• East Timor and Bali: Fragmentation to Follow?
  • Unrest in Venezuela: Western Hemisphere Supply Suffers
  • Political Stand-Off
  • More Turbulence to Come

· Keep Counting on Venezuela

  • The World as a US Oyster
· The Mideast Conflict
  • The Pro-Israel Lobby
  • Venezuela is Vital to the Western Hemisphere
  • Venezuela’s Role in US Energy Security
  • Changes of Government May Mean Changes in Oil Policy

Editor: Stuart Wilkinson

Director: Mazhar Al-Shereidah


Whether or not oil is a synonym of political unrest at this time of the year is yet to be established, but the fact is that in many OPEC member countries things are turning troublesome, to say the least, and that is something to worry about.

East Timor and Bali: Fragmentation to Follow? ...

After the national independence leader Sukarno was overthrown by a military putch in 1965, General Suharto established a fierce anti-communist regime in Indonesia that was openly supported by western countries, mainly the USA, whilst the traditionally friendly relations with China were interrupted. Suharto perpetuated himself as President and most of the State’s lucrative deals were run by his family members as corruption became the name of the game.

Then, just some five years ago, change was due and Democracy at last had its chance.

People are no longer attracted to Marxist slogans, but calls for justice and social and economic freedom is music to the ears of tens of millions of young unemployed Indonesians. Islam is the religion of the majority, and because Islam, just as any other religion, speaks in the name of the poor and the powerless, any party that embraces the cause of this wide sector’s demands coincides in some way or another with the broad principles of Islam. When these people attend Friday prayers and listen to the Imam’s sermon, they can draw possible parallels between the Imam’s words on the necessity for justice and a popular leader’s speech in a party meeting.

For those who examine the acceptance and spread of globalization in such vast markets as Indonesia, Pakistan, Nigeria or Iran, anti-globalization symptoms are bad news, but they have to inform about it. These are unpleasant facts for Wall Street, Washington or London... But because there is no magic remedy to eradicate poverty in Third World countries on the one hand, and due to the fact that Islam constitutes the very solid cement of tradition for more than a billion of the population of Asia and Africa on the other hand, Islam with its traditional values becomes the antithesis to globalization. In its march against ancestral behaviour, traditional values and consumption habits globalization clashes with Islam, a religion that has not changed much over the last fifteen centuries.

Theoretically what has just been said does not imply that by definition Islam is opposed to globalization. It is more the question of economic well-being, as a sociological pattern, that determines Moslem people’s attitudes towards imported cultural values. That is to say that the more cosmopolitan and prosperous a Moslem society is, the less resistance it offers to globalization. On the ground, however, it is difficult to find frequent examples of such societies in the Third World let alone in the Moslem World.

Indonesia is not prosperous in Western terms, neither is it modern. It also shares the pains of fellow Moslem societies in Palestine, Afghanistan, Iraq and the like. If the government in Jakarta were to suppress spontaneous popular expressions, it would become highly unpopular and be accused of collaboration with the West. “Thus as a punishment for its mishandling of the Islamist militancy” the independence of East Timor could be viewed as a lesson that Indonesia and other multi-religious states should keep in mind as a potential Balkanization model. Further separatist calls and movements will follow suit.

The Bali hell is but a reminder that living together with Moslems brings terror , poverty and hatred.

Nigeria was unable to host the Miss World beauty competition and the breathtaking girls had to be urgently flown to London. Bloody clashes between Moslem and Christians taking place now in Nigeria can only remind us of the separatist movement in the south of the country, better known as the Biafra War in the mid- sixties. Nigeria is too large, populous and diverse to remain united. Separatism is likely to flourish.

Now elections are due in this highest populated African country. The US views West African oil as a promising source of future supply, so if Nigerian President Obasango is to repeat his mandate, he should first show that he can subordinate the northern traditional leaders who pretend impose Islamic ”Sharia” laws in the country.

As war against Iraq seems to be inevitable, in the neighbouring Iran confrontation becomes more belligerent between the radical Islamist establishment and the liberalist section - a scenario widely recommended by think tanks close to policy makers in Washington, while others consider President Khatami as too weak. (Washington Post, Glenn Kessler, July 24 2002)

On the other coast of the Gulf, Saudi Arabia is trying its best to show the US that it is the same good old friend that can be reckoned on and has finally allowed Washington to use its valuable command facilities in the Kingdom.

It remains to be seen how the “Guardian of the Holy Cites” , will explain this concession to its fellow Arab countries in the Arab League where a unanimous resolution was adopted to oppose any military act against Iraq.

In case war breaks out it is much more comfortable for the US commanders to count on a variety of Arab-Moslem of allies bordering Iraq such as Kuwait, Saudi Arabia and Jordan, in addition to closely located military bases in Qatar, Bahrain and Oman. Non-Arab Turkey is a definite friend of Washington, especially after the recent visit of Under-Secretary of Defence, Paul Wolfovitz, to Ankara and his promises to convince the Christian European Union to accept Moslem Turkey in its ranks.

These promises by Wolfovitz, nicknamed the " Unilateralist ", are most appealing and doubtful when it comes at the same time as voices as that of William Pfaff (International Herald Tribune, 5th Dec. 2002) “Stop calling Islam the enemy”, because the under secretary of defence is opposed to the very nature of European foreign policy thinking and is at the same time part of the neo-conservative intelligencia in Washington.

Unrest in Venezuela: Western Hemisphere Supply Suffers...

So far, Venezuela has not yet received such emblematic representatives of the Bush Administration, although its exports to the United States are suffering seriously as a result of the polarization of positions between the government and an aggressive opposition which has been successful in receiving a militant adherence from PDVSA’s white collar leaders to join the general strike. As a leading crude and refined products exporter to the US both in the Western Hemisphere and world-wide, this represents a completely new situation when thermometers are announcing a harsh winter and as the probability of war in Iraq is growing.

At the same time it should be remembered that no matter how President Chávez emphasised his government’s adherence to the OPEC quota system, 2001-2002 figures show another story. Yet from the US standpoint this is good news. December 2002, however, will be remembered in the US East Coast refineries as a “supply crisis” caused by striking PDVSA managers. This action had a precedent only in Nigeria when white-collar oil workers were seeking better economic conditions.

Political Stand-Off...

Additionally, the oil strike has complicated matters both inside and outside of Venezuela... as can be appreciated by the comments of JP Morgan on the 13th December:

“The eleven day strike in Venezuela has disrupted the export of both crude oil and gasoil. As a consequence we have changed recommended weighting on Amerada Hess from Overweight to Neutral and Valero from Underweight to Neutral with near-term upside trading potential. At this moment the duration of the strike is uncertain. However, we suspect that there is no near-term solution to the political stand-off. Even if the strike were to end next week, the PDVSA refineries would likely not return to full operation until January. We do not believe, however, that the suspension of gasoline exports by PDVSA will trigger physical shortages in the US.” (1)

Before the strike PDVSA produced 2.85 million barrels of crude, with l.3 million barrels per day exported to the US. A strike by Venezuelan tanker crews has limited crude exports to almost negligible levels.

The strike has led to a virtual shutdown of Venezuela’s refineries and has had an impact on the heavy oil upgrade projects. Venezuela exports a total of approximately 700,000 barrels a day of gasoline, with an estimated 250,000 barrels exported to the US market and the balance to Central and South America. Once the strike is resolved the refineries will require two to three weeks before resuming a reasonable volume of output, and may require up to four to six weeks to return to full capacity.

The main users of Venezuelan oil imports into the United States are PDVSA’s wholly- or partly-owned companies. In October more than half of US imports of Venezuelan crude went into these subsidiary companies, ConocoPhillips and Valero are the other major users of Venezuelan crude.

“At first glance PDVSA-owned US-based CITGO appears to be most vulnerable to the strike. CITGO refines 865,000 b/d, with approximately 500,000 b/d of crude provided by Venezuela. CITGO has not yet announced any curtailment of output. However crude shipments from Venezuela require only six days to reach US shores, while shipments from the Middle East take upwards of six weeks. Hence CITGO would be challenged to replace Middle Eastern crude with Venezuelan crude in a short period of time and hence may need to curtail refining runs within a week. This would translate to less gasoline and distillate available in the US Gulf Coast and Northeast markets. Presumably European refiners, attracted by the improved margin environment in the US and surplus capacity in their home market, would increase exports to meet any extended shortfall in the East Coast.

