UT GOV 312L - Oil Markets (5 pages)

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Oil Markets

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Oil Markets


Lecture number:
Lecture Note
University of Texas at Austin
Gov 312l - Issues and Policies in American Government
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GOV 312L 1st Edition Lecture 22 Outline of Current Lecture I TMFPQ II Global oil markets III Organization of petroleum exporting countries OPEC IV The Resource curse Introduction V Oil and authoritarianism VI Oil and civil war VII Oil and aggressive foreign policy Current Lecture TMFPQ 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 cycle Oil 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 oilexporting 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 Great Recession Global oil markets II Price determined by intersection of supply and demand Demand Relatively inelastic in the short run quantity demanded not responsive to shifts in 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 oil consumption 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 world Organization 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 up Organization 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 revolution Introduction The Resource Curse Domestic turmoil Countries with economies dominated by natural resources tend to be more Authoritarian Prone to civil war Aggressive toward neighbors How might resources undermine democracy I Economies based on natural resources create a rentier state 1 Taxation No Taxation NoDemocratization 2 Spending Pacifying Citizenryw Social Spending II Resource wealth funds state organs of repression III Resource wealth contaminates modernization IV Resource wealth fuels corruption Rentier 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 utilization of 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 conquered incentivizing territorial conflict Lucrative assets and thus can provide windfall profitswhen the price is high and fund rebel and orgovernment armed forces Highly sought after assets and thus can be easilytraded smuggled on the international market Natural resources also can fuel inequality whichcontributes to civil war How might resources make states moreaggressive Natural resources like oil can fuel aggressiveforeign policy because They

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