in real
terms, from a year earlier. That reflects a tight labour market, with Russia's unemployment rate , 5.4
percent in May and June, at its lowest for four years . The rise in household incomes continued to fuel
strong growth in retail sales, which were up by 6.9 percent in June, slightly above analysts' forecasts. 'The
Russian growth story is now consumption growth,' said Natalia Orlova, chief economist at Alfa Bank.
'With almost 13 percent real salary growth in June, we can definitely expect that the Russian
population will continue to consume.'
<<INSERT LINK>>
Low oil prices wreck the Russian economy
CNBC 12 (“Analysis: Oil-price slide highlights risks to Putin's Russia,” July 2nd,
http://www.cnbc.com/id/48040295)
MOSCOW (Reuters) - Falling
oil prices could trigger a prolonged slump in Russia that would lay bare the
growing fiscal risks, threatening President Vladimir Putin's election promise to increase wages and fanning public discontent. The
world's largest oil producer is well-placed in the short run to withstand sliding prices, thanks to sizeable cash reserves and a flexible rouble. And
Putin, who returned to the Kremlin after March's election, is still widely popular. But the oil price has fallen by over $30 dollars in the last three
months, to close to $90 per barrel, and may fall further, narrowing his room for budgetary maneuver just as mass protests have underscored
dissatisfaction with the government. "This is not the best start for the new government," said Peter Westin, chief strategist Aton brokerage in
Moscow. "If
the oil price is temporarily at these levels, or even lower, it's not a huge problem. The issue
is whether it stays there." Oil and gas taxes account for around half of revenues raised by the federal budget, which Putin, as prime
minister, used to boost public sector pay and pensions as a way of overcoming the 2009 economic slump. Putin, who has taken a more populist
approach to dealing with his declining popularity, promised even more public sector pay rises as part of his election campaign. While that would
cushion the immediate blow of any slowdown, running down the fiscal reserves to maintain high social spending would only increase Russia's
long-term vulnerability to yet another oil price shock. "In the short term they can sustain a very low oil price, but they need to address the
structural problems in health, education and pensions," said Ivan Tchakarov, chief Russia economist at Renaissance Capital. "This is not a
sustainable fiscal policy, there's no question about it." DEPENDENCY The last time
oil prices fell so precipitously, in 2009,
Russia's economy slumped by a dramatic 8 percent. Collapsing oil was also a catalyst for Russia's 1998
economic crisis that ended in devaluation and default. Putin, in his annual statement on the budget on Thursday,
acknowledged that Russia's reliance on energy prices was one of its biggest policy headaches . "The
Russian budgetary system is highly dependent on the situation on world commodity markets," he said.
"This limits the opportunities for budget maneuver." For now, Finance Minister Anton Siluanov has earmarked $6 billion that could be spent in
2012 from a budget rainy-day fund should a deteriorating global economy drag on growth in Russia. "We hope we don't have to make use of
these measures, because the steps being taken by the government and central bank are sufficient," Siluanov said. He trimmed his 2013 budget
deficit forecast to 1.5 percent of gross domestic product, assuming an average oil price of $97 per barrel. The fiscal plan will help keep the
national debt, now around 10 percent of GDP, manageably low. BUFFER Analysts say the impact on Russia of lower oil prices may be milder
than during previous falls. "In the short term, in the next one to three years, we are fine," said Tchakarov. He noted that according
to
Finance Ministry calculations, every one dollar fall in the oil price means that the government loses
around 55 billion roubles ($1.7 billion) in oil-related taxes over the course of a year. With the budget presently
balancing at around $115 per barrel, an oil price of $90 per barrel, if sustained over a full year, would leave the government short to the tune of
around $40 billion a year. But that is still just a fraction of the $185 billion that Russia has stashed away in two fiscal reserve funds, designed to
stabilize the budget in just such an emergency. Even at $60 per barrel - the average oil price during the crisis year of 2009 - the reserve funds
could cover the shortfall for about two years. "I find this worrying about the budget at this moment a little beside the point," said Clemens
Grafe, chief Russia economist at Goldman Sachs. "The fiscal buffers they have to absorb this are going to be sufficient without cutting
expenditure." Analysts also point out that since the previous financial crisis in 2008-2009, the central bank has radically changed the exchange
rate regime, allowing the rouble to fall in line with the cheaper oil price. Since oil began its latest slide in mid-March, the rouble has lost around
15 percent of its value against the dollar. "The rouble weakened exactly in line with the oil price. And a weaker rouble is very good because it
will secure the rouble equivalent of oil taxes for the budget," said Evgeny Gavrilenkov, chief economist at Troika Dialog. SIGNIFICANT
SLOWDOWN Despite these buffers, most
economists expect that a sustained fall in the oil price would cause a
significant slowdown in Russia's economic growth - still a surprisingly resilient 4.2 percent in May. "Between $70
and $80 per barrel you will have a recession," said Westin from Aton. Russia's ability to maintain
government spending is limited by the so called non-oil deficit - a measure of the underlying state of
the budget once oil taxes are removed - that has ballooned from 5 percent of gross domestic product in
2008 to over 10 percent this year. Even before the latest decline in the oil price, the International Monetary
Fund and World Bank were urging Russia to scale back this underlying deficit by cutting down on
bloated government spending. In a recent interview with Reuters, Russia's deputy prime minister Igor Shuvalov
vowed that while the government intended to use its reserves to maintain expenditures this year,
next year's budget would be "very frugal, tight and responsible". That implies that sooner or later,
falling oil prices will force cutbacks that will hit the pockets of ordinary Russians . "The silver lining of a
failing oil price is that it does increase the urgency of social reform and budget cuts," says Kingsmill Bond,
chief Russia strategist at Citigroup. ($1 = 32.9862 Russian roubles)
Economic collapse triggers and accesses every scenario for conflict – this card is fire
Oliker and Charlick-Paley 2 (Olga and Tanya, RAND Corporation Project Air Force,
“Assessing Russia’s Decline,” 2002,
www.rand.org/pubs/monograph_reports/MR1442/)
The preceding chapters have illustrated the ways in which Russia’s decline affects that country and may evolve into challenges and dangers that
extend well beyond its borders. The
political factors of decline may make Russia a less stable international
actor and other factors may increase the risk of internal unrest. Together and separately, they increase the
risk of conflict and the potential scope of other imaginable disasters. The trends of regionalization, particularly the
disparate rates of economic growth among regions, combined with the politicization of regional economic and military interests, will be
important to watch. The
potential for locale, or possibly ethnicity, to serve as a rallying point for internal conflict is low at present, but
these factors have the potential to feed into precisely the cycle of instability that political scientists have identified as making states in
transition to democracy more likely to become involved in war. These
factors also increase the potential for domestic
turmoil, which further increases the risk of international conflict, for instance if Moscow seeks to united a divided
nation and/or demonstrate globally that its waning power remains something to be reckoned with. Given Russia’s conventional
weakness, an increased risk of conflict carries with it an increased risk of nuclear weapons use, and
Russia’s demographic situation increases the potential for a major epidemic with possible implications
for Europe and perhaps beyond. The dangers posed by Russia’s civilian and military nuclear weapons
complex, aside from the threat of nuclear weapons use, create a real risk of proliferation of weapons or weapons
materials to terrorist groups, as well as perpetuating an increasing risk of accident at one of Russia’s
nuclear power plants or other facilities. These elements touch upon key security interests, thus raising serious concerns for the
United States. A declining Russia increases the likelihood of conflict—internal or otherwise—and the general deterioration
that Russia has in common with “failing” states raises serious questions about its capacity to respond to an emerging crisis. A crisis in
large, populous, and nuclear-armed Russia can easily affect the interests of the United States and its
allies. In response to such a scenario, the United States, whether alone or as part of a larger coalition, could be
asked to send military forces to the area in and around Russia. This chapter will explore a handful of scenarios that
could call for U.S. involvement. A wide range of crisis scenarios can be reasonably extrapolated from the trends implicit in Russia’s decline. A
notional list includes: Authorized or unauthorized belligerent actions by Russia troops in trouble-prone Russian regions or in neighboring states
could lead to armed conflict. Border
clashes with China in the Russian Far East or between Russia and Ukraine,
the Baltic states, Kazakhstan, or another neighbor could escalate into interstate combat. Nucleararmed terrorists based in Russia or using weapons or materials diverted from Russian facilities could
threaten Russia, Europe, Asia, or the United States. Civil war in Russia could involve fighting near
storage sites for nuclear, chemical, or biological weapons and agents, risking large-scale
contamination and humanitarian disaster. A nuclear accident at a power plant or facility could
endanger life and health in Russia and neighboring states. A chemical accident at a plant or nuclear or nuclear-related
facility could endanger life and health in Rusisa and neighboring states. Ethnic pogrom in south Russia could force refugees
into Georgia, Azerbaijan, Armenia, and/or Ukraine. Economic and ethnic conflicts in Caucasus could
erupt into armed clashes, which would endanger oil and gas pipelines in the region. A massive
ecological disaster such as an earthquake, famine, or epidemic could spawn refugees and spread
illness and death across borders. An increasingly criminalized Russian economy could create a safe
haven for crime or even terrorist-linked groups. From this base, criminals, drug traders, and terrorists
could threaten the people and economies of Europe, Asia, and the United States. Accelerated Russian
weapons and technology sales or unauthorized diversion could foster the proliferation of weapons
and weapon materials to rogue states and nonstate terrorist actors, increasing the risk of nuclear war.
2NC Uniqueness – Econ Strong
Russian econ is strong now – hinging on oil exports
Conseilcoopipe.org 12 (“Take a Look Russian Economy Investation Chance”, July 19th,
http://www.conseilcoopipe.org/russian-economy-investation-chance/)
Key economic reforms are implemented within the Russian tax, banking, labor and land codes. Russia
has passed a brand new
Foreign Investment Law that defines procedures for participation of foreign investors within the
capital of Russian strategic sector corporations. This new law can produce a clear and predictable
business climate for foreign investors. Another important live to boost the business climate is that the
Russian tariff rate has been set at zero just like the import of some styles of technological equipment.
Past issues of doing business in Russia are reduced for 2 important reasons, per the U.S. State Department.
First, Russia has been making ready to hitch the planet Trade Organization by bringing rules and laws
into compliance with internationally accepted business practices. America and Russia concluded a
bilateral WTO accession agreement in late 2006. The second issue that has facilitated business transactions
in Russia is that the growth of tiny and medium sized businesses. like most countries, businesses that are tiny and
medium sized are typically a lot of innovative and fewer bureaucratic than huge companies. Stability of Russian Economy The Russian
economy has greatly improved since the tough times within the Nineties throughout the transition to
a free market system. Inflation and exchange rates have stabilized thanks to sensible fiscal policy, per
the U.S. State Department. within the past 9 years, the Russian GDP growth has averaged seven-membered. Since 2003,
Russia has had a budget surplus and has established an outsized stabilization/rainy day fund ($156 billion in
2007). this type of economic stability is incredibly inviting for international business . Russian Oil Exports
Russia is turning into a wealthy nation thanks to oil and gas exports, that became the engine that drives
the Russian economy. Russia is that the world’s largest energy exporter currently. though America is that the
world’s largest importer of energy, solely regarding three-dimensional people oil imports were from
Russia in February 2009. With improved US-Russian relations, there’s a a lot of chance a rise in oil exports from Russia to America. The US
government has been striving to scale back its dependence on the center East for oil and importing oil from Russia would support that goal.
Russian econ gaining momentum
PPW 12 (Property Portal Watch, “Is Russia’s Economy Still Growing?”, July 19 th,
http://www.propertyportalwatch.com/2012/07/is-russias-economy-still-growing/)
Moscow’s iconic State University has already become a landmark, but the last five floors of the building have remained exposed to the
elements since its developer Don-Stroi ran out of money and suspended work in 2008. However, in the last month,
Russia’s economy
has started to pick up momentum again. Like in most western countries, Russia’s real estate sector was
booming before the start of the global debt crisis. Prices soared and Russian developers and banks
were investing billions of dollars. “The crisis arrived at absolutely the worst possible time for the Russian real estate market,” said
Darrell Stanaford, Managing Director, CB Richard Ellis Russia. “In the spring of 2008 over a million square meters of new office space arrived on
the market – the biggest ever addition to the city, so when prices began to fall they collapsed completely.” Today, the new supply of office
space in Moscow is being steadily eaten up since despite the slower-than-expected growth, Russia’s
economy will still grow by at
least 3.5 percent this year. Moreover Moscow Mayor Sergei Sobyanin has frozen all construction permits until a new strategy for the
capital’s development can be worked out; Stanaford says there will probably be no new office space coming onto
the market until at least 2013. That is meant to push prices back up again. Prices for prime locations have already
passed their pre-bubble peaks. Office vacancy rates in Moscow have fallen to 12.5 percent from 25 percent at the end of 2009, according to
Renaissance Capital. A similar story is playing out in the residential market. The
volume of new construction accelerated
unexpectedly in July, rising by 17.6 percent year-on-year, according to analysts with Alfa Bank. Dozens of
projects were frozen in 2008-2009 as heavily indebted developers struggled to survive after their credits were cut off completely in the worst of
The prospects for more growth are good . Banks have reported an increase in mortgages all
year as Russians are once again investing their spare cash. At the same time Russia’s Mortgage Agency (AIZhK)
said earlier this year that the number of mortgage and housing loans will nearly triple to 741,000
loans by 2015 from the current 300,000 and continue climbing to 868,000 by 2020. While many American and
European mortgage holders are still under water, prices for residential property in Moscow have held up well; as the
the meltdown.
market is so small the owners of the better apartments simply took them off the market during the crisis, prepared to wait until the crisis
passed.
Gaining momentum – recent WTO membership
The Economist 12 (“A chance to get down to business”, July 14th,
http://www.economist.com/node/21558577)
FOR China, joining the World Trade Organisation in 2001 was a landmark on the way to becoming a
global economic powerhouse. Could WTO membership do the same for Russia? This week, after 18 years of dithering and
doubts, the Duma (the lower house of parliament) voted to ratify WTO entry, in principle guaranteeing
Russian products access to world markets. With Brazil, India and China already members, Russia will soon become
the final BRIC in the global-trade club. This offers the country a fresh chance at industrial
modernisation after two decades which started with chaotic reform and ended with spiralling corruption—and were marked throughout
by perilous dependence on extractive industries.
Prices Key to Econ
High oil prices key to Russian econ – low prices decimate it
Kramer 12 (Andrew, “Putin Needs Higher Oil Prices to Pay for Campaign Promises,”
March 16th, http://www.nytimes.com/2012/03/17/business/global/vladimir-putinsbig-promises-need-fueling-by-high-oil-prices.html?_r=3)
MOSCOW — In American presidential politics, high
oil prices are a problem. For Vladimir V. Putin’s new presidential term
will be a necessity — crucial to fulfilling his campaign promises to lift government spending by
billions of dollars a year. But doing that without busting the Kremlin’s budget would require oil to
reach and sustain a price it has never yet achieved — $150 a barrel, according to one estimate by Citigroup. No wonder economists
who specialize in Russia are skeptical. (On Friday, Russia’s Ural Blend export-grade oil was trading at $120 on the global spot market.) “ It’s
in Russia, they
very hard to overestimate how vulnerable the Russian economy is to external pressures” from the oil
price , Sergei Guriev, the rector of the New Economic School in Moscow, said in a telephone interview. “That
vulnerability is huge, which is why Russia must be very vigilant . The spending is a risk.” The promised spending is also
ambitious. Mr. Putin has laid out a program of raising wages for doctors and teachers, padding retirement checks for everyone and refurbishing
Russia’s military arsenal. The oil-lubricated offerings would even include a population premium: expanding the popular “baby bonus” payments
the Russian government provides to mothers, to include a third child. The payment, of up to $8,300 for housing or baby-related expenses, now
comes as an incentive only with each of the first two children. The additional cost of the expanded baby benefits alone will total $4.6 billion a
year, according to an estimate by the Higher School of Economics in Moscow. Most of Mr. Putin’s spending promises came at least partly in
response to the street demonstrations by young and middle-class protesters in Moscow and other big cities challenging his authority in the
weeks leading up to the March 4 election. His apparent aim was to shore up support from the rest of Russia: poorer and rural parts of the
country, and from state workers and the elderly. The
repercussions of his campaign promises, and an earlier commitment on
military spending, could be felt for years to come, giving price swings in oil a bigger role than ever on the
Russian economy. Taxes on oil and natural gas sales provide half of Russia’s government revenue. Each
increase in the Russian budget equivalent to 1 percent of the gross domestic product requires a rise in
the price of oil of about $10 a barrel on global markets — which is how Citigroup arrived at the $150-a-barrel figure for
meeting the new obligations Mr. Putin has taken on. Analysts worry that, even if the government can fulfill its promises, too little will remain
for a sovereign wealth fund that is intended as a shock absorber for the Russian economy and the ruble exchange rate during an oil price slump.
Russia needed to use that buffer as recently as 2008, during the financial crisis. “The concern is simple,” Kingsmill Bond, the chief strategist at
Citigroup in Russia, said in a telephone interview. “If the oil price that Russia requires to balance its budget is higher, the systemic risks that the
market faces are also higher.” The bank estimated that Mr.
Putin’s promises of higher wages and pensions, not
counting the military outlays, add up to additional spending equal to 1.5 percent of Russia’s gross
domestic product. That comes on top of an earlier pledge to spend an additional 3 percent of gross
domestic product a year re-arming the military. In all, the new commitments would add up to about $98
billion a year, Citigroup estimates. The spillover from the Arab Spring and the specter of an Israeli attack on
Iran’s nuclear development plants are propping up oil prices now. But over the long term, economic stagnation in
Europe could help bring them down. Even before the election, Russia’s government spending was up, helping reinforce Mr. Putin’s message
that he was the best candidate to deliver prosperity and stability. In January, the Russian military ministry, for example, doubled salaries in the
nation’s million-person army. It was ostensibly a long-planned move. But coming just two months before the presidential vote, the political
message was clear. Also smoothing the path for Mr. Putin’s victory was a national cap on utility rates that helped keep inflation at the lowest
level in Russia’s post-Soviet history for January and February, at a 3.7 percent annual pace. “Putin made large spending commitments,” the
Fitch rating agency said in a statement released the day after the election. “The current high price of oil cushions Russia’s public finances,” Fitch
said. “But in the absence of fiscal tightening that significantly cuts the non-oil and gas fiscal deficit,
a severe and sustained drop in
the oil price would have a damaging impact on the Russian economy and public finances and would
likely lead to a downgrade” of the nation’s credit rating. As Mr. Putin’s spending promises started to be introduced in
January, Fitch altered Russia’s outlook to stable, from positive. Mr. Putin has defended the proposed spending as necessary and just, given the
hardship of teachers and other public sector workers in the post-Soviet years. “A doctor, a teacher, a professor, these people should make
enough money where they work so they don’t have to look for a side job,” Mr. Putin wrote in a manifesto published during the campaign. But
in fact, the government will offset a portion of the pay raises, perhaps as much as one-third of their cost, by laying off some public sector
workers and trimming some other public spending. That was the word from Lev I. Yakobson, the deputy rector of the Higher School of
Economics, who helped draft the policy. That part of the plan, though, was never part of Mr. Putin’s stump speech.
