After a tumultuous weekend in which he briefly lost control of the country, Venezuelan President Hugo Chávez is back in power. But while the political firestorm may appear to be abating, the long-term implications of the failed coup for industry remain unclear, according to Wall Street analysts, US government officials, and academics.
"Although Chávez's return to power in Venezuela will have an immediate bullish influence on oil prices, the long-term effect remains much more uncertain," said Paul Cheng of Lehman Bros. Inc. "While Chávez would undoubtedly like to maintain his high-price oil policy, he may be forced to revisit the notion of increasing production somewhat in order to ease unemployment and appease the unions."
Exports resume
Assuming Chávez can retain power, at presstime oil production and exports were returning to normal last week. But whether the country can attract the foreign investment it needs to preserve its status as one of the world's top oil exporters is not yet known.
In a concession to the business elite that unsuccessfully tried to remove him from office, Chávez accepted the resignation of top executives at the state-owned Petroleos de Venezuela SA. Chávez had replaced long-time industry veterans with political loyalists last February. In doing so, he helped precipitate the latest crisis by angering labor unions and many powerful military officials who had once been key supporters, analysts said.
At presstime, Chávez had not yet named successors to the top executive posts at PDVSA, which is the lifeblood of the country's economy, supplying close to 80% of government revenues.
"So now we wait to see how Chávez will deal with PDVSA, and I am worried that the leopard cannot change its spots in 3 days," said Sarah Emerson, managing director of Energy Security Analysis Inc., a Boston-based energy research firm.
"Unless the military really changed his thinking, he is still a populist who came into power on a platform that promised some redistribution of wealth. Venezuela's wealth is oil. How does he square his populist leanings that argue against foreign investment and the wealthy elite who run PDVSA with the reality that oil is the main-if not only-source of wealth for the entire country?" she conjectured.
Middle ground
Alejandro Bertuol, senior director of Fitch Ratings in New York, early last week predicted that PDVSA operations would return to normal by the end of the week.
"PDVSA will continue to be a key player in the global oil industry," Bertuol said. "In the last month, we have witnessed one of the most difficult labor crises in the country's history."
Chávez now has a unique opportunity to address the roots of dissension, Bertuol said during a conference call with reporters.
Carlos Fiorillo, managing director of Fitch's office in Caracas, said, "The government has a second chance" to improve its relationship with PDVSA. Fiorillo said early indications are that the new PDVSA board will be operated by a consensus between the government and the company.
Emerson concurred, suggesting that Chávez needs someone from the oil community to help find a middle ground that allows Venezuela to pursue both state and commercial objectives.
Wall Street analysts and oil industry executives all said that major oil companies will think carefully before committing new investment, especially given the precarious political situation and existing royalty laws that US companies say are too severe.
Whether Chávez is willing to make substantive concessions to foreign investors that aligned themselves with political enemies is unclear, analysts say. However, Chávez may be forced to act quickly, otherwise Venezuela may be headed back to the situation that precipitated this latest crisis.
"Although another ouster seems unlikely at the present time, the recent coup has clearly demonstrated that the country, including the military establishment, is widely divided," Cheng said. "Consequently, if the Venezuelan economy continues its recent downward spiral, Chávez's ability to hold onto power may be retested in the future."
US energy policy
What impact Venezuela's own precarious political situation has on US energy policy is a complex issue that is still evolving, according to US officials and industry observers.
One of President George W. Bush's first policy goals when he assumed office was to create a Western Hemisphere trading bloc that could compete with the European Union and other international trade compacts.
But even with careful persuasion and diplomacy, there is still a great deal of upheaval and uncertainty, not only in Venezuela but throughout Latin America, notes Michelle Michot Foss, executive director of the Institute for Energy, Law, & Enterprise at the University of Houston. Foss said that, given the backlash toward free markets and other internecine conflicts roiling over illegal drugs and intraregional trade, "Latin America seems to be sliding backwards, after being for so many years a 'poster child' for reform and progress."
Foss also found it significant that many of Venezuela's neighbors, including Argentina, Costa Rica, Mexico, and Paraguay refused to recognize the fleeting interim government installed by several of the country's top military officers until new elections could be held.
"One interesting thing, that I think is a counterweight to all of the rumors about what Chávez may or may not have done, is that all of the governments reacted fairly strongly to how events unfolded last Friday," Foss said.
Exactly how the failed coup d'etat came about has fueled many conspiracy theories both within and outside of Venezuela that the US government refuses to speculate on.
"We are encouraged by President Chávez's calls for national reflection, and we urge all Venezuelans to take advantage of this opportunity to promote national reconciliation and a genuine democratic dialogue," Department of State officials said in a statement. "We strongly urge Venezuelans to refrain from seeking retribution [against] political and civil society actors for the events over the past several days; at the same time, we do hope that those responsible for violence would be brought to justice."
US officials did not directly comment on an accusation from the Cuban government alleging that the US was somehow behind Chávez's "resignation."
Nor would they comment on other industry rumors that Chávez may have engineered the whole insurrection to rebuild his political base and to create a distraction that allows him to fire a few people in his own government who have become political liabilities.
"I find this to be a wild idea but, after all, it's Venezuela, so who knows?" said Foss.
