Neil Davis
Russell Martin
Alfredo Nuñez
A Country on the Brink: Venezuela—What Does the Future Behold?
There are three main sections in our paper. One of the three main sections was devoted to analyzing the Andean Pact and the effects it has had on the Venezuelan economy. The Andean Pact plays a critical role in the history and development of the Venezuelan economy. It has been the most important agreement because it governs Venezuela’s foreign economic policy. The Andean Community is comprised of the following countries: Venezuela, Colombia, Ecuador, Bolivia, and Peru. In 1969 these countries formed the Andean Pact. The central goal of this agreement is the individual economic development of each member country as well as the social integration of the region’s communities. We also examined how the Andean Pact policies have changed from hostile towards foreign involvement to welcoming investment from abroad. The original Cartagena Agreement was amended by the Quito Protocol in 1987 and subsequently by the Trujillo Protocol in 1997. From its inception, the original goal of the Andean Pact was to promote the development of its member countries via intra-region trading. In essence, each country, by trading freely with other member countries would improve its own economy and also help develop the economies of the other members. Because of the Andean Pact, modified by the Trujillo Protocol, Venezuela has developed more liberalized trade practices further opening the doors to foreign trade. This foreign investment has, in turn, allowed Venezuela to capitalize on its natural resources in the international trade arena and as a result, Venezuela has achieved sustained economic development.
Second, there is a section about Venezuela’s oil industry. This particular section of the paper is fragmented into five distinct sections which each discuss a particular portion about the current situation in Venezuela’s oil. Foremost, the first section delves into the role of Venezuela in OPEC, and how the state-run oil company Petroleos de Venezuela, SA (PDVSA), has shaped the oil industry. Clearly, a key part of the discussion here is the about the quotas that OPEC enforces and how this has affected the price and supply of oil. Next, the second section discusses the current turmoil in Venezuelan politics and how the various strikes and attempted coup has affected the Venezuelan Economy. Third, this paper explores the nature of the foreign policy that Venezuela holds toward the United States. The United States has a key interest in Venezuela as the South American country is the largest oil supplier to the United States in the Western Hemisphere. Thus, the United States has a vested interest in the turmoil of Venezuela and wants to assure that a stable flow of oil is maintained. Furthermore, the fourth section explains the environmental impact that the industry has had on Venezuela. Finally, the last sub-section predicts what the future of Venezuelan politics and economy will be like, and attempts to make a few recommendations in what the proper measures are to stabilize the country.
Our last section will focus on President Chavez. Chavez rose to power with high popularity levels as the champion of the poor and the average Venezuelan. He had broad plans to reform Venezuela's economy and social structure, based upon his Marxist-leaning ideals. In office, Chavez succeeded in making many changes, ranging from the nationalization of the PDVSA and reduction of oil output to creating a new constitution with reforms in the way the government operated. While some positive changes came, such as a more effective educational system and modernized legal system, Chavez failed to fulfill the dreams of the public when he was swept into office. While not all completely Chavez's fault, many of his practices have helped to cause the current decrepit state of affairs, such as choosing PDVSA board members more on loyalty than competence. The economy of Venezuela is in shambles, unemployment and inflation rates are skyrocketing, and many social welfare programs never truly materialized. This has induced millions to strike in order to help force Chavez out of power. Chavez has brought Venezuela to the brink of Chaos and revolution.
The Andean Pact and Effects on Venezuela’s Economy
The Andean Pact plays a critical role in the history and development of the Venezuelan economy. The Andean Pact has been the most important agreement because it governs Venezuela’s foreign economic policy. The Andean Community is comprised of the following countries: Venezuela, Colombia, Ecuador, Bolivia, and Peru. In 1969 these countries formed the Andean Pact. The central goal of this agreement is the individual economic development of each member country as well as the social integration of the region’s communities. This section will focus on the impact the Andean Pact has had on Venezuela economy and will be highlighted by the effects on the Venezuelan exporting of oil. Analyzing the history of the Andean Pact is the first step to understanding Venezuela’s economy. We will examine why the Andean Pact originated and why it is the main reason for the economic expansion of the 1980s and 1990s. We will then examine how the Andean Pact policies have changed from hostile towards foreign involvement to welcoming investment from abroad. We will also include a discussion of the positive outcome of the Free Trade Agreement of the Americas and how this has allowed Venezuela to use its natural abundance of oil to get huge economic gains from oil-dependent countries such as the United States. We will conclude this section with an investigation of the future of the Andean Pact and how its goals are being achieved.
