1
When Elvis Presley died his former manager
made a brief, unkind, remark. He said “Good career move”. Although politically incorrect the same
comment could apply to Hugo Chavez’s death. Venezuela is entering a significant
economic crisis that is bound to become a social and political crisis as well.
Chavez based much of his popularity on a policy of handouts to the country’s
poor and to ideological friends abroad, but this weapon is becoming weaker with
the decline in income. With not enough money Chavez’s popularity was inevitably
on the decline.
2
Venezuela’s income is based on oil and the
production of oil has declined by about 600,000 barrels per day since he arrived
in power. It is now about 2.6 million barrels per day today. If the state-owned
oil company had been able to execute the Plan that the Chavez government
inherited from the pre-Chavez management the company should have been producing
some 5 million barrels of oil per day since 2005 or so. You can imagine,
therefore, how large has been the loss for the nation due to this inability of
the company to develop according to plan.
3
About 30 percent of the Venezuelan oil
exported today is not sold at commercial prices but is subsidized to
ideological allies such as Cuba or delivered to China in exchange for loans
already partly utilized for political purposes, not for investment. The Chavez
government has given Cuba about $25 billion in oil and cash and counting. I
think Cuba re-exports some of the oil Venezuela sends them, making a fat profit
at our expense.
4
As a result of this largesse the fiscal
deficit of Venezuela is now of the order of 15 percent of the GDP and the
national debt incurred by Chavez represents about 50 percent of the GDP. This means that both Venezuela’s geopolitical
punch, based on money and his power within OPEC, based on production and
effective hydrocarbon reserves, are significantly diminished.
5
The death of Chavez makes the situation
much worse because Chavez had a charisma that his anointed successor does not
have.
6
This is not going to get better in the
medium term. The state-owned oil company, Petroleos de Venezuela, is badly
managed, very corrupt and has deviated from its core business to become a
so-called socialist company that builds houses, import food, raises livestock
and grows cassava, among many other activities that have nothing to do with oil
and gas . Natural gas deficits have grown very large and although the country
has huge gas reserves is not developing them and, as a result, is forced to
import gas from Colombia, through a pipeline that was originally built to
transport Venezuelan gas to Colombia. The Orinoco heavy oil deposits have been
given for development to companies from friendly countries such as Iran, Russia,
China, Vietnam, even Cuba that don’t have the technology or the financial
muscle required to invest.
7
Today the state oil company has
115,000 employees as compared to 33,000 when Chavez came to the presidency. My
opinion is that this company should be
replaced, as soon as a democratic government comes in, by a new oil industry
model, essentially made up of an oil regulating agency controlling private oil
companies doing work in the country.
8
Due to the reasons I have given Venezuela
cannot influence oil prices in the current world market and is no longer an
indispensable source of oil for the U.S. It is now exporting to the U.S. less
than 900,000 barrels of crude oil per day, less than 10 percent of U.S imported
oil. This represents a drop of almost 500,000 barrels of oil per day since
Chavez came into power. In fact, the
U.S. is, at this very moment, exporting gasoline to Venezuela, due to the poor
performance of Venezuelan refineries.
9
Chavez was politically dying before he physically died. No oil investments in the horizon. PDVSA in the hands of gangsters.
10
Outlook: Unless Capriles wins, very poor
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