Venezuela Impasse

As Venezuelan President Hugo Chavez’s popularity plummets alongside oil prices, analysts warn that the socialist state could be veering toward disaster.

A recent poll by the Venezuelan Institute for Data Analysis found that “43.6 per cent of respondents would vote for the current president in the 2010 ballot, while 40.1 per cent would not” but two-thirds of Venezuelans would want Chavez out of office by 2012, according to the Angus Reid Global Monitor.

“This is a regime that is characterized by simultaneously putting all of its force [on] the accelerator and [on] the breaks,” said Moisés Naím, editor in chief of Foreign Policy, at the American Enterprise Institute (AEI) on July 27th. The contradictory procedures of the Chavez administration were a major theme of the Venezuelan policy discussion, as experts spoke about the conflicts plaguing the country’s oil industry.

Venezuela’s economy is heavily reliant on oil, but, according to Naím, government regulations imposed on the industry are getting in the way of profits. There is a “very systematic weakening of the oil industry, in a variety of ways, at the same time as the country is more dependent than ever on the oil industry,” he said.

“We have seen this in a variety of ways,” he continued. “This is an industry that has been forced to over diversify. It is an industry that is overstretched financially. It is an industry that is overburdened with all kinds of politically-imposed mandates that are very often unfunded.”

According to Naím, one of these political mandates is the requirement for oil companies “to provide oil for friends and family [of Chavez] around the hemisphere…it is a very important tool of President Chavez’s…influence in the region.”

Venezuela’s vast oil supplies, which account for one third of the country’s gross domestic product (GDP), also generate around 80 percent of its total export revenue. However, due to government regulations that keep the domestic cost of oil low and the price of producing oil high, the amount of both oil production and oil exports have dropped.

For example, the average price of a gallon of gasoline in the U.S. is around $2.50, according to the American Automobile Association’s (AAA) August 3rd Daily Fuel Gauge Report. However, in Venezuela, the government caps the price of gasoline at 16 cents per gallon, reported the Arizona Republic on July 27th.

“Venezuela today has the cheapest gasoline in the world. It is no surprise that gasoline consumption in Venezuela has gone through the roof. The more you consume domestically, the less is left for you to export,” said Naím. “Meanwhile, while there is this expansion of all kinds of cost numbers of the oil industry, all production has gone down 26% since 1997, according to the International Energy Agency.”

The price of oil, which has dropped over 50 percent since this time last year, has also had a negative impact on the Venezuelan economy. “For us [Venezuela], the international crisis, which for the developed countries expressed itself mainly as a financial crisis, for us has expressed itself mainly in falling oil prices,” said Asdrúbal Oliveros, director of the economic advisory firm Ecoanalítica Asdrúbal Oliveros, at the AEI discussion. “This year compared to last year, Venezuela has lost more than $22 billion in oil income.”

Some of the economic problems may be due to the widespread uncertainty about investing in Venezuelan businesses. “In 2006, the government said oil is strategic and therefore it nationalized the agreements with the transnational companies, and then oil fell…So this concept of what is strategic has broadened from oil to telecommunications, cement, steal, electronics…Any company operating in Venezuela today must be asking itself ‘is it my turn? Am I going to be the next victim of President Chavez?’,” said Oliveros.

In May, Chavez’s regime appropriated at least six major Venezuelan companies, including steelmaker Siderurgica Venezolana SA, ceramic tile-maker Ceramica Carabobo, and iron producer Materiales Siderurgicos SA.

However, despite the gloomy forecast for the oil industry, the analysts are not completely pessimistic about the future of the Venezuelan economy. “Reports of the imminent collapse of the Venezuela economy have been widely exaggerated from the beginning…I don’t think that has happened and I don’t think that will happen,” argued Naím.

Alana Goodman is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.