Chavez's Gambit
By Nikolas Kozloff
07 April, 2005
Counterpunch
Over
the past few weeks there have been some signs that Venezuela's president
Hugo Chavez has backed down from his earlier confrontational posture
towards Washington. According to the Venezuelan foreign minister, Chavez
has no intention of reducing oil exports to the United States. The economic
importance of oil in terms of Venezuelan-U.S. relations cannot be overstated.
Venezuela is the fifth largest oil exporter in the world and the fourth
largest supplier of oil to the United States after Canada, Mexico, and
Saudi Arabia. Last year, Venezuela's state owned oil company, Petroleos
de Venezuela (Pdvsa) accounted for 11.8% (1.52-million barrels a day)
of U.S. imports.
Tensions have been
bristling between the two nations ever since April 2002 when Chavez,
the democratically elected president, was briefly removed from power
in a coup. Chavez, a firebrand politician and former paratrooper, accused
(not without merit) Washington of sponsoring the attempted overthrow
as well as supporting a devastating oil lockout in 2002-3. Never one
to soften his language, Chavez bluntly referred to U.S. president George
Bush with an expletive and the United States as "an imperialist
power." What is more, according to Chavez, Bush had plans to see
him assassinated. In a further barb, Chavez declared that if he were
killed the United States could "forget Venezuelan oil."
For a time it seemed
that their bilateral relations could sink no lower. Though there are
many reasons for the deterioration in relations (including Chavez's
ties with Washington's anathema, Cuban President Fidel Castro, the Venezuelan
president's criticism of U.S.-led efforts for a free trade zone in the
Americas and Chavez's opposition to the war in Iraq) oil was surely
of paramount importance. When he took office in 1998 Chavez launched
a reform of Venezuela's oil policy, seeking to reestablish a predominant
role for the presidency in the design and implementation of an oil strategy
through the Ministry of Energy and Mining. This move challenged vested
interests in Pdvsa, a powerful, almost autonomous, company with total
assets estimated at $100 billion. The company's executives, who earned
between $100,000 and $4,000,000 a year, had grown accustomed to taking
the lead in defining the oil policy of their virtual fiefdom. While
Chavez did not deny the role of the private sector in the oil industry,
his reform process aimed at curbing the trend toward the privatization
of Pdvsa. On the international front, Chavez worked to achieve a higher
price for oil through OPEC, the oil cartel of which Venezuela was a
founding member. He also worked to increase the profile and power of
OPEC world wide. Chavez additionally sought to guarantee that the state
collected a greater share of oil revenues. He imposed royalties on oil
output which was applied on foreign producers operating in the country,
chief among them U.S. giant Exxon-Mobil. Last year, Venezuela raised
royalty taxes on heavy crude projects in the Orinoco oil belt from 1%
to 16.6%. Irate Exxon-Mobil representatives say that the company is
paying the new rate "under protest."
Keeping Pdvsa under
firm government control was politically important. In recent years,
Chavez has sought to utilize oil revenue to carry out an ambitious social
agenda. In a recent study it was estimated that over 60 percent of Venezuela's
24-million people live in poverty and make less than $2 a day. Accordingly,
as a result of record high oil revenues, Chavez has been able to carry
out an impressive array of programs promoting literacy, job training,
land reform, subsidized food, and small loans. Perhaps most ambitiously,
Chavez has used the nation's oil wealth to extend health care and import
Cuban doctors.
As Chavez began
to export cheap subsidized oil to Cuba, Fidel Castro sent over 13,000
doctors to Venezuela. Today, the doctors are spread throughout the Andean
nation and have access to over half the population, a first in Venezuela's
history. Chavez's move to bring in Cuban doctors was one of many factors
regarding his rule that provoked Washington. In May 2004, the U.S. State
Department's Commission for Assistance to a Free Cuba-the administration's
propaganda office on Cuban issues-issued a report stating that Venezuelan
oil shipments to Cuba needed to be halted if political change on the
island was to occur which was tantamount to calling for a de facto
embargo against the Castro regime.
Are there any signs
that the confrontation between the two antagonist nations will soon
abate? Recently, Chavez has publicly stated that he wanted to mend relations
with the United States. "We want to continue to send 1.5 million
barrels of oil to the United States on a daily basis and to continue
doing business," he said. What is more, Chavez added that although
"we have said things, sometimes, very harsh things, it has been
in response to aggressions." Chavez explained that, "what
I have said is that if it occurs to the United States, or to someone
there, to invade us, that they can forget about Venezuelan oil."
He clarified that this is just "a theory that we of course do not
want, and I hope that the United States does not want it either."
