Thursday, August 20, 2015

Fallacious Thinking

Dan McGroarty writes for RealClearWorld about Putin's predilection for fomenting trouble as a pretext for his desired belligerent response. Today's Russia is dependent on high prices for oil. McGroarty predicts something nonsensical, see if you can spot the fallacy.
Low-priced oil may well tip Russia's economy into a death spiral. Which brings us back to that crisis of convenience. How hard will it be for a country that manufactures oil and conspiracies to manufacture a crisis that drives Western economies into recession - and Russian oil prices higher?
My understanding is that ceteris paribus in recession the demand for oil drops, causing prices to fall. Likewise, in boom times people buy and use more petroleum products, pushing prices up.

Ultimately the world price is, if not set, heavily influenced by Saudi production levels. These they adjust to meet Saudi/Sunni geopolitical goals, first among which is hamstringing Shia neighbor Iran whose budgetary break-even oil price is much higher than the Saudis'.

I suppose Putin could foment all-out war in the Middle East, causing severe petroleum infrastructure destruction and thus a world recession caused by shortage-induced higher oil prices. Except U.S. fracking firms would benefit almost as much as Putin would, so probably no recession in North America.