Using Oil Diplomacy to Sever Venezuela’s Dependence

In June,
Venezuelan president Hugo Chávez made his sixth diplomatic trip to Iran.
Discussions were held there, as well as in Russia
and Belarus, further
boosting international cooperation in developing Venezuela's immense Orinoco Oil
Belt. Iran's participation in the Venezuelan oil industry dates back to
September 2006, when President Mahmoud Ahmadinejad presided over the initial
perforation of a well in Ayacucho 7, one of 27 blocks in the Orinoco Belt,
which some believe may be the world's largest oil deposit. The country's state
oil company, Petropars, is now exploring the Orinoco, together with
counterparts from Brazil, Argentina, and Uruguay,
as well as from India, China, and Vietnam.

At the
2006 ceremony, with Ahmadinejad at his side, Chávez declared: "The Orinoco Oil
Belt is being converted into the ‘Universal Belt,' since it is facilitating the
development of the Venezuelan people, the consolidation of the union of
countries of Latin America, and South-South
integration."¹

Venezuela's new partners provide the Chávez government
with important leverage in its risky strategy of challenging the multinational
companies that have traditionally dominated the nation's oil industry. Most of
these partners' oil companies, like Petropars, are state-owned and as such do
not systematically attempt to block the transfer of technology to other
countries, as do private-sector companies. Citing this alternative source of
technology, Venezuela has driven a hard bargain with multinationals, which have
invested in costly technology upgrades to produce more than 600,000 barrels per
day of the Belt's unconventional oil. After Chávez's reelection in December
2006, he moved to take control of 60% of the multinational-dominated Orinoco enterprises. Chávez also stripped these firms of
the special tax incentives granted by neoliberal governments in the 1990s and
decreed that their workers would be on PDVSA's payroll.²

While
suggesting that the multinationals have the essential expertise that Venezuela's new Third World partners lack, The
Wall Street Journal recognized
that "as long as oil prices stay high, Mr. Chávez can probably afford to give [Third World] state firms an opportunity to learn."³
The article might have added that the prospect of eventually being displaced by
countries like China
in such immense reserves holds the multinationals back from snubbing the
Venezuelan government.

Indeed,
the participation of energy-hungry economic powerhouses China and India in the
Orinoco Belt may represent a great leap forward in Venezuela's attempt to
diversify, which is itself a crucial part of the country's long-term strategy
to sever economic and technological dependence on the United States. Venezuela has greater reason to pursue this goal
than its neighbors, since major oil-exporting states have always been subject
to greater dependence on imported products, single-commodity exports, and
sophisticated technology than elsewhere in the Third World.
In Venezuela's
case, oil products account for almost 90% of exports, and its unconventional
oil reserves require imported, state-of-the art technology.⁴

The effect
of this strategy is already apparent. During the past two years, Venezuelan oil
exports to the United States have declined 8.2%.⁵ Exports to China
have spiked since 2003, from 12,000 barrels a day to 150,000; Chávez intends to
increase the amount to 1 million by 2012.⁶ And diplomatic efforts
have continued apace.

*

If
economic diversification and international solidarity are the twin goals of
Chávez's diplomacy, the latter is often overemphasized in rhetoric and action.
In "socialist" Venezuela,
extending support to the underprivileged overshadows the practical
consideration of implementing programs that are viable and workable.

The two
goals are exemplified by accords Venezuela
has reached with its neighbors, especially PetroCaribe, signed with Cuba, Jamaica,
the Dominican Republic, and
10 other Caribbean nations in June 2005. Under
the arrangement, Venezuela
allows 40% of the current price of oil to be paid off in 25 years either in
cash or with products like sugar, rice, and bananas.

The
accord amounts to 198,000 barrels a day and has facilitated the deployment of
more than 15,000 Cuban doctors to Venezuelan barrios as partial payment for the
90,000 barrels of oil Venezuela
now exports to that nation under the agreement. The practice, however, may be
feasible only for goods and services produced by the state. Chávez's rhetoric
notwithstanding, the bartering arrangement with socialist Cuba is proving difficult to
duplicate with privately produced merchandise from the 12 other PetroCaribe
nations whose economies are capitalist.

