November 23, 2005

November 23, 2005 | WebMemo on Latin America

Venezuela's Oil Shenanigans Wash Up on American Shores

Venezuela's president Hugo Chávez claims he is a bramble bush. Mess with him and you'll get scratched-that's what he told President Vicente Fox of Mexico, who urged hemispheric leaders to quit blaming other countries for their troubles at the America's Summit held earlier this November. This was an oblique reference to Chávez, who calls George W. Bush a Nazi and U.S. allies lapdogs.

 

Now Chávez is using his country's oil to stick a thorn in the side of the Bush Administration. That thorn is Representative Bill Delahunt (D-MA)-an upbeat Chávez promoter who says that the fiery autocrat is not as bad as some may think. Claiming he doesn't work for Secretary of State Condoleezza Rice, Delahunt recently negotiated with Chávez to arrange the sale of heating oil at below market prices to Massachusetts-based Citizens Energy Corporation.

 

Apologizing for bad actors is nothing new. During the 1980s, congressional liberals fawned over Nicaraguan revolutionaries who went on to lose a free election and steal between $100 million to $300 million in state funds and property. A decade later, several liberal lawmakers backed Haitian despot Jean-Bertrand Aristide, who ruled through street mobs, also stole millions, and resigned in disgrace.

 

Making deals for affordable home heating oil isn't novel either. Former Representative Joseph P. Kennedy II actually launched a successful political career in 1979 by forming Citizens Energy to aid needy citizens at a time of rising fuel costs. Venezuela's then-public oil company, Petroleos de Venezuela (PDVSA), stepped in and sold modest allotments. Kennedy got the credit.

 

This time, Rep. Delahunt may have gone over the edge. However well-intended his constituent service, he is helping Chávez drive a wedge between the American people and their government. Granted, freezing Citizens Energy customers in New England may see things differently. But the rest of the country should take umbrage at a congressman dancing with a market manipulator who helped jack-up global petroleum prices only to sell at below-market prices to a select few.

 

In 1999, it was Chávez who stopped PDVSA from increasing shipments when other producers cut theirs. He then urged OPEC to reduce oil production to boost global prices and shelved plans to increase production capacity. His 2001 Hydrocarbons Law doubled royalties on foreign operators and restricted future private investment. Following a devastating oil workers strike in 2003, he took personal charge of a new national council that controls PDVSA.

 

Today, oil prices are higher than they would be otherwise because of Chávez. His talk of suspending exports to some countries creates a climate of speculation, artificially raising prices as refiners scramble to secure suppliers. His deferrals of investment in field equipment have lowered production capacity, also contributing to hikes.

 

Despite accusations at home that he is squandering public patrimony, Chávez still supplies Cuba's Castro regime with 50,000 to 80,000 barrels of oil and oil derivatives per day, all at below-market prices and on easy credit, reportedly financed over 15 years at 2 percent interest. Cuba allegedly owes Venezuela more than $1 billion in arrears.

 

Mr. Chávez also promised below-market petroleum to Caribbean nations in return for friendship. This past June, he signed a pact with 13 countries to supply them with oil at 60 percent of the market price, with the other 40 percent converted to a 25-year loan. The island nation of Trinidad and Tobago, a hydrocarbons producer, is now losing sales because it can't arbitrarily cut prices for special customers like Chávez does.

 

This September, Chávez reportedly promised Nicaragua's Sandinista party leaders that he would supply selected municipalities with subsidized oil, which could hold down costs of taxi and bus fares. But what the president giveth, he taketh away-if and when he chooses. From 2003 to 2004, he halted petroleum shipments to the Dominican Republic because an adversary, former Venezuelan president Carlos Andrés Pérez, lived there in exile.

 

In the larger scheme of things, Chávez's coercive diplomacy has done little to win him friends. Caribbean and Latin American consumer nations haven't voted with his government in international forums because they know he helped to raise prices and keep them high while Venezuelans sip gas at about 12 cents a gallon.

 

Moreover, his friendship means little. Chávez's demeanor can switch from seeming benevolence to hateful insults depending on mood swings and perceived differences of opinion-as Mexico's Fox well knows.

 

Senator John Kerry (D-MA) had it right when he said during his 2004 U.S. presidential bid that "Chavez's policies have been detrimental to our interests and those of his neighbors." Unfortunately, his House colleague doesn't see it that way. Instead of freelancing with a foreign power, as Rep. Delahunt has done, U.S. lawmakers should focus on letting free markets develop alternate energy sources and sidestep mischief from hostile, tricky regimes.

 

Stephen Johnson is Senior Policy Analyst for Latin America in the Douglas and Sarah Allison Center for Foreign Policy of the Kathryn and Shelby Cullom Davis Institute for International Studies at The Heritage Foundation.

About the Author

Stephen Johnson Senior Policy Analyst
The Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy