US oil giants' exit boosts Chavez only short-term
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| Published on Friday, June 29, 2007 |
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By Christian Oliver
CARACAS, Venezuela (Reuters): President Hugo Chavez won instant political capital by forcing US oil giants from Venezuela but the nationalist moves pose economic challenges that could undermine his socialist revolution.
Chavez, who prides himself on his tirades against US President George W. Bush, this week struck his most costly blow against any company since coming to power in 1999 by seizing oil fields from Exxon Mobil and ConocoPhillips.
Billions of dollars were wiped off the share value of ConocoPhillips and Exxon.
With the state oil company's efficiency in question, the United States fretted over oil shipments from its No. 4 outside supplier -- an OPEC nation with the largest oil deposits outside the Middle East.
Chavez said Venezuela, where "Gringo, go home" has become a catchphrase of his political movement, could thrive without the US know-how to extract heavy crude from the vast Orinoco Belt and bring in petrodollars for his social programs.
"I told the (energy) minister to tell them they can go, that they should leave, that we, in truth, do not need them," Chavez said in speech days before his deadline for the companies to accept his takeover conditions.
Four other companies, one American and three European, struck deals to turn over majority control to Venezuela.
The departure of Exxon and ConocoPhillips burnishes his anti-American credentials and highlights the depth of Chavez's nationalization drive that is reinforcing a politicization of the military, judiciary and oil industry.
Chavez vowed to accelerate his push for a socialist state after a landslide re-election in December. He has massive support from the poor, who benefit from his spending of high oil price income on education and health care.
The opposition complain his anti-Americanism increasingly scares off investment.
But his supporters cheer when he taunts Bush as a "donkey" and the "devil" and whoop with approval when he describes how he is taking oil reserves out of the hands of US imperialists and delivering them back to the Venezuelan people.
Still, economists caution Chavez's social spending, mainly paid for by state oil company PDVSA, could run into trouble as Venezuela battles to maintain oil output after the exit of the majors.
QUALITY CONTROL?
Chavez insists he can replace the technical oil skills of Exxon and ConocoPhillips with companies from allies such as Russia, Iran and Malaysia.
But outsiders are skeptical.
"There are large questions over PDVSA's ability to assume control over the Orinoco at a time when the company is under increasing obligation from the state to bankroll the government's aggressive social spending platform," said Patrick Esteruelas, an analyst at the Eurasia Group.
Venezuelan oil output, which accounts for over 75 percent of export income, is already under pressure.
Analysts say production is closer to 2.4 million bpd than the government's calculation of above 3 million bpd. The Orinoco projects can produce about 600,000 bpd.
"This (energy income) is what sustains Chavez but he is not particularly bothered," said Michael Shifter, an analyst at the Inter-American Dialogue think tank in Washington. "He thinks, 'It is their loss.'"
Chavez, who calls capitalism an evil, has also taken over US-controlled telecommunications and electricity companies, raising fears service will gradually deteriorate as the state introduces special discounts for poor consumers.
A display of how a state takeover can erode quality is on view for millions of Venezuelans each night.
Last month, Chavez closed the only nationwide opposition TV station and replaced it with a public service channel that now broadcasts South America's premier soccer tournament being hosted by Venezuela.
The picture is blurred, the graphics can show a striker as goalkeeper and first game's commentator was not able to read out the Venezuelan team names -- he could not find his glasses.
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