Will Chavez's Successor Unleash Venezuela's Massive Oil Wealth?

For all his intentions to help the poorest in his country, Hugo Chávez's handling of the golden goose - Venezuela's massive oil wealth, was badly mishandled during his reign. Output decreased, debt increased, and he left behind a polarized society.

4 minute read

March 11, 2013, 8:00 AM PDT

By Irvin Dawid

Ángel González in Houston and Kejal Vyas in Caracas write that "Venezuela's battered oil industry bore the burden of Hugo Chávez's socialist dream". During his 14-year reign as president, "oil output fell by nearly a third to about 2.5 million barrels." Now that may sound like a lot - but its reserves are huge. Nathanial Gronewold of E&E Energywire writes that Venezuela, a member of the Organization of the Petroleum Exporting Countries (OPEC), is "(s)econd only to Saudi Arabia in proved conventional crude oil reserves (Canada tops it when the oil sands are included)."

"Oil is for the People" may in fact be a principle of Châvez's Bolivarian Revolution as expressed by Rafael Ramírez, the country's oil minister, who stated "that it is fixed into our national consciousness". The Wall Street Journal's Ángel González writes that Chávez "gained admirers and influence in the region by giving billions of dollars worth of oil to Cuba, Nicaragua and others" including the Dominican Republic, as NPR explains. In addition to the many noteworthy social programs for the poor, he kept motorists' happy by having the world's cheapest gas at 18-cents per gallon, though he did consider reducing the subsidy that drains the budget of $1.5 billion annually.

However, he neglected the source of the nation's wealth. According to Ángel González and Kejal Vyas:

Under Mr. Chávez's rule, a huge oil-sector strike, the firing of thousands of top engineers, poor maintenance, frequent refinery accidents and the diversion of oil revenue into social programs and subsidies to foreign allies crippled Petróleos de Venezuela SA (PDVSA), the national oil company.

E&E's Gronewold describes the underproduction similarly, contrasting Venezuela's lower oil production with the U.S (7 million barrels per day) and Saudi Arabia (11 MBPD).

Venezuela could be in the same league, oil and gas industry experts say. But it is held back, they say, by the way Chávez ran his nation and PDVSA as a vehicle for creating his vision of a socialist state, modeled in many ways after Fidel Castro's Cuba.

In fact, many of PDVSA's top engineers who Chávez fired fled to Columbia and helped revitalize their oil industry.

Output had been so diminished under Chávez that his death hardly rankled world oil markets, "highlighting how Venezuela’s dwindling crude production and exports have undercut its global power in recent years", writes Clifford Krauss of The New York Times.

However, the nature of state-owned oil companies may also explain the reduced oil output. As the Planetizen post, "Oil Bonanza In Western Hemisphere" notes, "The hemisphere's oil boom is all the more remarkable given that two of its traditional energy powerhouses, Venezuela (considered to have larger oil reserves than Saudi Arabia) and Mexico, have largely been left out, held in check by entrenched resource nationalism."

Even with rising oil prices, "spending outpaced oil revenues" for noble, socialistic goals including housing the poor and other anti-poverty programs, while neglecting investment in the industry itself caused output to decline and debt to increase. Gronewold writes:

The government there may decide that dramatically increasing oil production is a necessary tool for tackling Venezuela's massive debt, high inflation rates and domestic energy shortages. Occasional blackouts and natural gas shortages are also seen in the oil and gas-rich country.

Indeed, while the U.S. Is the largest importer of Venezuelan crude, it also exports gasoline to Venezuela - as high gas prices in the U.S reduced demand, forcing U.S. refineries to look for other markets, including "record purchases from Venezuela of 94,000 barrels a day", writes Ron White in the Los Angeles Times. No such need to reduce gasoline consumption was felt in the nation boasting the "world's cheapest gas". In fact, "(e)nergy experts say his gasoline subsidies doubled domestic consumption, cutting deeply into exports", writes the NYT's Krauss.

Empowering the poor was not just done at the expense of the oil industry - he also did it by highlighting social class divisions. Moisés Naím of Bloomberg Businessweek writes:

President Chávez leaves a fiercely polarized society. While social divisions always existed, Chávez’s brand of politics depended too much on stoking resentment, rage, and revenge to levels previously unknown. It will take a long time and immense effort to heal the wounds left by the massive doses of social conflict that the president promoted and on which he thrived.

Reader's can also listen to, and/or read NPR's "Hugo Chavez: The Legacy Of A Polarizing Leader", an interview with New Yorker staff writer Jon Lee Anderson.

And that is the problem, this polarization at the heart of this society - a wealthy class that was just waiting for Chavez to finally disappear .... and a poor majority who were very dependent on him.

Naim describes Chávez's 14-year reign as a 'missed opportunity' because of the power that was given to him.

The Venezuelan people gave Chávez a political blank check and thanks to the prolonged boom in oil prices he also had a financial blank check.  What he did not do was leave the country better off than when he became president. Hugo Chávez deserves to be remembered as a missed opportunity.

Thursday, March 7, 2013 in The Wall Street Journal

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