The Meaning of "No"
President Hugo Chavez may find much to relate to in Nietzsche's remark, "That which does not destroy me makes me stronger." Despite some expressions of concern about voting irregularities, the Carter Center and other international observers have endorsed the "no" outcome of Sunday's referendum on Chavez's rule. As I suggested last week, this may reduce one kind of political risk for oil investors, but it will surely create new ones.

Last Friday's NY Times carried this article describing Chavez's plans for an integrated energy network in South America. In itself, this may be a good idea that would promote broader economic development throughout the continent, even as it increased Mr. Chavez's political leverage and influence. But the plan also reflects a desire to reorient Venezuela's oil marketing efforts away from its reliance on the US market. While that may be good politics in Latin America, it poses big challenges for North America.

The great energy success story in the wake of the oil crises of the 1970s was the diversification of US energy imports away from the Middle East, and Venezuela played a key role in that. Along the way PDVSA, the Venezuelan state oil company, acquired a US refining and marketing company, CITGO, and international oil companies made significant investments in Venezuelan oil projects. Barring a new international crisis, it wouldn't make sense for Venezuela to cut off its oil shipments to this country, but even a gradual move away from the US and towards new partners in Latin America would leave a void.

With domestic production continuing to decline and West Africa, the other big success story of the 1980s and 90s, suffering from crippling unrest and corruption, the likely outcome of such a shift is either growing US reliance on Middle East oil, or a more intense effort to strengthen energy ties with Russia, which has significant untapped potential. If so, the results of Sunday's election will reverberate around the globe for years to come.

By the way, tomorrow is a travel day for me, so there won't be a new blog. Postings will resume on Thursday.