Other US refineries reliant on PDVSA crude have already curtailed operations. Amerada Hess’ Hovensa refinery in St. Croix for example, a joint venture with PDVSA has been operating “significantly below” capacity since December 9th according to an Amerada Hess spokesperson. In the third quarter Amerada Hess reported that its share of Hovensa’s losses was $6 million and that its share of Hovensa's losses for the full year was $50 million. During the third quarter Amerada Hess reported that its share of refining runs was 175,000 b/d, about half the overall refining runs from the facility. Since operating at a fraction of capacity is uneconomic we assume that Amerada Hess’ fourth quarter results will lag the third quarter even though refining margins in the fourth quarter until early December have been slightly better than in the third quarter.

ConocoPhillips’ upstream production from the heavy crude project Petrozuata, in the Orinoco Oil Belt, has been influenced by the inadequate supply of hydrogen to run the coker in Jose, Venezuela. According to S&P this has caused a decline in production from 120,000 b/d to 80,000 b/d. The synthetic crude from Petrozuata is shipped to ConocoPhillip's refinery in Lake Charles, Louisiana. The total production of the three heavy crude projects in Venezuela (ExxonMobil and Total Elf also own heavy crude projects) is normally 366,000 b/d, and over time the heavy crude production will diminish.

Though the impact of the Venezuelan strike is a negative for Petrozuata, and will trigger a scramble for substitute crude feedstocks at the Lake Charles refinery the overall effect on ConocoPhillips is positive given both the short-term boost to crude prices from the curtailment of Venezuelan crude exports and the recent run-up in refining margins. Aside from Petrozuata, ConocoPhillips produces about 550,000 barrels of crude oil (excludes natural gas liquids) and 1.6 million b/d in refining capacity.

Valero says that the diminished supply of gasoline has benefited its refining margins. Valero, which refines 1.5 million b/d, reports that Venezuela supplies only 40,000 b/d. The majority of Valero’s crude feedstocks are derived from the Middle East (600,000 b/d) with the balance from the US and the North Sea. Valero is reliant on sour crude though the slate of heavy crude input is modest. Valero contracts to purchase crude oil six weeks in advance, and hence will not see the impact on crude shipments until January. Meanwhile Valero reports that refining margins have improved over the past six weeks, with strong distillate demand and an improving differential between sweet and sour crudes. Gasoline refining margins have also improved in the past ten days.” (2)

Venezuelan oil’s presence in the US East Coast is a result of PDVSA’s acquisition of refining facilities under the policy of “Internationalization” that had its roots in the early 1980s.

The policy of the Rafael Caldera government, immediately prior to that of Hugo Chávez, with regard to Venezuelan participation in US-Based refinery operations can be seen clearly from the following extract from a PetroAnalysis sister publication Enfoque Petrolero in 1997:

“PDVSA currently has full or part ownership in six US refineries with a combined capacity of 960,000 b/d.

Venezuela’s determination to find a home in the US for as much of its growing crude oil production as possible - whether by acquisition, expansion, or supply arrangement - may have the spin-off effects of boosting overall US crude oil processing capacity and of reordering the top ranks of the US refining industry.

Energy Compass says that PDV is in one stage or another of talks with several US refiners to gain access to about 600,000 b/d of existing Gulf Coast capacity, while looking at another nearly 200,000 b/d in expansions to processing capacity. Added to the nearly 1 million b/d in US refineries in which PDV already has stakes or owns outright, these increments would easily make the Venezuelan state company the largest refiner in the US, overtaking Shell’s 1.15million b/d US total. At the moment, PDV is focusing its aspirations on Basis Petroleum, the troubled refining and marketing arm of Salomon. Basis owns two Houston-area refineries, a 100,000 b/d plant on the Houston ship channel and the 130,000 b/d Texas City facility. Both can run the heavy grades that Venezuela produces in abundance. An upgrade to increase the intake of heavy feedstocks and reduce residual fuel output was recently completed at Texas City. Basis had another bad financial year in 1996: Its pre-tax loss of $123-million was worse than 1995’s $91 million loss.

Talks with Basis come on top of discussions with Mobil for a possible PDV stake in that company’s 160,000 b/d refinery at Chalmette, Louisiana, plant with Phillips regarding its 203,000 b/d unit at Sweeney, Texas. In addition, the Houston refinery that PDVSA’s CITGO subsidiary owns jointly with Lyondell Petrochemical is in the midst of a 100,000 b/d expansion to 365,000 b/d, to accommodate more heavy crude oil. When the Lyondell project is completed, PDVSA’s stake will rise to 40% from 10%. Conoco is adding 36,000 b/d for a lubricants plant at its Lake Charles, Louisiana, refinery that will use Venezuelan feedstock. Coastal and PDV are negotiating to build a possible 60,000 b/d unit at Coastal’s Corpus Christi, Texas, refinery that also would run Venezuelan heavy crude oil.

Petroleum lntelligence Weekly adds that PDVSA continues to expand its heavy crude sales into the US. Some relief will come, however, from Lyondell, which is set to complete its 100,000 b/d refinery expansion to 365,00 b/d in Texas to accommodate more heavy crude oil

Coastal Corp. plans a $200 million upgrade at its 100,000 barrel per day Corpus Christi, Texas refinery to allow it to process Venezuelan heavy crude oil.

And Lyondell-CITGO refining Co. is ‘debugging’ a $1.1 billion upgrade of its Houston refinery and start-up is ‘imminent’. Venezuela is on track to become the biggest US refiner. And as the country heads towards the Third Operating Agreement Round we should wait and see how US companies perform.” (3)

By the year 2000, CITGO had become the “lance-point” of PDVSA’s international operations.

More Turbulence to Come...

Venezuela is an important supplier of crude oil to the US, with 1.45 million b/d in October - 15.3% of the market. Focusing on heavy crude oil imports, 1.1 million b/d, is from Venezuela - 31.3% of the total. Heavy crude oil imports used in US Gulf coast refineries gives Venezuela a market share of 41.7% - 0.97 million b/d.

Venezuela and Mexico are the two dominant suppliers of the imported heavy crude oil used in US Gulf refineries. The two countries made up 93% of supplies in October, with their share in the first ten months of 2002 running at 89.6%. There are few sources of readily substitutable supplies.

As the strike enters its third week, the level of Venezuelan oil production has fallen to below 1 million b/d from the 3 million b/d level produced before the strike. Were the dispute to be settled immediately, then allowing for the lags to return oil flows to normal, the loss to world supplies might be limited to 30 million barrels, and the loss of US imports limited to 20 million barrels. However, the obvious cause for concern is that an immediate and lasting resolution does not appear to be particularly likely at this juncture. There is a growing fear in the market that Venezuela runs the danger of being pitched into a period of even more severe turbulence. In particular, scenarios in which there is a change of government without prior recourse to the ballot box appear to hold some severe dangers, given that the faultlines are so biased in terms of income levels.

We would not at this stage wish to play down the gravity of the Venezuelan crisis. It is not even possible to rule out a scenario where Venezuelan events become as important to oil markets in 2003 as the unfolding of the situation in Iraq. Up to this point, the market seems to have been far too relaxed about the loss of so much heavy, and more importantly, short haul crude oil at a time when commercial inventories are already well below prudent levels. Should the position in Venezuela continue to deteriorate, then a push to well above US$ 30 becomes inevitable, and without a swift resolution we will soon be a situation where the use of US strategic reserves almost becomes forced. That point is not with us yet, but will not be far away if the market begins to reflect the true seriousness of the situation...”

On Christmas Eve it was reported that:

“Crude production has fallen to below 200,000 b/d compared to 3.1 million b/d in November. Exports have averaged 200,000 b/d since PDVSA declared force majeur more than two weeks ago because of the strike. In contrast, the country exported 2.7 million b/d in November. The refining complexes that have a capacity of 1.3 million b/d have reduced their production to 60,000 b/d.” (4)

Part of the seriousness of the problem derives from the relative lack of fungibility, i.e. “substitutability”, thus, logically, touching on the question of Energy Security:

“...First, short haul crude oil is not, in the short term, substitutable by long haul supplies. This is one problem with the view that US energy security will be enhanced by less reliance on the Middle East. Energy security is enhanced by having more reliance en longer haul imports, giving more time to make adjustments after a shock. By promoting more dependence on short haul sources in Latin America and West Africa, the US is actually reducing the flexibility of its supply chain by cutting the amount of inventory held in the supply chain. A disruption from Venezuela, five days’ sail away, feeds straight through, while one from the Middle East, a five-week sail away, is more manageable. It could also be noted that the Western Hemisphere is no less, and recently somewhat more, prone to supply interruptions, with two this year from Venezuela and one from Nigeria.