Oil key to Russian Econ – half of government revenues
Schuman 12 (Michael, Time Business, “Why Vladimir Putin Needs Higher Oil Prices”,
July 5th, http://business.time.com/2012/07/05/why-vladimir-putin-needs-higher-oilprices/)
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 twothirds. Most of all, oil provides more than half of the federal government’s revenues. What’s more, the
economic model Putin has designed in Russia relies heavily not just on oil, but high oil prices. Oil
lubricates the Russian economy by making possible the increases in government largesse that have
fueled Russian consumption. Budget spending reached 23.6% of GDP in the first quarter of 2012, up
from 15.2% four years earlier. What that means is Putin requires a higher oil price to meet his spending
requirements today than he did just a few years ago.
Russian Economy Vulnerable
Russian econ extremely vulnerable
Kramer 12 (Andrew, “Putin Ally Warns of Political Fallout if Economy Falters”, May
24th, http://www.nytimes.com/2012/05/25/business/global/russias-aleksei-kudrinwarns-of-fallout-from-economic-crisis.html)
MOSCOW — The
economy in Russia is now as likely to sink into recession as it is to continue to grow, a
prominent former finance minister said on Thursday. The former minister, Aleksei L. Kudrin, made the remark
while presenting a report that also predicted a period of “destabilizing” politics if incomes declined in
Russia . An economic downturn would most likely swell the ranks of protesters who opposed the recent re-election of Vladimir V. Putin as
president and could spread the movement to rural areas from cities, where it has been centered until now, Mr. Kudrin said. Half a dozen
prominent academics and former senior government officials gathered at a news conference to present their findings, sounding the first highlevel alarm in Moscow’s political circles that Russia could suffer serious consequences if Greece exited the euro zone. Mr. Kudrin, a longtime
close ally of Mr. Putin, is a weighty figure in Moscow political and banking circles. He is
credited with anticipating the oil price
collapse in 2008 and helping to soften its effect on the Russian economy by saving profits in advance in sovereign wealth funds. That
added credibility to his predictions. The two crises in different parts of Europe — Russia’s simmering street protests and Greece’s
long-running sovereign debt trouble — are not often looked at through the same lens. The Russian political class, Mr. Kudrin
suggested, has been slow to recognize the severity of the economic troubles next door or how they
interact with a wobbly domestic political environment. The European Union is Russia’s largest trading partner. “A
recession has begun in Europe,” Mr. Kudrin said. “And the events in Greece from the last few days have shown
that it’s going to get deeper, that it will touch other countries more deeply and unfortunately can lead
to a new world crisis.” A recession in Russia is “possible and even likely,” Mr. Kudrin said, placing the probability
of a contraction that would be “a destabilizing factor for political problems” at 50 percent.
High Prices Key to Investment
High prices boost business investment
Kalish 11 (Ira, PhD and Director of Global Economics at Deloitte Research and is an
expert on global economic issues, “Reengeneering the path to recovery”, April 26 th,
http://www.deloitte.com/view/en_BN/bn/b358e40a1245f210VgnVCM3000001c56f00a
RCRD.htm)
Events in the Middle East that have resulted in higher oil prices are leading many analysts to make downward revisions
to their forecasts of economic growth around the world. However, this is not the case in Russia. Higher oil prices are likely to
have a positive impact on Russia’s economic performance in 2011. Unless oil prices climb high enough to create a
global recession and significantly reduce demand, Russia’s export revenue is expected to expand while government
revenue increases. This will have the effect of reducing the budget deficit, which in turn, could have a
beneficial impact on interest rates. The result could be a boost to business investment . On the other hand,
higher oil prices could have an inflationary impact. This would not be helpful at a time when inflation is already uncomfortably high.
Acceleration in growth will certainly be welcome given the recent performance. After a very deep recession in 2009, growth in 2010 was
somewhat disappointing. The summer drought dampened third quarter growth. By the fourth quarter, analysts expected a significant increase.
Instead, growth came in at 4.5 percent for the quarter and 4.0 percent for the year. The fourth quarter figure was lower than many observers
expected. Part of the problem was that rising inflation dampened real wage growth, thereby having a negative impact on consumer spending.
In the first few months of 2011, the economic performance appeared to be deteriorating. In the first two months of the year, real disposable
income declined and the unemployment rate rose. The drop in income was probably exacerbated by the increase in the payroll tax that took
effect in January (more about this later). In addition, fixed asset investment declined. Lastly, industrial production also dropped as businesses
evidently prepared for a deceleration in demand. Aside from the effect of rising oil prices, the prospects for a better economic performance are
not terribly good. One factor is that much of the growth in 2010 was related to inventory replenishment. Clearly, that cannot continue
indefinitely. Therefore, maintaining
a decent performance will require a boost to final demand. Higher oil
prices will help by holding the lid on taxes and increasing export volumes. In addition, if prices are
perceived as permanently higher, it could stimulate increased investment in energy production
capacity. On the other hand, high inflation will hurt real wage gains. In addition, higher payroll taxes will hurt, unless they are repealed as
proposed by the President (see below).
Impact – Nuclear War
Russian economic decline causes nuclear war
Filger 9 (Sheldon, author and blogger for the Huffington Post, “Russian Economy Faces
Disastrous Free Fall Contraction”, May 10th,
http://www.globaleconomiccrisis.com/blog/archives/356)
In Russia historically, economic health and political stability are intertwined to a degree that is rarely
encountered in other major industrialized economies. It was the economic stagnation of the former Soviet
Union that led to its political downfall. Similarly, Medvedev and Putin, both intimately acquainted with their nation’s history, are
unquestionably alarmed at the prospect that Russia’s economic crisis will endanger the nation’s political stability ,
achieved at great cost after years of chaos following the demise of the Soviet Union. Already, strikes and protests are occurring among rank and
file workers facing unemployment or non-payment of their salaries. Recent polling demonstrates that the once supreme
popularity
ratings of Putin and Medvedev are eroding rapidly. Beyond the political elites are the financial oligarchs, who have been
forced to deleverage, even unloading their yachts and executive jets in a desperate attempt to raise cash. Should the Russian
economy deteriorate to the point where economic collapse is not out of the question, the impact will
go far beyond the obvious accelerant such an outcome would be for the Global Economic Crisis. There is
a geopolitical dimension that is even more relevant then the economic context. Despite its economic vulnerabilities and perceived decline from
superpower status, Russia remains
one of only two nations on earth with a nuclear arsenal of sufficient
scope and capability to destroy the world as we know it. For that reason, it is not only President Medvedev and
Prime Minister Putin who will be lying awake at nights over the prospect that a national economic crisis can transform itself into a virulent and
destabilizing social and political upheaval. It just may be possible that U.S. President Barack Obama’s
national security team has
already briefed him about the consequences of a major economic meltdown in Russia for the peace of
the world. After all, the most recent national intelligence estimates put out by the U.S. intelligence
community have already concluded that the Global Economic Crisis represents the greatest national
security threat to the United States, due to its facilitating political instability in the world. During the years Boris Yeltsin ruled
Russia, security forces responsible for guarding the nation’s nuclear arsenal went without pay for months at a time, leading to fears that
desperate personnel would illicitly sell nuclear weapons to terrorist organizations. If
the current economic crisis in Russia
were to deteriorate much further, how secure would the Russian nuclear arsenal remain? It may be that
the financial impact of the Global Economic Crisis is its least dangerous consequence.
A2 Diversification Now
Diversification efforts are lip service – government inefficiency guarantees failure
Schuman, writer for TIME, 7/5 – writer for TIME [Michael, 7/5/2012, Time Business, “Why Vladimir Putin Needs Higher Oil Prices,”
http://business.time.com/2012/07/05/why-vladimir-putin-needs-higher-oil-prices/?iid=tsmodule]
The only way out of the trap is to decrease Russia’s dependence on oil. That will require a much higher
rate of investment, and especially private sector investment, to develop new industries and create
better jobs. Improving the poor investment climate, however, will take a long list of reforms, which
include fixing inefficient state enterprises, allowing greater competition, stopping the state from
crowding out the private sector, and fighting widespread corruption. Putin himself has repeatedly advocated for just such
reforms, as he did in a speech at the St Petersburg International Economic Forum in June:
“We are well aware of serious long-term and medium-term challenges for our economy. The economy is still not properly diversified. Much of the added value is
created in commodities sectors. There is a high proportion of non-competitive old plants and the level of Russia’s dependence on oil prices remains high. We must
reduce the dangerously high [budget] deficit if oil revenues are not taken into account. This…is the Achilles’ heel of our economy…We understand very well that we
must offer investors exclusive conditions to compete for these investments, so that the investors ultimately choose Russia. This is why we feel creating an
investment climate that is not just favorable, but truly better and more competitive, is a key issue in state policy…Today I want to reaffirm our principled position:
the state will gradually withdraw from a variety of industries and assets…Unfortunately corruption is without exaggeration the biggest threat to our development.
The risks are even worse than the fluctuation of oil prices.”
Yet Putin
and his political allies have said all this stuff before, and little has changed. Achieving Putin’s
stated goals will require drastic changes in the Putin state, changes he has so far shown little
willingness to make.
A2 Spare Funds
Spare funding is shrinking
Schuman, writer for TIME, 7/5 – writer for TIME [Michael, 7/5/2012, Time Business, “Why Vladimir Putin Needs Higher Oil Prices,”
http://business.time.com/2012/07/05/why-vladimir-putin-needs-higher-oil-prices/?iid=tsmodule]
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:
This cuts to the heart of a problem we have highlighted before – namely that Russia is now much more dependent on high and
rising oil prices than in the past… The fact that the share of ‘permanent’ spending (e.g. on salaries and pensions) has
increased…creates additional problems should oil prices drop back (and is also a concern from the
perspective of medium-term growth)…The present growth model looks unsustainable unless oil prices remain at or above $120pb.
***Venezuela DA***
1NC Venezuela DA
Venezuelas economy is stronger than ever
China Daily 12 (“Venezuela: land of opportunities”, June 28th,
http://www.chinadaily.com.cn/cndy/2012-06/28/content_15528290.htm)
Venezuela is a bridge connecting North America, South America and Europe, and its proximity to the Panama Canal facilitates access to all
those countries bordering the Pacific Ocean. The country has advantages in terms of rich and diverse natural
resources, including the largest oil reserves in the world, and the seventh largest in terms of natural gas. Furthermore,
the country has abundant resources in the following areas: hydroelectricity, minerals, aquifers, agriculture, forestry, climate and soil diversity,
and biodiversity in flora and fauna. It
also boasts huge tourism potential, massive hydrological resources, road
infrastructure, advanced welfare and education systems. The policy platform of social justice that has been
pushed by President Hugo Chavez since he came to power in 1999 requires the diversification of production and
the adoption of measures to develop a strong social economy. This was achieved through the setting up of micro
businesses, new kinds of cooperatives, peasant-run businesses, complementary measures in terms of financial provisions, technical assistance,
training, commercialization, and the reform of regulatory mechanisms. As a result of these policies, the
macroeconomic indicators
for the Venezuelan economy have registered an average growth of 10.42 percent over 21 consecutive
terms . Average inflation during the Chavez government has been the lowest recorded in almost two decades,
and Venezuelan GDP grew 47.8 percent between 2000 and 2007, according to statistics from the Ministry of
Popular Power for Planning and Development and the Central Bank of Venezuela. This growth trend in GDP
since 1999 was only interrupted by two incidents: an attempted coup d'tat in April 2002 and a strike in the oil sector at the end of that year and
beginning of 2003. These cost the republic more than $10 billion and brought a fall in the GDP of 8.9 percent. The decisions and actions taken
by the
Chavez government have managed to elevate Venezuelan GDP to fourth place among the Latin
American economies, behind Brazil, Mexico and Argentina and ahead of Chile, Colombia and Peru.
Private consumption has seen strong growth since 1999 due to factors such as lower inflation, the drop in
unemployment, the recuperation of workers salaries and a set of social policies aimed at guaranteeing
basic consumer goods for those sectors of the population who have traditionally suffered exclusion.
Venezuela's trade policy in the period from 2001 to 2008 has allowed for the creation of a solid basis for a
production model capable of generating self-sustaining growth, promoting product diversification and
achieving international competitiveness in the context of macroeconomic stability. This has facilitated
a resounding and wide-ranging reengagement in globalized international trade. Opportunities for
investment and trade in Venezuela are plentiful in sectors such as oil, electricity distribution,
petrochemicals, aluminum, iron, steel, agriculture, tourism and mass consumption services. And
Venezuela's extensive participation in regional and sub-regional treaties and agreements means that
many Venezuelan products can be exported with low tariffs and free from duties. Many of these
products also enjoy preferential access to North American and European markets.
And prices are high and stable
Vyas 12 (Kejal, Correspondent for Dow Jones Newswires in Caracas, Venezuela;
contributing to The Wall Street Journal, “Venezuela's Chavez Says Oil Production,
Income to Double by 2019”, July 13th,
http://www.firstenercastfinancial.com/news/story/49299-venezuelas-chavez-says-oilproduction-income-double-2019)
CARACAS, Venezuela--Venezuelan
President Hugo Chavez said Friday he expects his government to double its oil
production and income by 2019 as he reiterated calls for the price of the commodity to stabilize
between $100 and $120 a barrel . Mr. Chavez, who has begun campaigning for an October re-election bid despite a year-long
battle with an disclosed type of cancer, is relying on high oil prices to finance large spending increases on social programs. Crude oil makes up
95% of the South American country's exports. In an interview broadcast on state television, Mr. Chavez said that government-run
oil
monopoly Petroleos de Venezuela SA, or PdVSA, is on track to boost its output to 4 million barrels a day by
2014 and will begin to produce 6 million barrels a day in 2019. Venezuela's oil ministry stopped publishing monthly
production and export figures a year ago but has maintained that it is pumping around 3 million barrels day. Others, however,
like the Organization of Petroleum Exporting Countries and the International Energy Agency, have challenged Venezuela's statistics saying that
production is closer to 2.5 million barrels a day. Mr. Chavez
added that he expected his country's oil income to
double by 2019 and said "prices must consolidate at $100 to $120 a barrel." PdVSA, which publishes
financial statistics only once a year, said in April it recorded $124.8 billion in revenue in 2011, up 31%
from previous year. Profits, meanwhile, rose 43% to $4.5 billion as the state company benefited from
last year's record-high oil prices. That allowed PdVSA to boost social contributions to the central
government by 41% to $27 billion.
Alternative energies result in lower oil prices
Kole 7 (William, “Despite rising prices, OPEC appears to be in no rush to raise its
output targets,” September 8th,
http://www.nwitimes.com/business/local/article_65239e6b-bf00-5602-b6a4036eb072ef56.html
If you remember what happened in the 1970's (look it up if you don't) you will find the biggest fear OPEC has.
It is that oil prices will go up and stay high long enough to fuel investment into conservation and
alternative energy sources to the point that a critical mass is reached and the need for their oil is
greatly diminished or replaced by other energy sources they don't control. That's exactly what started
happening in the 1970's and it took OPEC opening up the tap to make oil cheap again over a decade to
reverse the trends. The result was that interest in conservation and alternative energy waned and investments dried up in the face of
cheap oil again. We are once again nearing that point and you can expect to see OPEC flood the market again if they
see us getting serious with conservation and alternative energy sources that compete with, or worse yet,
actually replace demand for their oil. OPEC walks the fine line between price and demand and wants to keep us hooked up to their
oil like a bunch of junkies on drugs while making as much money as possible.
Falling prices would wreck the Venezuelan economy
Mander 12 (Benedict, Financial Times Venezuela and Caribbean correspondent,
“Venezuela more prone to oil price jitters”, July 15th, http://www.ft.com/cms/s/0/415985c27a88-11e1-8ae6-00144feab49a.html#axzz21HvuJJyk)
There is little that Hugo Chávez, Venezuela’s notoriously long-winded president, talks about more than how his
“Bolivarian revolution” has won back the country’s independence from the “Yankee empire”. “We must
recognise that we are the new liberators and builders of the new fatherland,” the former tank commander told soldiers at a military parade this
month. But
the Opec nation remains more dependent than ever on something less easy for the fiery socialist leader to
demonise – oil. With fewer than 100 days to go until the October 7 presidential election, the
issue of Venezuela’s growing “oil
dependency” and the government’s record of economic mismanagement has come to the fore as recent
polls show Mr Chávez in a statistical tie with opposition leader Henrique Capriles Radonski. “There is no question about it.
Venezuela is not only more dependent on oil, but it is more dependent on the price of oil, as
production has not increased,” says Jorge Piñon, a research fellow at the University of Texas. The rise
in oil prices since Mr Chávez came to power in 1998 has been a boon in many ways, allowing him to bolster his popularity
by splurging oil revenues on social programmes, in to which state-owned oil company PDVSA funnelled some
$53bn between 2006 and 2010. The problem, however, is that PDVSA has neglected to invest in its core
business, causing production to decline: it spent just $1bn in exploration activities over the same
period. Venezuela produced 2.72m barrels a day in 2011, according to BP’s annual statistical review,
versus 3.48m bpd in 1998 when Mr Chávez was first elected. This has made the economy more dependent on oil
prices staying high. “Oil prices are the Achilles heel of the Venezuelan economy,” added Mr Piñon.
Venezuelan oil prices fell to a low of $86.17 a barrel last month, after peaking at $116.85 a barrel in
March. Despite Mr Chávez’s wishful prediction recently that oil prices should stabilise at around $100, fears
that prices will continue to slide have triggered concerns about Venezuela’s $340bn economy, which
relies on oil for 95 per cent of export earnings. London-based Capital Economics calculates that if Brent oil prices fall to $85 a
barrel, as they expect, the decline in Venezuela’s oil revenues would be equivalent to 2.5 per cent of gross domestic product. This is unlikely to
hinder Mr Chávez’s pre-electoral spending binge that is already well under way. Analysts are increasingly concerned that the populist leader is
sweeping the problem under the carpet. “Venezuela is going to need a meaningful adjustment next year, which will first involve devaluing the
currency,” says Boris Segura, an analyst at Nomura Securities. He adds that spending will also have to be cut back significantly, and fewer
dollars allotted for imports, possibly aggravating shortages of basic goods. Paradoxically, one import that could be squeezed is oil products. Lack
of investment by PDVSA has led to a decline in refining activities, and Venezuela imports 40,000 barrels per day of oil products, including petrol,
from the US, versus a previous high of 32,000 bpd in 2011, according to data from the US Energy Information Administration. Given that petrol
retails locally at 9 cents a gallon, or around $5 a barrel, but costs around $200 at international prices, Venezuela is losing some $2.5bn a year on
the trade, points out Juan Cristóbal Nagel, a Venezuelan economist and blogger. Still, analysts point out that should the government need to
prevent unpopular problems like shortages from worsening, it can always resort to borrowing more from countries like China, in exchange for
future oil deliveries, and the government can also issue more debt. José
Guerra, an economic adviser for the opposition, warns
that the government is ill-prepared for a fall in oil prices , and argues that the economy would be better managed by
the opposition, because it understands markets better. “This government only knows of one way to solve the
problem: printing money and getting into debt,” said Mr Guerra. “ Venezuela is in an extremely
vulnerable situation ,” he warns, calculating that for every dollar that oil prices fall, the government
forgoes some $800m in revenues each year .
