Venezuelan President Hugo Chavez used a May Day ceremony this week to take over his country’s last privately owned oil fields.
It marks the final step in his nationalization of Venezuela’s energy industry. As if the international oil industry needed any more uncertainties, now add Chavez’s unpredictable nature and his hostility toward the United States. Venezuela is the fifth- largest supplier of oil to the U.S.
Economic ideologies aside, we doubt that nationalization will prove positive for Venezuela. The state-owned oil company, Petroleos de Venezuela, is plagued by mismanagement and corruption.
Chavez is a strident critic of the Bush administration and of capitalism and has threatened in the past to suspend oil sales to this country if the U.S. made any attempt to destabilize his government.
Denver oil executive Bruce Benson says Chavez might try to use his leverage to pressure the U.S. on one thing or other. “Anytime you have a guy like Chavez in control, there’s uncertainty,” Benson said. “He could try to embargo the oil. … That could create panic in the markets.”
All six American and European-owned oil companies were required to relinquish control of their oil operations as part of Chavez’s expansion of power. He is now in the process of nationalizing Venezuela’s electricity companies and its biggest telecommunications company. He has threatened to take over private hospitals for raising health care prices.
While the oil takeover had been planned for sometime, negotiations continued over what, if anything, Venezuela would pay to compensate companies like Exxon Mobil and ConocoPhillips for their projects in the country’s oil-rich Orinoco River reserve.
Chavez reportedly has urged the British, American, French and Norwegian companies to stay and help develop the fields, but it is unknown how the companies will enjoy the role of minority partner and whether they can tolerate Chavez slashing production quotas like he did in January to meet OPEC cuts. The companies have leverage for the moment because Petroleos cannot transform the Orinoco’s tar-like crude into marketable oil without their investment and experience. Chavez ought to realize – and he likely does – that he needs their participation to fulfill Venezuela’s energy potential. Multinational oil companies in other parts of Venezuela agreed to state-controlled joint ventures last year rather than give up such profitable operations.