The second source of low substitutability is quality of oil. The bulk of world supplies are medium crude oil (with a gravity of between 25-35°API). There are many sources of medium crude oil, and if worst comes to worst, heavier grades can be lightened in a refinery by blending with light grades or condensate. However, for refineries geared for heavy crude oil (i.e. most of the refining industry in the US Gulf), running lighter grades means that output yields cannot be optimized.” (5)

Keep Counting on Venezuela...

Geo-political and geo-strategic considerations play a key role within the wider context of energy security with respect to safety or control of supply. It is clear that Venezuela, in normal operating conditions, is a major Western Hemisphere oil supplier to the US. But is its importance exaggerated? Could Venezuela really become an alternative to Middle East oil imports for the US? This trend had strong support in PDVSA that voiced its view under the powerful chairman Luis Giusti (1994-98): the “natural market” for Venezuelan oil is the US. Thus “regionalization” should be applied in order to stop Middle East crude from penetrating America’s markets. PetroAnalysis in the 25th June 2002 Editorial analysed some of the considerations involved...

US relations with Saudi Arabia are going through a very critical period. This is because after having been considered as special allies with mutually beneficial relations for half a century or so, now all of a sudden the US finds itself in a position where influential people have increased their propagation of the idea to help Russia develop its oil industry in such a way as to constitute a real threat or a real competition to Saudi oil. If this new school of thought shows anything it shows just how distant the US is from finding secure and permanent allies in oil producing countries. The thing is that the Israel lobby in the US has purposely worked very hard to worsen relations between the United States and Saudi Arabia. The lobby has succeeded in its efforts, and this is more damaging to US strategic interests than to anyone else’s strategic interests. This is because in the case of Saudi Arabia, no-one can ignore that the resources are there, the infrastructure is there, and the country’s geographic location is so suitable with regard to the regions where oil demand is growing: that is India, China and the rest of South East Asia. Thus if the Saudis see any kind of suspicions pronounced about their ability to be a solid and secure source of supply then they will find themselves in a position where they will have to choose from the many other alternatives that there are. History tells us that oil relations simultaneously create other forms of mutual interests and Saudi Arabia is prepared to play more of a role within the Eastern hemisphere. What the Israel Lobby has done is to help the Chinese, Japanese, Russians and Indians to fulfil their objective of having a measure of hemispheric integration for oil sufficiency - and there is plenty of that in the Middle East, in Iran, Saudi Arabia and definitely in the future in Iraq and other Gulf countries. Thus if the US maintains this aggressive foreign policy, which is everyday more and more called by Europeans “unilateralist”, it will find itself more and more confined to the oil resources of the Western Hemisphere - which is just about a seventh of total world proved oil reserves... and it seems to be that in terms of oil reserves the US can continue counting on Venezuela - as it has done for the last 80 years.

Even with regard to Africa one has to think that this so-called war on terrorism has become a war on Islam. Oil exporter Nigeria is in the majority Muslim, and in Algeria and Libya one has again the phenomenon of Islamic oil.

If Washington persists in its hostility towards Islam, then the US will have a serious need to locate very large reserves, but first of all not in Islamic countries, and second it should prevent competitors from having preferential access to Islamic oil reserves and supplies. When one puts someone in a corner and the enemy has no way of surviving, even blowing up all his oil wells will not solve the problem: it took Kuwait, for example, just less than a year to be exporting again - so no matter how big is the damage it can be repaired.

It is quite amazing to see how isolated the US is becoming. It looks as though the understanding between the extreme-right in the US and the Israel lobby in the US is influencing the Bush administration leading to a considerable distancing of the US from the rest of the world. And when it comes to oil, no matter how powerful a nation might be, access to that resource in peaceful and friendly conditions must be done through reconciliation with other countries and peoples.

It would be extremely lamentable if the US were to believe that a change in Venezuela’s government would solve its foreign policy shortcomings in the Eastern Hemisphere. Prices would again collapse, and with low prices it would be impossible for the US to achieve the desired 50 percent self-sufficiency in domestic production as is desired in the Bush Energy Plan. This is because the international oil industry needs prices around the present level, of $25 or so, in order to undertake important investments in Alaska, in the Gulf of Mexico, or any other place in the US for that matter. (6)

The World as a US Oyster...

In its 27th June issue, The Economist published an interesting article by its editor Bill Emmott “Present at the Creation” in which the idea is presented that “for the first time (...) since 1989 (or) 1945, America has both the chance and the motivation to re-shape the world”. The author uses several important “measurements of power” in order to demonstrate the USA’s dominant position (i.e.) its very significant percentage with regard to the rest of the world’s global GDP, global defence spending, global spending on Research & Development, and global cinema box-office revenues.

Quite different views are expressed in the July-August issue of Foreign Policy in the article “The Eagle has Crash Landed” where the senior research scholar of Yale University, Immanuel Wallerstein, discusses the idea that “Pax Americana” is over.

What is interesting here is the fact that a variety of theories and schools of thought are focusing simultaneously on the US role in the world in order to understand, or foresee, the fate of its present hegemony. Will there be an ever-growing unilateralist empire, a gradual decline, or an eventual rapid and dangerous fall?

For those whose main interest is the structure of the oil world and the international relations that govern it, the above-mentioned essays are of genuine importance. This stems from the assumption that oil constitutes a basic issue, and its ownership, dominance or control contributes basically to any superpower’s strength. Without such due strength, arm-twisting has shown itself to be effective. This, perhaps, reflects a policy motivated by fear, or as William Pfaff wrote on 4th July in the International Herald Tribune “When Patriotism turns into Paranoia”. But just how long can this last without backfiring?

Generally speaking, the world’s largest oil reserves are located in small and weak countries that are unable to defend themselves from aggressions carried out, hypothetically, by a superpower let alone the sole hegemonic one – the USA.

Were the US to satisfy its oil requirements exclusively from its domestic reserves, they would be depleted in four years, a very fragile indicator when it comes to Power Measurements. Compared to Russia, in this subject the US is extremely vulnerable. China is more or less in a similar position



Reserves (billion bls)


(million bls)

Reserves to Production Ratio (years)

Duration of reserves if production for domestic market only















Less than 12






Source: “El Petróleo en Tiempos de Reordenamiento Geostratégico Global”, paper given at Pdvsa CIED, Mazhar Al-Shereidah, 6th March 2002

The problem remains as a complex one in the US. Because as a high cost hydrocarbons producer, it needs prices in the range of the present ones. But as a superpower accustomed to intervene to set prices at a level that is convenient to its short-term interests. The American public suffers thus the incompatibility of its government’s foreign policy agenda with its strategic interest of cultivating good relations with its oil suppliers. (7)

One can also forget about paying attention to rhetoric about national security...

On 13.03.02, the Senate voted down a proposal by John Kerry and John McCain to raise mileage standards on automobiles. What does it mean? Was it yet another victory for special interests at the expense of the national interest?

No, it was much worse than that. You do not know with how little wisdom the world is governed. Paul Krugman claims.

What prevailed 13.03.02, Krugman says was an alliance between conservatives who hate the very idea of conservation, on one side, and union leaders trying to demonstrate their influence by making politicians jump.

Take for example, the Case of ANWR, the Arctic National Wildlife Refuge...

The New York Times recently had an eye-opening article, that oil companies are not behind the push for drilling there - indeed, they are notably unexcited by the prospect. Studies by the U.S Geological Survey suggest why: Arctic oil is so expensive to get at that it’s barely worth extracting at current market prices. For energy companies it’s the rest of the Bush Energy Plan, which would give them about $35 billion in tax breaks and subsidies, that really matters.

ANWR drilling would supposedly create 700,000 jobs. One suspects that the union's leadership knows that this figure is at least 10 times too high.

There are signs the Bush strategy of highlighting the current crisis might be starting to work. Scott Segal, an energy lobbyist, predicts that the oil and petrol price increases would be “foremost in the minds of the senators” as they continue to debate the bill. “It’s hard to deny the need for more domestic production,” he argues.

Spencer Abraham, the Energy Secretary, called for the immediate passage of a bill that includes “a responsible ANWR component in the Senate energy bill”.

The Mideast Conflict...

Before conflict flared up between Israel and the Palestinians, a there was a contest between the claims of oil drillers versus porcupine caribou, all indications were that the caribou were poised to win the war on the Senate floor.