2NC Uniqueness – Econ Strong
Venezuelan economy strong – holding up
Miami Herald 12 (“China plays increasing role in Venezuela’s economy”, July 12th,
http://www.miamiherald.com/2012/07/12/2893416/china-plays-increasing-rolein.html#storylink=cpy)
Venezuelan President Hugo Chávez’s socialist revolution, which has seized billions of dollars in assets from western
oil companies in the name of national sovereignty, is gradually giving control of its industry to China, a country
that plays an increasingly dominating role in decisions about development in the country. Experts consulted and documents obtained by El
Nuevo Herald break down Venezuela’s growing dependence on China’s financing and executive capacity, and how the Chávez administration’s
hunger for resources has led it to grant concessions to Beijing that are unfavorable to the South American oil country. Extending
the red
carpet to Beijing has allowed Chávez’s government to obtain nearly $80 billion in financing and direct
foreign investment. Yet the leader of the Bolivarian Revolution is sacrificing sovereignty along the way, heavily mortgaging the industry
under significantly more unfavorable terms than it is able to obtain in international markets, analysts said. Ironically, these agreements, which
translate into a revenue loss of billions of dollars, take place at a time when Venezuela
should have no need to seek
financing abroad. In recent years, Caracas has been enjoying an unprecedented oil bonanza , with a price
per barrel that increased from $12, when Chávez assumed power in 1998, to $95 now. The oil industry plays an
increasingly important role in Venezuela. Years of persecution of the private sector by Chávez’s government have turned oil,
previously the largest economic engine in the nation, into the only one actually working.
2NC Uniqueness – Venezuelan Oil Prices High
Venezuelan oil prices high – 58 dollars higher than 2012 estimates
PDVSA 12 (Press Office – Venezuelan Embassy to the U.S, “Venezuela’s Oil Minister:
Fair Oil Prices Must Reach $100 Per Barrel”, June 29th, venezuelaus.org/2012/06/29/fair-oil-prices-must-reach-100-per-barrel/)
The average price of Venezuelan oil is currently $108 per barrel, which is $58 more than what was
estimated in the country’s 2012 budget, the oil minister said. He added that even in the worst-case scenario, the
provisions adopted by the government of President Hugo Chávez will guarantee continued funding for social
programs and PDVSA’S oil and gas projects.
Impact – Oil prices k2 econ
Venezuelas economy is completely reliant on oil prices
Durig 12 (Randy, “Venezuelan Oil For Dollars Offers 11.4% Yield In Short-Term Yankee
Bonds”, June 25th, http://seekingalpha.com/article/682341-venezuelan-oil-for-dollarsoffers-11-4-yield-in-short-term-yankee-bonds)
Venezuela remains highly dependent on oil revenues, which account for roughly 95% of export
earnings, about 40% of federal budget revenues, and around 12% of GDP. Fueled by high oil prices, record
government spending helped to boost GDP growth by 4.2% in 2011, after a sharp drop in oil prices caused an economic contraction in 2009-10.
Government spending, minimum wage hikes, and improved access to domestic credit created an increase in consumption which combined with
supply problems to cause higher inflation - roughly 28% in 2011. President
Hugo Chavez's efforts to increase the
government's control of the economy by nationalizing firms in the agribusiness, financial,
construction, oil, and steel sectors have hurt the private investment environment, reduced productive
capacity, and slowed non-petroleum exports.
Political Instability Impact
Low oil prices lead to political instability
Blomerth 11 (Matthew, Yale Journal, “After the Oil Boom”, 2011, yalejournal.org/wpcontent/uploads/2011/01/094211blomerth.pdf)
The steep fall
in the price of oil since last summer, combined with a massive decline in productivity at PDVSA and irresponsible
the stage for economic catastrophe in Venezuela. Chávez seems to have
finally recognized the looming fiscal crisis and recently moved to trim the federal budget in
response.33 However, the Venezuelan president is caught in a trap of his own making. Chávez came to
power and has remained popular by redistributing oil income to the poor at heavy cost to the nation’s
savings and infrastructure. He cannot now alienate his political base by withdrawing government
spending of national savings, have set
handouts during a period of widespread economic hardship . The president already learned this lesson when, in
December 2007, the Venezuelan government’s failure to provide social services in the poorer urban neighborhoods of Venezuela cost Mr.
Chávez his first electoral defeat over a referendum to alter the national constitution. Even
more worrisome for Chávez,
prolonged periods of low oil prices have historically led to political instability in Venezuela . Chávez
himself attempted to capitalize on public discontent when he launched his failed military coup in 1992. He should now be rightly worried that
his political enemies may plan a similar move as the full consequences of Venezuela’s economic misfortunes take effect. Chávez
cannot
afford to stay in Venezuela unless he is in power. If Chávez were to leave office he would undoubtedly
be called to account for the vast corruption and misappropriation of state funds that have gone on
during his presidency. Previously, Chávez used his enormous popularity among the poor to inoculate him from his opponents, but if
he loses the support of his base he may have no choice but to further restrict democracy in Venezuela
and use heavier handed tactics to stay in office. In the end, whether Chávez stays in power or is forced
out of office, the big losers for Venezuela will be the democratic process and the legitimacy of Chávez’s
‘popular’ movement.
Democracy Impact Scenario
Venezuela is transitioning towards democracy
Petras 9 (James, retired Bartle Professor (Emeritus) of Sociology at Binghamton
University in Binghamton, New York and adjunct professor at Saint Mary's University,
Halifax, Nova Scotia, Canada who has published prolifically on Latin American and
Middle Eastern political issues, “Venezuela: Socialism, Democracy and the Re-Election
of President Chavez”, January 11th,
http://www.globalresearch.ca/index.php?context=va&aid=11745)
Venezuela is the one country in Latin America that best exemplifies the transition from oligarchic electoral
politics to democracy. During the preceding 40 years (1959-1998) the country was ruled by a two-party elite
(Democratic Action and Social Christian – COPEI), which competed to represent the petrol-rentier oligarchy, powerful
importers, and the real estate-financial speculative elite. The two parties were dominated by a predator political class, which pillaged the
public treasury. The economic collapse during the infamous decade of 1989-1998 resulted in a 10-fold increase in
poverty, which led to the mass uprising and state massacre of 1989 known as the ‘Caracazo’. This, in turn, paved the
way for the election of President Chavez in 1999. President Chavez took the first steps toward reforming the authoritarian
electoral system through a referendum and subsequent new constitution. Chavez’s opposition to Washington’s imperial ‘War on Terror’ was
part of a foreign policy designed to end US tutelage and affirm Venezuela’s national sovereignty. The colonial oligarchy sought to regain power
and return the country to its authoritarian past via a US-backed civil-military coup in April 2002. The coup was defeated. Chavez was restored to
power by a popular uprising backed by loyalist military officials. The President dismissed the coup participants within the government and
arrested their civilian collaborators. As a result, authoritarian organizations in civil society and the state were weakened. A
subsequent
lockout was led by an elite group of petroleum executives who sought to sabotage the economy and
overthrow the elected president. They were defeated by a joint effort of the Government and the
petrol workers. This victory further weakened the colonial oligarchs in the strategic oil industry. The defeat of
the strategic pillars of authoritarian electoral power led to the effective nationalization of the petroleum industry.
Through these victories President Chavez strengthened the process of democratization of the state
and civil society. Under the leadership of President Chavez the petroleum industry became more responsive to the social needs of the
majority of its citizens. Under democratic leadership the PDVSA (the national oil company) financed a vast number of
citizen educational programs enhancing democracy. With a powerful electoral mandate after his re-election and vast
increases in public revenues through public ownership and high world oil prices, President Chavez pursued policies, which
encouraged citizen participation through elected community councils providing a new dimension to
the process of democratization. Democratizing the electoral process and dismantling the oligarchic electoral system took several
directions: The encouragement, promotion and financing of a vast array of neighborhood cooperatives, peasant organizations and trade unions,
which increased the power and political influence of the working class and informal workers. Freed from upper class patronage and control, the
new social organizations equalized the effective role of the poor in the political process. Greater freedom and equality provided essential
ingredients in the strengthening of democratic politics. The weakening of the linkages between the oligarchic political and economic elites and
the military/Pentagon diminished the power of the authoritarian state over civil society. Electoral outcomes were less subject to the
intervention by undemocratic imperial agencies. Conversely the new mass organizations increased the importance of internal democratic
processes. While the US and EU continued to channel funds into opposition oligarchic NGOs this is countered by domestic mass social
movements and social programs funded by these democratically elected public institutions. Publicly financed television stations and the
proliferation of popularly controlled community radio stations have broken the oligarchy’s media monopoly. The result is more pluralistic,
balanced and diverse sources of information. Better-informed citizens can make more rational political decisions. Freedom of speech has been
greatly enhanced by the proliferation of political forums not controlled by the oligarchy. More diverse opinion leaders have greater access to
more organized groups and media outlets than ever before. Civil society has been enriched by the growth of multiple trade unions and
community-based groups. Competing voter lists in social movements have greatly increased internal democracy in civil society organizations.
Electoral competition within civil society has been greatly enhanced. Civil society has been strengthened in relation to the state. The
democratization of civil society movements has strengthened public debate and the electoral processes. Continuing Obstacles to
Democratization In contrast to past oligarchic electoral regimes, Venezuela
has moved decisively toward the
consolidation of its democratic transition.
Economic collapse prevents a successful transition
Blomerth 11 (Matthew, Yale Journal, “After the Oil Boom”, 2011, yalejournal.org/wpcontent/uploads/2011/01/094211blomerth.pdf)
The steep fall
in the price of oil since last summer, combined with a massive decline in productivity at PDVSA and irresponsible
the stage for economic catastrophe in Venezuela. Chávez seems to have
finally recognized the looming fiscal crisis and recently moved to trim the federal budget in
response.33 However, the Venezuelan president is caught in a trap of his own making. Chávez came to
power and has remained popular by redistributing oil income to the poor at heavy cost to the nation’s
savings and infrastructure. He cannot now alienate his political base by withdrawing government
spending of national savings, have set
handouts during a period of widespread economic hardship . The president already learned this lesson when, in
December 2007, the Venezuelan government’s failure to provide social services in the poorer urban neighborhoods of Venezuela cost Mr.
Chávez his first electoral defeat over a referendum to alter the national constitution. Even
more worrisome for Chávez,
prolonged periods of low oil prices have historically led to political instability in Venezuela . Chávez himself
attempted to capitalize on public discontent when he launched his failed military coup in 1992. He should now be rightly worried that his
political enemies may plan a similar move as the full consequences of Venezuela’s economic misfortunes take effect. Chávez
cannot
afford to stay in Venezuela unless he is in power. If Chávez were to leave office he would undoubtedly
be called to account for the vast corruption and misappropriation of state funds that have gone on
during his presidency. Previously, Chávez used his enormous popularity among the poor to inoculate him from his opponents, but if
he loses the support of his base he may have no choice but to further restrict democracy in
Venezuela and use heavier handed tactics to stay in office. In the end, whether Chávez stays in power or
is forced out of office, t he big losers for Venezuela will be the democratic process and the legitimacy
of Chávez’s ‘popular’ movement.
High Oil Prices K2 Foreign Aid
High oil prices ensure aid to Latin American and Caribbean countries – low prices
decimate that
Alvarez and Hanson 9 (Cesar and Stephanie, “Venezuela's Oil-Based Economy”,
February 9th, http://www.cfr.org/economics/venezuelas-oil-based-economy/p12089)
PDVSA has transferred billions of dollars to Fonden, the off-budget investment fund many experts say is
financing Chavez's social projects. According to International Oil Daily, an energy trade publication, PDVSA spent $14.4
billion on social programs in 2007 (as compared to $6.9 billion in 2005). These programs include projects such as
medical clinics providing free health care, discounted food and household goods centers in poor
neighborhoods, indigenous land-titling, job creation programs outside of the oil business, and
university and education programs. Increased oil revenues have also given Chavez the ability to extend
assistance programs outside Venezuela’s borders. For example, he provides oil at a preferential price to
many countries in the Caribbean through the Petrocaribe initiative. In 2009, a Venezuela-backed home
heating program to low-income households in the United States was briefly halted, a sign that low oil
prices may be forcing Chavez to reconsider (TIME) some of his social programs. In August 2007, the Associated
Press calculated that Chavez had promised $8.8 billion in aid, financing, and energy funding to Latin America
and the Caribbean between January and August 2007, a figure far higher than the $1.6 billion of U.S.
assistance for the entire year. Though it is impossible to determine how much of that funding was actually dispersed, the
difference in aid is striking. Chavez is also suspected of funneling money to the FARC, a Colombian guerrilla group, as well as
providing funds to Argentine President Cristina Kirchner’s election campaign in 2007—though he denies both charges.
A2 US-Venezuela Oil Ties already suck
US-Venezuelan oil trade ties strong – future predictive too
Alvarez and Hanson 9 (Cesar and Stephanie, “Venezuela's Oil-Based Economy”,
February 9th, http://www.cfr.org/economics/venezuelas-oil-based-economy/p12089)
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 Frepes-Cibils 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.
***Neg Case cards vs. Oil Advantage
Independency =/= no price shocks
Achieving oil independence doesn’t protect us from solve price shocks – only a risk of
our offense
Alic 12 (Jen, geopolitical analyst, co-founder of ISA Intel in Sarajevo and Tel Aviv, and
the former editor-in-chief of ISN Security Watch in Zurich, “Weaning off Middle East
Oil Means Less Than you Think”, July 1st, http://oilprice.com/Energy/CrudeOil/Weaning-off-Middle-East-Oil-Means-Less-Than-you-Think.html)
Here’s one point everyone must agree on (and Tillerson will be the first to agree): Crude
prices are determined globally and
prices are affected by factors that ignore origin. As such, to say that the US is no longer concerned about
disruptions to oil supplies from the Middle East is not only premature, it is wrong. Disruptions to
supply in the Middle East, for instance, reverberate globally, regardless of whether you are drilling at
home or importing. If Saudi Arabia were to undergo a latent Arab Spring scenario, or if, for instance, the
Houthi rebellion in Yemen were to effectively spill over into Saudi Arabia’s eastern oil-producing
province, which is incidentally dominated by a restive Shi’ite minority with sympathies for the Houthi cause, this would affect
supply, which would in turn affect the price of oil globally. The significant increase in oil production in
the US and Canada would shield the US from diminished access to supplies, but the end result would
be the same: a massive increase in prices for domestically produced oil. This is simple supply and
demand . ExxonMobil, for instance, is not going to sell its domestically produced oil at a lower price in order to stave off a crisis at home. It
will sell it for whatever price it can get, or it will export it for a better deal.
***Saudi Arabia DA
Prices Uniqueness
Saudi Oil revenues high now
Madhi 7/17 (Wael Madhi, writer for Bloomberg—a leading economic/business news source, “Saudi Revenue From Oil And
Products Rises 48%, OPEC Says”, July 17, 2012, http://www.bloomberg.com/news/2012-07-17/saudi-arabian-revenue-from-oil-andproducts-rises-48-opec-says.html)
Saudi Arabia’s revenue from exports of crude oil and other petroleum products jumped 48
percent in 2011 as shipment volumes increased over the previous year, OPEC reported.¶ The world’s largest crude exporter
shipped oil and products valued at $318.5 billion last year compared with $215.4 billion in 2010, the
Organization of Petroleum Exporting Countries said in its annual statistical bulletin. Saudi exports of crude and other
petroleum products rose 6.9 percent to an average of 8.12 million barrels a day last year, according to the data posted on
OPEC’s website yesterday.¶ Iran, the group’s second-biggest producer after Saudi Arabia, exported crude and petroleum products valued
at $114.8 billion compared with $72.2 billion the previous year, the data showed. Iran’s revenue increased even as the volume of the
nation’s shipments fell 8.5 percent, according to OPEC.¶ Revenue
for OPEC members in the Middle East last
year was the highest since 2007, according to the data. Revenue for Kuwait and the United Arab Emirates increased 56
percent last year to $96.8 billion and $104.5 billion, respectively, while Iraq’s revenue gained 59 percent to $83 billion, according to the
OPEC data.
Relations Uniqueness
US-Saudi relations strong now
Reed 12 (Matthew M. Reed, writer for the Foreigner—a international newspaper, “Note on US-Saudi relations after 2011”, January
23, 2012, http://alajnabee.wordpress.com/2012/01/23/note-on-us-saudi-relations-after-2011/)
My Saturday post on the likelihood of Saudi Arabia participating in a conflict with Iran got me thinking about a rumor which–to
my knowledge–remains unsubstantiated
by anyone in government willing to speak on record. According to a few
between Washington and Riyadh
supposedly collapsed in 2011, after the Obama administration abandoned Egypt’s Hosni
Mubarak and Saudi Arabia intervened in Bahrain without warning. I understand why the Saudis might be
sources whose comments were then recycled for months by the media, relations
disappointed with the U.S. taking a principled stance in Egypt, however clumsily it was articulated by an administration suffering
whiplash. And I’m sure the Pentagon was surprised by the GCC’s Peninsular Shield Forces suddenly entering Bahrain back in March.
But I can’t believe these two episodes have damaged relations as much as is claimed .¶
Firstly, the stakes are too high in the region and the U.S and Saudi Arabia are still animated
by terrorism, the Iranian threat, and oil. Secondly, U.S.-Saudi relations are more
institutionalized than ever, with cooperation taking place not just at the executive level, but most often–and
most importantly–at the bureaucratic level, among mid-level officials. This allows the relationship to
continue on “autopilot,” even when there are hiccups at higher levels of officialdom. Finally, let’s remember the relationship
has always suffered from a certain amount of friction. The Palestinian issue is a chronic irritant to name but one. And yet in spite of this
and the seeming incompatibility of U.S. and Saudi government traditions, cultures, and faith, the relationship endures, buoyed by
permanent interests which have overlapped for decades.¶ This is not a “Pakistan scenario.” The U.S. and Saudi
Arabia agree
on what constitutes a genuine threat. There is no double game to be played. And there is no
alternative to American military might in the Persian Gulf, which will remain in place for years. Unlike relations with Pakistan, U .S.Saudi relations are characterized by mutual respect–rather than convenience or unfortunate circumstances that
force cooperation. I’d like to know what more people think about this issue since claims made last year have seemingly crystallized into
conventional wisdom. I can’t say how many times I’ve heard the canard repeated. But it did prompt me to write last July about why I
believe U.S.-Saudi relations will continue moving forward. I still stand by that post, titled “Nowhere Near Rock
Bottom.”
US-Saudi relations high now—laundry list
Reed 11 (Matthew M. Reed, writer for the Foreigner—a international newspaper, “Nowhere Near Rock Bottom”, July 1, 2011,
http://alajnabee.wordpress.com/2011/07/01/nowhere-near-rock-bottom/)
Rumor has it American-Saudi relations have reached rock bottom. As told and retold, the Saudis grew
anxious after Mubarak’s exit in February. Their friend’s demise was a worrisome signal for the Kingdom: the United States, their longtime ally and architect of the status quo, was suddenly a reluctant agent of change.
