Foreign Policy and Oil Production

Venezuela is no stranger to controversial political leaders, and this problem interacts, quite unfavorably, with the stability of the energy industry. For example, Rafael Caldera Rodríguez (Rafael Caldera), president of Venezuela in 1969-74 and 1994-99, began his second term with several challenges to overcome: the collapse of the country's banking sector, falling oil prices, foreign debt, and inflation. Under his presidency the government announced a plan to expand the country's gold and diamond mining operations to reduce its dependency on the oil sector, but many Venezuelans considered this idea impractical.

Since taking office, Hugo Chávez, Venezuela's most recent leader, has been criticized by Venezuela's wealthier citizens for commandeering Venezuela's economy and by the United States and other importers of Venezuelan oil for extracting higher revenues on oil exports by scaling back oil produc-tion.37 In 2001 he signed a controversial energy law known as the Hydrocarbons Law. This law increased the royalties that private companies must pay to the government for producing oil in Venezuela and requires foreign oil investments to be in the form of joint ventures with Venezuela's state-owned oil company, Petroleos de Venezuela, SA (PdVSA). The law is controversial because it guarantees PdVSA a majority share of any new projects, while there are many doubts about PdVSA's ability to fund sufficient investment in expanding crude oil production. The investment climate in Venezuela's oil sector has grown more unfriendly under Chávez; in November 2004 he announced a new royalty rate that was the highest rate allowable under Venezuela's prior hydrocarbons laws.

Early in Chávez's presidency, he also expanded his presidential powers through a new constitution and strengthened Venezuela's ties with Cuba and Middle Eastern oil-producing nations. Chavez is particularly outspoken about his disdain for U.S. foreign policy, often threatening to cut off oil supplies to the United States. U.S. President George W. Bush and Secretary of State Condoleezza Rice have called Chavez's leadership dictatorial and a threat to the international community. But Rafael Ramirez, Venezuela's minister of energy, only reiterated Chavez's threats to cut off oil supplies if the United States shows any signs of aggression toward Venezuela.

Chavez's actions as president have stirred disapproval not only in the United States but in Chavez's own country. In late 2002 Chavez's opponents led a nationwide revolt against him. The country's oil workers went on strike, and all oil operations ceased, hurting Venezuela's economy as well as leading to a spike in U.S. oil prices in early 2003. The Venezuelan economy entered a recession at the end of 2002 because of the strike. Later Chavez dismissed nearly half of the country's oil workforce.

Nonetheless, Chavez's popularity in Latin America as a whole increases as revenues from Venezuela's high-priced oil exports flow into the region. Furthermore, Chavez has redirected some of Venezuela's oil wealth into programs to help its 3 billion residents who live in poverty. A portion of oil profits is used to fund free public health insurance, provide discounted groceries, and give factory jobs to this population. The price of gasoline under Chavez's leadership is also subsidized, costing only 11 cents per gallon—a situation that some consider to be an unnecessary drain on Venezuela's oil profits. In 2005, under the leadership of Chavez, Venezuela also began providing subsidized heating oil to low-income families in selected parts of the United States. In 2006 Chavez more than doubled the number of U.S. households and states included in this program. Some of Chavez's critics have been suspicious of his motives for offering cheaper heating fuel in the United States. However, despite suspicion or opposition that any of his policies may have provoked among his critics, Chavez won reelection in his country in December 2006. Soon after beginning his new term in January 2007, he took steps to nationalize key sectors of the Venezuelan economy, including the electric power sector.

In conclusion, the United States is not the only country (by far) that has faced the issues of energy crises and shortfalls; affordability and economics; foreign oil dependence, political instability, and foreign relations; infrastructure issues and production limitations; and environmental issues and the potential of renewable and alternative sources of energy. Other countries have both faced and found possible solutions to these problems. Some solutions have worked and some have not. As long as oil continues to be the primary source of energy in the United States and other parts of the world international experiences with energy are likely to continue to be marked by both startling successes and, at times, discouraging failures.

1 International Energy Agency. Challenges: Renewables in Global Energy Supply: An EIA Fact Sheet. Paris: International Energy Agency, 2007, p. 3.

2 Ibid.

3 Ibid.

4 International Energy Agency. Oil Crises and Climate Change: 30 Years of Energy Use in IEA Countries. Paris: International Energy Agency, 2004, p. 35.

5 International Energy Agency. Challenges: Renewables in Global Energy Supply: An EIA Fact Sheet. Paris: International Energy Agency, 2007, p. 3.

