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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
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