Tuesday, April 04, 2006

The Chavez Way

It might be tempting to view the creeping nationalization of Venezuela's oil industry as an appropriate re-assertion of indigenous ownership of natural resources, taking them back from a greedy international oil industry dominated by rich European and American companies. President Chavez's energy minister, Sr. Ramirez, explains these actions by saying, "...this country and this government do not allow themselves to be blackmailed. We don't want companies that do not adjust themselves to our laws in our country." Unfortunately, this is a classically inverted piece of propaganda, in which the blackmailers claim to have been blackmailed, and the thieves complain they are the victims of theft. Herr Goebbels would recognize the emulation, conscious or not.

I don't need to recite my earlier comments about the degree to which Sr. Chavez's present power and growing political influence are largely the result of sophisticated oil processing hardware built and paid for by the same multi-national companies that have become his scapegoats. You can read those elsewhere, if you like. Instead, I think it's more important to contemplate the implications of the latest round of oil asset seizures for the global energy market.

Venezuela may not be Saudi Arabia, but in energy terms it is in the same league, in terms of its direct impact on the US energy situation. We rely on Venezuela for 12% of our oil imports, along with additional supplies of gasoline and distillate. The country has 48% of the western hemisphere's oil reserves, not counting reserves of unconventional oil--the ultra-heavy Orinoco deposits--that are on a par with the much-touted Canadian oil sands. At the same time, a wholly-owned subsidiary of the Venezuelan state oil company supplies 10% of the US gasoline market. How many Americans realize that 14,000 Citgo stations provide are the local face of an increasingly hostile foreign government?

The re-direction of Venezuela's oil wealth has immediate consequences, raising the stakes in an already frothy, risk-driven oil market. It also has two less-direct, longer-term outgrowths. First, although I remain skeptical about the prospect of an imminent peak in global oil production, the peak in non-OPEC production is in sight, as mature basins in North America and the North Sea run down. The world will increasingly need to draw on the oil resources of OPEC countries, and access to that oil on commercial terms is key. Venezuela's actions remind other producers of the temptation, especially at times of high prices, of enjoying 100% of the proceeds of investments made in their countries by Exxon, Shell, et al, rather than having to share them. We have been down this path before, and its benefits are largely short term, as countries such as Libya and Kuwait have begun to realize. A return to the large-scale nationalizations we saw in the 1970s would guarantee the premature arrival of Peak Oil.

The other geo-political concern is not specific to energy. Surging oil income gives a disproportionate heft to the distorted economics of President Chavez's Bolivarian Revolution and make it more attractive and influential throughout Latin America. What he portrays as a fairer system is nothing more than the re-distribution of billions of dollars in resource rent. However, that may not be immediately obvious to the millions in poverty for whom his philosophy appears superficially more attractive than the international system of globalized trade, as we saw in Bolivia's recent elections.

While much of our attention is focused on dealing with Islamo-fascist adversaries in the Middle East and elsewhere, we cannot ignore the dangers of an emerging petro-fascism to our south. Mr. Chavez has ways to hurt us of which Al Qaeda can only dream.

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