Chávez
justifies the PetroCaribe deal by appealing to humanitarian sentiment. In the
process he plays down the pragmatic argument that discounts or special terms of
payment to clients are a viable strategy for any company interested in
penetrating new markets. Venezuela
is selling oil for the first time to various Latin American nations like Argentina and Uruguay,
which along with Brazil
signed an agreement with Venezuela
called PetroSur that promotes cooperation among state oil companies.⁷

Another
important hemispheric precedent for Venezuela's
international strategy is the Bolivarian Alternative for the Americas (Alternativa Bolivariana
Para las Américas, or ALBA), which may indeed serve as a model for South-South
relations in general. ALBA systematically critiques globalization, specifically
the Bush-sponsored Free Trade Area of the Americas (FTAA), whose promotion of
cutthroat competition is the very antithesis of solidarity. Venezuela and Cuba
launched ALBA in Havana in 2005, and Bolivia and Nicaragua
have recently become members, while Ecuador
and various Caribbean nations have also drawn
close to the project.

At
ALBA's fifth meeting held in April, Chávez offered to extend the PetroCaribe
oil deal to ALBA affiliates. He also proposed cooperation among member nations
to implement the Cuban-inspired mission program whereby doctors and educators
provide free services to impoverished neighborhoods. In this way, ALBA proposes
preferential treatment for Southern nations and the underprivileged throughout
the world as a corrective to the asymmetric relations between developed and
underdeveloped countries. While ALBA criticizes the protectionist measures of
the North, it defends the right of the South to protect farm production. Its
Fundamental Principles affirm that "agriculture is a way of life and cannot be
treated as just any form of economic activity."

ALBA
also rules out the participation of the World Bank and other financial bodies
in designing integration plans and proposes the creation of "compensation
funds" for those displaced as a result of international agreements. In another
proposal that goes against the grain of neoliberalism, ALBA calls for giving
priority to national firms and cooperatives and for exempting state companies
from anti-monopoly legislation. Finally, disputes with foreign corporations are
to be resolved in national courts, and only as a final resort can they be
brought to international tribunals.

These
programs could be seen as a wish list were it not for Venezuela's oil wealth, which
enhances the feasibility of some of its proposals. It also converts Chávez into
a major actor on the international stage to a degree unmatched by Latin
American leftist and radical populist governments in the past. Referring to
Chávez's initiatives and strategy, the president of a Washington-based think
tank commented, "He's playing treaty chess, whereas Cuba's Fidel played checkers."⁸

*

From the
beginning of his presidency, Chávez has advocated a "multipolar world" as a
corrective to the "unipolar world," a euphemism for U.S. hegemony. After two
U.S.-supported attempts to oust him in 2002, Chávez began using the term
imperialism, and forging alliances with other nations became a political
imperative. By "multipolar world," the Venezuelan president envisions the
transformation of nations of the South into blocs, bound together
geographically or economically, with political and economic clout. For Venezuela,
these formations include both the hemispheric Common Market of the South
(Mercado Común del Sur, or Mercosur) and, most significantly, OPEC.

Chávez's
OPEC policy and his positions on Middle East
politics exemplify the two sides of his diplomacy with other nations of the
Global South: promoting government-to-government ties and using fiery rhetoric
to appeal to the general population. On the one hand, Venezuela has
strengthened OPEC by playing a major role in winning over other governments to
measures that stabilize oil prices at upper levels. Ideological distinctions
have been set aside in the process. Chávez's multipolar world concept-like the
Non-Aligned Movement organized in the 1950s by Yugoslavia's
Tito, Ghana's
Nkrumah, Egypt's
Nasser, and India's
Nehru-presupposes submerging political differences in order to put up a united
front to defend the South's common interests. Thus, for example, even the
governments belonging to OPEC's conservative wing have been receptive to
Chávez's initiatives.

On the
other hand, Chávez has taken political positions that have made him a popular
figure among much of the general population in the Middle
East. He immediately condemned the U.S.
bombing of Afghanistan and
subsequently lashed out at the invasion of Iraq. More recently he has defended
the Iranian nuclear energy program and denounced Israel's
bombing of Lebanon.
In the words of Venezuela's
ambassador in Washington, Bernardo Álvarez, Chávez's popularity in the Arab
world "strengthens his hand within OPEC."⁹

Until
Chávez, Venezuela
had traditionally assumed a moderate position within OPEC. Sectarian religious
conflicts, often expressed along political lines, did not draw in Venezuela, one of the few non-Muslim member
countries (and the only one after Gabon dropped out in 1995). Venezuela was thus well positioned to play the role
of conciliator between radicals like Iraq,
Libya, Iran, and Algeria,
which supported big price hikes, and conservatives like Saudi Arabia and Kuwait, which were predominately
concerned with maintaining stable prices.