History and Structure of the Andean Pact
The Andean Pact is composed of the countries in the Andean region of northern South America. These countries—Venezuela, Colombia, Ecuador, Bolivia—share similar economic characteristics. For example, Venezuela and Colombia are located at the northern part of the South American continent and have at their disposal immense access to waterways which facilitate trade with other North American countries. Ecuador also has the Pacific Ocean to assist in international travel. As a result, the formalization of an organization comprised of these aforementioned countries seemed natural.
The first formalization of the Andean Pact formed two original institutions: the Commission and the Junta. The Commission, the highest body of the Pact, has once representative from each of the member nations who is entitled to one vote. The Commission usually meets in Lima, Peru and issues decisions that promote the general goals of the Andean Pact. It also appoints and removes Junta members and approves or rejects proposals made by the Junta. In general, only a two-thirds affirmation vote is needed to approve most decisions of the Commission. The other body of the Andean Pact is the Junta which handles the technical and administrative side of the Andean Pact. Essentially, it serves to ensure the implementation of the Commission’s decisions. The Junta can also present proposals to the Commission that have the potential to facilitate or accelerate the objectives of the Andean Community. Perhaps, the most important structural feature of the Andean Pact is that the decisions of the Commission have direct applicability and do not require ratification by each member state’s national legislature before they become the law. This was an unprecedented procedure gave great power to the Andean Pact in terms of determining foreign economic policy.
Given the political situation of instability in the 1960s, it is easy to see how the Andean Pact came to existence. Civil unrest and heavy military intervention were widespread throughout most parts of South America. As a result, the economies of the Andean countries were severely volatile. Although trade between these countries existed, the Andean Pact looked capitalize on the similarities of these countries and their natural proximity to each other. In 1969, the leaders of each of the Andean Community countries met and formed the Cartagena Agreement. With the signing of the Cartagena Agreement, the implicit economic relationship between the Andean countries was realized and thus the Andean Pact materialized. The original members were Bolivia, Colombia, Ecuador, Peru, and Chile. Venezuela joined in 1973 and Chile withdrew in 1976. This agreement was relatively radical. Up to that point, the goal of Venezuela’s foreign policy dealing with international trade was to achieve economic growth by strengthening and increasing import substitution and not export competition. Regional international trade for Venezuela, one of the biggest economies of the Andean Community, had been hindered by a strong protectionist tradition. Domestic businesses were forced to look within their own country for expansion and gave rise to an environment with an anti-export bias. This all changed with the Cartagena Agreement.
The Andean Pact in the 1970s gave Venezuela immediate gains from regional international trade. Over the 1970s, trade in this region flourished. The barriers were lessened, and every member country benefited. In 1970 trade between the Andean Community totaled $112 million (U.S. dollars) and by 1979, the total had grown to over $1.113 billion. Additionally, Venezuela’s intra-Andean Pact exports went from $73 million in 1980 to $328 in 1984. By 1992, this number had further grown the $632 million and swelled to $1.828 billion in 1995. Even though the larger Andean Pact countries, namely Venezuela and Colombia, were gaining from this pact, there was still more that could be done.
In order to strengthen the Andean Pact, the Presidents of each member country met in Cartagena in May of 1979. An agreement was reached that would enable greater economic and political cooperation among the member countries. This included the establishment of more sub-regional development programs. As a part of this agreement, the countries aimed to strengthen tariff elimination programs. By 1980, this goal was almost met in terms of manufactured goods traded between Venezuela and Colombia and Peru. Tariff rates, the heart of trade barriers because if high enough they can single-handedly adversely affect trade between two countries, did indeed decrease. By 1990, the average tariff rates in Venezuela were 17.8 percent. However, the originals goals and rules of the Andean Pact began to feel outdated.
