Sunday, July 01, 2007

Capitalist Flight Continues from Venezuela

Venezuela continues to play hardball with foreign oil companies. ConocoPhillips and ExxonMobil decide to simply leave the rapidly maturing socialist state, rather than acquiescing to the new requirement of accepting minority positions in their own business ventures.

The Economist: WHEN Venezuela's government announced this week that two American oil giants, Exxon Mobil and ConocoPhillips, would walk away from their large investment in the Orinoco heavy-oil belt rather than accept tough new contract terms, officials presented it as the recovery of sovereignty over another slice of the country's all-important oil industry. Some other Venezuelans saw a government blunder that could accelerate the decline of the state oil company, Petróleos de Venezuela (PDVSA).

There is no doubt Hugo Chavez covets the petroleum wealth of his country. The question is whether his moves are shrewd non-violent gambits to rid his infrastructure of capitalist investors, or the clumsy acts of a fool too eager to collect all the golden eggs.

Business Week: Right now, Venezuela is creating the biggest doubts. Its output has declined by about 25%, to 2.4 million barrels per day, since populist President Hugo Chávez came to power in 1999. The main reason: Chávez fired 75% of the managers at state oil company Petróleos de Venezuela (PDVSA) after a strike in 2003. That decision left PDVSA overstretched and ineffective. The plunge would have been disastrous had it not been for increased investment by foreigners.

Extracting oil and transforming it into something useful is an expensive task requiring skills and knowledge in addition to sophisticated technology. There is no spontaneous alchemy changing carbon sludge into gold. The Chavistas, like the Iranian Mullahs, may come to discover that a sea of crude below your feet may not prevent the need to ration gasoline to public.

Free Republic: ConocoPhillips and Exxon Mobil Corp. could hold a powerful card to make Venezuelan President Hugo Chavez bet his country's sizable American assets in the high-stakes nationalization of the Venezuelan oil industry, experts say. The Citgo subsidiary of Venezuela's national oil company has five refineries in the U.S. experts say could be targeted for seizure if a stalemate prompts one or both U.S. oil majors to seek recompense through international arbitration.

It is probably wise to credit your opponent with more wisdom than the evidence merits. Hugo understands the wealth of the world will find the way to his precious. He may even be counting on a truth the Saudi’s may be facing. A rusty spigot on a full barrel is better than brushed nickel faucets tapping an empty bucket.