The region may be changing but
there is little reason to believe the relationship is deeply troubled. Mutual concerns
guarantee cooperation at the highest levels.¶ Like other alliances, US-Saudi policies are not always synchronized.
But the Saudi response to the Arab Spring has been more mixed than critics admit. The Kingdom did indeed
send troops to Bahrain in March, thus giving Bahrain a freer hand for crushing dissent. Other moves have been less
controversial and consistent with American aims. On June 10, Bahrain’s Foreign Minister told the Washington
Post that a Saudi-sponsored GCC aid package would be especially helpful for improving the conditions of the second-class Shia minority.
King Abdullah also pledged $130 billion for increased salaries, housing, and religious institutions at home—all of which are bloodless
investments even if they are counter-revolutionary. Only if the Saudis cross the threshold of violence might the US reassess the
relationship but the chances of that are slim.¶ Roosevelt meets Abdul Aziz on the USS Quincy in 1945¶ President Obama responded in a
manner befitting the leader of the free world. On May 19, two months after the Bahraini intervention, Obama criticized
Khalifa regime specifically for its “mass arrests and brute force.” He also offered the following: “The United States
the
supports a set of universal rights. And these rights include free speech, the freedom of peaceful assembly, the freedom of
religion, equality for men and women under the rule of law, and the right to choose your own leaders—whether
you live in Baghdad or Damascus, Sanaa or Tehran.” Note the absence of Riyadh in that
statement. Also note the idealistic tone, so very different from Saudi pragmatism.¶ Diverging American and Saudi responses should
raise alarms. But this is not the whole story. The Saudis have also played a positive role in Yemen, where the
stakes are high. This partially explains why the US has not criticized the Kingdom outright.
Relations are further buoyed by shared strategic interests like counter-terrorism, Iran, and oil. These
issues will not go away soon and the Arab Spring will likely force the two countries to cooperate even
more.¶ In Yemen, the Saudis negotiated an exit plan for President Ali Abdullah Saleh, and, after he failed to sign on, they seized the
opportunity presented by a new crisis. Secretary Clinton praised the Saudi-led initiative on May 22 when she said, “The concerted efforts
of the international community, led by the GCC, have been tireless.” Saleh refused to sign three times, resulting in chaos. On June 3, he
was badly wounded in an attack on his presidential compound, and two days later he arrived in Saudi Arabia for treatment. The ultimate
test will be whether or not he is allowed to return home. The Saudis now enjoy more leverage over Saleh than they could have ever
hoped for and they need a peaceful resolution in Yemen. The US wants the same.¶ Terrorism colors all talk about Yemen and al Qaeda’s
Yemeni affiliate remains active and dangerous. Saudi Arabia’s tribal affiliations there and millions of dollars spent over decades in Yemen
grant it some influence. More importantly, these relationships offer the Saudis real insight into the inner workings of a country edging
toward oblivion. Saudi
intelligence—combined with American assets and the ability to strike
militant targets—will prove decisive if al Qaeda flexes its muscle. Further CT cooperation is predestined.¶ Other than al
Qaeda, Iran remains a major preoccupation for American and Saudi leaders. For President Obama, a
nuclear Iran is “unacceptable.” King Abdullah has even urged the US to bomb the Islamic Republic. But the
Arab street generally rejects this urgency. The 2010 Arab Public Opinion Poll found that 57 percent of Arabs believe Iran’s acquisition of
nuclear weapons would be “positive” for the region. This is bad news for American and Saudi leaders if the Arab Spring produces
governments that reflect the popular will. With Egypt sidelined, they may find themselves the only two major powers opposed to Iran.¶
Oil and Saudi spare production capacity make further cooperation automatic . For decades
now the Saudis have been sensitive to market disruptions (e.g. the Gulf War) and pricing that
could make oil unattractive. That said, Saudi Arabia was thwarted by OPEC price hawks last month. The country’s Oil
Minister, Ali al Naimi, was especially blunt. He told reporters, “This is one of the worst meetings we have ever had.” Saudi Arabia, Kuwait,
Qatar, and the UAE proposed an increase of 1.5 million barrels per day but the meeting broke down after Iran and others rejected the
motion. The Saudis plan to increase production regardless of OPEC’s reservations since they and their GCC companions have the power
to pump more oil. (The rest of OPEC’s members operate at or near maximum capacity.) ¶ The US and
Saudi Arabia remain
status quo powers where it counts: both countries need a resolution in Yemen; terrorism demands
cooperation because other countries are focusing inward; joint efforts may become the only option if Iran becomes less of a
priority for others; and Saudi spare capacity could make or break the global recession, not to mention
President Obama’s reelection prospects. For all these reasons, US-Saudi relations will come nowhere near
rock bottom.
Prices Key to Econ
High oil prices are key to the Saudi economy
IMF 11 (International Monetary Fund, The International Monetary Fund (IMF) is an organization of 188 countries, working to foster
global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable
economic growth, and reduce poverty around the world; “Saudi Arabia Addressing Jobs, Housing as Economy Rebounds”, September 21,
2011, http://www.imf.org/external/pubs/ft/survey/so/2011/int092111b.htm)
Higher oil prices—together with strong support from public spending—have helped Saudi
Arabia’s economy rebound strongly from the global economic crisis.¶ With GDP projected to grow 6.5
percent in 2011, Saudi Arabia is working to consolidate its gains, focusing on economic diversification and sustained growth while
seeking to help stabilize the international oil market. The authorities are
also initiating new measures to
address the economic issues facing this fast-growing country, such as high youth unemployment and
growing housing demand.¶ To mark the first time the IMF’s annual assessment of Saudi Arabia’s economy has been published, IMF
mission chief David O. Robinson sat for an interview.¶ IMF Survey online: What is the near-term outlook for the Saudi economy?¶
Robinson: The
near-term outlook is very strong. There is a positive impact from higher oil
prices, which started recovering in 2010 from their sharp drop the previous year. In addition, as unrest erupted in Libya, Saudi Arabia
announced that it would increase its oil production in order to offset any shortfall in the market, and production has increased
substantially in recent months. So oil revenues are
increasing from both price and volume effects.¶ These high oil
revenues have translated into a strong surplus in the fiscal accounts and a current account
surplus of 20 percent of GDP. With no official external debt and reserves that amount to nearly 2½ years of import cover,
the authorities can afford to invest in social initiatives.¶ IMF Survey online: What risks does the economy face?¶
Robinson: The key external risk to the economy is a large and sustained drop in oil prices . When
oil prices fell sharply in the early 1980s and then remained low, Saudi Arabia ran fiscal
deficits for almost twenty years, accumulating government debt of more than 100 percent of
GDP. The economy is somewhat different now, with substantial buffers built up over the last several years. The authorities were able,
for example, to respond in 2009 to the sharp fall in the price of oil as global demand fell by raising public spending levels, which provided
important support for the private sector. But insofar as it
accounts for 80-90 percent of fiscal revenues, oil
will always remain a key risk.¶ More generally, there is also a risk of a pickup in inflation. Inflation has so far remained
below 5 percent—despite pressures from imported food prices, which carry significant weight in consumer spending. Increased fiscal
spending and high liquidity in the banking system also pose an inflation risk. ¶ IMF Survey online: The government unveiled earlier this
year a package of fiscal measures aimed at creating jobs for youth, strengthening the social safety net, and resolving the housing
shortage. How serious a problem is unemployment?¶ Robinson: Unemployment has been around 10 percent among Saudi nationals for a
number of years. And when you look at the structure of it, it is very much a youth issue with a gender dimension—there’s almost full
employment of men aged 29 and older. High population growth rates—half the population is below the age of 15—and increasing
participation of women in the labor force will only add to pressures to address the unemployment problem.¶ It is not that the economy
has not created jobs. But Saudi Arabia—like many of the other Gulf Cooperation Council (GCC) economies—has a large expatriate labor
component that has grown very rapidly over the past decade. While earlier in the country’s development, the reliance on expatriate labor
reflected a shortage of skilled labor, this is less true now. Indeed, spending
on education has risen sharply. There
have been many initiatives to expand existing universities—particularly in the areas of
science and technology—as a way of getting a higher skill set. The basic issue now is how to create growth
in high-productivity, high-wage sectors that can absorb increasing numbers of educated Saudis.¶ IMF Survey online: The fiscal package
also contains measures to address the country’s housing shortage, which has been a perennial problem. ¶ Robinson: A growing
population and other factors have exacerbated the housing shortage, especially for low-and middle-income households. Until very
recently, access to housing finance has been tightly constrained with very little mortgage financing
available. Some subsidized loans were available through the Real Estate Development Fund (REDF), a state-funded entity. But they had a
very long waiting list, and loan amounts were not necessarily sufficient to cover construction costs. As part of the fiscal package that was
introduced earlier this year, the funding to the REDF was increased, and the loan amount raised. In addition, new mortgage legislation is
expected to be passed soon, which should significantly improve the housing finance framework. ¶ The fiscal package is also trying to
address shortages in the available stock of housing. A Ministry of Housing has also been created which will deal with housing issues in
the Kingdom. So the housing issue is being addressed on both the demand and the supply sides. We hope that the combination of these
initiatives helps resolve the issue.¶ IMF Survey online: Are energy prices an issue?¶ Robinson: Petroleum product prices in Saudi Arabia
are not only among the lowest in the world, they are lower than those of other oil producers in the region. This is contributing to the very
rapid increase in domestic consumption of energy products both for household and industrial use. Allowing
prices to rise—
with an appropriate mechanism in place to support lower income groups—would encourage
greater energy efficiency and the government could use the additional revenue on
something else, such as education or health.¶ IMF Survey online: Has there been progress on a GCC-wide value
added tax (VAT)?¶ Robinson: The GCC-wide VAT has been under discussion for several years, and there is a strong rationale for such a
tax. It would introduce a modern and efficient tax system, broaden the tax base, and provide an opportunity to remove some of the
smaller taxes. It would also be an important step forward in creating a tax base that’s not directly linked to the oil sector.¶ The GCC
countries are working closely together to study this issue. There are working-level agreements on items such as the list of exempt goods
and the basic structure of the tax, but the implementation timeframe is as yet uncertain. ¶ IMF Survey online: What is the country doing to
encourage private sector development and lessen its dependence on oil?¶ Robinson: Saudi Arabia has—at the current pace of production
and with current technology—proven reserves of another 70 to 100 more years of oil production. So oil will be
a big part of
the economy for the foreseeable future. But, in addition to concern about dependence on a single commodity, the oil
sector does not create enough employment opportunities for the growing population. ¶ Initiatives to encourage economic diversification
have been under way for many years and Saudi Arabia’s business climate is generally ranked fairly high. We are seeing some expansion
in areas such as services and, to a lesser degree, manufacturing. Trade patterns are also shifting, with strong growth in trade with Asia as
well as with the Middle East that can add additional dynamism to the economy. Integration initiatives within the GCC can also provide
opportunities for growth.
The Saudi economy is dependent on oil
Carey 12 (Glen Carey, correspondent for Bloomberg—a leading economic and business news source, “The Saudis Need Those High
Oil Prices”, February 23, 2012, http://www.businessweek.com/articles/2012-02-23/the-saudis-need-those-high-oil-prices)
The world last year watched to see if Saudi Arabia would suffer the same instability that swept away other regimes in the Middle East.
The question
now is whether the world’s largest oil supplier needs to raise prices to sustain
ramped-up spending intended to calm its citizens. Higher prices would be bad news for Western governments,
which need affordable oil to nurture their economic recoveries. ¶ The Saudis rarely spell out exactly what they are
thinking on the topic, but there are signs their strategy has changed, and they are
increasingly willing to raise prices. Still, they seem not inclined to let prices go sky-high. A year ago Saudi oil
minister Ali Al-Naimi said oil at $70 to $80 a barrel was fair. Then on Nov. 21, Al-Naimi said
he was “very happy” with current crude prices; on that day oil traded close to $98 a barrel.
Prices are now around $106 a barrel.¶ The evolving price targets have everything to do with the Saudis’ “budget needs”
in response to the Arab Spring, says Robin Mills, an analyst at Manaar Energy Consulting in Dubai. In February 2011, King
Abdullah returned home from medical treatment in the U.S. to announce a spending plan that
would quiet the restive parts of the Saudi population. By the end of 2011’s first quarter the kingdom had allocated $130 billion in
additional spending to build homes and combat youth unemployment. Government spending increased 28 percent
last year to 804 billion riyals ($214 billion), while government revenue surged 51 percent, to 1.1 trillion riyals, according to Ministry of
Finance Data.¶ The spending has achieved its political purpose: The House of Saud’s eight-decade rule survived unscathed as Hosni
Mubarak and Muammar Qaddafi were toppled, despite sporadic protests in the Shiite areas of Saudi Arabia’s Eastern Province. The
Saudi economy expanded 6.8 percent in 2011, central bank data show. Government employees were
even awarded two months in bonus pay last year—an act of generosity that cost the government an extra 224 billion riyals over
budgeted expenses .¶ Oil sales
make up 80 percent of Saudi government revenue , says Faisal Hasan, head
of research at Kuwait-based Global Investment House. Two years ago the kingdom needed an oil price per barrel of around $70 in order
to pay for its budget without tipping into deficit. For 2011, the
Saudis’ break-even oil price was estimated by
the International Monetary Fund to have risen to $80 a barrel, a figure that will increase to
$98 a barrel by 2016. Saudi Arabia will have to keep spending heavily if it is to create 3 million jobs over the next three years, King
Abdullah’s stated goal. The Saudis are spending on defense too: the U.S. has agreed to sell the country 84 F-15 fighter
jets for $29.4 billion.¶ Raising oil prices too high could backfire. The last global economic crisis caused prices to fall from nearly $150 a
barrel in July 2008 to less than $40 by the end of that year. The possibility of that happening again has the Saudis trying to keep prices
high but not so high they impair global growth. Says Mills, “They don’t want prices to go above $100, and they are above $100 at the
moment. Saudi Arabia pretty much is at a record production level and so is Kuwait. And the United
Arab Emirates have been increasing too. So the Gulf allies are trying to maintain relative moderate prices.” The Iranians and Venezuelans,
members of OPEC but traditional adversaries of the Saudis, have no interest in a lower price. The Saudis have a precarious balancing act
to pull off.¶
The bottom line: Saudi Arabia is spending at least $130 billion on a jobs and housing
program at home, an effort that relies on expensive oil.
Saudi economy dependent on oil
Carey 12 (Glen Carey, correspondent for Bloomberg—a leading economic and business news source, “IMF Forecasts Middle East
Growth to Accelerate in 2012”, April 17, 2012, http://www.businessweek.com/news/2012-04-17/imf-forecasts-middle-east-growth-toaccelerate-in-2012)
The International Monetary
Fund forecast that economic growth in the Middle East and North
Africa will accelerate to 4.2 percent this year from 3.5 percent in 2011.¶ The economies of oil
importers will expand by 2.2 percent and crude exporters by 4.8 percent, the Washington-based IMF said in its World
Economic Outlook report today. Egypt’s growth will slow to 1.5 percent, it said, predicting growth rates of 11 percent for Iraq, 6.6
percent for Kuwait and 6 percent for Saudi Arabia and Qatar.¶ “Among oil importers, strong oil prices, anemic tourism
associated with social unrest in the region, and lower trade and remittance flows reflecting ongoing problems in Europe are major
constraints,” the IMF said. “For oil exporters, risks revolve around the price of oil.”¶ Egypt’s Hosni Mubarak and
three other regional leaders have been ousted since the start of last year by popular movements that were partly fueled by the world’s
highest youth jobless rate. Saudi
Arabia, the biggest economy in the Middle East, increased
government spending by 23 percent as the kingdom’s rulers sought to create jobs and build houses in order to avert the
kind of popular uprising that swept other Arab countries. ¶ “The primary challenge is to secure economic and social stability, but there is
also a short-term need to place public finances on a sustainable footing,” the IMF said. “For oil exporters, governments
need to seize the opportunity presented by high oil prices to move toward sustainable and
diversified economies.Ӧ Economic growth in the region will slow to 3.7 percent in 2013, the IMF forecasts.
High oil prices have hugely benefitted the Saudi economy
Khawaja 6/4 (Moign Khawaja, chief editor of Arabian Gazette - Middle East business, politics, society and technology website,
“High oil prices boost Saudi current account surplus to record levels”, June 4, 2012, http://arabiangazette.com/saudi-current-accountsurplus-high/)
A Saudi
bank reported the country’s current account surplus was set to rise around 33% of
gross domestic product (GDP) in 2012 from 27.8% of GDP in 2011.¶ The Saudi American Bank Group (SAMBA) said
in its quarterly report on Saudi Arabia that the fiscal surplus will surge from 14.8% of GDP to 19.9%
in 2012 before dropping to 14.2% in 2013.¶ The report further added that strong oil prices will balloon Saudi
Arabia’s net foreign assets by $356 billion during the next two years to just below $1 trillion - an all-time high figure
for the desert kingdom.¶ Saudi Arabia’s foreign assets soared to just under $100 billion through 2011 thanks to
high oil prices.¶ The report suggested that the assets controlled by the Saudi Arabian Monetary Agency could peak $926 billion at
the end of 2013, accounting for nearly 144% of the Kingdom’s projected GDP of $642 billion in 2013. ¶ Saudi Arabia got an all
time boost in foreign assets thanks to higher oil prices and production. The country’s foreign assets
skyrocket by nearly SR352 billion ($93.85bn) in 2011 to a record high of SR2,057 billion ($548.46bn) before hitting another
record of SR2,154 billion ($574.32bn) at the end of March this year.¶ The whopping rises are the biggest annual increases in the
foreign assets since 2008, when they surged to SR513 billion ($136.78bn) mainly because of a 50% rise in crude prices that allowed the
largest Arab economy to record its highest fiscal surplus of SR580 billion ($154.65bn). ¶ The report highlighted that the
last year’s
increase was also more than double the assets growth of around SR135 billion ($36bn) through 2010,
when they ended the year at SR1,705 billion ($454.61bn) compared with SR1,570 billion ($418.61bn) at the end of 2009 .¶ Saudi
Arabia widened its fiscal surplus to nearly SR307 billion in 2011 from thanks to a surge in oil
prices along with one million bpd increase in the kingdom’s crude production. The current account surplus also shot
up to $156 billion from $69 billion during the same period.
Oil Key to Relations
Oil trade is central to US-Saudi relations
Bureau of Near Eastern Affairs 12 (Bureau of Near Eastern Affairs, branch of the U.S. department of State--US policy
on current issues in the Middle East. Includes country overviews, press releases, human rights information and tips for travelers, “U.S.