Chavez's recent conciliatory statements have brought little slack from
Washington as the Bush administration's harsh anti-Chavez rhetoric continues
to boil over whether its splenetic utterances coming from Secretary
of State Condoleezza Rice, Defense Secretary Donald Rumsfeld or routinely
from the White House and State Department press offices. On one level,
Venezuelan imbroglio seems to be heading towards deeper water. Chavez
has repeatedly stated his determination to reduce his country's dependency
on oil sales to the United States. Accordingly, he has begun exploring
the sale of parts of Citgo, Pdvsa's marketing and refining affiliate
in the U.S. Citgo owns eight refineries and almost 14,000 gas stations
located primarily in the eastern part of the country. Chavez has complained
that Citgo, whose refineries are especially adapted to process heavy
crude oil from Venezuela, sells oil to the U.S at a discount of two
dollars a barrel. "We are subsidizing the U.S. budget," griped
Chavez, who says Citgo contracts were signed before he assumed office
in 1999. According to Citgo's 2004 financial reports, the company paid
$400 million in dividends to Venezuela but paid almost as much in U.S.
taxes. Energy Minister Rafael Ramírez, who also serves as Pdvsa's
president, has announced a freeze on plans to expand Citgo. Meanwhile,
though Citgo CEO Félix Rodríguez notes that" the
government does not plan to sell off the company's assets," specialists
suggest that Chavez may very well consider such a move after evaluating
the profitability of each refinery. Alberto Quirós, a former
executive at Royal/Dutch Shell in Venezuela, commented that selling
the refineries would not be a bad idea right now. Chavez, he says, could
get a decent price for the refineries because oil prices and demand
are high. Were such facilities to be sold, however, the process would
probably take at least a few years to be finalized.
In order to diversify the Venezuelan market for oil, Chavez made plans
to begin shipping Venezuelan crude to China, the world's second-largest
energy consumer after the United States. "Reaching China is a strategic
question," says Ramirez. "It would be a mistake not to have
a presence there. They are switching over from coal to more efficient
fuels." In Beijing last December, Chavez remarked "We have
reached agreements with China to begin to exploit 15 mature oilfields
in eastern Venezuela that have more than one billion barrels in reserves,
and a large part of that oil will come to China." What is more,
Chavez stated that Venezuela wanted to become a "secure, long-term"
petroleum supplier to India and this month the two countries concluded
an energy cooperation agreement. Transporting oil to Asia, however,
could prove logistically difficult. Pdvsa has expressed interest in
moving oil across Panama to the Pacific Ocean via pipeline. The company
is also exploring the idea of building such a facility across Venezuela's
northern border with Colombia, extending to that country's Pacific coast.
Shipping oil to Asia carries other logistical and infrastructural problems.
China presently has an insufficient deep conversion refining capacity
and transporting petroleum to the Asian giant would be costly due to
the long distances involved. Moreover, the Panama pipeline eyed by Chavez
already transports 100,000 barrels a day of Ecuadorian crude from the
Pacific to the Atlantic. According to analysts, there is no way that
the pipeline can be converted into being able to simultaneously ship
Venezuelan oil to China in the opposite direction. Finally, China may
be only interested in Venezuela in the short run, as Beijing is busy
exploring for oil and gas closer to its shores in the South China Sea.
Despite these practical
problems, Chavez's rhetoric suggests the Venezuelan leader earnestly
seeks to challenge U.S. regional hegemony by putting together a formidable
coalition of like-minded nations. In a recent interview on al-Jazeera,
Chavez cited Venezuela's energy alliance with Cuba as an example of
how "we use oil in our war against neoliberalism." What is
more, when he was recently in Buenos Aires, Chavez launched the first
gas station run by a joint venture between Pdvsa and the Argentine company
Enarsa. The venture involves production, refining and distribution of
petroleum by-products and natural gas. Chavez has also concluded oil
agreements with Brazil, Uruguay and Paraguay. His desire to create a
South American energy company called Petrosur, which would integrate
regional oil and gas industries, is already bearing fruit.
Any interruption
in Venezuelan oil exports to the U.S. would bring significant disruption
to both countries and Washington is beginning to plan for such a contingency.
Oil accounts for half of Caracas' revenue and 75 percent of its exports.
Currently the U.S. purchases 60 percent of Venezuela's oil exports and
according to analysts, finding new markets could prove daunting to Venezuelan
authorities. The fact is, exporting to the U.S. market is convenient
due to close proximity and low transportation costs. Additionally, U.S.
refineries are particularly equipped to process Venezuela's sulphur-rich
crude.
U.S. analysts doubt
that Chavez can afford to drastically cut shipments to the United States.
And if Chavez cut off oil supplies, argue government officials, the
United States would quickly make up for the loss by seeking other sources.
But a potential cut off would represent no small economic loss to the
U.S., as oil imported from elsewhere would likely be more expensive.
The reality is that for the U.S., purchasing Venezuelan crude is economically
advantageous because the South American nation is geographically close
to U.S. ports. In Washington, politicians are now hedging their bets.
In a clear sign of concern, Republican Senator Richard G. Lugar has
asked the Government Accountability Office to study how a sharp decrease
in Venezuelan oil imports could affect the U.S. economy. Additionally,
the Senate recently called for a review of the government's plans "to
make sure that all contingencies are in place to mitigate the effects
of a significant shortfall of Venezuelan oil production, as this could
have serious consequences for our nation's security and for the consumer
at the pump."
Even before Chavez
was first elected he was explicit in describing his views about petroleum.
"Oil is a geopolitical weapon," he declared, "and these
imbeciles who govern us don't realize the power they have, as an oil-producing
country." The evidence suggests that Chavez is now trying his best
to follow through on this rhetoric.
Nikolas
Kozloff is a senior research fellow at the Council on Hemispheric Affairs.
He can be reached at: [email protected]