Venezuela Six More Years of Chavez
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Supplying approximately one-twentieth of the world's oil, Venezuela's economy is locked to the petroleum market. Hugo Chavez has ridden the crest of rising oil prices since he took office in 1999 and with it, has enjoyed a swelling national treasury that has enabled him to pursue his international ambitions.
Reelected to another (and his last constitutional) six-year presidential term on Dec. 3, Chavez will continue to be a thorn in the side of the United States for some time.
Clearly, he opposes U.S. interests anywhere he can. Latin America's chronic problems of poverty, debt and inequality are blamed upon U.S. companies' exploiting the continent's cheap labor and natural resources. Chavez capitalizes on this populist theme in his blustering rhetoric, not only to promote himself, but also to promote leftist politicians throughout Latin America.
Many liken him to Fidel Castro, but there is a striking difference between the two—Chavez has an independent source of income from oil revenues. Proven Venezuelan oil reserves and the country's potential for future ones are the keys to his power. At the current rate of production, Venezuela is guaranteed strong revenues for the next 80 years.
Numerous factors determine actual revenue, including the initial costs of exploration, development, pumping or recovering the crude oil, as well as its quality and, of course, the world market. It costs more to refine Venezuela's "sour" crude (with its high sulfur content) than the "sweet" crude of most Middle Eastern oil fields.
Because the state controls oil production through PDVSA (Petróleos de Venezuela S.A.), its actual oil income is unknown. Venezuelanalysis.com estimates it at about $25 billion dollars currently, with an average of $14.5 billion annually for the years Chavez has been in office. That's $101.5 billion. Tax revenues account for the remaining 50 percent of the government's income, making a total figure of $200 billion. While rich in comparison to most Latin American countries, Venezuela isn't wealthy on a par with Middle Eastern sheikdoms.
Venezuelan foreign policy—"ABUS"
Venezuela 's foreign policy under Chavez can be summarized as ABUS, "Anything But the U.S." He says, "Capitalism will lead to the destruction of humanity," and to him, the United States epitomizes capitalism. He stokes the populist sentiment that the United States is the cause of the region's poverty and encourages anti-U.S. politicians wherever he can throughout Central and South America.
Early in his administration, it appeared that he was swaying much of Latin America to the left. However, several countries this year have turned more moderate—not necessarily pro-U.S., but not overtly anti-U.S. either. Perhaps the basic concept of European socialism best describes the current trend.
(It's not the purpose of this article to deal with the strength or weaknesses of U.S. policy toward Latin America, but rather to focus upon Venezuela and its president. Because World News and Prophecy and its publisher are nonpolitical, we neither support nor oppose political issues.)
Venezuela under Chavez has spent between $16 and $25 billion dollars in foreign aid. He subsidized samba parades in Brazil, provided eye surgery for poor Mexicans, purchased $2.5 billion of Argentina's debt, gave oil at cut-rate prices to 13 Caribbean nations—spreading largesse to up to 30 nations!
This is out of proportion with what his country can afford, but as one critic put it, "politics always trumps economics" with Chavez. Even his supporters lament the amount of money he is spending outside the country.
He led Venezuela to join Mercosur (common market of the south) in July. The trade bloc has a combined market of 250 million people with an annual output of $1 trillion in goods and services. It is, of course, logical for nations to organize into common markets, but Mercosur is becoming a tool for avoiding the U.S.-proposed FTAA (Free Trade Area of the Americas).
Chavez immediately sought to assume a leading role in the group, even though Venezuela won't have full voting rights until 2010, and his aggressiveness alienated long-term members. Most member nations are resisting turning Mercosur into a Chavez political soapbox.
Moreover, Chavez charges that the United States is using the FTAA to attempt to influence other nations to accept its political views. (Of course, that is precisely what he is attempting with Venezuela's wealth!)
He has trade or cooperation pacts with several nations that are at odds with the United States . He is spending billions to purchase weapons, gunboats, helicopters and jet fighters from China, Russia, Spain and Iran, as he seeks to build up Venezuela's military.
There are rumors that Iran's Ahmadinejad is negotiating for Venezuelan uranium as an unmonitored supply for Tehran's nuclear program. Of course, the Islamic firebrand's anti-Western rhetoric coincides with Chavez's, an unsettling combination in this unstable world.
An ocean of heavy oil
Venezuela is in the process of certifying its deposits of heavy oil, located in the Faja of the Orinoco River valley. Heavy oil has the consistency of peanut butter, and it is difficult to extract. However, oil prices at over $50 per barrel and ever-more-efficient methods have made it cost-effective to work these fields.