Relations With Saudi Arabia”, June 29, 2012, http://www.state.gov/r/pa/ei/bgn/3584.htm)
U.S.-SAUDI ARABIA RELATIONS¶ The United States and Saudi Arabia established full diplomatic relations in 1940. Saudi
Arabia's
of the world's largest reserves of oil, and its strategic
location make its friendship important to the United States. The two countries share common
concerns and consult closely on regional security, oil exports and imports, and sustainable development, including
issues such as the Middle East peace process and shared interests in the Persian Gulf. Saudi Arabia is a strong partner in
counterterrorism efforts, providing military, diplomatic, and financial cooperation. It works closely with U.S. law enforcement
unique role in the Arab and Islamic worlds, its possession
to safeguard both countries' national security interests. ¶ U.S. Assistance to Saudi Arabia¶ The United States and Saudi Arabia have a
longstanding security relationship. The U.S. Army Corps of Engineers plays a role in military and civilian construction activities in Saudi
Arabia. Three security assistance organizations are funded through the U.S. Foreign Military Sales program: to provide training and
support in the use of weapons and other security-related services to the Saudi armed forces; to assist in the modernization of the Saudi
Arabian National Guard; and to train and equip a Facility Security Force, part of the Ministry of Interior. The United States has sold Saudi
Arabia military aircraft, air defense weaponry, armored vehicles, and other equipment.¶ Bilateral Economic Relations¶ The
United
States is Saudi Arabia's largest trading partner, and Saudi Arabia is one of the largest U.S.
export markets in the Middle East. The United States and Saudi Arabia have signed a Trade Investment Framework
Agreement. The continued availability of reliable sources of oil, particularly from Saudi Arabia, is
important to the prosperity of the United States as well as Europe and Japan. Saudi Arabia is
one of the leading sources of imported oil for the United States, providing more than one
million barrels per day of oil to the U.S. market.¶ Saudi Arabia's Membership in International Organizations¶ Saudi
foreign policy objectives are to maintain its security and its paramount position on the Arabian Peninsula, defend general Arab and
Islamic interests, promote solidarity among Muslim countries, and maintain cooperative relations with other oil-producing and major
oil-consuming countries. Saudi Arabia and the United States belong to a number of the same international organizations, including the
United Nations, International Monetary Fund, World Bank, and World Trade Organization. Saudi Arabia also is an observer to the
Organization of American States.
Oil is essential to US-Saudi Relations
Lazazzero 7 (Joseph A. Lazazzero, faculty at Wake Forest University, “The U.S.-Saudi Alliance: A Necessary Shift toward Peace”,
2007, http://www.thepresidency.org/storage/documents/Fellows2008/Lazazzero.pdf)
The essential fact missed in
the region. The
today’s debate over the role of Saudi Arabia is¶ America’s goals in
United States’ primary goals in the region are a¶ steady supply of oil and
international security, not exporting human rights and¶ democracy. Both Saudi Arabia and
the United States have a mutual investment in a¶ continued economic partnership. Saudi
Arabia, America’s largest oil provider, is¶ essential to a stable US economy. The importance
of this partnership will only¶ increase as oil supplies dwindle and prices rise. Secondly, Saudi
Arabia has taken¶ significant steps to join the United States in its War on Terrorism. King Abdullah ¶ has already initiated massive
education overhauls that focus on religious tolerance, ¶ Lazazzero¶ 2¶ amended the banking laws and financial oversight within his
country, and arrested¶ prominent members of Al-Qaeda and other terrorist organizations. The reason for¶ these, and many other
initiatives that will be discussed in depth later, is not because ¶ of international pressure or a mere public image campaign, but instead
rests on a¶ point that many of those critical to a US-Saudi relationship miss, that the United¶ States and Saudi Arabia have a common
enemy in violent Islam and terrorism. Just¶ as the United States grieved over those killed by Al-Qaeda on September 11, Saudi¶ Arabia
has done the same after Al-Qaeda bombings like that in Riyadh in 2003.¶ Thus, the pragmatic and strategic decision for the United States
is to engage with¶ the Saudis in order to ensure these interests are fulfilled. Disengaging from Saudi ¶ Arabia would impair vital US
interests in the region and only exacerbate the very¶ problems for which those within the United States currently criticize the Saudis.
Oil alliance is critical to US-Saudi relations
Lazazzero 7 (Joseph A. Lazazzero, faculty at Wake Forest University, “The U.S.-Saudi Alliance: A Necessary Shift toward Peace”,
2007, http://www.thepresidency.org/storage/documents/Fellows2008/Lazazzero.pdf)
Benefits of U.S.-Saudi Relationship¶ Just as the U.S.-Saudi alliance was important during World War I and the¶ Cold War, this relationship
is still of significant value in contemporary politics. As¶ in previous years, the benefits of
a strong U.S.-Saudi
relationship affect everything¶ from oil dependence to international conflicts. With a limited supply
of oil and¶ growing demands from an industrializing China, the United States needs to solidify ¶ its oil agreements with Saudi Arabia. An
improved Saudi-American relationship¶ would also help to resolve the United States’ failed efforts in resolving the¶ Lazazzero¶ 5¶
Palestinian-Israeli conflict. More importantly, both the United States and Saudi ¶ Arabia have stakes in winning the War on Terrorism.¶ Oil
Dependence¶
The United States’ demand for oil first initiated the U.S.-Saudi alliance, and¶ it
continues to be one of its most crucial components today . Roughly, 60 percent of¶ the
world’s oil supply is in the Gulf, and 25 percent of that is under Saudi soil¶ (Cordesman, 28-42).
Saudi Arabia is the world’s largest oil producer, and the¶ United States is the largest oil
consumer (Appendix 2-1). Both parties have stakes¶ in a stable oil market (US House of Representatives Committee on Foreign
Affairs,¶ 1981). Not only does Saudi Arabia have the most oil, it has also proven itself a¶ reliable
partner in the oil industry. Saudi Arabia’s spare production capacity has¶ allowed it to
answer oil production shortages in the past. Saudi Arabia enacted¶ such policies in 1979 after the fall of the Shah,
when the Gulf War decreased oil¶ production in both Iraq and Kuwait, in 2003 on the verge of the second Iraq war ¶ and even today with
instability in oil-producing countries like Venezuela and¶ Nigeria (Bahgat, 115). These measures have shown that Saudi Arabia is
committed¶ to keeping oil costs low and production constant.¶ In addition, Saudi
Arabia has also proven itself a more
stable oil partner for¶ the United States than other oil-producing countries. Saudi Arabia has easily¶
managed to nationalize foreign oil companies. Unlike the bitter dispute that existed ¶ between Iran and the British Petroleum Company in
the 1950’s, Saudi Arabia has¶ slowly acquired the American company Aramco, and U.S. investors and contractors ¶ still serve on the
company’s board of directors (Bahgat, 115). Prince
Abdullah¶ visited Washington DC in 1998 to meet with
U.S. oil companies and called for a¶ greater strategic energy partnership (Bahagt, 115 & Ottaway &
Hamilton, A1).¶ Thus, not only is the United States in a unique position with access to the world’s¶
largest oil producer, but it also has serious influence and economic footholds in¶ Saudi
Arabia’s oil companies.¶ Oil dependence between the United States and Saudi Arabia benefits
the¶ Saudi government as well. Since the first discovery of oil in 1933, Saudi Arabia¶ has changed itself
into a regional superpower. Saudi Arabia has used much of its¶ newfound wealth on military
expenditures, but it has also utilized its money to¶ make domestic improvements. For example,
Saudi Arabia committed nearly¶ $20.14 billion to local markets in an attempt to diversify its economy. Saudi Arabia¶ has also debated
entering the World Trade Organization, a move that would¶ undoubtedly insert an Arab voice in the Westernized globalization of the ¶
international economy (Champion, 169-171). The
money from oil production has¶ allowed Saudi Arabia to
become one of the wealthiest countries in the region . Such¶ wealth has allowed Saudi Arabia
to become a member of the modernized world,¶ increasing everything from electrical output to mobile
phones.(Appendix 1-1 & 1-¶ 2) (Al-Farsay, 31) The importance of a continued U.S.-Saudi economic
partnership¶ in oil investments is just as significant for Saudi Arabia’s development and
power¶ in the region as it is for the United States’ demand for foreign oil . Of course, there¶
Lazazzero¶ 6¶ are other countries willing to buy Saudi oil, but here is where the significance of ¶ dual protection comes into play. Starting
with the Eisenhower Doctrine of 1957,¶ which declared that an attack on Saudi Arabia’s oil fields would be equivalent to an¶ attack on the
United States, the United States can make a promise no other nation¶ can, of protection from the world’s most powerful military (Ashton,
103-113).¶ Thus, even
if there are other countries willing to purchase Saudi oil, Saudi Arabia is¶
still gaining significant security from its alliance with the United States.
Middle East Conflict Impact
US-Saudi relations result in weapons deals—prevents Middle Eastern conflicts
Landler and Myers 11 (Mark Landler and Stephen Lee Myers, Landler is is a White House correspondent for The New York
Times, Meyers is a writer for the New York Times, “With $30 Billion Arms Deal, U.S. Bolsters Saudi Ties”, Decemeber 29, 2011,
http://www.nytimes.com/2011/12/30/world/middleeast/with-30-billion-arms-deal-united-states-bolsters-ties-to-saudi-arabia.html)
Fortifying one of its key allies in the Persian Gulf, the Obama administration announced a weapons
deal with Saudi Arabia on Thursday, saying it had agreed to sell F-15 fighter jets valued at nearly $30 billion to
the Royal Saudi Air Force.¶ The agreement, and the administration’s parallel plans to press ahead with a nearly $11 billion arms deal for
Iraq, despite rising political tensions there, is dramatic evidence
of its determination to project American
military influence in an oil-rich region shadowed by a threat from Iran.¶ Though the White House said
the deal had not been accelerated to respond to threats by Iranian officials in recent days to shut off the Strait of Hormuz, its timing is
laden with significance, as tensions with Iran have deepened and the United States has withdrawn its last soldiers from Iraq. ¶ “This
sale will send a strong message to countries in the region that the United States is
committed to stability in the gulf and the broader Middle East,” said Andrew J. Shapiro, the assistant
secretary of state for political-military affairs. “It will enhance Saudi Arabia’s ability to deter and defend
against external threats to its sovereignty.Ӧ The agreement also suggests that the United
States and Saudi Arabia have moved beyond a bitter falling-out over the uprisings in the Arab world.
Though the two countries continue to differ on how to handle the popular revolts in the region, American and Saudi officials said, the
disagreement has not fractured a strategic alliance based on a common concern over Iran.¶ Saudi Arabia is a
longtime foe of Iran, with relations souring further last fall after the United States broke up what it said was an Iranian-backed plot to kill
the Saudi ambassador to Washington. Iran has denied the accusations.¶ “When
you look at the size of this package,
what does it tell you about U.S.-Saudi relations?” said a senior Saudi official, who spoke anonymously because he
was not authorized to speak publicly. “It says it’s very strong and very solid. Any disagreements from
time to time don’t affect the core relationship.”¶ The weapons package is remarkable, both for its size and for its
technical sophistication. Under the terms of the $29.4 billion agreement signed on Dec. 24, Saudi Arabia will get 84 new F-15SA jets,
manufactured by Boeing, and upgrades to 70 F-15s in the Saudi fleet with new munitions and spare parts. It will also get help with
training, logistics and maintenance.¶ The new F-15s, which will be delivered in 2015, are among the most capable and versatile fighter
jets in the world, Pentagon officials said. They will come with the latest air-to-air missiles and precision-guided air-to-ground missiles,
enabling them to strike ships and radar facilities day or night and in any weather.¶ Though Mr. Shapiro and other officials said the planes
were intended to help Saudi Arabia protect its sovereignty, military analysts said they would be effective against Iranian planes and ships
anywhere in the Persian Gulf. They are part of a 10-year, $60 billion weapons package for Saudi Arabia that was approved last year by
Congress.¶ At the time, there was a vigorous debate, with some lawmakers arguing that such a huge arms package would threaten the
military position of Israel. Mr. Shapiro, speaking at a State Department briefing, said the administration was satisfied that the sale of the
F-15s would not diminish “Israel’s qualitative military edge.”¶ The White
House portrayed the arms sale as part of
a concerted effort to shore up its relationship with Saudi Arabia. President Obama has made several
telephone calls to King Abdullah, a senior official said; the national security adviser, Thomas E. Donilon, traveled twice to the Saudi
capital, Riyadh; and Vice President Joseph R. Biden Jr. led a high-level delegation to the funeral of Crown Prince Sultan bin Abdul Aziz in
October.¶ Early this year, the Saudis were furious when Mr. Obama withdrew support for Egypt’s embattled president, Hosni Mubarak,
after he faced massive protests in Cairo’s Tahrir Square. Later, it was the White House’s turn to be upset, when Saudi tanks rolled into
neighboring Bahrain to help quash a mainly Shiite rebellion against that kingdom’s Sunni monarchy. ¶ Yet Saudi Arabia and the United
States continue to cooperate in areas like counterterrorism. In recent weeks, the two have worked to resolve the crisis in Yemen, where
President Ali Abdullah Saleh has formally agreed to cede power in a Saudi-brokered agreement and has applied for a visa to travel to the
United States for medical treatment.¶ “The agreement reinforces the strong and enduring relationship between the United States and
Saudi Arabia,” Joshua R. Earnest, the White House’s deputy press secretary, said in a statement issued in Hawaii, where Mr. Obama is on
vacation.¶ With the United States pulling out of Iraq, the administration has been eager to demonstrate that it will remain a presence in
the region. It is proceeding with weapons sales to Iraq, despite fears that Prime Minister Nuri Kamal al-Maliki may abandon his
American-backed power-sharing government in favor of a Shiite-dominated state.¶ The administration has weighed stationing combat
troops in Kuwait in case of a military confrontation with Iran or a collapse in security in Iraq. It is also seeking to expand military ties
with other gulf countries, including Qatar, Oman and the United Arab Emirates. ¶ “I see this more in the longer-term effort by the
administration to signal that even with the withdrawal of troops from Iraq, the U.S. is still committed to the defense of its allies in the gulf
and to the containment of Iran,” said F. Gregory Gause III, an expert on Saudi affairs at the University of Vermont. ¶ The weapons deal, Mr.
Gause said, also illustrated that the two countries could put aside their differences and focus on larger strategic priorities. “After some
tension-filled months this year over Egypt and Bahrain, both sides have agreed to disagree on that, and agree on their common interests,”
he said.
Prolif Impact
US-Saudi relations are critical to prevent proliferation
CFR 12 (Council on Foreign Relations, independent, nonpartisan membership organization, think tank, and publisher, “Iran and the
U.S.-Saudi Relationship”, February 1, 2012, http://www.cfr.org/saudi-arabia/iran-us-saudi-relationship/p27264)
The U.S. alliance
with Saudi Arabia, increasingly strained since the Arab upheavals last spring,
faces further challenges over how to respond to Iran's nuclear ambitions, says F. Gregory Gause III,
professor of political science at the University of Vermont.¶ "The Saudis would certainly see Iran crossing the
nuclear threshold as a major security challenge," says Gause, author of the Council on Foreign Relations special
report "Saudi Arabia in the New Middle East." "If our American interest is in preventing proliferation, we
have to start talking to the Saudis very quickly about their options and our options if Iran were to cross
that threshold."¶ Gause says the United States will likely need to provide "some kind of formal
American guarantee of Gulf security, Saudi security , Gulf state security in general to try to
dissuade the Saudis from trying to pursue their own nuclear capability ."¶ The Saudis' competition
with Iran also shapes their view of the changes taking place throughout the Middle East, Gause says. "They view upheaval throughout the
region through the lens of whether this is going to help Iran or hurt Iran, because they
see Iran as their major geopolitical challenge in the region," he explains. Gause says that this is the main reason the Saudis "are supportive of regime
change in Syria, because that would hurt Iran's position."¶ However, Saudi Arabia and the U.S. are at odds when it comes to preventing
change in the region's monarchies, Gause says. The Saudi deployment of troops into Bahrain to support the Bahraini government last
year created tensions with the United States, he says.
Collapse of Saudi relations causes nuclear proliferation
McDowell 03 (Steven, Naval Post Graduate School, “IS SAUDI ARABIA A NUCLEAR THREAT?” September 2003, AD:
07/21/12,
Kushal)
http://edocs.nps.edu/npspubs/scholarly/theses/2003/Sep/03Sep_McDowell.pdf |
Saudi Arabia may become one of the next states to acquire nuclear weapons. The Saudis have the challenge of
securing a¶ large border area with a relatively small populace against several regional adversaries. The 1979 Iranian Revolution and¶
subsequent overthrow of the Shah, a U.S. ally, sent shockwaves across the Gulf states and prompted the Saudis to increase¶ defense
spending and purchase the longest-range ballistic missile in the Gulf region: the Chinese CSS-2. These missiles have¶ since reached
the end of their lifecycle and the Saudi regime is now considering their replacement.¶ This thesis examines the potential for the
Saudis to replace their aging missile force with a nuclear-tipped inventory. The¶ United States has provided for the external security
of the oil Kingdom through informal security agreements, but a¶ deterioration in U.S.-Saudi relations may
compel the Saudis to acquire nuclear weapons in order to deter the ballistic missile ¶ and
¶
WMD threats posed by its regional adversaries. Saudi Arabia has been a key pillar of the U.S.
strategy in the Persian Gulf.¶ However, a nuclear-armed Saudi Arabia would undermine the international
nonproliferation regime and would trigger a¶ destabilizing arms race in the region.
US-Saudi relations key to checking proliferation
Levi 2003 [Michael - science and technology fellow @ Brookings Institute, The New Republic, June 02,
http://www.iranwatch.org/privateviews/Brookings/perspex-brookings-levi-060203.htm]
Realists counter that the United States needs Saudi oil and Saudi military bases. But there's
a less obvious argument for
making sure the long-standing Washington-Riyadh partnership doesn't fracture: If it does, the Saudis
might well go nuclear. Saudi Arabia could develop a nuclear arsenal relatively quickly. In the late '80s,
Riyadh secretly purchased between 50 and 60 CSS-2 missiles from China. The missiles were advanced, each with a range of
up to 3,500 kilometers and a payload capacity of up to 2,500 kilograms. What concerned observers, though, was not so much these impressive
capabilities but rather the missiles' dismal accuracy. Mated to a conventional warhead, with a destructive radius of at most tens of meters,
these CSS-2 missiles would be useless—their explosives would miss the target. But the
CSS-2 is perfect for delivering a nuclear
weapon. The missile itself may miss by a couple of kilometers, but, if the bomb's destructive radius is roughly as large, it will still destroy the
target. The CSS-2 purchase, analysts reasoned, was an indication that the Saudis were at least hedging in the
nuclear direction. July 1994 brought more news of Saudi interest in nuclear weapons when defector Mohammed Al Khilewi, a former
diplomat in the Saudi U.N. mission, told London's Sunday Times that, between 1985 and 1990, Saudi Arabia had actively aided Iraq's nuclear
weapons program, both financially and technologically, in return for a share of the program's product. Though Khilewi produced letters
supporting his claim, no one has publicly corroborated his accusations. Still, the episode was unsettling. Then, in July 1999, The New York Times
reported that Saudi Defense Minister Prince Sultan bin Abdulaziz Al Saud had recently visited sensitive Pakistani nuclear weapons sites. Prince
Sultan toured the Kahuta facility where Pakistan produced enriched uranium for nuclear bombs—and which, at the same time, was allegedly
supplying materiel and expertise to the North Korean nuclear program. The Saudis refused to explain the prince's visit. If
Saudi Arabia
chose the nuclear path, it would most likely exploit this Pakistani connection. Alternatively, it could go to
North Korea or even to China, which has sold the Saudis missiles in the past. Most likely , as Richard L. Russell, a
Saudi specialist at National Defense University, argued two years ago in the journal Survival, the Saudis would attempt to
purchase complete warheads rather than build an extensive weapons-production infrastructure. Saudi Arabia saw Israel destroy
Iraq's Osirak reactor in 1981, and it is familiar with America's 1994 threat to bomb North Korea's reactor and reprocessing facility at Yongbyon.