In the
1990s Venezuelan neoliberal governments made plans to drastically increase the
nation's productive oil capacity, thus threatening to undermine OPEC's efforts
to control output for the sake of price stability. Toward the end of the decade
Saudi Arabia reacted to Venezuela's
unrestrained violation of OPEC quotas by dumping even larger amounts of crude
on the world market. Venezuela's
posture both as a moderate and a strikebreaker changed abruptly with Chávez's
advent to power. Saudi Arabia favorably viewed Venezuela's shift, thus ensuring
the success of the decision at OPEC's March 1999 meeting to withdraw 2.1
million barrels a day from the world market.¹⁰ The new quotas
signaled the beginning of price recovery after a two-decade slump.

The
following year, Chávez made a historic trip to all 10 OPEC countries to
personally invite the heads of state to OPEC's second summit held in Caracas in September 2000.
Never before had an OPEC government played such a proactive role on behalf of
the organization. The summit approved Venezuela's proposal of a band in
which prices were allowed to oscillate between $22 and $28 a barrel. When
prices exceeded $28, OPEC nations were to increase production by 500,000
barrels a day, and to do the opposite when prices went below $22.

Thus
during his first two years in office, Chávez mainly challenged U.S.
interests through his concept of a multipolar world as applied to OPEC. Four
events during these early years demonstrated Chávez's leadership capacity
within OPEC and the respect he earned from the organization's other
governments: First was his effort to shore up prices at the 1999 OPEC meeting;
second, his trip to personally invite the heads of state to the OPEC summit;
third, the unanimous approval by member nations of Venezuela's price band; and
fourth, Venezuelan minister of energy Alí Rodríguez's appointment as OPEC
secretary-general, three months after the 2000 summit.

The
latter was particularly significant in that Iran, another OPEC radical, has
unsuccessfully attempted to obtain the no. 1 OPEC position for more than 25
years. Fellow OPEC nations have blocked Iran's request on grounds that a
polemical figure at the helm of the organization would undermine efforts to
convince the world that its decisions are made on the basis of economic as
opposed to political criteria.

As has
always been the case with Third Worldism going back to Nkrumah, Nasser, and
Nehru, Chávez's multipolar world has signified neither uniformity nor harmony
within Third World blocs. Tension between OPEC
hardliners and softliners has hardly subsided in recent years. Differences came
to light when oil prices suddenly declined in August 2006, as the fighting in Lebanon began
to abate and mild weather was forecast for the upcoming winter. In subsequent
months OPEC conservatives Saudi Arabia
and the United Arab Emirates
favored a wait-and-see policy. After OPEC finally withdrew 900,000 barrels per
day from the international market in November and December, both nations
opposed additional cutbacks in early 2007 on the grounds that the market had
already responded favorably.

In
contrast, on both occasions Venezuela
was at the forefront in calling for reducing production quotas to maintain
prices between $50 and $60 per barrel. Minister of Energy Rafael Ramírez
assured fellow OPEC nations that "unlike in the past, the cost of energy is not
affecting the economy of the industrialized nations."¹¹ He added
that, if anything, higher prices would force the North to reduce consumption
and in doing so avoid an economic crisis. "As producers of a natural resource
that is drying up," he said, "we hope that the economies of the world will
rationalize their use of energy."¹²

At the
same time, Ramírez argued that asserting state control over the oil industry
was a necessary step to shore up prices. At a speech at the OPEC meeting in
September 2006, he referred to PDVSA under neoliberal management as having been
a "Trojan horse" for the multinationals. He added that the Chávez government's
struggle to regain control of PDVSA was a "contribution" to OPEC and urged
fellow member nations to take a close look at that process.¹³

At an
OPEC meeting three months earlier in Caracas, Chávez pushed for the
organization to incorporate new members, including Angola (an important and
growing oil producer), Ecuador (which left in 1992), and the polemical Sudan.¹⁴
At the time, OPEC's expansion was not at all a foregone conclusion. Angola was
later admitted. Ecuador's
president, Rafael Correa, who maintains close ties with Chávez, is also
committed to joining. If he succeeds, Ecuador
and Angola
will restore OPEC's size to 13 nations, after it lost two members in the 1990s.

