Hugo Chavez announced last night that Venezuela would withdraw from both the World Bank and the International Monetary Fund. Claiming that Western financial assistance prolongs poverty rather than relieve it, he demanded that the two organizations return Venezuelan assets. At the same time, Chavez has proceeded to seize oil-production facilities from Western corporations, primarily those based in the US:
President Hugo Chavez announced Monday he would formally pull Venezuela out of the World Bank and the International Monetary Fund, a largely symbolic move because the nation has already paid off its debts to the lending institutions.
“We will no longer have to go to Washington nor to the IMF nor to the World Bank, not to anyone,” said the leftist leader, who has long railed against the Washington-based lending institutions.
Chavez said he wanted to formalize Venezuela’s exit from the two bodies “tonight and ask them to return what they owe us.”
Chavez aims to pressure the US out of Latin America — and he has a partner in mind for that project. His seizure of oil-production assets is part of his plan to isolate the US economically, and Chavez wants China to take our place. The Wall Street Journal reports that the self-proclaimed Venezuelan “Maoist” plans to use the seized projects to create a partnership with China to exploit the Orinoco River region (subscription required):
Since becoming president in 1999, Mr. Chávez has tried to use oil as a political weapon against the U.S. In recent years, he has doled out cut-rate supplies to dozens of Latin American countries to buy support. Increasingly, he is using oil to support the U.S.’s economic rivals like China and political rivals like Iran.
In late March, Mr. Chávez unveiled a raft of proposed oil-related deals with China valued at about $13 billion. Under terms of the prospective deals, China National Petroleum Corp. would develop, together with state oil company Petroleos de Venezuela SA, the biggest chunk yet of Venezuela’s Orinoco River region — the same area where Mr. Chávez is nationalizing the Western companies’ projects. Oil produced there would then be ferried to China in a new, joint “super fleet” of tankers, and processed there at three new refineries built to handle Orinoco heavy crude.
The Venezuelan leader’s goal is to supply China with one million barrels a day by 2012, up from 150,000 barrels a day. While many analysts doubt Mr. Chávez’s ability to deliver on his promises, Venezuela’s exports to China have grown quickly, from 12,000 barrels a day in 2003. Meanwhile, with oil production falling and China’s share rising, exports to the U.S. fell 8.2% in 2006 from 2005, and Nigeria has replaced Venezuela as the U.S.’s fourth biggest source of crude oil after Canada, Mexico and Saudi Arabia.
Some analysts believe that Chavez may have reserves in Orinoco that rival Saudi Arabia’s fields. If so, the Chinese have made a valuable partner, and not just strategically. They need a heavy and immediate infusion of oil in order to keep their economic growth, and the capital that the Chinese create with it will benefit Chavez. It could make him the most powerful man in the southern hemisphere and realize his dream of providing an opposite pole from the US in Latin America.
If so, Chavez will have to become more adept at actual production, and these recent moves will not help. With his seizures, he has effectively removed Exxon, Conoco-Phillips, Mobil, Britain’s BP, France’s Total, and Norway’s Statoil — a bit of a surprise, as Norway seems socialist enough to satify Chavez. In their place will come partnerships between Venezuela’s PVDSA and Vietnam, Iran, Brazil, and China as mentioned earlier. He will need the help. Since 1999, production has dropped almost 25% in Venezuela, and unless Chavez can restore production, the Orinoco fields won’t do him or China much good.
PVDSA, in the words of the WSJ, functions more as a poverty-alleviating bureaucracy than an oil-production company. Chavez keeps promising new refineries at home and abroad, but they have yet to materialize. Now that he has chased the proven production capabilities of Western companies out of Venezuela, he may be hard pressed to even meet his current level of production. Chavez also faces another kind of problem in production costs; his oil is more expensive to pump and to refine than Saudi and African oil. If oil prices remain high, Chavez will have money to burn — but if they fall, he will lose his shirt to the Saudis.
Perhaps the US should consider more domestic development simply as a financial cushion against the mercurial Chavez. The more oil we leave on the market, the lower the prices will go — and the quicker Chavez will have to account for his new socialist policies and inadequate talents.
UPDATE: Has even Hollywood given up on Chavez?