As a result, it would probably conclude that any large nuclear infrastructure might be preemptively destroyed. At the same time, Riyadh
probably realizes that America's current hesitation to attack North Korea stems at least in part from the fact that North Korea likely already has
one or two complete warheads, which American forces would have no hope of destroying in a precision strike. By
buying ready-made
warheads, Riyadh would make a preemptive attack less likely. And, unlike recent proliferators such as
North Korea, the Saudis have the money to do so.
Saudi Arabia wants a nuclear weapon—will cause regional prolif
Jansson 12 (Mark Jansson, the Deputy Director of the CSIS Project (CSIS is a bipartisan, nonprofit organization headquartered in
Washington, D.C. dedicated to developing practical solutions to the world’s greatest challenges) on Nuclear Issues, “Conceding the Saudi
Nuclear Breakout”, February 21, 2012, http://csis.org/blog/conceding-saudi-nuclear-breakout)
Saudi Arabia has been making some noise lately about what it would do in the event that
Iran acquires a nuclear weapon. Prince Turki Al-Faisal, a former intelligence chief and ambassador to Washington, has
said that a nuclear weapon in Iran's possession would "compel Saudi Arabia . . . to pursue
policies that could lead to untold and possibly dramatic consequences." Another official was
quoted as saying that " if Iran develops a nuclear weapon , that will be unacceptable to us
and we will have to follow suit."
This obviously poses a dilemma for U.S. policy: should it play up the Saudi threat in
order to convince Iran that a nuclear weapon will do it no good, or would doing so constitute an embrace of selective proliferation and
thereby do damage to its credibility and that of the nonproliferation regime? ¶ ¶ So far the response has been to play up the Saudi threat.
Not only is the threat to acquire nuclear weapons – and presumably withdraw from the Non-Proliferation Treaty (NPT) in advance –
seldom challenged, it is sometimes repeated by officials in the United States in an effort to convince Iran that a nuclear weapon is not in
its ‘interests.’ A nuclear-armed
Saudi Arabia would, presumably, offset some (though not all) of
the strategic advantages that nuclear weapons would afford Iran. However, while it is understandable for
Saudi Arabia and others to try to dissuade Iran from developing nuclear weapons by dimming any hopes it
harbors of regional hegemony, doing so by threatening to acquire nuclear weapons is not something that
should be taken lightly or, to my mind, passively accepted. ¶ ¶ The Saudi Story with Nukes¶ ¶ Saudi
Arabia has never sat atop the list of nuclear breakout concerns, but its track record reflects some ambivalence about the issue. It
grudgingly acceded to the NPT in 1988, only after infuriating the United States when word
got out about its clandestine acquisition of Chinese CSS-2 (DF-3) missiles, which were
capable of delivering a nuclear payload. According to Thomas Lippman’s account in The Nuclear Tipping Point, the
Saudi decision to join the NPT was “a political decision for Saudi Arabia, not a strategic one” and intended
primarily to “placate” its “indispensable patron.” Saudi Arabia’s support of Iran during the Iran-Iraq
war despite Saddam’s covert nuclear weapons program; its reported offer to finance the reconstruction of the Osirak
reactor following its bombing by Israel in 1981, perhaps including an arrangement with Iraq to assume
ownership of some of the weapons it produced; and its financial assistance to the Pakistani
nuclear weapons program and rumored arrangement to acquire Pakistani warheads upon
request certainly beg some questions about the steadfastness of the Saudi commitment to
the foundational principles of the NPT . The recently inked nuclear cooperation deal with China, the
supplier of the CSS-2s in 1988 and reported supplier of newer and still nuclear-capable DF-5s, may also be a little
concerning.¶ ¶ Nevertheless, the Saudis have maintained that they desire a WMD-free Middle East and, in fact, joined other Arab
states in advocating for a resolution on a Middle East nuclear weapon-free zone as part of the 1995 agreement to indefinitely extend the
NPT. However, recent
public statements reflecting Saudi intent to acquire nuclear weapons, even if
problematic in
and of themselves. And these remarks , given some of Saudi Arabia’s historical involvement (albeit, not all of it proven)
intended primarily to convince Iran that acquiring a nuclear weapon will have unintended consequences, are
with nuclear weapons programs in the region, arguably
smack of some audacity .¶ ¶ It is not just what is said to western
media that matters, but also what is being communicated domestically. Norman Cigar at Marine Corps University has been following the
Saudi op-ed pages and print media – semi-official news sources in his view. Recently at a conference in Quantico, Cigar gave a fairly
troubling account of how these outlets have served to promulgate the logic of Saudi Arabia acquiring a nuclear weapon. The
socialization of this idea to people in and around the country is something to be concerned
about. For its part, the U.S. has sought to ameliorate Saudi security concerns through arms sales.
From 20007-2010, the United States approved an estimated $13.8 billion in arms sales with Riyadh making Saudi Arabia one of the top
three U.S. arms importers since 2003, according to a Congressional Research Service report. Following the deal, a government-togovernment agreement signed December 24, 2011 authorized a $29.4 billion sale of 84 F-15SA combat aircraft – the largest of previous
arms sales to the Royal Saudi Air Force. Part of a larger, 10-year $60 billion weapons package, the F-15 s and related technical assistance
help improve Saudi Arabia defend itself, thus reducing its vulnerability to Iranian coercion. ¶ ¶ Despite all this, threats by
Saudi
Arabia to acquire a nuclear weapon in response to Iran persist. Should the idea of a nuclear-armed Saudi
Arabia continue to evolve into a predominant narrative, a Saudi nuclear weapon could one day become an
answer in search of a problem. Even if Iran ultimately does not acquire a nuclear weapon, all kinds of other
rationalizations for a Saudi bomb could very well be articulated down the road : the country’s lack
of strategic depth, enduring Iranian breakout capacity, the vulnerability of its critical infrastructure, lack of progress towards a WMD-free
zone in the Middle East, lack of confidence in the U.S.’s commitment to its security and possibly concern about foreign intervention on
behalf of citizens seeking a more democratic political system, or simply “uncertainty” about its future in a volatile region all come to mind
as possible justifications. ¶ ¶ Moreover, others plausibly
speculate that the real reasons Saudi Arabia is
pursuing nuclear energy (and perhaps a bomb) are very similar to the reasons given by Iran.
Housam Matar writes that the nuclear program is merely "political plastic surgery" intended to change perceptions of the Saudi regime
from one that is corrupt and dysfuntional to one that is modern, progressive, and cultivating a scientifically advanced state.¶ ¶ Problems
with the Saudi Nuclear Option¶ ¶ Strategically speaking, there are a couple of reasons why a Saudi
nuclear weapon would
not make a lot of sense. In the first place, Saudi Arabia has nowhere near the level of indigenous
technical capacity needed to produce, maintain, or deploy nuclear weapons. No long-term, publicly available
strategy for developing its nuclear sector has been issued, nor, as experts have noted does Riyadh possess the necessary institutional
support (across regulatory, technical, and legal fields) to effectively retain nuclear deployments. It has therefore
suggested
that it would pursue a dual-track approach to its nuclear program, which would entail
buying a nuclear weapon
(presumably from Pakistan) as it builds up its own infrastructure. But this would run the risk of
receiving ineffective or otherwise unreliable weapons – a risk that Saudi Arabia would, by its own admission, have little indigenous
capacity to understand, monitor, and guard against. The interim nuclear force may very well rely on others for its operation and
deployment, making it of questionable credibility.¶ ¶ Secondly, even if Saudi Arabia managed to achieve some
semblance of
nuclear balance with a nuclear-armed Iran, it would not resolve the more pressing issue of
Iranian support for subversive groups inside Saudi Arabia and around the Gulf. India and Pakistan can attest to the
inability of nuclear weapons to address these sorts of issues, while some experts will even argue that
nuclear weapons exacerbate them. In that vein, it is also worth noting that oppression and disenfranchisement of Shiite
populations is something that Saudi Arabia, Bahrain, and other gulf states can, and absolutely should, address on their own. ¶ ¶ Finally,
and this point is more speculative, whatever added sense of autonomy and independence that acquisition of a nuclear weapon would
provide the Saudis may not be worth the cost of potential consequences to U.S.-Saudi relations. Saudi Arabia will certainly find other
markets for its oil and may well find other strategic partners to provide it with military equipment and training, but it is not at all clear
that this would leave Saudi Arabia better or worse off than it would be in a closer partnership with the U.S., who is far more committed to
confronting Iran than, say, Russia or China. ¶ ¶ Embracing Saudi Breakout: Deft Strategy or Daft Policy?¶ ¶ From the U.S. perspective, a
Saudi nuclear weapons program would present a host of security problems that, strategic
balancing of Iran notwithstanding,
are undoubtedly concerning . Saudi Arabia, though it has made considerable
efforts to crack down on terrorists and terrorism financing, is still struggling
to prevent and contain extremism.
terrorist networks and vulnerable critical infrastructures, including water and
electricity, remain major areas of major insecurity for domestic military forces. Indeed, to address these
Security challenges involving violent
sorts of threats Saudi Arabia has relied upon U.S.-led capacity-building efforts to provide necessary support and material. Although
Pakistan and Saudi Arabia are very different countries and it is important that comparisons between the two not be overdrawn, many of
the same nuclear security concerns presented by Pakistan today may very well emerge in a nuclear-armed Saudi Arabia as well.¶ ¶ For all
of these reasons and others, the U.S. should
consider using what leverage it has now to push back
against the narrative developing in Saudi Arabia. While the desire to convince Iran that it will not gain any major
strategic advantage by acquiring a nuclear weapon is understandable, the reality is that the opportunity to achieve regional hegemony on
the strength of a nuclear arsenal is but one consideration among several for Iran as it considers its options. ¶ ¶ While it is true that Iran
demands serious efforts to ensure that it cooperates fully with the IAEA, it is still important to get the message straight with respect to
honoring legal commitments pursuant to the NPT. And if what is truly being asked of Iran is no nonsense compliance with its legal
obligations under the NPT, then, as a matter of policy, the same expectation should apply to other states regardless of their suspicions
concerning Iran’s intentions. ¶ ¶ Taking such a stance may seem a bit too doctrinaire relative to the leverage the U.S. actual has on this
issue. And perhaps the prescription here for U.S.-induced restraint by Saudi Arabia is exactly the response that Iran might bet on as it
considers the strategic advantages conferred by a nuclear weapons capability.
Giving Saudi Arabia a hall pass for
nuclear breakout in-advance may attenuate the motivation for a nuclear weapon among
certain people within the Iranian regime.
Responding to Saudi Arabia’s indiscreet rhetoric with nothing more than a
wink and a nod may, in this view, be just what the doctor ordered. ¶ ¶ However, there is also a good case to be made that this sort of
willful injudiciousness sends exactly the wrong message. And some would say that it lends credence
to the case Iran has been making all along: that the entire dispute over its nuclear program is principally not about
the NPT or legal obligations, but about assuring that Iran does not emerge as a regional power, be it on the strength of nuclear weapons
or otherwise. ¶ ¶ Either way, we should be careful about allowing prevarications by one state to become the basis for caveated
commitments by others. As a matter of U.S. policy, the expectation to honor international treaty commitments should apply equally to
allies and adversaries. This is why expectations with respect to state behavior are codified in treaties in the first place. We do not, after
all, accept the presence of U.S. nuclear weapons in Turkey or Israel’s nuclear arsenal as reason enough for Iran to disavow its NPT
commitments – nor should we.¶ ¶ The U.S. would probably do well to push back against the Saudi breakout narrative or, at the very least,
not create an echo chamber by repeating it in statements intended for Iranian ears. The Saudis
may very well interpret this
as condoning the second step (after Iran’s initial threat) towards a regional nuclear arms race. And the
pressure on Saudi Arabia is already high enough; talking them out of acquiring nuclear weapons will only get harder so long as the idea
of responding in-kind to Iran goes unchallenged and gains traction.¶ ¶ So, on the issue of whether conceding a Saudi nuclear breakout is
either savvy strategy or just plain crazy, it would be tempting to say that it is paradoxically both. It is not. Regardless of whether one
believes that the problems posed by a nuclear-armed Iran would be manageable,
there is very little reason to believe
that nuclear weapons all over the entire region would make anything better . Iran may provide
some reasons for Saudi Arabia to reconsider its options, but Iran’s behavior should not provide a pretext for
retreating from sound, broadly-applicable arguments against the spread of nuclear weapons and
an embrace of selective proliferation.
Miscellaneous – Saudi Arabia Wants to Nuclearize
Saudi Arabia wants nuclear weapons because they fear Iran
Avidar 6/6 (Eli Avidar, currently the Managing Director of the Israel Diamond Institute Group of Companies and a former official
in the Israeli Foreign Ministry, “Saudi Arabia Won’t Wait for the West on Iran's Nuclear Program”, June 6, 2012, http://www.almonitor.com/pulse/security/01/06/saudi-arabia-wont-wait-for-the-w.html)
One of the highlights of the WikiLeaks documents revealed the fact that many
Arab states share Israel’s fear
regarding the Iranian nuclear program. In fact, some of them are much more worried than Jerusalem. In one of the
leaked memos, the Saudi king himself asked the United States to “cut off the head of the snake.” The
leaders of Qatar, Jordan and the United Arab Emirates made similar statements. Iran constitutes an existential threat
to them, and the American regime, which has enjoyed their loyalty for years, was asked to deal with it. Except that the United
States didn’t deliver the goods. The Americans, with the enthusiastic support of Western Europe, made it clear that they
view economic sanctions as the primary plan of action against Tehran. The economic crisis and the deepening quagmire in Afghanistan
has made Washington even less determined. It’s no longer even pretending that all options are on the table. ¶ Iran understands the
situation perfectly well, and is responding to the sanctions regime with foot-dragging. Tehran
calls for dialog, shows up at
meetings, creates crises and solutions — and all the while, the centrifuges are at work. The first phase of sanctions do
not weaken regimes. Rather, they weaken the Iranian people by making most of the population economically dependent on the
government, decreasing chances for change from within. If that doesn’t complicate things enough, the development of a third nuclear
reactor, which had been hidden from the West, was revealed this week.¶ Even if sanctions are useful in the long run, this soft and patient
approach on the part of the West toward Iran seems, in the Middle East, an expression of weakness. The Saudi king understands he can’t
count on Washington to preserve his immediate interests, despite the close ties between the countries. S audi
Arabia is facing a
double challenge: not only is it concerned by the nuclear program, but also by Iran’s
subversive activity, through the Shi’ite population, in all of the Gulf states. The matters are closely linked, and so
long as the nuclear program advances, so will the boldness of Tehran’s protégés. ¶ In Saudi Arabia’s eyes, the only
logical solution is to join the arms race. For years, Saudi Arabia has been preserving good
relations with Pakistan out of the assumption that the world’s only Muslim nuclear power
will help its allies in times of trouble, or at least assist them by providing “shortcuts” to a
nuclear program, if and when the decision is taken to launch one. In January, the magazine Foreign Affairs revealed signs of
contacts between the Saudis and Pakistan, including “dealings on matters touching on
nuclear weapons, nuclear technology and security assurances.” In light of the geopolitical reality, it’s safe to assume
that we will continue to see similar news items in the near future. ¶ This is the true significance of the Iranian nuclear
program: not only a direct threat on other countries in the region, but also an increase in the strength and boldness of terror groups
and Shi’ite organizations; an expansion of the nuclear arms race to other regimes, some moderate, others less
so; and on the way, the horror scenario of atomic weapons falling into the hands of a terror group, a
regime under collapse or a rebel state. In light of these threats, a total revision of the American perspective is in order,
as are new ways to threaten the Iranians. Otherwise, we will soon find ourselves facing total chaos on both a regional and international
level.