Republican supporters admitted to being well short of the 60 votes needed to stop them.

But new threats of cutoffs in Arab oil are giving a higher profile to proposals to develop alternative sources of domestic energy.

“As the Mideast continues to spin out of control, folks are taking another look at the Middle East and our dependence on it,” says Dave Woodruff, a spokesman for Republicans on the Senate Energy Committee.

Drilling in the wildlife refuge would produce more than 1 million barrels of oil a day from perhaps 10 billion barrels of recoverable reserves, he said.

US officials are increasingly concerned that the surge in oil prices that has accompanied the latest phase of the struggle between Israel and the Palestinians could blow the American economy off its fragile recovery course.

During 2001, lraq was the sixth largest US supplier, selling an average of 778,000 barrels a day. The impact from Venezuela could be more severe. The fourth largest US supplier of crude, average 1.281 million barrels a day, plus an additional 257 million barrels a day of gasoline and other petroleum products.

The Pro-Israel Lobby...

Republicans are enlisting leading Jewish or pro-Israeli groups - many of whom have never taken a stand on environmental politics - to lobby wavering senators on behalf of ANWR. The views can be related to internal pressure groups in the US and to conservatives in the American Establishment.

“Back in the late 1970s when there was a debate over the building of the Alaska pipeline, we were one of the few Jewish groups that supported exploration and development on the theory that reducing American dependence on Arab oil was good for America and good for the US-Israel relationship. Now, many more are seeing this connection,” says Nathan Diament, a spokesman for the Union of Orthodox Jewish Congregations of America.

Other groups that are now urging senators to move on comprehensive energy legislation include the Zionist Organization of America (ZOA), the Conference of Presidents of Major American Jewish Organizations, B’nai B’rith International, and Americans for a Safe Israel. ZOA President Morton Klein, who was phoning wavering senators, says he expects a few more to switch sides on this issue, “as the dangers of dependence on Arab oil become more conspicuous.”

“Generally, Jewish groups have been very liberal on environmental issues. But I think that now Jewish organizations understand that energy independence is such an important issue that it’s even more important than the environment,” he adds.

New oil from the Arctic couldn’t be in gas pumps for at least 10 years, and that assumes that oil prices stay high enough to ensure that new drilling is profitable. Oil is increasingly central to President George W. Bush’s foreign policy, the outlook for the economy and even his hopes in the mid-term elections.

A bill backed by Mr. Bush passed the House of Representatives late last year, but is stalled in the Senate. It gives the oil and gas industry more than $15bn in new production incentives over the next five years, in addition to the $15bn already in effect, according to Keith Ashdown of Taxpayers for Common Sense, a pressure group that argues for fiscal restraint.

The world is holding 7.3-7.8 million barrels per day of excess oil production capacity, its highest levels since 1987. Two-fifths of that excess is located in Saudi Arabia, according to the US Energy Information Administration.

It was the sudden spike in oil prices following the Iraqi invasion of Kuwait in 1990 that helped drive the US into the recession that made the first President Bush a one-term chief executive in the 1992 elections.

Now George W. Bush is hoping to wrest control of the Senate back from obstructionist Democrats. A weakening economy is likely to hurt Republicans, especially if blame can be laid at their door. (8)

Venezuela is Vital to the Western Hemisphere...

Once the general strike was declared in Venezuela it was clear that the country hardest hit by any disruption to Venezuela’s oil exports in the coming months would be the US - the destination for 60% of the oil exported by Venezuela in 2001. More importantly, perhaps, Venezuela's exports of crude oil and refined products to the US, which stood at almost 1.7 million b/d in August 2002, accounted for more than 14% of that month’s total US oil imports of 11.82 million b/d - a share that has risen steadily from the 9.7% Venezuela accounted for in April of this year.

The Bush Energy Plan itself recognizes that in the Western Hemisphere Venezuela has no substitute, and thus one can appreciate further the importance of the current oil strike for both Venezuela and the US. It should be remembered that Luis Giusti, former PDVSA chairman 1994-98, who established links with former president Bush and James Baker - both were invited by PDVSA as star speakers at conferences held in Caracas – served then in the group under vice-president Dick Cheney that produced the “Bush Energy Plan”. Luis Giusti is the symbol of the PDVSA strike.

The Plan also recognises the fact of the grave US oil deficit and explicitly admits the importance of Venezuela to mitigate that said deficit. In fact, the Bush EnergyPlan itself is good for Venezuela.

One can read the following, for example:

“The US influence on overall world markets is substantial in terms of production and consumption (...) In 2000, nearly 55% of US gross oil imports came from four countries: 15% from Canada, 14% each from Saudi Arabia and Venezuela, and 12% from Mexico. The security of US energy supply is enhanced by several factors characterizing our diplomatic and economic relationships with our four top suppliers. These factors range from geographic proximity and free trade agreements to integrated pipeline networks, reciprocal energy-sector investments, and, in all cases, long-term reliable supply relationships (...) By 2020, Gulf oil producers are projected to supply between 54 and 67% of the world’s oil. Thus, the global economy will almost certainly continue to depend on the supply of oil from OPEC members, particularly in the Gulf. This region will remain vital to US interests. Saudi Arabia (...) has been a linchpin of supply reliability to world oil markets (...) The Gulf will be a primary focus of US international energy policy.”

And on page 8-10 of the Energy Plan one finds the following:

Venezuela is the world’s fifth largest oil exporter, and the third oil supplies to the United States. Its energy industry is increasingly integrated into the US market place. Venezuela’s downstream investments in the United States make it a leading refiner and gasoline marketer here. Growing US and international investments in Venezuela’s energy sector, particularly in its resource-rich heavy oil sector, are enhancing the country’s ability (...) to keep pace with a growing world energy marketplace.

Venezuela is also moving to liberalize its natural gas sector, which will increase opportunities for foreign investment to expand Venezuelan natural gas sector, which will increase opportunities for foreign investment to expand Venezuelan natural gas production. These positive steps along with conclusion of a Bilateral Investment Treaty, which is now being negotiated, would provide investors from both the United States and Venezuela incentives for increased investment”... “The United States with Venezuela, is a co-coordinator of the Hemispheric Energy Initiative process.”... “The ongoing development of so-called ‘heavy oil’ reserves in the Western Hemisphere is an important factor that promises to significantly enhance global oil reserves and production diversity. Recent Canadian and Venezuelan success in making heavy oil deposit commercially viable suggests that they will contribute substantially to the diversity of global energy supply, and to our own energy supply mix over the medium to long term”.

· In this hemisphere, to emphasize the point, Venezuela has no substitute. And this is because of the following:

· The manifest official disposition to continue being a secure and trustworthy source of supply.

· The volume and type of crudes supplied.

· The quantity of refined products that it exports.

· The refined products that Curaçao exports.

· The oil deposits that PDVSA maintains close to the USA.

· The volume that CITGO refines, distributes and sells in that market.

· The matrix of links and perspectives that so many US companies have with the hydrocarbons sector in Venezuela.

These facts are of significant importance, especially when one considers that:

It doesn’t matter how many holes are drilled in American territory, we will simply not be able to drill our way to energy independence”.

(The New York Times editorial of the 18th February 2002)

Competitive costs of production are determinant for the feasibility of projects with strategic importance. This rule has greater validity in the case of countries that do not use force as a resource of power.

On 14th March 1991, a Venezuelan oil expert, Alberto Quirós Corradi, wrote an article in El Universal (Venezuela) entitled “Venezuelan Oil... Secure and Trustworthy?”. Here he questioned the optimism of PDVSA’s expectations about the United States’ energy policy after the Gulf War with regard to Venezuelan oil being recognized as secure and trustworthy suppliers. He said “(...) the Cristóbal Colón gas project, with its enormous costs and technical complexities, merely represents 100,000 b/d of oil equivalent. On oil he argued: “There is a thesis that advocates a production increase at all costs, because if this is not done we will never make best advantage of it (...) and it will just become simply an historical curiosity, not to say “touristic”. But the author of that article explained what he called “a worse scenario (...) and it is that historical or touristic curiosity is made up by the large oil complexes and developments in which we once invested without good judgement (...). There is nothing more unproductive than “useless effort”.

Eleven years have passed since then. Again there is war in Central Asia and perspectives of war in Southwest Asia (the Middle East). The writer just quoted above was correct in 1991, and his considerations are still valid today.