*

Chávez's
foreign policy victories, like his campaign against the Bush-promoted FTAA,
have been made possible by tolerance toward, and friendly relations with, heads
of state who adhere to a diversity of ideological positions. These diplomatic
efforts avoid the errors committed by the Castro government in the 1960s, when
it encouraged insurgency throughout Latin America
and in doing so forfeited the possibility of winning over, or neutralizing,
democratic governments. Castro himself has abandoned that strategy and has
indeed advised Chávez, as well as Bolivian leftist leader Evo Morales, to
follow a more pragmatic approach to international relations.¹⁵

On the
other hand, Chávez's zealous rhetoric in favor of thoroughgoing change and his
glorification of Che Guevara and other revolutionary icons have generated
widespread support among social movement activists and rank-and-file leftists
throughout the hemisphere. Chávez's firebrand side sometimes complements and
other times undermines his diplomatic efforts to build ties with governments of
the South.

Verbal
clashes with Venezuela's
neighbors are an example of how Chávez's aggressive style can negatively
influence outcomes in concrete ways. Following Mercosur's approval of Venezuela's membership request in July 2006, the
congresses of Brazil and Paraguay
delayed ratifying the decision. After returning from his trip to Iran, Belarus,
and Russia, Chávez blamed the right in both countries for blocking Venezuela's
admission to Mercosur and announced that his government would withdraw its
request for membership if the two congresses did not reach a decision within
three months. In another statement that hurt Venezuela's
case for membership, Chávez criticized the organization's largest member, Brazil, for failing to lend a helping hand to
tiny Uruguay and Paraguay.

Adversaries
at home attacked the president for distancing Venezuela
from democracies to its south while drawing close to nations in other
continents, like Iran.
Henry Ramos, president of Venezuela's
traditionally largest party, Acción Democrática, warned of "the high degree of
danger" associated with Venezuela's
close relations with Iran,
especially in light of possible sanctions by the international community.¹⁶

Chávez's
outspoken positions in favor of Arab causes in the Middle
East has struck a responsive chord throughout the region, but is
also not without its potential dangers. Chávez labeled Israel's July 2006 incursion in Lebanon "mass genocide" and ordered the
withdrawal of Venezuela's
chargé d'affaires from Tel Aviv.¹⁷ Arab nationalist leaders
applauded Chávez's decision to suspend diplomatic relations and implored other
nations of the South to follow suit, while also rebuking Middle
East nations for not taking similar measures. By way of
underlining the popularity of Chávez's move, Al Jazeera reported that many
Palestinians have posters of the Venezuelan president in their homes, alongside
those of Che.¹⁸ According to one Israeli Communist activist, "Arabs
throughout the Middle East are comparing
Chávez's generosity in distributing oil income to the needy with the
self-serving behavior of their own leaders."¹⁹

On the
other hand, Chávez's virulent attacks against Israel,
his uninhibited style, and the efforts of his adversaries to isolate Venezuela
could endanger his ambitious efforts to group the nations of the South into a
bloc. Chávez justifies his close relations with Iranian president
Ahmadinejad-an anti-Semite and Holocaust denier-on the grounds that the nations
of the South need to place political differences aside for the sake of unity.²⁰
But his friendly relations with the repressive government of Iran, combined
with any "slip" on the part of a chavista leader or spokesman, will play into the hands of his enemies in a
major way. It is not enough that Chávez recognizes Israel's right to exist and that he
has told members of the Venezuelan Jewish community that he will not tolerate
anti-Semitism in his movement.²¹ These positions have gone virtually
unreported in the media.

One
example of such a "slip" was a statement made by Roger Capella, Venezuela's ambassador to Argentina and a controversial
former minister under Chávez. Capella claimed that the decision of Argentine
prosecutors ordering the arrest of eight former Iranian ministers for their
alleged participation in the 1994 bombing of a Jewish community center in Buenos Aires lacked solid
evidence. Capella's remarks were inappropriate for a foreign diplomat,
particularly in light of the cautious and discreet attitude Argentine president
and Chávez ally Néstor Kirchner assumed on the matter. Chávez recalled Capella
shortly thereafter.

Combining
diplomatic moves to achieve national objectives with rhetoric for popular
consumption is never an easy mix. And for a leader of Chávez's persona,
subordinating discourse to fulfilling national goals is especially challenging.
His spontaneous impulse often manifests itself, such as when he threatened to
withdraw his Mercosur membership application. But too much is at stake to risk
providing ammunition to those intent on isolating Chávez from his neighbors and
the South in general.

Chávez's
South-South strategy has positioned Venezuela to achieve the
all-important goal of economic diversification. And as in the case of ALBA and
Mercosur, the blocs that Chávez promotes explicitly exclude the United States and thus serve as a corrective to
the unipolar world of U.S.
domination. Both objectives are worthy of hard-headed diplomacy that steers
clear of unnecessary confrontation with secondary actors on the world stage.
Until now, Chávez has avoided the isolation that Cuba
was subjected to in the 1960s, as shown by the diverse heads of state who
attended a Caracas-sponsored South American Energy Summit held in Venezuela in
April. Indeed, diversity and pluralism are the keys to reviving third worldism
in the 21st century's globalized world.

