Venezuela: A flashing
red light
By Ariel Cohen/Stephen Johnson.
The
Washington Times, August 18, 2004.
After open-collar, red-shirt-clad Hugo
Chavez claimed a victory in a referendum,
the global oil outlook is gloomier than
before. Geopolitically, Venezuela has become
a flashing red light.
During his six years in power, Mr. Chavez
has increasingly politicized oil, nationalized
and mismanaged the national oil company
PDVSA, and used its finances as a political
kitty (up to $3.7 billion this year alone)
to buy off the poor. Beyond Venezuela, he
sees himself replacing Fidel Castro as the
leader of Latin America's radical left,
opposing democracy, free markets, and American
influence.
Mr. Chavez uses oil as a political tool
to advance his hemispheric and global ambitions.
He played a key role in the 1999 and 2003
decisions of the Organization of Petroleum
Exporting Countries to cut production and
coordinate policy aimed at driving oil prices
higher. In 2000, Mr. Chavez visited Iran,
Iraq, Libya and Saudi Arabia, further agitating
for production cuts and quota enforcement.
The year, he promised Fidel Castro 53,000
barrels of subsidized oil a day in exchange
for the services of Cuban teachers - and
intelligence experts.
Until the Chavez presidency, oil-rich
Venezuela had been at peace with its neighbors
and a firm American ally.
The situation changed in 1998. As a presidential
candidate, Mr. Chavez campaigned against
the "savage capitalism" of the
United States. He allegedly aided Afghanistan's
Taliban government following the September
11, 2001, attack on the United States. Mr.
Chavez also proclaimed Cuba and Venezuela
were "called upon to be a spearhead
and summon other nations and governments"
to fight free market capitalism.
After a June 24, 2004, U.S. Senate hearing
on the Venezuela situation, Mr. Chavez called
U.S. congressmen "dogs of war, those
that intend to dominate the world, those
imperialists."
In Venezuela's immediate area, Mr. Chavez
has aided the narco-terrorist Revolutionary
Armed Forces of Colombia (FARC). In Bolivia,
Mr. Chavez supported indigenous activists
who led an uprising that forced elected
President Gonzalo Sanchez de Lozada from
office in October 2003. And in El Salvador,
Venezuelan troops on a post-earthquake mission
urged villagers to support the leftist Farabundo
Marti National Liberation Front.
Mr. Chavez's Fifth Republic Movement (MVR)
party is allied with the Brazil-based Foro
de Sao Paulo - an organization of some 39
rabidly leftist parties and guerrilla organizations
from 16 countries in the hemisphere. It
opposes U.S. counternarcotics collaboration
with Latin America and the Free Trade Area
of the Americas, which it characterizes
as a U.S. "annexation."
In November 2003, Mr. Chavez inaugurated
the first Peoples Bolivarian Congress, whose
cells now spy on neighbors in Venezuela.
It brought together 400 representatives
from 20 Latin American countries expressly
to condemn the policies of the United States,
the U.S. Southern Command, the International
Monetary Fund and the World Bank.
But it is his handling of oil, which reveals
an agenda of destructive populism. During
its 20-year history PDVSA built a reputation
for smooth operation and competence. Even
though it nationalized its oil industry
in 1975, exploration and production were
reopened to foreign participation in 1996.
The 2002-2003 national strike devastated
the oil giant. Some 35,000-40,000 skilled
workers, including fire fighters, walked
out while spillage and fires ensued. Daily
production dropped from 3 million barrels
(mbd) to 600,000 barrels. Mr. Chavez fired
18,000 skilled managers and workers, further
undermining PDVSA's precarious situation.
Mr. Chavez arrested oil sector reforms and
began expropriating foreign assets. His
1999 constitution prohibited future PDVSA
privatization; his 2001 Hydrocarbon Law
doubled royalties on foreign operators from
16.67 percent to 30 percent and required
a majority government stake in future joint
ventures. During the 2002 strike, the Venezuelan
military seized an information technology
company jointly owned by PDVSA and Virginia-based
Science Applications International Corporation
(SAIC). Such expropriations jeopardize the
investments of international major oil companies
- such as Mobil, ChevronTexaco and ConocoPhillips
- in oilfield development projects like
those in Venezuela's Orinoco basin.
However, while PDVSA projects $37 billion
in new investment, including $10 billion
from international companies, Mr. Chavez's
action threaten its 2004-2009 development
plan.
Today PDVSA depends on U.S. refineries,
which partially supply its CITGO gas station
chain. PDVSA owns refining facilities in
Louisiana, Illinois, Texas, New Jersey and
Georgia, as well as several installations
in Europe. Irresponsible tampering with
U.S. and international company activities
by the Chavez government could prompt legal
proceedings against Venezuelan holdings
in the West.
Despite recent high oil prices that have
provided a fresh infusion of cash, PDVSA
remains in disarray. This year's internal
investment fell from $5 billion to $4.3
billion while salaries went up 60 percent
despite no apparent increase in productivity
or number of employees. Without reinvestment
in equipment and maintenance, PDVSA will
not be able to maintain current production
levels.
Besides supplying the United States with
1.5 million barrels of oil a day (mbd),
Venezuela provides most of the petroleum
for U.S. allies in the Caribbean and Central
America.
Mr. Chavez has the luxury of cutting deliveries
to those who opposed him. Caribbean leaders
know opposing Mr. Chavez could result in
high prices or delivery cuts. In September
2003, Mr. Chavez punished the Dominican
Republic for harboring former President
Carlos Andres Perez - who "might"
conspire against his government. He stopped
oil deliveries, prompting a temporary energy
crisis.
Beyond the hemisphere, he is preparing
to shift exports to an increasingly oil-thirsty
China, making Venezuela less dependent on
U.S. petroleum sales. A deal signed on July
14, 2004, to build oil and gas pipelines
between the Maracaibo Basin in Venezuela
and the Caribbean and Pacific coasts in
Colombia would enable Venezuela to ship
petroleum to China without using the Panama
Canal. This would make it more critical
than ever for Mr. Chavez to secure a pliant
government in Colombia to keep this facility
operating in Venezuela's interest.
By destabilizing and replacing democratic
governments in hydrocarbon-rich Bolivia,
Colombia and Ecuador, he also could achieve
a regional energy monopoly that could support
rogue regimes and frustrate U.S. interests
in the hemisphere. Mr. Chavez brought Cuban
intelligence advisers to facilitate what
may become a Castro-style dictatorship plus
petrodollars.
For years, Republicans have tried to shove
Latin America to the foreign policy back
burner, while Democrats have feigned interest
with insignificant and ineffective foreign
aid programs. It's time for U.S. leaders
to stop pretending nothing is wrong. Mr.
Chavez wants to harm the U.S. where it hurts
the most - in the wallet and the oil tank.
President Bush had better watch out.
Ariel Cohen is research fellow for
international energy security and Stephen
Johnson is senior policy analyst for Latin
America at the Heritage Foundation.
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