As the oil and gas industry sheds projects and workers amid the cruel pressures of an oversupplied market, more than 3 million b/d of production falls increasingly subject to threat from political disruption. The focus here is not on Iraq, susceptible though output there remains to violence. It's not on Nigeria, with its spreading terrorism, or Libya, where oil production follows the bloody tides of civil war. Those countries are sources of oil supply vulnerable enough to vanish in an instant and large enough to jolt the market when they do. But market flashpoints aren't confined to Africa and the Middle East.
At some date described officially as "imminent," Venezuela will adjust the subsidies that keep gasoline prices at about 6¢/gal and that cost an overspent government as much as $15 billion/year. This is ominous but predictable. Governments that placate populations with cheap fuel, inevitably creating nightmarish traffic congestion and unhealthy air, often try to redress their mistakes during oil-price lulls.
Price hikes and riots
It was while oil prices were low, in fact, that the Venezuelan government last allowed gasoline prices to rise. That was in 1997, while Rafael Caldera was president. The highly automotive population absorbed the cost largely without incident. The same can't be said of the earlier attempt to nudge Venezuelan fuel prices toward soft-market levels-in 1989 during the presidency of Carlos Andres Perez. That move, one of several austerity measures, incited rioting that killed hundreds-some say thousands-of Venezuelans.
Conditions in Venezuela now don't favor a tranquil response to any official elevation in the cost of fuel. Low oil prices are demolishing what remains of the economy, which is in late stages of self-consumption following 14 years of socialistic misguidance by the late President Hugo Chavez. Nicolas Maduro, Chavez's hand-picked successor, barely won election to his office in April 2013, the month after Chavez died, and increasingly depends on political and military cronies. Although his popular support is abysmal, the political opposition is splintered and suppressed.
Venezuelans, meanwhile, are suffering from shortages of food and other necessities, rocketing inflation, the outbreak of disease, and high and rising incidence of violent crime. Vigilantism is increasing. When street-level protests erupted with deadly results a year ago, the government responded by arresting dissidents, including opposition leader Leopold Lopez. In what might represent preparation for whatever disturbance awaits the fuel-price hike, the defense minister last month authorized use of the armed forces to keep order in demonstrations.
Worry grows, meanwhile, that destabilization of Venezuela might spread to the country's neighbors, particularly Colombia. Security there has improved over the past decade after a decades-long insurgency by two groups, with one of which, known by its Spanish acronym FARC, the government is discussing peace. Business has grown, and Colombian oil production until recently was increasing.
Colombia's reservedly friendly relations with its neighbor to the east are fraying. Last month, President Andres Pastrana called on Maduro to release Lopez after he and former Chilean President Sebastian Pinera traveled to Caracas to visit the prisoner but were denied access. Pastrana warned that Venezuela faces a human rights crisis under Maduro. The Venezuelan president said the warning threatened the countries' relations.
Venzuelan leverage
Maduro has leverage. Carl Meacham, director of the Americas Program at the Center for Strategic and International Studies, noted in an online essay this month that Venezuela helped coax FARC, which it supports, into peace negotiations with Bogota. Disruption of those talks would jeopardize Colombian stability and economic progress. "Further deterioration of Venezuela-Colombia ties (and the collateral impact on the peace process) could, when paired with growing economic and political instability on the Venezuelan side, spark a humanitarian crisis on the border-an outcome that neither government is well equipped to handle," Meacham wrote.
The effect of political disruption on oil production varies greatly in amount but little in direction, nearly always downward. Venezuela produces 2.4 million b/d. Colombia produces 980,000 b/d.