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Sunday, May 08, 2005


Yet again the most important news in the oil world this week came out of Venezuela. On Wednesday Venezuela’s Defense Minister, Jorge Garcia Carneiro, announced that the armed forces would take control of various oil installations in western Venezuela in order to prevent sabotage. Carneiro contends that recent sabotage has cost the country between 100,000 and 200,000 barrels per day in lost production. “Operation Black Gold,” he said, would involve over a 1000 soldiers, as well as military helicopters, vehicles, and boats to protect against sabotage and provide repairs.

Last week both Carneiro and Venezuelan President Hugo Chavez accused the CIA of infiltrating the state oil company’s western division in order to “provoke upheavals.” Unsurprisingly, the soldiers to man Operation Black Gold will come from the Venezuelan state militia recently created by Chavez and answerable directly to him.

On Friday, however, Venezuela’s Energy and Petroleum Minister, Rafael Ramirez, who is also President of Petroleos de Venezuela S.A. (PdVSA), downplayed foreign involvement, saying rather that the oil shortfall is the result of “a clear lack of management and poor use of funds.” Referring to the 2002-2003 PdVSA oil strike that nearly collapsed the Venezuelan economy, he claimed that “the people who destroyed the country during the national strike are once again trying to create a climate of uncertainty.” He also insisted that while security in the western region was being tightened, the western division of the company was in no way becoming militarized.

Consistent with that theme, PdVSA also announced this week that it would not renew contracts with 4,000 contract workers in the western region. Earlier this year 40 managers in the western region were fired for corruption and mismanagement in failing to reach production goals. It is also likely that any sabotage that has taken place is the result of these labor upheavals.

While the Venezuelan officials admit that production is down between 100,000 and 200,000 barrels per day, they still claim that the country is producing a total of about 3.2 million barrels per day. However, that figure is clearly exaggerated. Production has not been that high since the 2002 PdVSA strike. The Energy Information administration estimates January production from Venezuela to be approximately 2.6 million barrels per day.

Worse yet, the conflicting statements concerning the cause of the production shortfall reflect an increasing rift in the leadership of the country. Energy and Petroleum Minister Ramirez made his statements in Houston while trying to assuage foreign investors made anxious by the increasingly heavy-handed treatment that foreign oil companies have received from the Chavez government. Oil taxes were recently increased from 16 to 50 percent, and dozens of contracts were unexpectedly suspended pending further review. Ramirez, a political moderate by Bolivarian leftist standards, has come increasingly into conflict with the more radical Chavez and his military leadership. Operation Black Gold may indeed be an attempt to put pressure or even force out Ramirez by undermining his efforts and his ability to make decision within the huge company.

There also have been allegations this week in the Venezuelan media that foreign currency earned by PdVSA has not been turned over to the central bank. These rumors seem to suggest that as head of the company, Ramirez is to blame, although clearly such a scheme would have to involve government officials all the way up to Chavez himself.

Chavez has already made strategic moves within the oil industry to focus it more as a tool of is Bolivarian revolution. He recently appeared in Havana with Fidel Castro to open PdVSA’s first offices there. The two countries will cooperate in an operation involving PdVSA and Cuban oil company Cupet to build a lubricants plant, a shipping terminal and a storage facility as well as complete the Cienfuegos Soviet-initiated refinery. The purpose of the joint venture will be to lower the cost of fuel to the Caribbean region, as well as to assist the impoverished Cuban nation.

The increased militarization of PdVSA in the western Venezuela may also serve to further consolidate Chavez’s political hold on the country. The United States announced last week that it would shift to a more aggressive policy vis-à-vis the Chavez government by supporting and assisting opposition parties in the country. The western region happens to be home to the greatest concentration of anti-government politicians and activists. Today two opposition figures, Claudio Fermin, former mayor of Caracas, and Carlos Melo, a political activist, announced they will form a new party known as the Popular Assembly party in an effort to unite against President Hugo Chavez. Fermin said the party would field candidates in municipal elections to be held Aug. 7. It is likely that the new party has either already cooperated with the U.S. or hopes at least to do so by taking the initiative now. Chavez will certainly be aggressive in combating any such cooperation.

The situation in Venezuela is thus getting very complicated very fast. Chavez clearly intends to meet the aggressive U.S. policy toward his country head-on, using all the tools at his disposal, including the powerful oil company, as well as relations with Washington foes such as Cuba, China, and Iran. How far Chavez is willing to take it, likely depends on his own willingness to take risk, for clearly Chavez and Venezuela have much to lose.


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