The agreement in 1979 only provided a brief solution to the long-term problems brought about by the conflicts of interest among the Andean nations. By 1987, it was becoming clear that the original principles outlined in the 1969 Cartagena Agreement were becoming out of touch with the realistic integration issues. It had become obvious that the Andean Pact integration process was stagnant as other policies which were more favorable to exports were approved by many of the member states. For example, the member countries were deliberately violating parts of the agreement. (I will not go into detail here, but they deal with neglecting previously agreed special treatment status to Bolivia and Ecuador concerning external tariffs). It was agreed that the outlines set in 1969 would have to be modified. As a result, the Quito Supplementary Protocol was signed in May of 1987.
The Quito Protocol, as it is commonly referred to, diluted the original goals of the Andean Pact. Rather than to dissolve the Andean Pact, the Quito Protocol significantly modified it. The Quito Protocol brought about changes to the relationship between the Andean countries and those not in that region. It set guidelines to encourage member states to reach bilateral agreements to reduce tariffs and eliminate import restrictions. As it was before, multilateral agreements were more common, but they were also more complicated and convoluted. Another feature of the Quito Protocol was that 1995 was set as the target year for the establishment of a definite free trade area. That is, up to 1995 member nations were legally permitted to have barriers on the imported products from other member states. Basically, this just made official what had been going on already with the growth of non-tariff barriers. However, even though the Quito Protocol did provide some temporary relief and stability for the Andean Pact, ultimately greater ideological reform was needed in order for the Andean Pact to remain intact.
The changes brought about by the Quito Protocol proved incapable of revitalizing the Andean Community economic integration process. What was needed was an area-wide agreement to adopt free market policies by all of the member nations. Between May 1989 and December 1991 the leaders of the Andean Pact countries met several times. The first of these reforms was the La Paz Act in 1991. The Commission agreed to implement a free-trade zone by 1992; three years earlier than the Quito Protocol had called for. Subsequently, the Andean Free Trade Area was implemented on January 1, 1992 although only Venezuela and Colombia were involved. Bolivia and Ecuador joined six months later. As a result, no duties are charged on goods native to and traded among Venezuela, Colombia, Ecuador, and Bolivia. In addition, theoretically nontariff barriers have also been eliminated among the four countries, although some actions by Venezuela and Colombia indicate that this does not always happen in practice. The La Paz Act was the first definitive break with a past defined by heavily protected markets and a move towards an export-dominating growth plan.
With this new mindset, it was becoming evident that the Andean Community was looking to expand their respective economies by taking advantage of their natural resources and participating in commerce with countries outside South America. The next revolutionary agreement did not come until 1997 in the form of the Trujillo Protocol. The main goals of the Trujillo Protocol were to speed up the integration process and broaden the member country’s agenda to include political issues such as narcotics, corruption, and terrorism. Structurally, the Trujillo Protocol introduced some important changes to the institutional framework of the Andean Pact. The Andean Council of Presidents and the Council of Foreign Ministers were formed. This complete reform process also created the Andean Integration System (SAI) which strengthened the internal cohesion of the Andean integration process. All institutions and mechanisms were placed under the Andean Integration System.
The highest body in the revitalized Andean Pact is the Council of Presidents which defines the integration process of the region, provides recommendations to the other bodies and institutions, and evaluates the development and results of the integration process. Essentially, it replaced the Commission as the most powerful legislative body. The second highest body of the Andean Pact is the Andean Council of Ministers of Foreign Affairs. It is the executive body in charge of implementing changes in integration procedures and foreign relations.
