Although world attention is focused primarily on the potential war in Iraq, the current political conflict in Venezuela is just as likely to have a long-term negative impact on world oil markets, especially if Venezuelan President Hugo Chávez wins, said an expert on South American political and economic issues.
A general strike, in its ninth week at presstime last week, aimed at ousting Chávez from office, undermines the popular image of "Latin America, which we had counted on as a cornerstone for (reliable) oil supplies. It's not as strong as some had thought," said Michelle Michot Foss, executive director of the Institute for Energy, Law & Enterprise at the University of Houston Law Center.
Former employees of Petroleos de Venezuela SA (PDVSA) recently claimed Venezuela's oil production had fallen to 340,000 b/d from 3.2 million b/d since the general strike against Chávez began Dec. 2 (OGJ Online, Jan. 10, 2003). Other sources put the country's production at 500,000-800,000 b/d (see related article, p. 29). But in a Jan. 19 radio broadcast, Chávez claimed that oil production has increased to 600,000 b/d in eastern Venezuela and was estimated at another 600,000 b/d in western Venezuela, in addition to 80,000 b/d in the southern states of Barinas and Apure.
In that radio address, Chávez claimed it would be "difficult, but possible" for Venezuela to increase its oil production to 2 million b/d by the end of January. However, some of the 5,000 PDVSA employees that Chávez has fired since the start of that strike said Jan. 10 that it would take at least 2 months for the company to regain 50% of its November production level and 3 months to reach 90%, providing that "the right people (remained) in the right places."
Foss had a much more pessimistic outlook, however, at a Houston energy forum Jan. 17. "It will take 1-2 years to restore PDVSA's production to 3 million b/d and 3-5 years to reinvest for growth," she said.
Possible scenarios
"There will be difficulty in (obtaining additional) energy supplies for several years if Chávez wins," said Michael J. Economides, professor of chemical engineering at the University of Houston, at that same forum. "We're beginning to see rifts among the Chávez opposition, so he may win the battle."
Even worse, said Foss, what is happening in Venezuela may indicate a broader underlying problem in other Latin American oil producing countries. "We have long looked to Latin America as what emerging markets could do with different approaches to market issues," she said. "On the surface, things looked good, but many (political and economic) issues are deeply ingrained in many of those countries, so that the changes we think we see may be only superficial."
Foss said, "A lot of deadwood has to be cleaned out somehow" that otherwise form "barriers to change."
A victory for Chávez would be bad because of his "capacity for stirring up trouble," she said. A leftist former military officer, Chávez has flaunted his friendships with Cuban dictator Fidel Castro and the notorious terrorist, Carlos the Jackal, actually Ilich Ramirez Sanchez of Venezuela.
Although he came to power in a democratic election, Chávez "hangs out with a rough crowd" of international left-wing revolutionaries and may pose a threat to the democratic governments of neighboring states, said Foss.
Meanwhile, if Chávez fears he's losing the current confrontation, she said, "Desperate leaders do desperate things."
Foss said, "Chávez wants to stay president, but he's a lousy leader who has led his country down the tube." Chávez targeted PDVSA, the national oil company, for takeover by naming political supporters to its top management because, said Foss, it represented a political force outside his sphere of influence.
Former PDVSA Pres. Luis Giusti had worked to develop the state oil company along the lines of other successful multinational majors, with an eye to market share and bottom lines (OGJ Newsletter, Sept. 6, 1999). During his volatile 1998 campaign for president, Chávez had targeted Giusti for dismissal, which occurred the following year.
Since Chávez took office, five boards of directors and six company presidents have rotated through PDVSA executive offices (OGJ Online, Jan. 10, 2003). PDVSA generates more than 50% of the revenue received by the Venezuelan government and accounts for 20% of Venezuela's gross national product.
