16 December 2004

Inside Venezuela III: Using oil as a lever against U.S.

16 December 2004
The Hindu

Inside Venezuela-III

Using oil as a lever against U.S.

By Siddharth Varadarajan

Caracas: If oil is the engine of Venezuela's newfound determination to assert its independence from the U.S., then PDVSA, the public sector company that controls the extraction, refining and sale of the country's crude oil, is undoubtedly its motor.

Before President Hugo Chavez came to power, PDVSA was on the verge of being privatised. Its wharves and jetties were to be transferred to private hands and the company's entire data processing system was turned over to a U.S. firm, Intesa. Worse, oil was being sold below cost to Citgo, a U.S.-based PDVSA subsidiary in order to subsidise the U.S. economy.

In 2002, Mr. Chavez's opponents engineered a strike in PDVSA. The oil shutdown was to play as crucial a role in the U.S.-backed putsch against Venezuela's radical President as the truckers' strike did in the 1973 coup against Salvador Allende in Chile. Intesa pitched in as well.

According to Rafael Ramirez, Venezuela's Oil Minister, the U.S. company used the passwords and codes it had copied to a mirror site in Houston to pull the plug from PDVSA's computer network.

$3 billion

All of this now just a bitter memory, for the Chavez Government has moved rapidly to put PDVSA on a firm footing. Executives and employees who backed the coup have been sacked and urgent steps taken to restore production to the approximately 2.8 million barrels being produced before the 2002 crisis. The oil giant's revival was overseen by Ali Rodriguez, a onetime leftist guerrilla and former head of OPEC, who has since been appointed Venezuela's Foreign Minister. Today, production is up and PDVSA was recently able to raise $3 billion through an international bond issue.

In line with their president's `Bolivarian' vision for an integrated Latin America free from foreign domination, Mr. Rodriguez and Mr. Ramirez have sought to use oil and PDVSA as levers to build close economic links with the rest of the continent.

One of the most interesting experiments is Petrosur, a pan-continental company linking public sector energy companies in South America. PDVSA has already teamed up with Argentina, and is in fact helping President Nestor Kirchner rebuild an independent Argentine energy sector dismantled during the privatisation frenzy of the Menem days. When Venezuela joined Mercosur, the trade bloc linking Argentina, Brazil, Paraguay, Uruguay and Bolivia, as an associate member this July, Mr. Chavez promised that PDVSA would source up to $4 billion worth of oil sector components and machines from Brazilian and Argentine firms. The Venezuelans are hopeful Petrobras from Brazil will sign up to Petrosur and Mr. Chavez has also floated a proposal for `Petrocaribe' to build energy self-reliance and cooperation in the Caribbean.

"Imagine our strength if the oil companies of Venezuela, Brazil, Mexico, Argentina and elsewhere all got together," Mr. Chavez said last week.


Venezuela believes the energy sector could be the backbone of continental integration. In an interview to venezuelaanalysis.com earlier this year, Mr. Rodriguez said there were two visions of integration.

The first is the neo-liberal model involving the opening up of countries to foreign companies; and the second, a model based on the complementarity of economies.

It was only the latter which allowed the inclusion of social and economic factors which transnational corporations tended to exclude. Thus, Argentina could supply meat and wheat to Venezuela, in exchange for oil. And Venezuela gets to reduce its dependence on the U.S. as its main customer for oil.

"We joined Mercosur to liberate us from the North", said Mr. Chavez. Last week, he publicly floated the idea of a Latin American Central Bank and Monetary Fund. "Where are our reserves kept? In the banks of North America. That money is used to lend money to us. This is a stupid thing. If we had a Latin American Central Bank, we could all simply withdraw from the IMF".

Apart from Petrosur, Venezuela is also looking very closely at proposals to price crude oil in euros rather than dollars. The idea is a subversive one, since it has the potential of undermining the `Petrodollar' that allows the U.S. to run huge spending deficits. But Venezuelan officials caution that any change in pricing norms would have to be an OPEC-wide decision. The U.S. is still the most important energy market for Venezuela but PDVSA would be willing to look at new pricing options — perhaps involving a basket of dollars and euros — for strong emerging markets like China and India.

Despite the external dimension to PDVSA's activities, the company remains wedded to the notion of social responsibility.

Rejecting the opposition criticism that the PSU was being forced to spend money on education and health programmes, Mr. Ramirez recently said: "We are investing in the most important capital of the oil industry, which is the development of knowledge of our citizens... It is elemental for the productivity of a country that one attacks the problems that affect the health (and education) of the population."

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