Andean Pact: From Anti-foreign Involvement to Welcoming Foreign Investment
The Andean Community with the Trujillo Protocol was trying to establish a Common Market similar to the European Union. The development of a common foreign policy is one of the Andean Pact’s main goals. However, how was it that up to this point, the member nations had sought to avoid an export-based policy, instead favoring intra-regional trade as the best way to achieve sustained growth? The original Cartagena Agreement in 1969 was structured in a way that hindered foreign investment. This was because the prevailing sentiment in Latin America at this time was one of increased independence. This was transcended to the international trade arena. To put it another way, the Andean countries were essentially saying, “we can do this (achieve significant economic growth) on our own and we don’t need foreign dollars to hold our hand as we try to achieve this.” This policy is seen in the original Decision 24 of the Andean Pact.
Decision 24 of the 1969 Cartagena Agreement outlined the approach the Andean countries wanted to take in dealing with foreign investment. (By foreign, we mean non-Andean region.) The aim was to have the majority of ownership in the hands of local enterprises. Under this provision, those companies which had not transferred control of their companies to local investors within 15 years would be ineligible to benefit from provisions of the Andean Pact. Decision 24 had been intended to use foreign capital more effectively within the Andean region. The Andean Pact looked to avoid competition for foreign investment between Member countries. The member nations felt that this competition could result in split economic development within the Andean region and by doing so, contradict the original ideals of the Andean Pact. Therefore, limiting foreign investment was implemented.
However, by the 1980s it became clear that by not favoring exports, growth was being hindered. Although this mandate was repeatedly violated, it wasn’t until 1987 that it was changed. Decision 24 was replaced by Decision 220 of the Quito Protocol. The Quito Protocol eliminated the strict time deadlines for establishing an Andean free trade area. The original target was to have foreign ownership comprise no more than 50 percent within fifteen years. However, since this was clearly not reached with the fifteen years, the Quito Protocol extended the deadline to thirty years from the original date (1969). This was the first step to establish a system that looked favorably on foreign investment. Basically, by extending the deadline another fifteen years, the Andean Pact was buying more time to look for further changes. Decision 220 also did away with prohibitions on foreigners purchasing stock in Andean companies. The leaders of the member nations did not want to break from the Pact so by extending the time period, they were mainly just stalling while further changes were implemented.
Those changes came about in 1997 when the Trujillo Protocol repealed Decision 220 with Decision 291. Decision 291 eliminated the 50 percent cap of foreign ownership of Andean companies. Decision 291 further liberalized the investment regulations of the Andean Pact. Companies who had not met the requirement for Decision 220 would still be able to enjoy the benefits under the Andean Pact. This decision completely reversed that of the original Andean Pact—the Cartagena Agreement. Those in charge of making policy, namely the Council of Presidents, realized that the best way to achieve economic growth and development was to not only include foreign investment, but welcome it with open arms. Decision 291 clearly signaled the elimination of the previous discriminatory nature of the Pact’s investment scheme. From this point forward there would, in principle, be no legal difference between foreign and domestic capital.
The change in foreign economic policy from anti-foreign investment to welcoming it is perhaps the most significant development in the last quarter century in terms of the potential for economic growth. This change has allowed Venezuela to use its plethora of natural resources to achieve sustained economic growth. The liberalization of their policy has allowed it to become the third biggest exporter of oil to the United States. This is an example of how the Andean Pact has opened doors to international trade. The Andean Pact is responsible for the foreign economic policy and without this agreement, it would be much more difficult to achieve this economic development.
The Free Trade Area of the Americas (FTAA)
One of the main priorities of the Andean Community is to establish closer ties to the rest of Latin America, the United States, and Canada. This includes participation in the World Trade Organization and in the Free Trade Area of the Americas negotiations. The FTAA initiative was launched by President Clinton in 1994. This plan wants to further develop the existing regional trading arrangements. The FTAA negotiations are crucial because the United States is the single most important trading partner to the Andean Pact members except Peru. Therefore, the FTAA negotiations are of utmost strategic significance. The Council of Presidents realizes this and has set to coordinate and develop similar proposals that benefit the Andean Community altogether in dealing with various issues during the negotiations. The Andean Pact has made arrangements which have been designed to strengthen the role that the Andean Pact can play in the FTAA process. In essence, the Andean Pact members are adhering to a “strength in numbers” philosophy. This is historically consistent because the idea behind the formation of the Andean Pact back in 1969 was to benefit from the similarities present and for all member nations to achieve economic growth and development.