In 1991 the OPEC oil basket had an average price of $18.62/b, which in constant 1960 dollars represented $3.08/b. At this moment, March 2002, the OPEC basket stands at $3.24/b in real terms and in current dollars is $18.60/b.

One can verify the great similarity of the conjuncture during which the above quoted article was written with the present situation. The values are almost identical. In 1991 Venezuela produced 2.286 million b/d, the quota was 2.235 million b/d and the country was producing at full capacity.

In comparison, Venezuela’s quota is now 2.480 million b/d and production capacity is around 3 million b/d. This means that a high level of spending must be destined to the maintenance of something over half a million b/d of shut-in capacity, so inflating PDVSA’s costs and decreasing fiscal income.

The Venezuelan newspaper El Nacional (17th February 2002) published an article the author of which proposed that the country should leave OPEC and raise oil production to 8 million b/d.

Looking at the situation, to produce 3 million b/d Venezuela needs 15,090 wells. Saudi Arabia produces more than 8 million b/d with 1,535 wells. Remember about the competitive costs of production!

The alternative of producing at capacity was the supposed unfitness, which led the author of the article in 1991 to give the sentence “There is nothing more unproductive than useless effort”. To increase production now would be to repeat the painful experience of 1997-98 that ended in Venezuelan crude prices at around $5/b. (9)

Veteran PDVSA oil experts with inconsistent positions have been of little help to President Chávez’s efforts to formulate a long-term oil policy. Rather, the government found itself in the unpleasant position of fighting its own national state oil company. The private news media systematically voice PDVSA’s point of view, whilst the government lacks proper information channels.

As one can see from the following published in a PetroAnalysis Editorial in June 2002, the US - just as well as Venezuela - suffers from energy woes of its own kind:

Neal A. Stanley, vice president of the western region for Forrest Oil, told the Senate committee that whilst low gas prices had helped spur the economy the oil and gas industry is a ‘shadow of its former self’ having lost 400,000 jobs since 1981. The domestic oil and gas business had been in a severe depression since the oil price collapse of 1986, he added, “In most areas, wells could not be drilled economically due to the low oil and gas prices.” According to Stanley, in 1981 89,000 wells were drilled in the US; but by 1999 this figure had dropped to 19,000 - accounting for a 33% drop in oil production. “With these declines in production, and with our expanding economy, it should be no surprise that we consumed our surplus energy capacity and prices have dramatically increased as a result,” he said.

Mark Helm, spokesman for Friends of the Earth, said “If they really want to drill for oil, they should start by drilling right under Detroit”.

In the opinion of Matthew R. Simmons, president of Simmons & Co, the US should tap the earth’s oil and gas deposits to become self-supportive. “No country is ever going to supply our needs before taking care of their own demands first,” he noted to the Committee. “At the end of the day, we have to increase our domestic supply of oil and natural gas as long as there is any reasonable prospect of being able to do so.”

Senator Jeff Bingaman of New Mexico also does not see it as “a national crisis right now.”

President of the American Petroleum Institute, Red Cavaney, said “The US is operating at or near its maximum in most energy production areas … We need everything.”

This can be seen from the fact that US production of crude oil fell from an average of 7.1 million barrels a day in 1992 to 5.2 million barrels last year whilst imports of crude oil increased by 2.9 million barrels a day in the same period. Spencer Abraham noted regarding this that the “predicted” estimate of oil reserves in the Alaskan Refuge and nearby areas was 10 billion barrels: “It would substitute for almost 20 years of imports from Saudi Arabia or 74 years of imports from Kuwait.” One can see that increasing US oil production is seen by the president’s chief economic adviser, Lawrence Lindsey, as an insurance policy against pressure from foreign oil producers: “The more the better,” he said.

Nevertheless, the unpredictable ups and downs of oil prices would still play a role. The US imports 56% of the oil that it uses, but even with a large increase in domestic production it would still be dependent on them for 60% of its oil needs in 2010. Even with this increased domestic production, the US could not insulate itself entirely from a spike in world oil prices, said Howard Gruenspecht, a former Clinton administration official. (10)

Aware of his country’s need for Venezuelan oil, Spencer Abraham, US Energy Secretary, emphasized the interactive nature of the oil relationship between the US and Venezuela, saying:

“In spite of many political matters that enter into the dynamic, in the most significant levels there is a certainty that Venezuela will continue working with the United States in its oil sales … our role as consumers is a source of stability for the Venezuelan economy.”

One may ask what will happen to the stability of the Venezuela economy if the country’s oil is not sold to the US and other customers as is the case now in December 2002.

Alvaro Silva Calderón, the then Venezuelan Oil Minister under the Hugo Chávez administration, when he presented a paper at the University of Georgetown on the 9th February 2001 made it clear that:

“We are and will continue to be secure and trustworthy suppliers. We need a fair recompense for oil, not only to be able to undertake the necessary investments in order to build and have installations to support a petroleum structure that allows the recuperation of invested capital, an adequate profitability for the investors, and fair prices that serve to achieve the economic well-being and social stability which are indispensable for the favourable development of economic activities and for the fulfilment of our international compromise as secure oil suppliers.”

It should be understood that the “many political matters” referred to by Secretary Abraham had nothing to do with oil prices but rather with the very essential political concepts of Hugo Chávez. This takes one to the subject of oil prices.

Here it is worth noting some observations made by the Venezuelan Fransisco Parra, who was OPEC Secretary General from 1962 to 1965 and who currently is still active as an international oil adviser. He was writing a reply to the Editor of the Middle East Economic Survey (MEES) on a report on the Second International Oil Summit sponsored by the Institut Français du Petrole and Petrostrategies, held in Paris on the 25th April 2001, and said:

“I was surprised to read the reported comments of Robert Priddle, Executive Director of the International Energy Agency (IEA). He said: ´Don’t be mislead by occasional remarks last year by representatives of consuming countries appearing to endorse a target price of $25/b… continuing satisfaction with such a price should not be counted upon.’ … It is perfectly clear that at this juncture, a significantly lower crude oil price would not suit the US Administration at all, as it seeks to justify a new, supply-oriented energy policy with emphasis on the development of domestic resources … I for one take the US Administration at face value when it speaks of a “low 20s” price for oil. And everyone understands the reasons for the fudge involved in not picking a precise figure or spelling out the grade of crude to which it refers … Mr Priddle, though conceding that if the price of oil is set at an “artificially high level”, it might be there “temporarily” by producer intervention, but “sustained intervention which holds the oil price at an unrealistic level contains within it the seeds of its own destruction.” (11)

In November 2000 oil prices were no longer front-page news around the world:

“This is a healthy situation and it seems to be generally accepted that prices around 25 dollars are fine. Japan, for example, has said that APEC can easily support 35 dollars a barrel. Also, 25 dollars a barrel is needed for further production from Alaska to be commercial.

Through the band system OPEC supplied the market with sufficient crudes in spite of the resistance of many of its important members, and Venezuela did offer additional amounts from its oil refineries to cover a shortage of heating oil in the US two months ago but this was dismissed by the US authorities. So what else can Venezuela do to please expectations in the State Department?” (12)

OPEC Cuts and Increases



2000: 29 March

Increase prod. 1.7 million b/d

21 June

Increase prod. 1 million b/d

11 September

Increase prod. 800,000 b/d

30 October

Increase prod. 500,000 b/d

13 November

Maintain levels

2001: 17 January

Reduce prod. 1.5 million b/d

17 March

Reduce prod. 1 million b/d

5 June

Maintain levels

Evolution of Oil Prices 1998 to 2001 ($/b)


OPEC Basket

Year 1998



Year 1999



Year 2000



First Quarter



Second Quarter



Third Quarter



Fourth Quarter



Year 2001



2001 First Quarter









June (month)



June 11Th to 15th



June 18th to 22nd



Source: Ministry of Energy and Mines, Venezuela

What was disturbing was a statement made at that time by State Secretary Madeleine Albright on relations with Venezuela... it reflected the political mood in Washington with regard to President Chávez. She said that there were some differences between Washington and Venezuela on oil policy, especially with regard to OPEC. This indicated that there was insufficient communication between US Energy Secretary Bill Richardson and State Secretary Albright: they seem to differ in their opinions.

