Posted by: bklunk | May 3, 2007

We Haven’t Had a Post About Hugo Chavez for a While

I can’t read this post without thinking about discussions about the so-called “Oil Curse.”

Here he goes again… « Venezuela

It finally happened: to solidfy the socialist status of his country, Hugo Chavez took over the last privately run oil field in Venezuela.

The companies ceding control included BP PLC, ConocoPhillips, Exxon Mobil Corp., Chevron Corp., France’s Total SA and Norway’s Statoil ASA. All but ConocoPhillips signed agreements last week agreeing in principle to state control, and ConocoPhillips said Tuesday that it too was cooperating.

While this was not an overnight coup (there have been talks going on for a while now), it still is somewhat of a wake up call for these companies, and the governments of these companies. Chavez declines to talk about (or just refutes) any problems that the national oil company might have or the lack of experience. Most outside oil experts agree that the Venezuelan government and oil operations need these foreign companies to help ensure the proper production of the oil. In sum, Venezuela needs their expertise. Furthermore, Chavez said that if the oil companies were to step out, China, India, and other countries could step in–excluding you know who.

While this recent step by Chavez is a risky one, it also appears to be somewhat well received by the people. The question is will this work? Does Venezuela even with the expertise from the other oil companies hold the capacity to develop all that oil?

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  1. I think it’s very interesting that the Venezuelan people are happy about Chavez’s move. It’s true that Chavez probably does not know a whole lot about oil. However, I find it hard to believe that he could not find people (outside Exxon Mobil, BP, Conoco, etc.) to teach them what they need to know. Clearly this is Chavez attempting to exert a sign of strength and independence. So what if the world gives it to him? The idea of Chavez trying to be a “lone cowboy” is not a new one. It seems that more and more, world leaders are convinced that they can go it alone. Our own President is one such leader. The scary thing is that the more independence leaders try to exert, the less cooperation is sought. How does a country prove their strength and independence, without alienating themselves from the (crucial) world community? Is it possible for Chavez to find this balance?

  2. In class, I expressed my contempt for Mr. Chavez’ recent ploy in his “war against Western imperialism.” Sadly, this stuff works well with his political base, much of which is extraordinarily poor. To those people, it makes sense: Venezuela is blessed with billions of barrels of petroleum, yet they have failed to see an increase in their own standard of living; Western oil companies must be at fault!

    This is far from the truth. In the 1990’s, oil prices were extremely low. Since Chavez’ election in 1999, however, the price per barrel has skyrocketed, thus filling petrostate coffers. If managed correctly, this new wealth could truly serve the entire country, but Chavez’ recent expropriation is anything but correct management.

    Western oil companies have decades worth of experience in getting the stuff out of the ground and investing in the infrastructure necessary to keep doing so for years to come. In Venezuela, for example, the various Western oil companies had invested billions in their operations there. That investment has now been put at risk by the machinations of a power-hungry despot. As revenue figures show, Venezula has taken in plenty of money during the recent price surge; yet, Mr. Chavez wants more, and signed contracts will not stand in his way.

    The pandering socialist scheme of nationalization is not the way to go. In my opinion, following the Saudi Arabian model makes far more sense. Back when oil was first discovered there, Western oil companies signed agreements with the al Saud royal family extract the petroleum. Each signed benefited. Over time, however, the Saudis wanted to earn more from their own natural resources. Did they, as Mr. Chavez has done, expropriate others’ private property in the name of “nationalization”? Far from it! The Saudis, for all of their faults, are extremely shrewd businessmen. Knowing that nationalization would forever scare off future investment in the Kingdom, they went another route: the buy-out. Over the course of a couple of decades, the Saudi government gradually bought out more and more of the Western share of ARAMCO (Arabian-American Oil Co.) until they owned it outright. Now, it is one of the largest corporations in the world. Mr. Chavez could learn a lot from this model.

  3. I agree, President Chavez’s decision to take over the last privately run oil field in Venezuela is controversial, but in the long term, it may be central in obtaining his objective of liberating the South and propelling him into a leader in the international community. However, international observers may begin to witness a compromise of human rights in Venezuela based on Thomas Freidman’s analysis of petropolitics.

    Although many oil experts state that Venezuelans need foreign countries to ensure proper production of the oil, it seems that Chavez is benefiting from establishing new relationships with other countries. Most recently, Monday, May 7, 2007, the International Herald Tribune reported that Chavez solidified ties with African-ally Gambia by signing cooperation accords in areas from health care to energy. According to the article, “Chavez has sought to build closer ties with many African countries, just as he has distanced himself from the United States.” Furthermore, Chavez is in a position to formulate economic ties with China and India who could potentially enter Venezuela in assisting and profiting with the production of oil.

