Multipolar Machinations: Chávez Endeavors to ‘Sow the Oil’ with Russia and China

During Hugo Chávez's tour of nine countries
across northern Africa, western Asia and Europe in early September, the
Venezuelan president orchestrated the signing of a flurry of energy accords.
Much ink was spilled over Chávez's agreement to exchange oil for machinery and
technology with the West's favorite pariah, Iran. But the most far-reaching
commitments Chávez secured on his trip took place in Moscow – a series of
accords with Russian oil and gas firms to develop a block of the massive
Orinoco belt in northeastern Venezuela, one of the largest oil fields in the
world.

The main accord is a joint venture between
Venezuela's state-owned hydrocarbon company Petróleos de Venezuela (PDVSA) and
a consortium of Russian firms, including Lukoil and Gazprom, to explore for,
refine and market the oil from a field in the Orinoco belt known as "Junín
6 Block." The Russian consortium will pay US$600 million to the mixed
company, securing 40% control for a span of 25 years, during which time 60%
will be held by PDVSA. Russia's Transneft will construct a major transportation
system for the delivery of oil extracted from the block. Once operational, the
Junín 6 Block is expected to produce more than 400,000 barrels per day.

In recent years, Venezuela has been pursuing a
"multipolar" strategy in trade and investment, which couples deepened
regional integration with the pursuit of new markets and investors. Venezuela's
regional engagement principally occurs within the frameworks of the
market-based Common Market of the South (MERCOSUR) and the
cooperative-solidarity oriented Bolivarian Alternative for the Americas
(TCP-ALBA). A principal component of the TCP-ALBA is multilateral cooperative
energy agreements, PetroCaribe and PetroAndina, which combine Venezuelan
investment and technology transfer, low-cost oil and gas purchasing
arrangements, and the funding of social programs in participating countries.

Russia and China are becoming major players in
Venezuela's trade relations. In addition to the aforementioned investment by
Russian firms, Russian-Venezuelan trade doubled to US$1.1 billion in 2007,
largely due to imports from Russia.

More significant is China's increasing
involvement for Venezuela. Between 1995 and 2005, the value of exports to China
swelled from US$6.5 million to US$1.02 billion, while Chinese imports expanded
from US$57 million to US$958 million. China has also committed US$8 billion to
a joint strategic fund to finance projects in Venezuela, largely related to oil
exports to China. Venezuela has additionally sought to make inroads in Europe,
as indicated by the $25 billion investment by the French oil company Total,
announced in September 2009.

Implicit within a multipolar approach is an
effort to move out of the orbit of U.S. dependence, pushing further into the
past the conditions under which Time magazine could refer to Venezuela in 1953
as "the biggest colony of U.S. businessmen overseas." However,
despite efforts toward diversification, the United States remains Venezuela's
top trading partner. The United States is the destination of around half of all
Venezuelan exports (mostly oil), and is the leading source of Venezuelan
imports (approximately 24%).

Invoking the common Venezuelan metaphor of
'"sowing the oil," as have many of his predecessors since oil was
first discovered in the 1920s, Chávez has asserted that the sector should serve
as the motor of a sustainable and diversified economy based not just upon
hydrocarbons, but also manufacturing, services and agriculture.

In an April 2005 speech, Chávez declared,
"Now, we have to… sow the oil, to utilize the petroleum wealth… as a
lever for social and economic development."

Echoing the president, the strategic plan for
the Orinoco oil fields states as its goal: "To convert the belt into an
axis that drives forward the country's economic, social, industrial,
technological and sustainable development." PDVSA President Rafael Ramírez
stated in September 2009 that around US$26 billion would be invested in the
Orinoco basin as part of the region's overall development plans. Although the
bulk of this will go to highway and electricity infrastructure, more than
US$1.5 billion is to be directed toward housing, education and health care.

There are several indications that Chávez has
made progress where his predecessors had failed to sow the oil into productive
development. The administration's first step was the reversal of the gradual
privatization of PDVSA that had been initiated by previous governments;
instead, Chávez has been heavily investing oil revenues in national economic
and social programs. Revenues from oil are being used to develop new industries
and expand upon existing ones, including low-cost Linux-based computers, cell
phones, steel and aluminum, automobiles, petrochemicals, and sugar. The country's
infrastructure has undergone several important expansions in recent years,
including new subway lines in the cities of Caracas, Valencia and Maracaibo,
and a second bridge over the Orinoco River.

Most significantly, however, Chávez has eclipsed
former presidents in pouring oil revenues into social programs, increasing
social spending from 8.2% to 13.6% of GDP between 1998 and 2006. This spending
has improved Venezuelan health, education and income to such a degree that the
country was one of the world's top climbers in the United Nations' 2009 Human
Development Index ranking, having advanced from 65st to 58th globally since
1998, the year Chávez came to power. Meanwhile, the number of Venezuelans living
in poverty declined from 56% to 31% between 1997 and 2006.

Yet these gains cannot mask the disconcerting
fact that oil has surged from around 70% to 90% of the value of Venezuelan
goods exported between 1998 and 2006, suggesting Venezuela is still very much
reliant on the hydrocarbon sector. To be sure, this increase is largely due to
the global rise in oil prices, and it is notable that non-oil exports have
gradually climbed since 1998. Nonetheless, it remains the case that the cycle
of the world's addiction to oil imports, reproduced as Venezuela's export
dependence, has not lent itself to an easy exit. In what has been termed the
"Dutch disease" – named for the diminution of Dutch manufacturing
that resulted from the dramatic growth of natural gas development – Venezuela's
currency has become problematically overvalued, artificially driving down the
price of imports, which has spurred the influx of manufactured goods and thus
impeded non-oil exports. In other words, it has made economic diversification
difficult to achieve.

Economic sustainability aside, environmental
groups have called attention to the impact of the administration's development
program on both the country's ecosystems and the global climate. In a 2005
interview, Alicia Garcia and Maria Eugenia Bustamante, activists associated the
environmental group Society of Friends in Defense of the Gran Sabana
(AMIGRANSA) asked the rhetorical question, "How can you support the Kyoto
Protocol, lash out at the USA for not signing the Protocol, and at the same
time announce increases in oil and gas production?"

For its part, the Chávez government has
initiated several innovative conservation projects, such as Mission Energy,
which involves the substitution of tens of millions of energy efficient light
bulbs for conventional ones, and the installation of solar power systems in
hundreds of rural communities. These programs notwithstanding, present plans
for expanded oil exploitation indicate that Bolivarian socialism can compete
with (or at least complement) the free market in the realm of environmental
degradation.

Chávez cannot be blamed for the oil-based
economy he inherited, and his plans to extract Venezuela's oil wealth are
arguably more constrained than those of his predecessors. However, there is
little doubt about the significant environmental cost for Venezuela's present
approach to development. Sowing the oil to create a diversified and sustainable
economy offers a way out of Venezuela's dilemma. The extent to which Chávez can
navigate away from oil's curse remains to be seen.

Jason
Tockman is a NACLA Research Associate. This article was originally published by NACLA on October 15th 2009.