It can be documented that during the last two years there has been a very positive working atmosphere between the Venezuelan oil authorities, mainly in the person of Alí Rodríguez Araque, and Energy Secretary Bill Richardson. Furthermore, Rodríguez’s appointment as OPEC Secretary General was classified by Richardson as ‘something positive’ and he also considered that Rodríguez ‘is an expert in oil questions and has played a role that was rather moderate on oil prices’. The point was reached that the Venezuelan suggestion to put the oil price band system into action was implemented immediately in the March OPEC conference, and this meant a very significant increase in oil supplies. At that time it was reported that in the White House people were cheering the success of Richardson’s ‘silent diplomacy’.”

It is very well known that since the appointment of Alí Rodríguez Araque in January 1999, Venezuelan official oil policy has been in favour of supplying the market with sufficient oil, but the then oil minister Rodríguez had always stated that there was a dangerous situation in hand, that of oversupply. He had also stated that the problem in the US resulted from insufficient refining capacity, confirmed by repeated reports from the US that there were plenty of crude oil inventories at that time.

When the time comes to foot the bill, however, neither OPEC nor Venezuela can contribute to the solution of a structural problem in the US oil refining industry - the solution lies at home, Rodríguez said.

Venezuela’s Role in US Energy Security...

As far back as October 1990 PetroAnalysis has been considering the question of oil security in the Western hemisphere. In the October report of that year, the Editorial Caracas and the Making of Energy Security” brought up the need for reciprocity, or “level playing field”, in US-Venezuelan oil relations. But Washington was not prepared for such a treatment then in 1990, neither is it ready to do so now in 2002.

Venezuela is a key player in the changes occurring not only in Latin America but in the American continent as a whole (Western Hemisphere petroleum security) and potentially in its oil relations with Eastern Europe. As such, the country is emphasizing its role as a secure and reliable petroleum supplier, both now and for the future. One can see why it must be disappointing for some in Caracas, after all these efforts, to see how Washington has not taken its part of responsibility since considerable quantities of the Strategic Reserve have been freed. The IEA has responded in a totally passive manner to the emergency. And last but least, some majors have allowed crude prices to rise above a crisis level of US$ 40/b. Such a level of prices is against the essential interests of Venezuela – an exporter that can take the long view. What damages oil damages Venezuela. This is why reciprocity must be an essential part of the game”. (13)

In December 1988 once Carlos Andrés Pérez became president of Venezuela for the second time, his first period was 1974-78, one of the then PDVSA Directors, Carlos Vogeler Rincones, gave a paper in Washington on “Mutual Concerns; Mutual Interest: Venezuela’s Role in US Energy Security”. Then, as now, this subject ranked as most important in Venezuelan oil policy. PetroAnalysis published extracts in the January 1989 report:

“As a principal supplier of petroleum and petroleum products to the United States for over 60 years, Venezuela is extremely cognizant of the fact that security of supply and price stability will be the central topics of the energy agenda for the 1990s and beyond. For this reason, we are presently pursuing a course of action that is designed to directly address these issues and hence mitigate the concerns of the consumer.

Perhaps the most significant, and successful, development to date has been our national oil industry’s ability to fortify its resource base. In recent years we have engaged in an intensive domestic exploration program that has been very successful, indeed beyond our initial expectations. During the last decade, our proved reserves of conventional crude oil have increased over threefold to more than 58 billion barrels. In comparative terms, Venezuela presently stands in seventh place worldwide with regard to crude reserves, and, significantly, first among countries outside of the Middle East and the Soviet Union. At present rates of production our crude reserves would have a life span of almost 100 years.

Particularly noteworthy is the fact that we have recently made the most important discovery of light and medium crudes in the last thirty years. Initial results indicate the existence of giant accumulations of petroleum in the northeastern part of the country which could ultimately rival Alaska’s Prudhoe Bay. These deposits consist of low sulphur, high quality crudes that are well suited for the production of gasoline. Production started last year from these highly prolific wells and is expected to reach almost a half million barrels per day in the early 1990s.

Nevertheless, the magnitude of Venezuela’s resource base can only be understood by considering the immense deposits of bitumens and extra-heavy crudes situated in the Orinoco Belt. These resources have been estimated at 1.3 trillion barrels of oil in place. It is worth emphasizing that this basin represents the largest known oil accumulation in the world that can be developed by conventional production methods.

In addition to the enormous resources of the Orinoco Belt and our greatly enhanced reserves of short-haul conventional crudes, my company has pursued a ‘flexible response’ policy in determining production capacity. Specifically, we maintain a margin of security in the form of idle production capacity which can be quickly utilized to help offset unforeseen international shortages in the oil market.

Our approach to downstream investments, like all of our policies, is fundamentally designed to enhance stability in the oil market. We believe that operational continuity is an important element for this stability. For that reason, we have entered into the downstream sector in association with highly reputable companies that have an established presence in the market.

As you may know, we have made significant investments in the refineries and distribution systems of two companies in the United States: CITGO Petroleum Corporation and Champlin Refining Company.

These joint ventures, although different in refining capacity as well as in marketing reach, provide our national oil industry with dependable markets in Gulf Coast states and in the states along the Atlantic seaboard. In turn, these operations, besides providing a guaranteed source of supply, contribute to the overall economic wellbeing of the communities in which they are located.

These business operations reflect my company’s willingness and desire to link itself to its natural markets in the Atlantic basin through commercial relationships with stable companies. These relationships provide common ground for long-term cooperation between our two countries.

Certainly, it is in the best interests for both nations to foster this cooperation. Venezuela relies upon the export revenues derived from its sales of oil to the United States to service its foreign debt and to fuel its economy. In 1987, over 60 percent of Venezuela’s oil exports went to the United States. From the vantage point of the United States, Venezuela supplied 13 percent of all petroleum imports and ranked first among foreign suppliers to the East Coast and third in the Gulf Coast.

To conclude, let me say that at Petróleos de Venezuela, we believe that our nations’ complementary needs can become a source of mutual cooperation in Hemispheric energy affairs: secure supplies for the United States and natural markets for Venezuelan hydrocarbons.” (14)

The ”idle production capacity”, referred to by Carlos Vogeler Rincones, was fully used to provide the US with crudes usually supplied by Iraq and Kuwait who were at war at that time.

“In 1991, President Bush telephoned Venezuelan Head-of-State Carlos Andrés Pérez, known by his initials as “CAP”, again to see if they could meet during CAP’s private visit in May to the US. They met and discussed Bush's Enterprise for the Americas Initiative, which could be considered the most important theme throughout Latin America. Bush continued not to agree to a Summit between petroleum producing and consuming nations and for this the meeting was classified in certain quarters as a failure, CAP having wasted his time with the US President. Maybe this was true, but not in terms of the plans for hemispheric integration in general: the creation of a massive trading block with greater fluidity of goods and capital movements theoretically implying an increase in living standards and real wages In Latin America. It is argued that the Bush Initiative is a mechanism whereby economic reforms In Latin America can be accelerated within the philosophy of Open Economy, and where petroleum just like any other commodity in such a system would not be the patrimony of any one country bid of the hemisphere as a whole. This has significant implications for Venezuelan petroleum policy and compromises negotiating postures”. (15)

On this subject James Baker, at the 1998 CIED conference in Caracas stated that oil belonged to the country where it was found and in order to become a universal commodity one had to first of all pay for it.

In a light-hearted way, a cartoon referring to - or perhaps even reflecting in some eyes - US-Venezuelan relations at that time was published in a local daily: Head-of-State Carlos Andrés Pérez was saying “The New International Order is advancing so quickly that this year we are not going to send letters to Father Christmas: we are going to ask Bush directly..” (16)

Former president Bush, Bush “41”, visited Caracas in December, and when leaving the presidential palace, Miraflores, accompanied by CAP, announced the coming war in Iraq: “Desert Storm”.

The US-Venezuela oil relationship can be further clarified by considering what PetroAnalysis published in the 16th August 1990 report:

“Current events in the Gulf again bring up oil-related issues between Venezuela and the US which always surface when Washington feels that there is an emergency. One wonders when long-lasting decisions will be taken.

Venezuela in the scenario...

There are changes occurring In the Gulf which affect the whole world situation including Venezuela. These events have direct effects on Venezuela for the following reasons:-

· Venezuela has the largest petroleum reserves in the Western Hemisphere.

· Venezuela has been the main exporter in the Western Hemisphere for the last half century.

· Venezuela is one of the biggest suppliers to the US market.

  • Venezuela is an OPEC Member.

These considerations put Venezuela at the centre of attention.

Venezuela has very large petroleum reserves and can take the long view and Is vitally interested In the world's position on oil. This is why disruptions in supply and both sudden and substantial price rises only appear to be in Venezuela’s interests. The truth is that the Venezuelan oil industry is against such short term ‘benefits’.

