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Bennet foreign policy contributor to the chicago

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Unformatted text preview: e stimulus policies were mostly effective in dealing with the immediate crisis, they did not address the long-term issues that impede growth. Still, the government continues to tout plans to boost the economy. Vertical industrial policy, horizontal industrial policy, investment in education ― all have been tried in the last 10 years. Yet Russia’s public institutions remain as weak as ever (for example, corruption is as prevalent as it was 10 years ago, if not more so), and the economy is no less dependent on commodity prices. 10 | P a g e Russian Oil DA Affirmative BDL Internal Link Turn – High Oil Prices Discourage Russian Economic Reform [____] [____] High oil prices carry major risks for the Russian economy Matthew Hulbert, Senior fellow at the Center for Security Studies in Zurich, 2011 (The Downside of High Oil Prices, February 2nd, http://www.themoscowtimes.com/opinion/article/thedownside-of-high-oil-prices/430204.html) This cuts to the crux of the problem. The misperception of political risk can be just as potent as the actual risks themselves for the market. If the Egyptian crisis is anything to go by, then geopolitical factors have not been properly priced in. The initial $6 price increase from the chaos in Cairo over the past few days will look like pocket change compared with where oil prices could go if th e geopolitical situation in the Middle East explodes. High prices might sound like good news for producers like Russia that want to replenish state coffers and boost political egos, but they carry two major risks. The first is potential demand destruction. The assumption in 2008 that demand was inelastic was a grave miscalculation. Most leading oil producers were lucky to survive . Whether $100 per barrel will break the bank again remains to be seen, but with anemic growth in the West and inflationary pressures in the East, it would be foolhardy to assume that anything higher than $100 per barrel would be positive for the global economy. The second risk is that producers will rapidly lose control of the market if geopolitics starts dictating benchmark prices beyond fundamentals. Price hawks such as Iran, Algeria, Nigeria and Venezuela probably have no problem with that since they don’t have excess supply to put on the market anyway. But that’s not what Russia wants or needs right now. Market stability to increase upstream investment and arrest depletion rates should be the priority of the day, not adding more oil, so to speak, to the geopolitical fire. It remains to be seen whether Saudi Arabia will agree to put more oil on the market or continue to appease pri ce hawks by maximizing receipts. Price signals have been deafeningly silent so far — blaming speculation over fundamentals is the line coming out of Riyadh. No doubt that’s partially true, but that’s the point. Speculators like nothing more than the risk of geopolitical calamity to make a killing. Egypt has sent a clear signal to producers — quell the market now, or it will politically emasculate you later. The...
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