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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

25 August 2005

Let Chavez be

Hugo Chavez is Latin America’s most ambitious leader. Propelled by rising oil prices, he has rushed to spread his newfound wealth to build political friendships in the region, usually exchanging oil for preferential trade agreements, although recently he helped fund The Southern Television, a TV station meant to unite Latin Americans against the pervasive influence of CNN and other foreign news sources. So pervasive is his influence that televangelist Pat Robertson suggested that the United States should assassinate him, a proposition that Secretary of Defense hardly enthused over.

The temptation to think that Chavez is a problem to be solved is, well, tempting. But step back and the picture that emerges is rather reassuring: Venezuela’s political game is unlikely to last long nor will it have the major impact that many fear.

Start by putting the Venezuelan foreign oil policy into perspective. In 2003, Venezuela produced 2.6 million bpd, 2.25m of which were exported. Of that, roughly 1.6m reached the United States (although outdated, these figures help understand the bigger picture of Chavez’s foreign policy) (1). To Cuba, the cornerstone of Chavez’s policy, PdVSA, the state oil company, sold about 90,000 bpd; to Uruguay, the figure is 8,600 bpd (2). In other words, it is easy to sell oil at a discount to your minor customers at a time when your major buyers are paying a steep price.

At the same time, it is not clear what Chavez seeks to accomplish with his oil money; “What is less transparent is what Venezuela is going to get in return—is it good will? Is it Latin American support for the day when Chavez decided to radicalize his revolution, prompting an international reaction?” asks Harvard Professor Ricardo Hausmann (2). In Cuba, the rationale is simple—Chavez is trading oil for “30,000 physicians, sports coaches, and teachers” (2); but his other agreements include giving credit to foreigners to purchase oil or giving oil at below market prices in exchange for importing goods from those countries. That’s trade with an economic twist that doesn’t make economic sense (3).

Put these two insights together: Venezuela’s political game will last as long as oil prices remain sky-high, and the political capital that Chavez will gain is unlikely to count for much. There is one other country that has used oil money to buy influence abroad, with deadly consequences—Saudi Arabia.

But Venezuela is different: Saudi Arabia exported Wahhabi extremism paid for by petrodollars. Chavez’s crusade is different—his appeal is a Bolivarian revolution, but the money to pay for it has nothing to do with Bolivar and his ideals. Saudi Arabia’s financing was deadly because it appealed to extremism and fundamentalism; Chavez’s social model is premised on social ideals that need to appeal to people if they are to force change.

In other words, contrary to Saudi Arabia, or even Fidel Castro, Chavez has only money; he has no ideas and no proven social model to appeal to the public; over time, money can only prolong an inevitable death; if that death is mostly home-grown, Latin America might also learn to be more cautious of revolutionary prophets and their quick fixed in the future.

References:
(1) “Venezuela: Country Analysis Brief,” Energy Information Agency, Department of Energy, (here)
(2) Danna Harman, “Chavez seeks influence with oil diplomacy,” Christian Science Monitor, 25 August 2005
(3) As an economist, I have to admit that there could be a rationale for this; selling oil below market rates would prevent a substitution effect—it would preclude, that is, the potential for countries to turn to less energy intensive (or oil-intensive) products or productions in response to higher oil prices. In the long run, that could secure Venezuelan exports to these countries. But there is little to suggest that this strategy is at play here.

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1 Comments:

Blogger Rafe said...

Hello Nikos, can't find an email address so I will have to write to you in a comment.
Enjoyed some of your Amazon reviews. Will keep an eye on your blog, a big promise, there are so many on my list.
You might like to check out some of my Amazon reviews and also my site.
http://www.amazon.com/gp/cdp/member-reviews/ACL845LEHNC7/103-9305961-5847005

http://www.the-rathouse.com


Cheers from Sydney!

Rafe

7:52 PM  

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