Analysis: Venezuela, quo vadis?
Where that country is going ultimately no one can tell. But with the collapse of the 63-day national strike last week, President Hugo Chavez is intent on pushing a leftist agenda strong on social programs underwritten by oil revenues.
It means a very different role for Petroleos de Venezuela S.A. (PDVSA), the state-owned petroleum giant. If the Chavez vision succeeds, PDVSA will move from an organization molded after integrated international oil companies into an era where its primary purpose is to generate revenues for Mr. Chavez's socialist agenda.
That is still a big "if." While the 63-day strike has ended, the underlying turmoil has not. And Hugo Chavez displays little inclination for reconciliation with the large, vocal, and very emotional middle and business class opposition that effectively brought the Venezuelan economy to a standstill.
It is no secret that employees at PDVSA led the strike. Even after the strike collapsed, PDVSA employees continued their boycott, crimping government revenues to the tune of $4 billion in export dollars.
The strike's repercussions have reached all the way to the gas pump in the United States. Though several factors are creating high gasoline prices, including the shrill rhetoric about war in Iraq, a cold winter in the Northeast, and the normal seasonal shutdown as refineries conduct maintenance and turnarounds, there is little doubt that a primary reason gasoline prices are at two-year highs involves the deficit in supplies created when Venezuelan imports disappeared from the U.S. market.
The goal of the national strike was to force a February referendum on the Chavez presidency. That referendum would have been held Sunday. Despite gathering as many as four million signatures in a country of 23 million people, the referendum became a moot point when it was nixed by the country's Supreme Court in what some charge was a politically motivated decision.
The next available date for such a referendum--this one constitutionally sanctioned--is August, the mid-point of the Chavez presidency.
A lot can happen between now and then, particularly as Mr. Chavez digs in and takes a hard line against his opponents, most of whom represent the entrepreneurial class in a country characterized by widespread poverty.
Beyond the immediate implications for Venezuela, the unfolding drama is important for what it signals on a broader canvas. For one, the policy of liberalization, or the promotion of democratic, free market values that characterized globalization in the 1990s has peaked in Latin America, and is starting to wane. In Latin America, free trade, open markets, and economic liberalization have become synonymous with corruption, special interests, and mushrooming national debt. Poverty continues to rise while living standards decline, sometimes dramatically so, as residents of Argentina can attest.
In Brazil, the leftist labor leader Lula de Silva won the popular vote in October and is pushing through reforms in the continent's last great hope of avoiding a total meltdown. But similar stories are evident in Peru where regional leftist candidates who campaigned on anti-globalization platforms won in recent elections. Right now leftist agendas, many with subtle anti-American overtones, have become mainstream politics in several Latin American countries, including Bolivia, Brazil, Ecuador, and Peru.
Apparently, it is time to add Venezuela to the list. Only Venezuela may be on the way to reincarnation as a Cuban-style state. This, however, would be a state funded by the largest oil reserves in the Western Hemisphere rather than the impoverished economic vassal of a former superpower.
Certainly the signs are there. Mr. Chavez speaks openly and frequently about his goals of revolution. Less visible in the public rhetoric is the background of Ali Rodriguez, the former president of the Organization of Petroleum Exporting Countries, Venezuela's oil and mines minister, and currently president of PDVSA. Mr. Rodriguez spent 20 years as a Cuban-inspired insurgent advocating hemispheric revolution. He was accused in 1964 of participating in a Venezuelan bombing (which he has denied) and fled into the mountains, where he was known as Commandante Fausto.
A general amnesty in 1979 brought Mr. Rodriguez out of the jungle where he became a lawyer, was elected to the Venezuelan congress, and developed an interest in energy. Scholarly and reserved, Mr. Rodriguez hardly strikes anyone as a fire-breathing radical, but his ideas on how to reshape PDVSA may be a guiding influence on Hugo Chavez.
Mr. Rodriguez has championed a policy to split PDVSA into eastern and western geographical divisions, eliminating the Caracas headquarters, which was a focus for the strike that deposed Mr. Chavez for 48 hours last spring as well as the 63-day walkout over Christmas. PDVSA employees have been angered by the dismissal of professional managers and their replacement by Chavez political appointees.
Mr. Rodriguez reportedly proposes to reorient the state-owned oil company's mission, and has mentioned selling refineries or other overseas assets, including those in the United States. PDVSA's new mission would be to generate revenues to underwrite social programs.
It will take some doing. The company's budget will be reduced $2.7 billion to about $6 billion this year, thanks to the $4 billion revenue shortfall from the national strike. Items like the exploration budget could be cut 30 percent, which has implications for an oil province that is mature in nature. Also gone are 9,100 PDVSA jobs. These were mostly managerial and technical positions. The organization will be challenged to return to its former oil production levels. The strike cut production as low as 200,000 barrels per day, although estimates now place production above one million barrels per day. Production could climb above two million barrels per day within 60 days, but neglect has damaged marginal oilfields and it is likely the country will peak out at least a half-million barrels per day less than its pre-strike capability.
Meanwhile, Hugo Chavez is embracing draconian currency and price controls. What makes them even more grotesque is the fact that Mr. Chavez intends to use them to punish his adversaries. Various trade and news organizations have quoted him as threatening "not one dollar for coup-mongers." The currency controls could exacerbate inflationary pressures, and most certainly will engender a black market. During the 1980s, a similar fiscal regime resulted in the black market embezzlement of more than $60 billion. Price controls engender inflation.
While PDVSA will undergo change there are no indications currently that suggest anything like the appropriation of foreign investments in Venezuela.
Still, the turmoil is impacting international commerce. Weatherford reported a 40-percent drop in Venezuelan activity versus the fourth quarter 2001. The strike scuttled creation of a Hanover Compressor/Schlumberger joint venture in a natural gas compression facility when financing for Hanover's part fell through at the last minute because of the Venezuelan troubles. The joint venture would oversee processing gas for reinjection to boost production in aging Lake Maracaibo oil wells. That joint venture could yet go forward, assuming Hanover and Schlumberger rearrange terms of the deal and obtain PDVSA approval.
Meanwhile, both ConocoPhillips and ChevronTexaco have witnessed reduced runs from Venezuelan crude. Although ConocoPhillips escaped material influence in the fourth quarter, the crude reductions will have an impact on first quarter earnings.
Note: Last week's Oil & Gas Advisory column discussed the political turmoil over rival oil pipelines connecting crude oil production in western Siberia with either China or the Russian Pacific coast. Yukos, the Russian oil giant, wanted to build a proprietary line to China; the Russian government, with Japanese financial backing, favored a government-controlled line to the Pacific coast. Apparently, a compromise has been proposed in the last few days stating that both will be built. Essentially, a single one-million-barrel-per-day line would ferry crude east from Irkutsk then split in two with a branch turning south to China while the second branch finishes the 2,300-mile journey to the Russian port of Nakhodka in the Sea of Japan. A detailed announcement on the compromise is expected in mid-March.
Associated Editor: Robin Beckwith
Most Popular Articles