Steve
Ellner teaches at the Universidad de Oriente in Puerto La Cruz, Venezuela. He
edited, with Miguel Tinker Salas, Venezuela, Hugo Chávez and the Decline
of an "Exceptional Democracy" (Rowman & Littlefield, 2007). His Rethinking Venezuelan Politics: Class,
Conflict and the Chávez Phenomenon will appear in 2008 from Lynne Rienner
Publishers.

Notes:

1. Ministerio del Poder Popular Para la Energía y
Petróleo, "Noticias," May 17, 2007.

2.
Exxon, unlike other foreign companies, publicly criticized the new policy and
pulled out of a smaller oil field. It also threatened to sue the Venezuelan
government in international tribunals. Minister of Energy Rafael Ramírez
reacted by declaring that with Venezuela's fallback strategy of relying on
Third World state oil companies, the nation was no longer dependent on the
multinationals. After considerable negotiation, Exxon and Conoco Phillips
refused to accept the new conditions, in contrast to Chevron Texaco, British
Petroleum, and several other European firms that did.

3. David
Luhnow and Peter Millard, "How Chávez Aims to Weaken U.S.," The Wall Street Journal, May 1, 2007, p. A-2.

4. Tal
Cual (Caracas),
February 27, 2007, p. 10; Terry Lynn Karl, "Petroleum and Political Pacts: The
Transition to Democracy in Venezuela,"
Latin
American Research Review 22,
no. 1 (1987): p. 90.

5. Luhnow
and Millard, "How Chávez Aims to Weaken U.S." El Universal (Caracas), February 2, 2007, p. 1-13.

6. Luhnow
and Millard, "How Chávez Aims to Weaken U.S." Fulfilling the 1
million-barrel goal hinges on China's
decision to downplay coal and to finance the construction of a pipeline from Venezuela to Colombia's
Pacific Coast.

7.
Initiatives along the lines of PetroCaribe and PetroSur have been a political
liability for Chávez. Indeed, Manuel Rosales, Chávez's rival in the presidential
elections of December 2006, raised the slogan "The oil will no longer be given
away." Rosales's electoral cry resonated with Venezuelan voters (although not
enough to threaten Chávez's reelection) in large part because government
spokespeople failed to drive home the point that PetroCaribe makes commercial
sense. Not only is the sale of oil at 60% the going price still highly
profitable, but the government-to-government agreements save money by
eliminating the middleman, namely the private oil companies. In their public
statements, chavista leaders have also generally failed to explain how economic
diversification makes sense for Venezuela
from an economic viewpoint.

8. Paul
Michael Wihbey (president of GWest). Quoted in Deborah Yedlin, "Chavez Gives
Boost to Oil Sands," The Globe and Mail, December 8, 2006,
https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20061208/RYEDL
IN08.

9.
Author interview, May 17, 2007, Washington,
D.C.

10.
Fareed Mohamedi (consultant for PFC Energy), author interview, November 10,
2006, Washington, D.C.

11. El Nacional (Caracas),
September 12, 2006, p. A-19.

12. Últimas
Noticias (Caracas), September 12, 2006, p. 12.

13. Panorama (Maracaibo,
Venezuela), September 13, 2006, p. 2-3.

14. The
New York Times, June 2, 2006,
p. C-2.

15. Daniela
Spenser, "New Partners and Old Limits," NACLA Report on the Americas 39, no. 5 (September/October 2005); Brooke
Larson, "The Cuba Connection in Evo's Bolivia," paper delivered at the
Institute of Latin American Studies, Stockholm University, Sweden, April, 4,
2007.

16. El Tiempo (Puerto La
Cruz, Venezuela), July 3, 2007, p. 12.

17. One
year later, Venezuela still
has no diplomatic representation in Israel, although in June a
delegation of Venezuelan government officials and business representatives
visited the nation.

18. The
Jerusalem Post, August 6,
2006; Financial Times,
August 20, 2006; Dima Khatib, www.venezuelanalysis.com/articles.php?artno=1800,
August 21, 2006 (reposting of Al Jazeera article).

19. Efraim
Davidi, author interview, June 12, 2007, Tel Aviv.

20. Bernardo
Álvarez, author interview, May 17, 2007, Washington,
D.C.

21. The Jerusalem
Post,
May 19, 2006.