6 BP Statistical Review of World Energy 2006, p. 2. Available online. URL: www.bp.com/ statisticalreview. Accessed March 15, 2007.

7 The relevant data can be found in the EIA's Country Analysis Briefs: China (August 2006), p. 2. Available online. URL: http://www.eia.doe.gov/emeu/cabs/contents.html.

8 Ibid.

9 James Regan. "A Cooling China Prompts Relief." International Herald Tribune, Bloomberg News, January 11, 2005. Available online. URL: http://www.iht.com/articles/2005/01/10/ bloomberg/sxchiecon.php. Accessed February 17, 2006. See also Mergent Industry Reports, International Annual Reports, Oil and Gas: Asia Pacific, Mergent, Inc., January 1, 2005, Country Profiles: China.

10 Energy Information Administration. Country Analysis Briefs: China (August 2006), p. 2.

11 U.S. Census Bureau. "Census Bureau Frames U.S. in Global Context; Identifies Aging, Fertility Trends." Press release, February 6, 2002. Available online. URL: http://www.census. gov/Press-Release/www/releases/archives/fertility/000318.html. Accessed January 29, 2006.

12 Energy Information Administration, Greenhouse Gases, Climate Change, and Energy, chapter 1. Available online. URL: http://www.eia.doe.gov/oiaf/1605/ggccebro/chapter1.html. Accessed August 15, 2006.

13 Energy Information Administration. Country Analysis Briefs: China (2005), p. 4.

14 Steven Mufson. "The Yangtze Dam: Feat or Folly?" Washington Post, November 9, 1997, p. 101.

15 Ibid.

16 See the EIA's Country Analysis Briefs: Germany (December 2006), p. 1. Available online. URL: http://www.eia.doe.gov/emeu/cabs/contents.html.

21 See the EIA's Country Analysis Briefs: Iran (August 2006), p. 1. Available online. URL: http://www.eia.doe.gov/emeu/cabs/contents.html.

23 As reported by Flashpoints: Guide to World Conflicts, in Country Briefings: Iran. Available online. URL: http://www.flashpoints.info/countries-conflicts/Iran-web/Iran_briefing.htm. Accessed February 19, 2006.

24 See the EIA's Country Analysis Briefs: Iran (2005), p. 1.

25 For the relevant data and discussion, see the EIA's Country Analysis Briefs: Saudi Arabia (February 2007), pp. 1-3. Available online. URL: http://www.eia.doe.gov/emeu/cabs/ contents.html.

27 EIA, Environmental Issues in Saudi Arabia, "Renewable Energy." Available online. URL: http://www.eia.doe.gov/emeu/cabs/saudenv.html. Accessed August 15, 2006.

28 See the EIA's Country Analysis Briefs: Saudi Arabia (2005), p. 2.

29 See the April, June, July, August, and September 2005 entries in the timeline of "peak oil" news, as posted by the energy expert Jeremy Legget on The Guardian online "Comments" portal. Available online. URL: http://commentisfree.guardian.co.uk/jeremy_leggett/2006/04/ two_clocks_ticking_ever_loudly.html. Accessed August 16, 2006.

30 Ewen MacAskill and Ian Traynor. "Saudis Consider Nuclear Bomb." The Guardian, September 18, 2003. Available online. URL: http://www.guardian.co.uk/print/0,3858,4755775103681, 00.html. Accessed August 16, 2006.

31 See the EIA's Country Analysis Briefs: Nigeria (March 2006), pp. 1-2. Available online. URL: http://www.eia.doe.gov/emeu/cabs/contents.html.

32 These Oil and Gas Journal statistics are as quoted by another source, the EIA's Country Analysis Briefs: Nigeria (March 2006), p. 1.

34 Dudley Althaus. "An African Tale of Looted Oil Money, Vanished Ship." Houston Chronicle, December 17, 2004. Available online. URL: http://www.chron.com/disp/story. mpl/world/2934700.html. Accessed August 16, 2006.

35 These Oil and Gas Journal statistics are as quoted by another source, the EIA's Country Analysis Briefs: Venezuela (September 2006), p. 2. Available online. URL: http://www.eia. doe.gov/emeu/cabs/contents.html.

37 For an analysis of these criticisms, see Kevin Sullivan's "Embattled Chavez Taps Oil Cash in a Social, Political Experiment." Washington Post, June 18, 2004, p. A19.

PART II Primary Sources

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