Historically, Venezuela - as part of the Western Hemisphere - has had traditional close ties with the US Administrations and with the major US oil companies. So it is only natural that Venezuela feels itself to be committed to being a reliable partner in times of emergency and expects reciprocity. This has been Venezuela’s case and position for at least the last half century. There has not, however, been a corresponding understanding coming from Washington and the US oil industry about Venezuela’s desires, needs or problems. The country has not yet been granted preferential treatment. Until just a few weeks ago Washington was reluctant to accept a Hemispheric Treaty proposed by Caracas.

During the Venezuelan Foreign Debt negotiations the US didn’t show much understanding. Venezuela’s enormously serious efforts to stabilize the Caribbean and Central America have obtained neither the sufficient recognition nor the sufficient gratitude that they merit.

The man in the street here is asking why once again Venezuela is expected to pull people out of the mud. Particularly since Venezuela is in no way responsible for the complex dilemma now occurring in the Middle East. And especially when major oil companies ‘are just plundering the US people’ according to certain US Congressmen.

Venezuela and OPEC...

In this context of ‘plunder’ - and since OPEC is usually held responsible for price hikes - it is time for people in the US to discover the realities. OPEC have just agreed on US$ 21/b. and OPEC price an the 31st. July were less than US$ 18/b.. Now, given that OPEC hasn’t decided on any changes in price or volume the market (including paper barrel speculators) has in 4 days pushed up the price to over US$ 28/b. squeezing the helpless consumer.

Crucial decisions on production capacity expansion...

Now it's a political US request to increase production. Venezuela is responding positively. Once the danger is over, it could be again argued that the US government doesn’t import oil; that the oil companies do so and are free to choose their sources of supply.

Venezuela is about to make crucial decisions regarding the expansion of its petroleum industry’s production capacity which, logically, once on stream would be looking at a very specific market: the USA. This raises the questions of: What guarantees would Venezuela have if it spent all these billions of US dollars and what would happen to debt-ridden Venezuela with insufficient monetary reserves, low cash flow and many other very serious problems if these investments are made? Specifically, what will happen when the production capacity is there? What guarantees will Venezuela have that the US will import the export volume required or expected by the Venezuelan economy?

Questions may also be raised about Orimulsion's potential market share in the power utilities sector. All this is negative for Venezuela.

One should also remember that the Chávez government offered Washington a 20-year supply guarantee, but received rather a cool reply.

At the end of 1990 the US economy had been approaching a recession. This situation, said Petroanalysis at that time, will lead to smaller oil imports because the domestic oil industry in the US will be more efficient with prices much higher than US$ 20/b. and because an almost zero growth economy will require less oil. Additionally we have the environmental issue and concern about supplies. The sum of all these aspects will have adverse implications for oil in the US energy mix.

This brings up the need to look at the situation in a context of reciprocal security, an idea which takes importance when the Bush Administration is suggesting the setting up of a Hemispheric Common Market. Washington should listen and come to a balance en the matter. Here, fair play and correct and honest dealings can be the only rule of the game.

US Gratitude to Venezuela...

The question is for how long can the US maintain its gratitude to Venezuela, and not turn to other suppliers as soon as the emergency or crisis is over.

Venezuela would find this disappointing. And let's not forget that those whose oil is being embargoed today don't feel happy about other people offering to step in with their oil.

These countries are going to return to the market sooner or later regardless of whether or not OPEC survives. Oil producers just as anyone else, have a memory for good and bad acts. They will definitely consider that increasing oil production and supplies under the present circumstances to the US is unfriendly. Venezuela might pay the price later when the sand of the ‘Desert Shield’ has settled down. The US should bear this in mind.

Two weeks after the invasion of Kuwait by Iraq, on 14th. August, Venezuelan President Carlos Andrés Pérez announced very important modifications to the country's petroleum policy in the light of, or the events in, the Gulf and the resultant question of hemispheric energy security.

He stated that Venezuela is prepared to:

· Increase production and oil exports by an additional 500,000 b/d. to help the US compensate for the shortfall due to the turmoil in the Gulf.

· Create a hemispheric strategic oil reserve to confront situations similar to what is occurring now. For this, Venezuela’s production capacity will be gradually increased to 4 mill. b/d.. Perez said that this increase could only be achieved through financial help and hinted that the US should help to underwrite the cost of that programme.

Some people in the US took Perez’s words to mean that Venezuela would immediately supply extra barrels. PDV also thought that, but found itself in an uncomfortable position because it seemed that Perez prefers to wait for a collective OPEC decision in this material.

Although one could consider that reciprocity entails bargaining. You don’t get anything for nothing, even between friends.

True US-Venezuela reciprocity? ...

Now, there are voices in the US asking allies who are highly dependent an oil imports from the Middle East, such as Japan and Germany, to share the financial costs of the US military actions in that area. On the same basis, shouldn’t Venezuela be entitled to ask the US to share the heavy burden of the investments it has to undertake in order to have enough oil supplies for its friends, especially the US?

Venezuela expects and merits being treated as a reliable ally.” (17)

Six years later in 1996, former president Bush was in Caracas speaking at a major PDVSA conference. Things at that time seemed to be on the right track:

“On the 20th and 21st of November, PDVSA’s subsidiary company CIED - the International Centre for Education and Development - held the conference ‘Petroleum: Opening to the 21st. Century’. Both the former US President George Bush and MIT professor Lester Thurow were present to give papers - an indicator of the importance of this event. PDVSA president Luis Giusti and high officials from CIED and the Ministry of Energy and Mines, Amoco, Mobil, CITGO, Schlumberger Limited, Arco, Exxon, Enron, Veba Oel AG, and Science International Applications Corporation (SAIC), contributed papers on petroleum, petroleum services, gas, energy and electricity, telecommunications and fundamental tendencies - all with their eyes on the next century.

George Bush, President of the USA, 1989-1983, gave his paper ‘After the Presidency...the Challenges that Remain’. Here is a very brief extract, but one that reflected the tone not only of his speech but of the conference:

“Six years ago I asked the nations of the regions to join in something we call ‘Enterprise for the Americas’, among other things, I called for creating a free trade zone throughout our hemisphere. Remarkable progress is taking place - reworking debts, democracy, stability, the market-based economy is on the move, and I marvel at the great strides your region - which is vitally important to my country - has made. Today Latin America is on the move.” (18)

In late 1997 - just a year before the presidential elections - Venezuela would be coming up to the finishing post:

“In a decision regarded by many as quite advantageous for the Venezuelan oil industry, the country was accepted to join The Energy Council of the United States as its second international partner after Canada. Oil experts agreed that it was a boon for Venezuela to become a member of The Energy Council, where strategies concerning the US oil market are discussed. The Energy Council groups together US and Canadian lawmakers concerned with oil and energy related activities in those two countries. The United States is the world’s largest oil consumer, and Venezuelan crude and oil products exports to US markets are currently at 1.7 million b/d.”

Regarding this, in his speech during The Energy Council annual meeting held in Anchorage, Alaska, on September 26th, Foreign Minister in the Rafael Caldera administration Miguel Angel Burelli Rivas said the decision showed that ‘Venezuela is regaining its key role as an efficient and reliable oil producer, and it is ready to face the energy challenges of the 21st century.’ (19)

Changes of Government may mean Changes in Oil Policy...

As may be appreciated, these events were occurring before, and face to face with, the 1998 presidential election year: the newly-elected president of the country would be taking office at the beginning of 1999. In late 1997, it was by no means clear what colour the new government would be.

Hugo Chávez won the elections with the highest percentage victory in Venezuelan voting history.

The Venezuelan resource base had not changed dramatically during the decade since the senior PDVSA executive announced, in December 1988, the ‘most important discovery of light and medium crudes in the past thirty years’. In spite of heavy investments, PDVSA was unable to make ‘the existence of giant accumulations of petroleum in the north-eastern part of the country’ materialize.

The new administration in Caracas inherited a very difficult domestic political and economic situation, according to MEES:

“It has yet to implement the cuts pledged in the last agreement, although it promised that it would do so by the time of 23rd March OPEC meeting. However, there is a strong opposition on the part of domestic service companies, oil trade unions, the press, PDVSA and political parties to any further cuts. Venezuelan oil officials argue that their country has cut the most in terms of the percentage of its total output, and they want to see the other large producers bear their fair share of the cuts this time around. It is therefore understood that Venezuela will agree to reduce production, but only by a lower percentage share than that pledge by other OPEC member states. It is further understood that the new Venezuelan Oil Minister, Alí Rodríguez, will not accept any figure that his country will not be able to implement.”