Certification of recoverable oil is underway in the Faja, which holds up to 1.3 trillion barrels of oil. Of that figure, 270 billion barrels are currently recoverable. Added to the other 80 billion barrels of reserve crude, this would make Venezuela the world's largest holder of petroleum reserves. Geologists debate whether the vast Middle Eastern oil fields have reached their peak. Regardless of when they do, they will eventually diminish their output. Heavy oil is next in line as a source of petroleum, making Venezuela of monumental strategic importance to the energy security of the United States, as well as to the rest of the world.
Currently, Venezuela supplies 11 to 15 percent of U.S. oil needs. Venezuela owns several refineries in the United States outright, which handle 70 percent of its exported oil. It is important to realize that few refineries in the world are tooled to handle the sour (high-sulfur) crude that Venezuela produces, including the heavy oil of the Faja.
Chavez has threatened to cut off oil shipments to the United States on several occasions. He is so volatile that it is difficult to predict if he would do so. However, if he does, he would cause more problems for Venezuela than for the United States. He would lose revenues Venezuela obtains from its U.S. refineries, as well as from the direct sale of crude. He cannot simply sell the sour crude elsewhere, for the United States is currently the only nation that can process it.
China is interested in building this capacity, but that is far in the future.
Chavez's self-described revolution has not reversed poverty in Venezuela, where CIA estimates place it at a staggering 47 percent. One in 3 Venezuelans has inadequate housing.
Nor has his rule eliminated a rich upper class. Luxury car sales are expected to more than double this year, and property prices in Caracas rival Manhattan. Country clubs and expensive restaurants flourish.
In the recent election, Oil Minister Rafael Ramirez told PDVSA employees that they must vote for Chavez or lose their jobs. After a brief strike in 2002-2003, the government fired 40,000 highly skilled workers for suspected disloyalty, wreaking havoc with oil production.
This year, the government unilaterally took over 32 oil fields, cancelled existing contracts and demanded that investing companies surrender at least a 51-percent stake in all exploration and production to PDVSA. Those companies have invested billions of dollars in high-risk ventures to open fields, including the Faja. Obviously, their only motivation for doing so is to receive a return on their investments. Chavez's erratic and dictatorial management is ruining the investment climate in Venezuela.
The Faja already produces 625,000 barrels per day. More will become recoverable with advanced methods. However, doing so will literally require inventing new technologies, something that Chavez has invited Brazil, Belarus, China, Russia , Spain, India and Iran to create, presumably with an opportunity to share in the profits. Yet, how can they be certain they would?
Unstable and unpredictable
The future of Venezuela is in Chavez's unpredictable hands and the future of Chavez is in the price of oil. It's as simple as that. If the price remains over $50 a barrel, he will be able to continue his anti-U.S. policies, as well as building the Venezuelan military into a formidable force.
The United States should be afraid, although not necessarily of Chavez. He cannot harm the U.S. economy without virtually crippling Venezuela's own economy. Yet his hatred of all things American is strong enough that he is susceptible to the radical Islamists seeking resources, as well as a pathway into the United States to inflict damage. His passion also plays into the hands of other major players that seek to pull the United States down from its hegemonic role, including Russia and China.
Few realize that the United States' vast wealth, power and consequential dominant role in today's world is part of God's plan or that He requires an accounting for His blessings. No nation is going to be able to bring the United States down without God allowing it to do so.
Yet God has used other nations in times past to accomplish that calling to account, when His beneficiaries take His bounty but shun the responsibilities that accompany it. "To whom much is given,...much will be required" summarizes God's approach (see Luke 12:48).
Is the United States as a whole living in a way that shows it realizes its gifts come from God? There is no question but that a sizable portion of its people act as though they deserve their benefits. They scoff at the idea that God has anything to do with their success. Their behavior mocks the absolute laws of behavior God decrees. Yet He is patient, calling upon them to realize and change their error.
If they don't, the hammer will one day fall, whether because of a Chavez, radical Islamists or other power-seeking dictators. If you enjoy the blessings of life in the United States (as well as in its brother nations of Canada, Great Britain and much of its commonwealth), what are you doing personally? Do you respect the Source of your advantages? Do you have the humility to submit to God's laws, regardless of the hedonism around you?
The future of the United States is one thing; yours is another. The latter is in your hands. We recommend our booklet Making Life Work to help you sort out your life the way you must if you are to enjoy God's blessings. WNP