    Establishing beneficial relationships with African countries, as well as placing oil companies under state control seem to indicate his growing independence from the U.S., as well as effectively becoming a leader within Central America. However, the more that Chavez drives the U.S. away from economic and political ties with Venezuela, the more he hinders the U.S. from keeping a close watch on the political and social developments, which often occur in oil-rich countries. Friedman argues that in countries rich with petrodollars as a result of the high price of oil, the demands for freedom, civil, and political rights diminish. Therefore, it will be interesting to see the social and political developments within the country, particularly since the U.S. seems to be unable to intimidate Chavez and his advancing independence.

    In the next few years, I believe that we can only wait and see if Chavez can effectively produce oil without U.S. foreign companies, if human rights abuses will occur, and if Chavez will be successful in liberating the South and becoming an international leader. The U.S. can only hope that Chavez will react differently to our country with a newly elected president.

  4. My impression of this messy situation is that Hugo Chavez really shows detestation of America regardless of who its leaders are, quite possibly for the simple fact that he believes the economic strength of the U.S. is a direct result of the exploitation of the people of Venezuela. Whether he himself actually detests the U.S., doesn’t matter so much—the manner in which he portrays America (and the world) to the masses are done in such a skillful way as to play his constituencies into his hand.
    This development regarding oil makes little sense to me. In the past, isolationist governments which attempt to remove themselves from the international financial system have done very poorly—especially in regards to economic development. Further—I see no reason why oil companies would have any incentive to ‘share experience’ with the Venezuelan government (which will realize that it needs those oil companies). There will simply be no incentives. If and when Hugo is able to reap the profits, they will likely come with greater costs than they would have otherwise.
    I suppose there is a question of how oil-dependant developed nations really are. If nothing else, the nationalization of Venezuelan oil might have the positive economic effect of increasing demand for alternative energy as a substitute.

  5. I think that Chavez’ decision to nationalize the nation’s oil production is most definitely a risky decision and course of action. Of course the question must be asked, does Chavez and the Venezuelan company who will take over all oil production in Venezuela have the expertise necessary to produce and extract crude oil? Chavez is making a statement to the world and to his people that Venezuela can survive and prosper without these big oil companies and assistance from other countries, namely the United States. However, can Venezuela indeed do it? A lot of Venezuela’s money comes from its oil, and failure to extract oil at the rate the world demands could have negative effects on Chavez’ popularity and the Venezuelan economy. However, if they succeed, Chavez will have proved to the world that they can stand as a country alone and dependent of the world’s leading power, the US. What will happen when Venezuela runs out of oil?

  6. I completely agree that the actions taken by Chavez show his dislike for the US no matter who is in charge. However, my question is — can we blame Latin Americans for not trusting us? While it might not be the smartest move for Chavez to think he can develop all of Venezuela’s oil without the help of the outside oil companies, and while it might not be the fault of the Western oil companies that the Venezuelan people have not seen a rise in their standard of living; with all of the trouble the US has caused in Central and South America, I think it makes sense that they would just want to try things their own way. After all, in their minds at least, could things really get any worse than having to live under military dictatorships without having the ability to speak out against the situation for fear of “disappearing”? I understand that this move is risky for the US, Venezuelam, as well as other countries that depend on Venezuela for oil, but I don’t find it unreasonable at all that Venezuelans are so in favor of it.

  7. Mr. Chaves is fighting western influence as best he can, and quite honestly taking control of the oil in his country is one way to fight that. What I mean is that the oil companies come into a country and set up their drilling operations, give a portion of the money to the state itself and then cut and run with the huge profit that the state will never see. I have seen arguments made from time to time about certain oil companies agreeing to develop the local communities, put up schools, hospitals, and anything else you could imagine, but in most cases these are just ploys used to try and buy loyally to the oil company. In regions where the oil industry has helped it has never really reached out beyond the immediate surroundings (I may be wrong but in the few examples I can think of this is the case) so with a lack of genuine help, or profit sharing amongst the state itself I can understand why Chaves wants to take control oil. The problem as it relates to this circumstance is not so much that Chaves wants the profits for his people, or himself however you choose to look at it, but does Chaves possess the resources needed to get to the oil without the help of the oil companies? Chaves is relatively inexperienced in what the multi billion dollar companies do with ease, and if he does manage to access the resource I truly doubt that he could harness its full potential. Overall it looks like a rock and a hard place to me; Chaves looks as though he chose the rock… perhaps hoping that it might yield a little bit.

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