Saudi Arabia wants to nuclearize on fears of Iran
Zeb 12 (Mohsin Zeb, Middle East writer and educator at the Kings College in London, “Iran: Crisis Point”, March 23, 2012,
http://internationalsecuritydiscipulus.wordpress.com/tag/middle-east/)
As Iran nears its nuclear ambition, the consequences of a nuclear Iran become increasingly
clear. It is not a pretty picture, concerns about an Iranian nuclear arsenal spread far and wide. Beyond the usual suspects of the United
States of America, Great Britain in the role of sidekick and Israel, who considers itself the most likely victim of any future Iranian nuclear
stockpile, the
states in Iran’s region especially those on the Arab peninsula, appear to be equally
nervous. Indeed, the reality is that the establishment of an Iranian nuclear arsenal will spur on
regional and global nuclear proliferation that would further exacerbate the global risks
spanning from unchecked nuclear proliferation.¶ Saudi Arabia has already publicly stated
that it will pursue nuclear weapons if Tehran accomplishes its objectives in that field. No less a figure then Prince
Turk al Faisal, a senior member of the Royal Family, stated a completed Iranian nuclear device would
“would compel Saudi Arabia … to pursue policies which could lead to untold and possibly
dramatic consequences”. He went on to clarify what such dramatic steps would be undertaken, eliminating any
doubt that if Iran obtained nuclear weapons, proliferation in the already volatile Middle East would
become inevitable. He stated, “We cannot live in a situation where Iran has nuclear weapons and
we don’t. It’s as simple as that. If Iran develops a nuclear weapon, that will be unacceptable
to us and we will have to follow suit.” The world can rest assured that if Iran goes nuclear, Saudi Arabia will not stand
still. Should Riyadh join the nuclear club, the pressure on Cairo and Ankara to keep pace with
their regional competitors will be immense. Thus suddenly nuclear weapons would have made
a presence across the region, throwing gasoline onto a region that is explosive enough as it
is.¶ As to how the Saudis will go about establishing a nuclear arsenal to provide a shield against a belligerent Tehran, there is a
considerable body of opinion that believes Riyadh has already made moves to such affects via its long standing and intimate ally,
Pakistan. Consider the 2011 report “Pakistan’s Nuclear Forces 2011” from the Federation of American Scientists. It reports that Pakistan
will have 150-200 nuclear warheads by the end of this decade. This represents a huge expansion of Islamabad’s arsenal and a move
beyond minimum credible deterrence vis-à-vis India. Coupled with the expansion of its nuclear infrastructure including new, more
potent reactors, new plutonium reprocessing facilities and ever-evolving missile stockpile, it is clear Pakistan is working towards some
objective. As it is difficult to identify strategic rivals or enemies beyond India, the question must be asked, why is Islamabad churning out
nuclear warheads at a rate that will make it the worlds fourth or fifth biggest nuclear power by 2020?¶ I am not accusing
Pakistan of meeting Saudi nuclear orders, but merely pointing out that such a scenario has been
gamed by many analysts who note the developments in Pakistan quizzically. Indeed globally reputable publications such as
the Guardian, Die Spiegel and the Washington Times have hinted at such conclusions. What is not a matter of
speculation, but rather cold, hard facts is that Riyadh has been tremendously generous to
Pakistan over the years and eased many financial tough spots for Islamabad. This financing has
extended to cover military issues. Undoubtedly, Riyadh will want some return on those billions.¶ It
seems that Saudi Arabia has taken some tentative steps to ensure itself against a nuclear
Iran, primarily through some sort of nuclear pact with Pakistan. Indeed the notion of a nuclear pact that would see Pakistan cover the
Kingdom of Saudi Arabia was first aired in 2003, when the Washington Post quoted a “ranking Pakistani insider”. Although both sides
have denied it, time alone will tell the degree of cooperation reached between the two states. What
is clear is that Saudi
Arabia is not going to sit still to be under the eternal threat of Iranian nuclear arms.¶ Other
regional actors too will be compelled to seek protection against a nuclear Iran. Israel has longstanding hostilities with Iran and may decide to act before Tehran crosses the threshold of weaponization. This is obviously the
worse case scenario given that it would spark a regional conflict. As Israel is already an established
nuclear power, this does not represent a proliferation risk. Others who may however feel compelled to seek protection by establishing
their own nuclear stockpiles include Egypt and Turkey as already stated. Proliferation
of the most lethal of arms to
both countries would represent a dangerous breakdown in the global nuclear nonproliferation order and bring such weapons to North Africa and to the borders of Europe, a
wholly unacceptable development. I find it hard to imagine a world where Iran, Saudi Arabia
and Israel possess nuclear weapons sitting well with Cairo and Ankara if they are to be
without. The only conclusion one can reach is that Iran and the Iranian case represents the most delicate card in the pack. Should it
go nuclear, the entire non-proliferation regime is at genuine risk of collapse.¶ Thus it is imperative that
Tehran be stopped. The safety of the greater Middle East and by extension the wider world is at risk should Tehran develop a nuclear
sabre by which to threaten the safety of regional states. As talks and diplomatic manoeuvres appear to have failed to stall Iran’s nuclear
drive, the time has come for a final ultimatum. Either Tehran abandons its reckless policy of nuclear proliferation or it faces targeted
strikes to key facilities. The global nuclear non-proliferation regime rests on its enforcement here; this is a fulcrum in time that may well
decide the trajectory for the future of the NPT and regime. Should it fail, a near half-century
of progress may be lost
as other states will too seek the most lethal of weapons to ensure their own security.¶ The global
community is widely in agreement on this. The states of Europe and the US, the Arab league and many others all agree that a nuclear Iran
is a global security catastrophe. Time then for a coalition to be brought together to enforce our collective right to a safe world by putting
an end to Tehran’s program. Whilst we’re at it, regime change wouldn’t be so bad either. The progressive Iran of the Shah was a pillar of
regional stability, and undoubtedly anything is better then the oppressive regime running Tehran now. ¶ Failure
to act today
will mean we pass a far more dangerous world on to our children. No one wants that.
***AFF***
Oil Prices Low
Prices are falling – Iran, Eurozone, Spanish debt
Biers, Dow Jones writer, 7/23 – writer for Dow Jones [John M., 7/23/2012, Wall Street Journal, “Oil Prices Tumble 4.2%,”
http://online.wsj.com/article/SB10000872396390444025204577544634253052276.html]
The oil market fell sharply, turning away from worries about Iran and news of pipeline outages, on
renewed concerns about the euro zone.
Front-month oil futures settled fell 4.2% to settle at $88.14, while Brent crude futures traded down $3.54 at $103.29 a barrel.
The retreat came amid renewed concerns about the euro zone following headlines about high bond
yields in Spain and more difficulties in Greece.
Phil Flynn, senior market analyst for the Price Futures Group, a futures-trading firm, said recent headlines raised new doubts over the
euro zone's viability, pushing aside geopolitical concerns that preoccupied the oil market last week.
"Based on what we're hearing, it's amazing we're not down more," Mr. Flynn said.
Spain's economy weakened further during the second quarter, hit by a sharp drop in domestic
demand and by intense volatility in financial markets, the Bank of Spain said Monday. In its monthly economic report, the central
bank said preliminary estimates show that Spain's gross domestic product contracted 0.4% in the second
quarter from the first, and dropped 1% in annual terms.
Matt Smith, an analyst at Summit Energy, said that the combination of higher Spanish bond yields with news that the so-called troika—made up of European
Commission, European Central Bank and International Monetary Fund—would visit Greece is setting a "huge negative tone to the day."
The euro-zone crisis has for months stood as an albatross on the oil market because it raises concerns
about the economic growth needed for energy demand. A weaker euro relative to the dollar can also
depress the price of oil, which is traded in dollars. On Monday, the dollar was stronger relative to the euro.
In ruminating about the euro-zone crisis, the market turned its eyes away from the Iran story, which dominated news
last week, sending prices higher for seven days in a row.
After the recent trading, Iranian geopolitical concerns "have been priced in and some stability in the Iranian risk factor is expected," said James Ritterbusch,
president of the oil-trading advisory firm Ritterbusch & Associates, in a note.
Low economic forecasts mean prices will fall – prefer predictive evidence
AP 7/23 – Associated Press [AP, 7/23/2012, Washington Post, “Heightened concerns about Europe push down oil prices by almost 4 percent,”
http://www.washingtonpost.com/business/oil-falls-to-near-90-a-barrel-as-europe-china-economic-problems-suggest-demand-toweaken/2012/07/23/gJQATAKX3W_story.html]
The price of oil fell Monday as concerns increased about Europe’s debt-ridden economies.
Borrowing costs soared for Spain and Italy, reaching levels considered unsustainable for more than a few
months. Spain and some other eurozone nations already are in recession, and many analysts worry that other
European nations will follow.
As Europe struggles, its demand for manufactured goods from the U.S. and China will likely decline.
China, the world’s second biggest oil consumer behind the U.S., already foresees slower economic growth in the third
quarter. And the U.S. economy is still sluggish. Less growth means less demand for oil.
Demand is low now—and supply expected to rise
Maugeri 12(Leonardo Maugeri, a research fellow with the Belfer Center’s Geopolitics of Energy Project and is a former senior
executive of Eni, "Global Oil Production is Surging: Implications for Prices, Geopolitics, and the Environment", June 2012,
http://belfercenter.ksg.harvard.edu/publication/22147/global_oil_production_is_surging.html?utm_source=feedburner&utm_medium=f
eed&utm_campaign=Feed%253A+belfer%252Fpublications+%2528Belfer+Center+for+Science+and+International+Affairs++Latest+Publications%2529)
BOTTOM LINES Oil Production Growth is Global. Global oil output
capacity is likely to grow from 93 million barrels
increase in a single decade since the 1980s.
The surge in oil production capacity will occur almost everywhere, with the largest increases in Iraq, the
per day today to 110 million barrels per day by 2020—the largest
United States, Canada, Brazil, and Venezuela. United States Will Experience Unprecedented Output. Technological advances will increase
the production of “unconventional” oil in the United States, which is in the midst of a shale boom. The Bakken/Three Forks formation in
North Dakota alone has as much untapped shale/tight oil as a Persian Gulf country. Oil Prices May Collapse. If oil prices remain
at or above $70 per barrel, investments will sustain the 20 percent increase in oil production
capacity by 2020. However, world demand is sluggish due to the lagging economy and focus on
energy efficiency. If these trends continue, we could see a significant dip—or even a temporary
collapse—of oil prices. Shifting Market Has Geopolitical Consequences. While the Western Hemisphere could become oil selfsufficient by 2020, Iraq’s oil output will also substantially increase as it stabilizes. China may escalate its competitive and political
influence in the Persian Gulf and other oil-producing hotspots, including Canada, Venezuela, and possibly the United States. Oil Boom
Must Trigger Environmental Action. Enforcement of environmental regulation and major investment in emission-reducing technologies
must accompany the development of unconventional oil. Without this balance
between industry and
environmental interests, new oil production projects will be stymied or delayed. Oil Production
Growth is Global. Leonardo Maugeri’s original bottom-up, global field-by-field study of oil investments
indicates that by 2020 the world’s oil production capacity could be more than 110 barrels
per day, an increase of almost 20 percent. An analysis of most of the oil exploration and development projects around
the world shows that more than 49 million barrels per day of oil in additional production (unadjusted for
risk) could come on line by 2020, or more than half the current world production capacity of 93
mbd. After carefully considering the risk factors for each project and country, and factoring in depletion rates, net additional
production capacity is likely to increase by more than 17 mbd by 2020 – growth not seen
since the 1980s. Oil supplies could increase all over the world. The four countries that show the highest potential in terms of
effective production capacity growth are – in order – Iraq, the United States, Canada, and Brazil. Much of this increased
capacity comes from “unconventional sources” such as U.S. shale/tight oils, Canadian tar sands, Venezuela’s extraheavy oils, and Brazil’s pre-salt oils. Only four of the current major oil producing countries (more than 1 mbd of production capacity) face
a net reduction of their production capacity by 2020: Norway, the United Kingdom, Mexico, and Iran. In Iran and Mexico, the loss of
production is primarily due to political factors. All other producers are
capable of increasing or preserving
their production capacity. United States Will Experience Unprecedented Output. There are enormous volumes
of un-conventional oil under development in the United States. Thanks to the technological revolution
brought about by the combined use of horizontal drilling and hydraulic fracturing, the United States is currently
exploiting huge and virtually untouched shale and tight oil fields, and production – although
still in its infancy – is skyrocketing in these North Dakota and Texas fields. The extraction technologies are not new, but
the combination of technologies used to exploit shale and tight oils has evolved. The technology can
also be used to reopen and recover more oil from conventional, established oilfields. Taking into consideration
limitation in transportation infrastructure and refining capacity, and environmental
barriers to development, the United States could still increase oil production by 3.5 million barrels
per day and conceivably produce a total of 11.6 mbd of crude oil and natural gas liquids per year by 2020, making it the second
largest oil producer in the world, after Saudi Arabia. Oil Prices May Collapse. Contrary to prevailing
wisdom that increasing global demand for oil will increase prices, the report finds oil
production capacity is growing at such an unprecedented level that supply might outpace
consumption. When the glut of oil hits the market, it could trigger a collapse in oil prices. While the age of “cheap
oil” may be ending, it is still uncertain what the future level of oil prices might be. Technology may turn today’s
expensive oil into tomorrow’s cheap oil. The oil market will remain highly volatile until 2015 and prone to extreme
movements in opposite directions, representing a challenge for investors. After 2015, however, most of the oil exploration and
development projects analyzed in the report will advance significantly and contribute to a shoring up of the world’s production capacity.
This could provoke overproduction and lead to a significant, steady dip of oil prices, unless oil
demand were to grow at a sustained yearly rate of at least 1.6 percent trough 2020. Shifting Market Has Geopolitical Consequences. The
United States could conceivably produce up to 65 percent of its oil consumption needs
domestically, and import the remainder from North American sources and thus dramatically affect the debate
around dependence on foreign oil. However the reality will not change much, since there is one global oil market in
which all countries are interdependent. A global oil market tempers the meaningfulness of self-sufficiency, and Canada, Venezuela, and
Brazil may decide to export their oil and gas production to non-U.S. markets purely for commercial reasons. However, considering
the recent political focus on U.S. energy security, even the spirit of oil self-sufficiency could
have profound implications for domestic energy policy and foreign policy. While the unique
conditions for the shale boom in the United States cannot be easily replicated in other parts of the world in the short-term, there are
unknown and untapped resources around the globe and the results of future exploration
development could be surprising. This combined with China’s increasing influence in the Middle East oil realm will
continue to alter the geopolitics of energy landscape for many decades. Oil Boom Must Trigger Environmental Action. Unprecedented
unconventional oil development comes with environmental protection and regulation challenges. Hydraulic fracturing is increasingly
perceived as contributing to water and land contamination, causing natural gas infiltration into fresh water aquifers, and even triggering
earthquakes. After more than one million hydraulic fracturing operations in the United States since 1947 (hydraulic fracturing is not a
new technology) and comparatively few accidents, shale oil and gas recovery activity can be managed with appropriate best practices
and adequate enforcement. Industry needs
to develop technological solutions to minimize water use,
minimize and report chemical use, and carefully monitor production sites. However, if such a
collective effort by industry does not materialize, government may respond with more
onerous regulation in the near future that could impact U.S. shale oil production. Current climate
policy conversations will certainly be influenced by the unexpected surge in oil production capacity. Policymakers will have to address
the potential environmental and climate impacts of a substantial increase in oil supply. Industry should also be prepared to make
appropriately large investments in developing technologies that will reduce the environmental footprint of oil production and use.
Alt Cause to High Prices
Middle East instability and global consumption are alt causes to high prices
Ydstie 3/23 – writer for National Public Radio News [John, 3/23/2012, NPR, “Why Gas Prices Are Rising Even as Demand Is Down,”
http://www.npr.org/blogs/thetwo-way/2012/03/23/149220383/why-gas-prices-are-rising-even-as-demand-is-down]
Now let's examine another important question: "If
our demand for gasoline is falling, why are prices in the U.S. rising?"
are lots of reasons why the price you pay at the pump might rise; from additional taxes
levied by the government to threats of supply disruption in the Middle East. The latter , of course, is a big
reason gasoline prices are higher now even though demand throughout the world is quite soft and
falling in the U.S.
Fadel Gheit, managing director of Oil and Gas Research at Oppenheimer and Company, says the price
of oil depends on several factors — "number one: crude oil prices." Of course, crude oil prices are set in a global
market. That means even if U.S. demand for oil is forecast to fall significantly over the next 25 years,
Well, there
Americans will pay more for each galloon of gasoline if the global price of oil rises, which is quite
likely. While Americans are using fewer gallons of oil per person, consumers in India, China and other emerging markets are
using more. In 2010, China added 10 million more cars. With a population of more than 1 billion
people, that nation is going to use more oil in the future and that demand will likely drive prices up.
Chinese Economy Turn
High prices hurt the Chinese economy
Peek 11 – writer for Financial Times [Liz, 4/13/2011, The Fiscal Times, “Oil Price Surge: How Libya Threatens China Growth,”
http://www.thefiscaltimes.com/Columns/2011/04/13/Oil-Price-Surge-How-Libya-Threatens-China-Growth.aspx#m92QmkdZIoHq2s6W.99]
For China, though, the Libyan engagement is not entirely positive. Beijing is surely overjoyed to have the world’s attention focused elsewhere, and away from its
increasingly harsh repression of political opponents. On the other hand, rising
oil prices will buttress higher inflation in China, and
consequently feed dissent.
Beijing’s escalating crackdown on dissidents has shocked the international community – especially since the
international community began to shift its gaze from the calamities in Japan and Libya. In the past few days, after the arrest of famed artist Ai Weiwei, the
world has seen the extreme lengths to which Beijing has gone to preempt uprisings of the sort that have
convulsed the Middle East.
Tentative efforts to import Tunisia’s “Jasmine Revolution” to China have met with beatings of bystanders
and assaults on journalists, the shut-down of innumerable web sites, widespread arrests and the
“disappearing” of a steadily growing number of activists – so terrified is the government of civil unrest.
It is an extraordinary setback for a country that “came out” to the world just three years ago hosting the most spectacular-ever Summer Olympics. In staging that
extraordinary event, Beijing presumed to take its rightful place near the top of the pyramid of nations. With the reign of terror now underway, that ascension seems
premature.
The increased crackdown in China may presage Beijing’s expectation that its remarkable economic
gains of the past thirty years are unlikely to continue. Chinese officials may fear that slowing growth will not
provide the employment opportunities so necessary to satisfy those still migrating from the country
to the cities. China’s Minister of Human Resources and Social Security recently reported that notwithstanding indications of labor shortages in certain
industrial cities, worker supply still exceeds demand, requiring China to create about 25 million new urban jobs annually for the next several years.
The possible disruptive impact of high unemployment makes a potential slowdown in the country’s
growth a serious threat. China’s problems are exacerbated by the need to rein in inflation, running at 5.4 percent
in March, which has led the government to raise interest rates five times since the financial crisis. It is also causing some to expect a
speedier revaluation upwards of the yuan, which would further curtail growth.
These issues perhaps explain why China will spend roughly $95 billion this year on security – an outlay for the
first time topping the military budget, expected to be about $91 billion. (Many think that China’s military spending substantially exceeds the stated budget, but it
does provide a benchmark.)
Recent economic news from China indicates that its prospects may have changed. Beijing
recently projected that growth will decline
from about 10 percent to 8 percent this year and to 7 percent for the next four years. Since the country has a
long history of outperforming expectations, most economists continue to project near-double digit growth. However, with interest rates and
currency levels on the rise, it is possible that analysts are too optimistic. Indeed, the Organization for Economic
Cooperation and Development suggested as much in a report out this week in which it forecast moderating gains for China.
Certain data points support this notion. Economists at the OECD and elsewhere were taken by surprise by news that in
the first quarter China
recorded its first net import deficit since 2004. Soaring commodity prices were blamed, and it is
expected that more common trade surpluses will again become the norm, but the change in tone is
noteworthy. Similarly, recent vehicle sales gains in China have slowed drastically, with the industry posting gains a mere fraction of former levels (up 5
percent in March, for instance, against a 75 percent gain a year ago). Overall, the picture is unusually cloudy.
The Libyan conflict may have distracted the world’s attention from the repression in China. However, in
helping to push up oil prices it also
feeds the inflation that ultimately may create the greatest threat to China’s society. Beijing may not be a
winner after all. It might prove easier to squash Gaddafi’s forces than to put the “inflation tiger” back in its cage.
A2 Middle East Conflict
Middle Eastern proliferation won’t happen
Chapman 7/9 (Steve Chapman, columnist and editorial writer for the Chicago Tribune, “The Arms Race that Won't Happen”, July
9, 2012, http://reason.com/archives/2012/07/09/the-arms-race-that-wont-happen)
If you want to understand the intensifying showdown between the United States and Iran, consider the headline in The Washington Post
on the threat of rapid nuclear proliferation: "Many Nations Ready to Break into Nuclear Club." ¶ It highlights one of the dangers cited by
those who favor military action against Iran. President Barack Obama says that if
Iran gets the bomb, "other players in
the region would feel it necessary to get their own nuclear weapons. So now you have the
prospect of a nuclear arms race in the most volatile region in the world."¶ A plausible threat?
It may sound that way. But it also sounded that way in 1981—when that Washington Post
story ran.¶ Nuclear proliferation is always said to be on the verge of suddenly accelerating,
and somehow it never does.
In 1981, there were five declared nuclear powers -- the U.S., the Soviet Union, China, Britain
and France -- as well as Israel, which was (and is) undeclared.¶ And today? The number of members added since then is not 15 but three:
India, Pakistan and North Korea. Most
of the other countries on the list of likely proliferators never
came close -- including Argentina, Chile, Morocco and Tunisia. Iraq tried and failed. Libya
made an effort and then chose to give up.¶ The peril was greatly overblown. It probably is
again . But our leaders are not about to let mere history debunk the apocalyptic scenarios.
