Venezuela and Argentina Can Change Mercosur

The new relationship between Venezuela's Bolivarian government and Argentina’s government has opened a path that may lead to a new map of South American geopolitics

The new relationship between the Venezuela’s Bolivarian government and Argentina’s government has opened a path that may lead to a new map of South American geopolitics. It does not matter whether it is a conscious intention by the states or not, what really matters is that the process has begun and is showing some positive results.

The South American trade block Mercosur has remained paralyzed during the last few years by economic crisis in its member countries. The eventual incorporation of Venezuela, and the need to act as a block against the United States in the context of the Free Trade Agreement of the Americas (FTAA), may help turn things around.

The coordinates of this new geopolitical map drawn by Venezuela and Argentina are called gasoil, jet fuel, oil and satellite engineering, agricultural products, medicines, co-investments and accessories for PDVSA (the Venezuelan State Oil Company).

Seen as just a business, these transactions represent several billion dollars over the next five years. It starts with 9 million barrels of liquid fuel in just 5 months (from May to October 2004), sent from Venezuela to Argentina. However, the goal is to wholly redesign the current small scale trade between the two countries, which up to 2003 was no higher than 1% of the Argentinean GDP (Gross Domestic Product) and lower than 0.5% of Venezuelan GDP. For 2004, Venezuela-Argentina trade is expected to be around 500 million dollars.

96 out of the 142 product types requested from Venezuela by Argentina have a high aggregate value because they are related to PDVSA.

But the borders of this new map are not likely to be drawn just by trade invoicing, as several market operators are expecting to happen. The dynamics will depend on the legitimacy that they can achieve among the peoples of both countries and, on the other hand, on the degree of integration achieved by Mercosur, or what is left of it. In either case, the last word has not been spoken yet. What is well noticed right now is a radical transformation that goes against the market operators.

An unexpected meeting

This possible transformation on the sub regional map came from two unexpected events that are highly dangerous for both governments. The energy crisis in Argentina in January, 2004, considered by experts as the most serious one since 1929, because it threatens to destroy what is left of the productive and service infrastructure built during that period.

In Venezuela it was an accidental event. The most efficient and damaging sabotage campaign of the oil industry, gave way to the re-nationalization of PDVSA, something truly unexpected. This paradox happened between December 2002 and January 2003 and is only comparable to the German naval blockage in 1902, in which they bombed the La Guaira port in an attempt to collect debts from the government of Gen. Cipriano Castro. Venezuela lost about 7 billion dollars in direct trade-related operations in its March-April 2003 invoicing. But PDVSA has recovered, thanks to popular mobilization and has been put back into the service of the government, its social programs, and its new international relations.

This exceptional combination which was not sought by Venezuela’s Chávez nor foreseen by Argentina’s Kirchner, explains the unexpected relationship between the two countries.

It is a new dynamic that can lead to a probable medium term development, and which could alter the map of sub regional relations in all respects.

The conditions for this dynamic to develop will be that the international situation stays as it is today: the US government slipping in Iraq and in Afghanistan, trapped with the FTAA, and with oil prices over 30 dollars per barrel, in addition, of course, the relative stability of the two governments.

It is no coincidence to observe international lobbying movements around the Ministries and decision groups in Argentina, Brazil, Chile, Bolivia, Uruguay and Paraguay. All of them are trying to block, slow down, or weaken Venezuela’s integration with the Mercosur, which apparently has already started.

Translated by: Susana Isola