Politics: How Invading Iraq Helped... Venezuela

You think the United States has had some fun with Hugo Chavez so far? What with One nutbag calling for his assassination, and another comparing him to Hitler, he's clearly not their favorite guy. And he's certainly no angel himself: he's been buisily stripping oil fields from private companies and moving them to either majority government owned or government controlled companies. As of January this year, 32 fields had been transferred to governemnt control, with the companies formerly mining them given the opportunity to purchase interest in the fields only. There's a reason the US wasn't unhappy with the attempted coup in 2002.

Chavez has made his reputation attacking American policies, both in Latin America and around the world; it's a policy that has only been made easier by the invasion and chaotic occupation of Iraq and the US funding of opposition leaders in Venezuela's 2004 referendum won by Chavez with 58% of the vote. In November of 2005, he sent 12 million gallons of heating oil to the US, to be sold at 40% below market value, distributed by charities to low income families in Boston and New York, publicly embarassing the White House. Chavez is seen as the figurehead for many leftist political figures in Central and South America, and with a rise in socialist politics, opposition to America increases. Chavez has recently said he was training his a million of his citizens as soldiers to repel an American invasion; more likely a means to provide income for the poorest people with it's small stipend and free clothes and shoes, it's been backed up by the purchase of 100,000 AK-47s, Russian helicopters and other military hardware.

But wait! There's more!

In a serious bout of irony, the US-led invasion of Iraq has just made Venezuela the nation with the world's largest oil reserves - larger, in fact, than the rest of the oil producing countries combined. How'd that happen? Well, here's a hint: it's the same reason that Canada is also becoming an oil superpower, though with fewer headaches for Uncle Sam.

The secret ingredient is so-called "sour oil". This is heavy, low-quality oil that takes a great deal of refining before it is usable. At $20/barrel, it's not really worth refining; but at $50/barrel, it's very much so! Hence the oil sands in Canada suddenly becoming a viable source, and a boom in Fort McMoney, Alberta. Venezuela has the same thing happening in their Orinoco fields, only much, much more of it - to the tune of 1.3 trillion barrels.

Which means what, exactly?

Which means that Venezuela will be the big name at OPEC, not the relatively US-friendly Saudi Arabia. Which means the price of oil is going to be at $50/barrel for the forseeable future. Even if other nations wanted to sell oil at a cheaper rate, the larger producers keep very close tabs on various rates of production and adjust their own accordingly. Oil is a fungible commodity: the total amount is what matters, not where it came from (unless you only purchase it from a single source). In short, Venezuela is going to become an economic powerhouse, and not too far into the future.

What is particularly galling to the US is that Chavez is an unabashed socialist, who has declared that US involvement in Central and South America has done nothing but harm, and has made it his mission to free Latin America from US dependence. Theoretically, the biggest hindrance to his plans would be that the US is his Venezuela's biggest customer; but in 2004, he signed a deal with Columbia to build a pipeline to that country's Pacific ports. This means that oil could be shipped to anywhere in the Pacific without use of the Panama Canal, including China, who coincidentally happens to be another economic power disinclined to be friendly to US interests.

Chavez has also made a point in opposing both International Monetary Fund and World Bank interests in Latin America (the Bank is 51% owned by the US Treasury). Fair enough - both groups enforce nightmare policies upon any country unlucky enough to turn to them for aid (follow the links above and see for yourself). Specifically, he's been sending 150,000 barrels of diesel to Bolivia in exchange for agricultural products, rather than cash. In January, Bolivian President Evo Morales (who the White House has also been bad mouthing of late) has declared that Bolivia will be seizing control of their oil fields from international companies, though leaving refineries and pipelines in private hands. Venezuela has also purchased over $1 billion worth of Argentinian bonds, and is buying more. This income has allowed Argentina to finally pay off its nearly $10 billion debt to the IMF. Approximately 200,000 barrels of oil per day are sent to 13 nations in Central America and the Carribbean (including Cuba) at heavily subsidized prices.

If Chavez manages to buy out the IMF/World Bank loans from other Latin American countries, there are a whole lot of people who will be paying far more attention to his suggestions than any coming from the United States. What he dreams of is all of Latin America becoming a unified economic bloc, like the EEC or NAFTA. Should Chavez survive, the shifts in world power could lead to an interesting couple of decades.