They are committed to a policy based on fear rather than experience .¶ The United States keeps trying
to force Iran to abandon its suspected efforts to build a nuclear arsenal, and so far it has been rebuffed. Both Obama and Mitt Romney
have said they would use force rather than let Iran acquire nukes. Chances are good that whoever wins in November, we will be at war
with Tehran sometime in the next four years.¶ But there is no reason
to think Iran would ever use such
weapons, and there is little reason to think it would spur other countries to get them. If all it
takes to unleash regional proliferation is one fearsome state with nukes, the Middle East
would have gone through it already -- since Israel has had them for decades.¶ Why would
governments in the region respond differently to Iran? Many of them are allied with the U.S. -- which means
Iran can't attack or threaten them without fear of overwhelming retaliation. Turkey, as a member of
NATO, enjoys a formal defense guarantee from Washington. The U.S. might offer similar assurances to Saudi Arabia, Egypt and
other nervous neighbors.¶ One way or another, they would probably find they can manage fine. Iran is
no scarier than Mao's China was in 1964, when it detonated its first atomic device. Writes Francis Gavin, a professor
at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, " It was predicted that India,
Indonesia and Japan might follow."¶ At the time, he noted in a 2009 article in International Security, "A U.S. government
document identified 'at least 11 nations (India, Japan, Israel, Sweden, West Germany, Italy, Canada, Czechoslovakia, East Germany,
Rumania and Yugoslavia)' with the capacity to go nuclear, a number that would soon 'grow substantially' to include 'South Africa, the
United Arab Republic, Spain, Brazil and Mexico.'" Mexico?¶ In
recent decades, some countries have actually
given up their nukes -- including Ukraine (which inherited them from the Soviet Union) and South Africa. Others, like Brazil
and Sweden, have scrapped their weapons programs. After the Cold War, it was assumed the newly reunified Germany would want to
assert its new status by joining the nuclear club. It has yet to exhibit a glimmer of interest. ¶ A
nuclear Iran would soon
learn something previous nuclear powers already know: These weapons are not much use
except to deter nuclear attack. What help have they been for the U.S. in Iraq or Afghanistan?¶ China invaded Vietnam in
1979 to force the enemy's withdrawal from Cambodia. The Vietnamese not only refused but sent the People's Liberation Army home
with its tail between its legs. China regards Taiwan as part of its territory, but the island has remained functionally independent despite
the threat of nuclear coercion.¶ If Iran
does get nukes, its neighbors that have survived without them
will find that nothing much has changed. Nuclear proliferation is the danger that lurks just
over the horizon, and that's where it is likely to stay.
US Energy Independent Now
US moving towards energy independence now
Nye 7/11 (Joseph S. Nye, former US assistant secretary of defense and chairman of the US National Intelligence Council, is a
professor at Harvard University and one of the world’s foremost scholars of international relations, “Energy Independence in an
Interdependent World”, July 11, 2012, http://www.project-syndicate.org/commentary/energy-independence-in-an-interdependentworld)
CAMBRIDGE – When President Richard Nixon proclaimed in the early 1970’s that he wanted to secure national energy independence, the
United States imported a quarter of its oil. By the decade’s end, after an Arab oil embargo and the Iranian Revolution, domestic
production was in decline, Americans were importing half their petroleum needs at 15 times the price, and it was widely believed that
the country was running out of natural gas. Energy
shocks contributed to a lethal combination of stagnant
economic growth and inflation, and every US president since Nixon likewise has proclaimed
energy independence as a goal. But few people took those promises seriously. Today, energy experts no
longer scoff. By the end of this decade, according to the US Energy Information Administration, nearly half of
the crude oil that America consumes will be produced at home, while 82% will come from
the US side of the Atlantic. Philip Verleger, a respected energy analyst, argues that, by 2023, the
50th anniversary of Nixon’s “Project Independence,” the US will be energy independent in the sense that it
will export more energy than it imports. Verleger argues that energy independence “could make this the
New American Century by creating an economic environment where the United States enjoys
access to energy supplies at much lower cost than other parts of the world.” Already, Europeans and
Asians pay 4-6 times more for their natural gas than Americans do.¶ What happened? The technology of horizontal drilling and
hydraulic fracturing, by which shale and other tight rock formations at great depths are bombarded with water and chemicals, has
released major new supplies of both natural gas and oil. America’s shale-gas industry grew by 45% annually
from 2005 to 2010, and the share of shale gas in America’s overall gas production grew from 4% to 24%.¶ The US is estimated to
have enough gas to sustain its current rate of production for more than a century. While many
other countries also have considerable shale-gas potential, problems abound, including water scarcity in China, investment security in
Argentina, and environmental restrictions in several European countries. ¶ The American
economy will benefit in
myriad ways from its change in energy supply. Hundreds of thousands of jobs are already
being created, some in remote, previously stagnating regions. This additional economic activity will boost
overall GDP growth, yielding significant new fiscal revenues. In addition, the lower energy-import bill will
cause America’s trade deficit to narrow and its balance-of-payments position to improve.
Some US industries, such as chemicals and plastics, will gain a significant comparative advantage in production costs. ¶ Indeed, the
International Energy Agency estimates that the additional precautions needed to ensure shale-gas wells’ environmental safety –
including careful attention to seismic conditions, properly sealed shafts, and appropriate waste-water management – add only about 7%
to the cost.¶ With respect to climate change, however, the effects of greater reliance on shale gas are mixed. Because natural-gas
combustion produces fewer greenhouse gases than other hydrocarbons, such as coal or oil, it can be a bridge to a less carbon-intensive
future. But the low price of gas will impede the development of renewable energy sources unless accompanied by subsidies or carbon
taxes.¶ At this stage, one can only speculate about the geopolitical effects. Clearly, the strengthening
of the US economy
would enhance American economic power – a scenario that runs counter to the current
fashion of portraying the US as being in decline.¶ But one should not jump to conclusions. A balance of energy
imports and exports is only a first approximation of independence. As I argue in my book The Future of Power, global interdependence
involves both sensitivity and vulnerability. The US may
be less vulnerable in the long run if it imports less
energy, but oil is a fungible commodity, and the US economy will remain sensitive to shocks
from sudden changes in world prices . In other words, a revolution in Saudi Arabia or a blockade
of the Strait of Hormuz could still inflict damage on the US and its allies. So, even if America
had no other interests in the Middle East, such as Israel or nuclear non-proliferation, a balance of energy
imports and exports would be unlikely to free the US from military expenditures – which some
experts estimate run to $50 billion per year – to protect oil routes in the region.¶ At the same time,
America’s bargaining position in world politics should be enhanced. Power arises from asymmetries in
interdependence. You and I may depend on each other, but if I depend on you less than you do on me, my bargaining power is increased.¶
For decades, the US and Saudi Arabia have had a balance of asymmetries in which we depended on them as the swing producer of oil, and
they depended on us for ultimate military security. Now the
bargains will be struck on somewhat better
terms from America’s point of view.¶ Likewise, Russia has enjoyed leverage over Europe and its small neighbors
through its control of natural gas supplies and pipelines. As North America becomes self-sufficient in gas, more
from various other regions will be freed up to provide alternative sources for Europe,
thereby diminishing Russia’s leverage.¶ In East Asia, which has become the focus of US foreign policy, China will find
itself increasingly dependent on Middle Eastern oil. American efforts to persuade China to play a greater role in regional security
arrangements may be strengthened, and China’s awareness of the vulnerability of its supply routes to US naval disruption in the unlikely
event of conflict could also have a subtle effect on each side’s bargaining power. ¶ A
balance of energy imports and
exports does not produce pure independence, but it does alter the power relations involved
in energy interdependence. Nixon got that right.
non-unique—the US is transitioning toward energy independence now
Veazey 7/20 (Matthew V. Veazey, staff writer for Rig Zone.com—an oil industry reporting agency, “Many US Voters Fear 'Foreign
Oil,' But Should They?”,
http://www.rigzone.com/news/oil_gas/a/119472/Many_US_Voters_Fear_Foreign_Oil_But_Should_They?rss=true)
The central argument for those espousing energy independence is often that the United States needs to end its reliance on "foreign oil." As figures from the
U.S. Department of Energy's Energy Information Administration (EIA) show, the
volume of U.S. oil imports actually has been
declining since peaking in 2005. Frequently cited reasons for the decrease include lower demand during the economic downturn,
changing consumer behavior and increasing domestic production. The latter factor is expected to remain on an upward path. In January of this year, EIA
projected that domestic oil production will increase by 20 percent by the year 2020. Moreover, EIA
forecasted that the United States will become an overall net exporter of natural gas the following
year.¶ Despite the changing U.S. oil import picture, "foreign oil" appears to be a lingering concern for Americans. ¶ Fear of 'Foreign Oil'¶ In the fall of 2011,
the University of Texas at Austin's McCombs School of Business released the findings of its inaugural Energy Poll that examines consumer attitudes and
perspectives on energy issues. The results of the poll, conducted by the business school's Energy Management and Innovation Center (EMIC), concluded that
a clear majority (84
percent) of the 3,400-plus American consumers surveyed were worried about U.S.
consumption of "foreign oil."¶ "People indicated their top concern was dependence on foreign
oil," said Tanya Andrien, EMIC's associate director, adding that the sentiment appears to be stronger among respondents who tend to participate in
elections.¶ "People who actually vote most or all of the time showed a greater concern [52 percent very concerned] for this than people who don’t [36
percent very concerned], which is significant at 99 percent confidence level," Andrien said. ¶ Is Energy-Independence Possible or Even Desirable? ¶ Although
the U.S. has made progress in producing more of its oil and gas at home, a national security expert with The Independent Institute maintains that growing
domestic oil production likely will not totally wean the United States off much-maligned "foreign oil" in the foreseeable future.¶ "The U.S. is most dependent
on foreign sources of oil for vehicle transportation, but even that is being reduced by new technology to exploit oil in the U.S.," said Ivan Eland, Senior Fellow
and Director of the Center on Peace and Liberty with the Oakland, Calif.-based think tank. "Nevertheless, the
U.S. will not become
independent of foreign oil anytime soon."¶ In fact, Eland challenges claims by policymakers that U.S. energy independence would
be good for American consumers. In a recent commentary, he argued that energy independence is "a canard and not even desirable." ¶ "Politicians of both
parties who endorse energy independence as a goal don't tell consumers that even in the unlikely event that they could achieve it, it would increase the price
of energy greatly," said Eland, pointing out that protectionist measures inevitably increase prices for any item. ¶ "For example, the U.S. buys some of its oil
from Saudi Arabia because it is much cheaper to produce than the relatively expensive U.S. supplies. Thus, shutting off foreign oil would significantly raise
the price to the consumer." ¶ Eland also
dispels the view that energy independence is essential for the
United States to achieve energy security. He reasons that "huge incentives" exist for people and
countries to sell oil and other commodities on the world market.¶ "The two main alleged threats to energy
security are that the U.S. would not have enough oil to run its military or its economy [or, in the latter case, that it would be too expensive]," said Eland.
"We
have enough oil within the U.S. many times over to run the U.S. military, even fighting
two medium-sized wars simultaneously."¶ Eland added the attractiveness of selling oil in an international market has even
thwarted threats to energy security such cartels or embargoes.¶ "Because there is a worldwide market for oil and
incentives to cheat on any cartel or embargo, neither have ever been successful," Eland said. "The
U.S. will always be able to get oi l, but sometimes the price will be elevated."¶ "[F]ortunately, research shows that contrary to
conventional wisdom, industrial economies are resistant to oil price shocks, Eland added, pointing out the same is true for other price shocks.¶ "Therefore,
with a working global market, energy independence is not needed for energy security."¶ In fact, Eland sees the U.S. energy security as "usually relatively
good, especially if we rely on the market to bring us oil and not resort to armed force." ¶ "Wars fought for oil are usually counterproductive by taking oil off
the market, thus increasing the price," continued Eland.¶ "[P]aradoxically, the best way to secure oil is not to defend it," Eland concluded. "Let the market
work. Besides, oil and other energy exports have been routed around war and even through it.
So the market does work, even in
the face of foreign threats to it."¶ Steps Toward Self-Sufficiency¶ "We'll never be [energy-]independent in the world economy because
we're always trading with others," said Rayla Dougher, senior economic advisor of media relations with the American Petroleum Institute (API). However,
she pointed out that U.S. public policy initiatives such as increasing access to onshore and offshore oil and gas resources and granting full approval to
TransCanada's Keystone XL oil pipeline project would bring the country "a very long way toward self-sufficiency, a much more stable oil market, more jobs
and more government revenue." ¶ Dougher said that federal permitting delays have been particularly frustrating for exploration and production companies.
Onshore, specifically on federal lands in the West, Dougher said that leasing and permitting have fallen dramatically. She pointed out the Bureau of Land
Management granted 1,053 drilling leases in the region in 2009/2010 compared to 1,874 in 2007/2008 -- a 44-percent decrease. Offshore, 87 percent of
federal acreage is off-limits to drilling, Dougher added.¶ API estimates that increasing access to currently off-limits oil and natural gas resources, along with
returning to historical levels of development on existing U.S. production areas, would boost U.S. crude oil production by more than 1.4 million barrels per
day by 2020 and 6.2 million barrels per day 10 years later. As a point of reference, U.S. oil production was 8.93 million barrels per day and the total U.S.
liquid fuel supply was 19.22 million barrels per day in 2010.¶ Assuming that the Keystone XL project obtains a permit from the U.S. Department of State, API
projects that an additional 700,000 to 830,000 barrels per day of crude oil could be available to the U.S. market within the decade. ¶ "What we're looking for
is practical, realistic rules and regulations," concluded Dougher. "We can make a difference with policy."
Saudi Arabia Wont Flood Market
Saudi Arabia won’t flood the market—and no impact if they do
Cobb 12 (Kurt Cobb, author of the peak-oil-themed thriller, Prelude, and a columnist for the Paris-based science news site Scitizen-work has also been featured on Energy Bulletin, The Oil Drum, 321energy, Common Dreams, Le Monde Diplomatique, EV World, and
many other sites. He maintains a blog called Resource Insights, “Why Saudi and American bluffing won't lower oil prices (Hint: It doesn't
work when people know you're bluffing)”, March 25, 2012, http://www.energybulletin.net/stories/2012-03-25/why-saudi-andamerican-bluffing-wont-lower-oil-prices-hint-it-doesnt-work-when-pe)
If you have the power and the desire to bring down oil prices, the best way to proceed is to
start bringing them down. The easiest and fastest method would be to make more supplies
available to the world market and keep adding until you reach your target price. The less you say about what you are doing, the
better. When market participants are filled with uncertainty about your intentions, they have only the direction of prices to guide them.
That means the speculative
players can help you achieve your goals more quickly as they panic
out of their positions.¶ This was not, of course, the path chosen by the United States, Great Britain and
Saudi Arabia recently when they announced that they were contemplating intervention in the oil
markets--in the form of releases from strategic petroleum reserves in the case of the United States and Britain and
in the form of increased production by Saudi Arabia.¶ It seems that while all three countries have the stated
wish to bring down oil prices, they appear to lack the power or at least the desire to do so. So, they are
left with bluffing . It's true that oil markets move on rumors and sentiment, but not as far nor for as long as people believe. The
joint U.S.-Great Britain announcement caused oil prices to fall sharply the same day before recovering nearly the entire loss by the close.
The Saudi
announcement that it might increase production caused a sharper one-day fall
which was largely recouped the following day.¶ Oil prices are ultimately tied to the delivery of actual oil. Unlike,
say, stock prices, which can become unhinged from fundamental conditions for companies or the economy as a whole for long periods, oil
prices are constantly being disciplined by actual supply and demand in the real world. Short-term misperceptions can occasionally drive
the price to unsustainable highs or lows, but not for very long. ¶ What oil market participants took away from the two tightly spaced
announcements was that neither party is serious about doing much of anything. It seems unlikely the United States and Great Britain
would dip significantly into their strategic reserves at a time when a war with Iran could break out at a moment's notice--not so much
because the United States and Britain want war, but because Israel may act unilaterally to start one. A
war with Iran would
constitute a real emergency, and so, draining strategic reserves now to appease voter
concern over high gasoline prices might prove foolhardy. Unless war with Iran breaks out, look for a token
release of oil if such a release comes at all.¶ As for Saudi Arabia, the question is not whether the country
could increase production, but how much, for how long, and of what kind of oil. The Saudis
announced late last year that they were stopping their capacity expansion program because they had reached their target of 12.5 million
barrels per day. But that new capacity has yet to be tested. Saudi production currently stands at about 10 million barrels per day. We do
not know for certain what output Saudi Arabia could achieve over this on a sustained basis. And, even
if the Saudis could
increase their oil production substantially, would they really want to? They would risk adding supply in
the face of a faltering European economy that could pull the legs out from under oil demand thus crashing
prices far below the level the Saudis and their friends in OPEC really desire. ¶ The reports that Saudi
Aramco's shipping arm, Vela, has been chartering extra very large crude carriers which can carry up to 2 million barrels of oil should be
taken with a grain of salt. It's hard to know whether this means the country is actually increasing total world supply or whether it means
that Vela simply found its own fleet committed and needed to hire tankers from other shippers. We should take note that the Saudi oil
minister admitted that his country's March and April oil production would be essentially unchanged. In this context, a Financial Times
article (via The Globe and Mail) entitled "The price that launched a wall of ships" seems like another public relations plant by the Saudis
designed to manipulate market sentiment. In any case, crude futures prices had by the end of trading last week regained almost the
entire loss suffered after the piece appeared.¶ There is also the question
of what kind of oil would make up
any extra Saudi production. Not all oil is the same. Arab light is highly prized for its ease in
refining. Most refineries in the world are designed to refine light crude with low sulfur
content. Saudi Arabia is adding capacity from a new offshore field and from a previously
mothballed onshore field both of which produce heavy crude, a less desirable crude that is
more difficult and costly to refine. This tells us that while Saudi Arabia may be able to supply
extra oil to the market, it may not be the kind of oil that the market can easily absorb .¶ Saudi
actions beg this question: If the desert kingdom has so much oil left under its territory, why it is scraping the bottom of the barrel
offshore and at an old field that was closed in 1980?¶ It's likely that market participants already understand all this and that's why they
see the recent announcements by the United States, Great Britain and Saudi Arabia for what they are: bluffs.¶ What would bring oil prices
down quickly in the short term is an economic slowdown, a possibility about which economists and market analysts are split. The
slowdown would, of course, reduce demand for oil and oil products. A longer term strategy would be to move away from dependence on
oil. That would take political courage and discipline, but Europeans seem to have long since accepted this strategy. Germany and Italy, for
example, have both been gradually reducing their total petroleum consumption since 1998. In Asia, Japan's overall consumption has been
declining since 1996.¶ The world
clamors for cheap energy as an addict clamors for a cheap fix. Both
behaviors result in less than optimal outcomes until the parties involved realize it's time for
some serious treatment. Europe and Japan are leading the way. Will America have the wisdom and ingenuity to follow them?