While it has become fashionable to worry about the future reliability of Saudi Arabia's oil reserves (see Friday's posting) we might do well to focus our concerns a little closer to home. Venezuela supplies as much oil to the US as Saudi Arabia does, and its government is becoming increasingly hostile to American interests. As described in this article in yesterday's New York Times, the facade of the country's "Bolivarian Revolution" has slipped recently, giving way to a new take on socialism. The implications for our energy security are troubling.
Because of its proximity to the US Gulf Coast, resulting in very short transit times for oil shipments, Venezuelan crude oil has been an anchor of our post-1970s oil supply diversification. Even if only incremental Venezuelan production were lost to the US, this would be a significant blow to our supply strategy. The diversion of all our present imports from Venezuela to other countries would represent a disaster on a magnitude comparable to the recent hurricanes, with similar long recovery times, as global supply patterns rebalanced. As volatile as the Middle East may be, I find this scenario at least as credible and concerning.
As Sr. Chavez comes more and more to resemble a Castro with deep pockets, the political risk of doing business in Venezuela, particularly for American firms, increases. While the oil projects developed by international companies have become a mainstay of Venezuelan production, as the state oil firm PdVSA struggles to rebuild from the catastrophic strike of a few years ago, this privileged position has not protected these firms from threats of contract renegotiation or sudden claims for back taxes.
If the companies involved, including the entire top tier of the international oil industry, have not begun seriously to plan for the possibility of nationalization, they would be remiss in their risk management. Sr. Chavez cannot be pleased to rely on foreign capital and foreign companies for the maintenance of the engine of Venezuelan economy and of his new, expansive foreign policies. I would be surprised if, in his mind, the question were not if, but when to take control of these key assets. While Venezuela may lack the wherewithal to operate these facilities today, might other countries supply the needed expertise, until a local capability could be nurtured?
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