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Venezuela: Chavez's Policies Endanger State Oil Firm
February 6, 2002
Summary
The government of Venezuela says the United States can always count on it to be a secure and reliable energy ally. However, deep investment cutbacks and Caracas's voracious fiscal demands to sustain public spending have crippled Venezuela's oil industry financially and operationally.
Analysis
Venezuela long has claimed that the United States will always be able to count on it as an energy supplier. This claim has been reasserted in an Energy Ministry paper distributed extensively to U.S. government officials and investors in recent months.
The reasons to doubt the country's claims are multiplying, however. Before President Hugo Chavez was elected in 1998, state-owned oil company Petroleos de Venezuela (PDVSA) was well embarked on an ambitious capacity-expansion plan. Since 1999, however, the government has repeatedly mandated deep cutbacks in PDVSA's investment budget, and the company's production capacity has declined dramatically as a result. In short, Venezuela now needs foreign investment in its oil industry more than ever -- but will find it much harder to come by so long as the government pursues its current policies.
Should a price war break out between OPEC and non-OPEC producers, Caracas will find that those policies have weakened not only PDVSA but also the government itself. Now pumping at nearly full capacity, PDVSA -- and Venezuela by extension -- is not in a position to grab market share and offset collapsing oil prices, as other producers might. Given that PDVSA accounts for 80 percent of Venezuela's export earnings, falling oil prices would cut into social spending and fuel the nation's political instability.
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(c) 2002 Stratfor, Inc.
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Venezuela: Chavez's Policies Endanger State Oil Firm . . .