GOV 312L 1st Edition Lecture 22 Outline of Current LectureI. TMFPQII. Global oil marketsIII. Organization of petroleum exporting countries (OPEC)IV. The Resource curse: IntroductionV. Oil and authoritarianismVI. Oil and civil warVII. Oil and aggressive foreign policyCurrent LectureTMFPQ (I)• Sec’y Defense Hagel fired on Monday• Casualty of foreign policy crises (ISIS, Russia, Iran,Ebola, and Syria), and midterm elections, and shifting American position from withdrawal back to war• Similarly, Bush fires Rumsfeld after 2006 midterms• Domestic political consequences–How easy confirmation for replacement in aftermath of immigration?–Consolidation of White Household over national security policy (shift away from cabinet officials)TMFPQ (II)• Negotiations over Iranian nuclear program extended because could not reach a deal• Temporary agreement limiting program remains in place, Iran gets $5 b. in sanctions relief• Unclear how much political capital presidents (Obama and Rouhani) have to spend to get deal done–Obama has Congressional opposition–Rouhani campaigned on promise to end sanctions, but Khamenei has yet to support key limits publicly• Negotiating challenge: whether sanctions lifted immediately(Iran’s position) or phased• Implications for today’s class: how do falling oil prices influence Iran’s leverage?These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.TMFPQ (III)• Clip from SNL, “I’m Just a Bill”skit• President Obama’s immigration executive order• Where do we stand?–Most legal scholars assume it is legal–Larger debate about democracy (SNL skit)• Opinion polls on executive action: Nov. 14-17 NBC/WSJ Poll on support for President Obama’s anticipated executive order -- Approve(32%), Lean Approve (6%), Lean Disapprove (6%), Disapprove (42%),Unsure (14%). Disapprove/Lean Disapprove (48%), Approve/Lean Approve (38%)–Was it good politics? This Week with George Stephanopoulos debate between Matthew Dowd and James Carville• This will likely have lasting implications through the next presidential electoral cycleOil: why care?• Key energy resource–About 33% of total global energy consumption (natural gas at 24%, coalat 30%)–About 37% of total energy consumption in US (natural gas at 30%, coalat 20%)• Significant portion of global trade (about 15%), 2/3 of oil traded• When oil prices up–Gas prices up (more expensive to drive to work, fly in a plane, conduct international trade, and move goods within domestic economy)–Can induce global recession: stagflation of 1970s–Transfers wealth from key oil-importing countries (US, Europe, Japan,China) to oil-exporting countries (Saudi Arabia, Russia, Venezuela)Global oil markets (I)• Single global market for oil–Spot and futures markets (trade contracts to deliver barrel of oil at specific date; don’t actually physically exchange oil)–Important fact in debates about energy independence• Even as US imports less, price can still be shocked by Developments in Middle East, Russia, and China• Total global petroleum consumption at 90.4 million barrels/day–Up from 77.5 mbd in 2001• US consumption at 19.0 mbd (2013), down from 19.7 mbdin (2001)–Adjustment from runup in prices to 2008 and then from GreatRecessionGlobal oil markets (II)• Price determined by intersection of supply and demand• Demand–Relatively inelastic in the short run: quantity demanded not responsive to shiftsin price–Few substitute goods (at similar price)–Spikes in oil prices often caused by outward shift in demand curve• Great Recession slows demand growth in developed world (US,Europe, and Japan)• Huge growth in developing world and BRIC countries (mostly China)–China from 4.9 mbd (2001) to 10.1 mbd (2013), accounts for 57% of growth in global oilconsumption since 2005–India from 2.2 mbd (2001) to 3.5 mbd in (2013)–Brazil from 2.2 mbd (2001) to 3.1 mbd (2013)–Russia from 2.6 mbd (2001) to 3.3 mbd (2013)Global oil markets (III)• Supply–OPEC key supplier, production from 30.6 mbd (2001) to 36 mbd(2013)• Saudi Arabia: from 9.1 (2001) to 11.6 mbd (2013)• Iraq: from 2.4 (2001) to 3.1 mbd (2013)• Iran: from 3.8 (2001) to 4.2 (2011) to 3.2 (2003), can see effects of sanctions–Russia significant player in oil markets: from 7.2 mbd to 10.5 mbd–Big growth in production capacity in North America• United States (shale): from 9.0 (2001) to 12.3 mbd (2013)• Canada (tar sands and shale): from 2.8 (2001) to 4.1 (2013)–Limited investment in expanding production from mid-80s until 2002; new investments in capacity from price shocks associated with 9/11, Iraq War, and demand growth in developing worldOrganization of Petroleum Exporting Countries (OPEC)• Members: Algeria, Angola, Ecuador, Iran, Iraq,Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE,Venezuela• Holds about 80% of known proven global reserves 1.2 of 1.5 tril. barrels (mostly in Venezuela, S.Arabia, Iran, Iraq, and Kuwait)• Operates like a cartel: limit global supply by setting production quotas to push global prices upOrganization of Petroleum Exporting Countries (OPEC)• Saudi Arabia as swing producer: has reserve capacity and changes production levels to stabilize global markets• Most effective price control through limited investment in production capacity through early2000s• Influence being upended by shale revolutionIntroduction: The Resource Curse• Domestic turmoil: Countries with economies dominated by natural resources tend to be more:–Authoritarian–Prone to civil war–Aggressive toward neighborsHow might resources undermine democracy?I. Economies based on natural resourcescreate a rentier state1. Taxation –No Taxation, NoDemocratization2. Spending –Pacifying Citizenryw/Social SpendingII. Resource wealth funds state organs ofrepressionIII. Resource wealth contaminatesmodernizationIV. Resource wealth fuels corruptionRentier State –a statewhere the rents(income) are paid byforeign actors, wherethey accrue directly tothe state, and where“only a few are engagedin the generation of thisrent (wealth), themajority being onlyinvolved in thedistribution or utilizationof it.”How might resources fuel civil wars?• Natural resources, like oil, are “loot-able”wealth becausethey are:–Fixed assets (extracted from the ground) and thus can be