Within the context of a new Administration with a different vision of what the Venezuelan oil industry should be, or perhaps what the industry should emphasize as its priorities, PetroAnalysis in its 9th February 2001 Editorial considered that “A Fair Price is Possible” since it was clear that President Chávez could not be successful if he had continued the policy of volume maximization pursued by his predecessors.

“Through George Bush the US was able to take control of the Gulf and its oil. Venezuela, in spite of its geographical distance from this area, was the oil exporting country that received the most ‘collateral damage’ in strategic terms. This was due to the fact that the Venezuelan oil doctrine which proclaimed the country to be a ‘secure and trustworthy supplier of oil in times of war and peace’ had lost its relevance. Washington had imposed the ‘Pax Americana’ on the world, converted the Gulf into its ‘Mare Nostrum’, and put the ‘rebel crudes’ from Iran, Libya and Iraq under embargo. Secure oil supply was no longer a Venezuelan logo: it was universal. This, however, was only one part of the structural damage that Venezuelan oil policy suffered. The other no less painful knock was that OPEC, a Venezuelan creation, lost the little autonomy it enjoyed: just the same as all the other international organizations it had to adapt itself to circumstances and bow down.

All Agree On Need For Higher Prices...

In Venezuela it was not viable to continue governing the country within a democratic system with such low prices. Maximum production capacity had been reached, but each barrel added had contributed to a further lowering in the price, and thus to a lower income. The scenario of the ‘survival of the fittest’ was shown to be not viable for PDVSA.

The Venezuelan policy of production expansion explicitly led to the displacement of more expensive barrels from the market. But it was here that some sensitive toes were stepped on: specifically, the member companies of the American Petroleum Institute.

This coincidence of interests, as outlined above, is what explains the recuperation of prices from April 1999.

The instrument used for the recuperation was a reduction in the offer and OPEC, which supplies 60% of oil traded, was the vehicle to achieve this common objective. Norway, Russia, Mexico, Oman and Angola co-operated with this common objective, and discipline on Venezuela’s part contributed to price recuperation.

The Department of Energy in Washington observed this recuperation with satisfaction until the end of January 2000 when the price seemed to stabilize around $ 25/b. The country that consumes the most oil in the world produces only 40% of its needs and its dependence on imports is increasing. Furthermore, for further production to be attractive in Alaska the oil price needs to be $ 25/b, not $ 12/b as it was in 1998.

It was a difficult balancing act in an electoral year. Bill Richardson was completely successful, asking his allies in OPEC to increase all that had been cut in 1999. In 2000 OPEC increased production by 4 million b/d … and towards the end of the year there was a price collapse.

The strategic value of Venezuelan oil in this hemisphere and in these conditions is recuperating. There are more opportunities for the success of a scenario of fair prices for Venezuela around $ 28/b by means of discipline in OPEC, co-operation with other producers and dialogue with consumers.

Now that president Chávez is on his way to Saudi Arabia, there is every opportunity to draw up the main pillars of a common strategy for the achievement and stabilization of the above-mentioned fair price. It is not necessary to argue with anybody, neither to look for unnecessary antagonism.

The world needs more oil to be discovered. It has to be looked for by sharing responsibilities and assuring remunerative prices even for the marginal producer. There is space in the market for everyone.” (20)

On various substantial questions and in different geographical regions, the United States, previous to the tragedy of the 11th September, had serious differences with a considerable number of countries in the world and with its own population: the US did not ratify the Kyoto Treaty; there were anti-globalization protests; growing hostility to G-7 Summits; the International Penal Court for War Crimes was opposed; the Earth Mines Treaty was not signed; the SALT agreement was rejected; the anti-missile shield that worries and threatens Russia and Europe came up; there was confrontation with China; the peace process in the Middle East failed; exclusion from the UN Commission of Human Rights; withdrawal from the Anti-Racist Conference, Durban South Africa; and no desire shown to agree on a dialogue between oil producing and consuming countries.

In its recent attempt to establish a global geo-strategic table that corresponds to its interests, the US government is recurring to methods, language and actions that deepen its distancing from the rest of the international community.

An interesting thing for the group of oil exporting countries is the determination of President Bush (25th February 2002) to ‘reduce American dependence on oil imports from volatile Middle East nations, that, to be frank, sometimes... do not like us very much’.

It is implicit here that Venezuela’s importance was growing, but the oil strike in April of this year was both bad news and a bad omen, putting Venezuela on Washington’s agenda. Now more so, with the general strike in the country and oil exports at almost zero. (21)

The present world context is characterized by an international system in which “unipolarity” prevails...

The unipolar superpower – that is, the US - has two main objectives at this stage:

  • Establish its military dominance through ‘Star Wars’.
  • Obtain control of oil.

Whilst the first aim is mainly related to NATO, Russia and China, the second has more to do with developing countries where most of the world’s oil reserves are found.

The superpower, so far, has named only three countries as integrants of the ‘Axis of Evil’: Iraq, Iran and North Korea. A secret list might exist!

Furthermore it has announced its determination to engage in ‘Regime Change’ as a means of achieving its strategic objectives. Where this practise is going to be used is yet to be seen. Now while nobody doubts that Venezuela is of great strategic significance to the US, it would be interesting to know whether a regime change in Caracas is also on Washington’s list.

President Bush has had to postpone his war plans in Iraq because opposition to his unilateralist drive was too strong in the UN to ignore. International inspectors celebrated Christmas peacefully in Baghdad: no arms of mass destruction in sight. But Arab and Muslim anger is growing, caused by Israel’s continuing occupation and destruction of Palestinian lives, homes and land. This anger determines that the Arab oil exporters ‘love America less’. Hence, Venezuelan oil becomes more valuable and more needed by the US, especially in the future.

Under Hugo Chávez, however, Venezuela opposes globalization and privatization; favours multilateralism and emphasizes Latin American co-operation. On the economic front after four years in office, his traditional opponents have gained power, closing ranks with political parties and movements of the opposition side. In general they do love America!

Bush cannot build a strategic alliance with a Latin American leader like the present occupant of “Miraflores”, who in former president Carter’s words came to power through “a peaceful democratic revolution”. If there were to be one, a possible “regime change” would have to be internal. This would have to occur very soon because timing is everything... the PDVSA strike is losing sympathy amongst the public and they may turn anti-American as well. □


(1) JP Morgan, 13 Dec. 2002. “PDVSA: Strike Disrupts Exports; US Refining Margins Improve”

(2) As above

(3) Enfoque Petrolero, March-April 1997. “Targeting refineries in the US

(4) El Universal, Caracas, 24 Dec. 2002

(5) JP Morgan, December 17th, 2002. “Why Venezuela Matters”

(6) Petroanalysis 25th June, 2002. “Venezuela is No Alternative to Islamic Oil”

(7) Petroanalysis 14th July, 2002. “Unilateralism versus Arm-Twisting for Oil”

(8) Petroanalysis 10th April, 2002. "Timing is Everything in Energy Politics"

(9) Petroanalysis, 21st March, 2002. “The Promotion of “Useless Effort”

(10) Petroanalysis 27th June, 2001. “US: Energy Woes”

(11) Petroanalysis 10th July, 2001. “Who’s in the Driving Seat?”

(12) Petroanlysis 15th November 2000. “Issues in Play”

(13) Petroanalysis, October 1990. “Caracas and the Making of Energy Security”

(14) Extract from the speech “Mutual Concerns; Mutual Interest: Venezuela's Role in U.S. Energy Security” given by Carlos Vogeler Rincones, Director PDVSA, in Washington Dec. lst.1988

(15) Petroanalysis, May 1991

(16) Petroanalysis November 1990. “What will come out of Bush's Visit?”

(17) Petroanalysis16 August 1990. “Time of Crisis...Venezuela

(18) Enfoque Petrolero Nov-Dec 1996. “Major Conference in Caracas”

(19) Enfoque Petrolero October 1997

(20) Petroanalysis 9th February,2001. “A Fair Price is Possible”

(21) Petroanalysis 7th March 2002. “The Minute of Silence has Ended”

This entry was posted on 22 de marzo de 2010. You can follow any responses to this entry through the RSS 2.0. You can leave a response.

Leave a Reply

Con la tecnología de Blogger.