24 May 2007 - 12:47
  • News Code: 105459
Nationalization of Venezuelan Oil

On May 1, Venezuelan President Hugo Chavez announced that the nationalization of the Venezuelan oil industry was complete, and that his country would formally withdraw from the International Monetary Fund (IMF) and World Bank.

Beginning with changes to tax rates on foreign companies in April 2006, and strengthened by his landslide election victory in December 2006, Chavez handed control of Venezuela’s oil operations to state-owned Petroleos de Venezuela SA (PDVSA).

Since taking office in 1999, Chavez began to move away from the IMF and World Bank. He attributes increased income inequality to the strict neo-liberal policies of privatization and deregulation prescribed by both agencies. Having enjoyed ten consecutive quarters of high economic growth, including 8.8 percent growth in the first quarter of 2007, Venezuela was able to pay off the considerable amount of debt it owed years ahead of schedule.

Prior to an April energy summit, Chavez sparred with Brazilian President Luiz Inacio Lula da Silva over an agreement between the United States and Brazil that intended to create a Western Hemisphere ethanol market similar to OPEC, and renew Washington’s deteriorated relations with Latin America. Chavez called on neighboring countries to continue to rely on Venezuelan oil and to collaborate to reduce energy consumption rather than turn toward ethanol, which he stated would deplete arable land and contribute to further poverty and famine, a criticism supported by the fact that the price of corn, the key source of US ethanol, has risen sharply with increased ethanol production.

Washington seeks closer relations with Brazil in order to undermine Chavez’s influence in the region. To that end, Chavez will continue his drive to institute the Bolivarian Alternative for the Americas (ALBA), a cooperation agreement among Latin American countries, which stresses economic, military and social integration as opposed to the US-sponsored Free Trade Area of the Americas (FTAA), which centers solely on the establishment of a hemispheric free trade zone. Bolivia, Cuba, Nicaragua and Venezuela have entered a People’s Trade Agreement as a precursor to ALBA.

While foreign firms, including US companies ConocoPhillips, Chevron, ExxonMobil, Britain’s BP, Norway’s Statoil and France’s Total, will continue to hold a stake in several major projects in the Orinoco Belt, PDVSA will now maintain at least 60 percent control of operations in the region. In addition, Venezuela has invited firms from Brazil, China and Russia to further develop the four massive Orinoco Belt projects.

Accounting for half of state revenue and approximately 70 percent of export revenues, oil is the foundation of the Venezuelan economy and the United States continues to be Venezuela’s biggest customer. Exports to the United States, however, have declined from 1.5 million barrels per day in March 2006 to 1.2 million in the first quarter of 2007.

This could be symptomatic of Venezuela’s greater inability to meet demand, whether as a result of inefficient operations or the high production cost relative to other major oil producing countries, or, as Chavez states, it could be the result of his efforts to reduce Venezuela’s dependence on US consumption by increasing exports to China.

Whether Chavez can maintain his “Bolivarian Revolution“ depends entirely on oil revenues and increased cooperation among Latin American states. Chavez undoubtedly knows that regional unity is the key to Venezuela’s ability to push for an alternative to the neo-liberal model.

For the time being, US dependence on Venezuelan oil will sustain Chavez’s plan to nationalize other industries such as banking and steel, and continue to push Latin America away from the Washington Consensus. Concurrently, as the United States seeks alternative energy supplies, Venezuela will seek out new markets to solidify its standing and ensure that this wave of nationalization is indicative of a greater “21st Century Socialism“ and not a short-term aberration.

 

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News Code 105459

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