Increasing exports rather than limiting them is by far a better way to achieve economic growth for Venezuela. Using macroeconomic models to support this claim, it is easy to see why the Andean Pact underwent drastic changes to welcome foreign investment. This analysis is two-fold. First, we will show how increasing exports increase economic growth. Second, we will show how increasing investment (whether its foreign or domestic is irrelevant) also increases economic growth.
Economic growth is defined as the Real Gross Domestic Product (GDP). This real GDP, adjusted for inflation is the summation of four subsets: consumption, investment, government spending, and net exports. Therefore, if one component is increased, real GDP is also increased; they are positively related. Net exports is the difference between exports and imports. (Net exports equals exports minus imports. If exports are increased, then net exports also goes up. As a result, the real GDP of Venezuela increases. This is why the Andean Pact policies moved towards favoring exports. Logically, developing ties with the United States and other countries in the Western Hemisphere will open markets and increase net exports.
The policy that the Andean Pact undertook is further supported by macroeconomic tools. As stated above, investment comprises one of the four components of real GDP. If investment is increased—that is, adding more capital to businesses in Venezuela—then real GDP also increases. In this model it does not matter where that capital is coming from. Since the Trujillo Protocol eliminated strict requirements that called for domestic businesses to purge themselves of foreign investment, foreign capital was able to flow almost without any hindrance.
From its inception, the original goal of the Andean Pact was to promote the development of its member countries via intra-region trading. In essence each country, by trading freely with other member countries, would improve its own economy and also help develop the economies of the other members. Because of the Andean Pact, modified by the Trujillo Protocol, Venezuela has developed more liberalized trade practices further opening the doors to foreign trade. This foreign investment has, in turn, allowed Venezuela to capitalize on its natural abundance of oil in the international trade arena and as a result, Venezuela has achieved sustained economic development.
With this in mind, we believe that the Andean Pact will remain a stable feature in policy development of the Andean countries. As long as the goals remain to achieve economic growth via multi-national cooperation and a common foreign policy, the Andean Pact will not go anywhere. The Andean Pact paved the way for Venezuela to increase its markets. It has allowed Venezuela to develop economic growth by using its natural oil abundance and heavily engaging in trade with the United States and other non-Andean region countries. As long as the United States and other Western-hemisphere countries need oil, the Andean Pact will keep on governing foreign economic policy.
Venezuelan Oil: An Industry in Transition
There is no question that Venezuela plays a crucial role in the distribution of oil to not only the United States but also the world as a whole. As an Organization of Petroleum Exporting Country (OPEC), Venezuela is the 5th largest oil exporter to the world, and 3rd largest supplier to the United States. Thus, with the current conflict in the Middle East, coupled with the political turmoil in Venezuela, the ability for Venezuela to maintain its current supply needs to be questioned. This paper gives background information about Venezuela’s role in OPEC, the current turmoil of Venezuelan politics and the affect of this state of distress on oil, the relationship between Venezuela and the United States, and finally, recommendations in how to rectify the current political and economic problems
I. OPEC
A graph showing world oil production by all nations (OPEC and non-OPEC nations).
Organization of Petroleum Exporting Countries (OPEC) member consist of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. According to the OPEC website, “OPEC's eleven Members collectively supply about 40 per cent of the world's oil output, and possess more than three-quarters of the world's total proven crude oil reserves” (OPEC). Thus, they play a huge role in supplying the world with oil.
àFirst some background statistics which show how oil-reliant Venezuela is.
The Venezuelan economy is extremely oil-dependent. According to the Energy Information Administration “oil accounts for more than three-quarters of total Venezuelan export revenues, about half of total government revenues, and about one-third of gross domestic product”
à“Venezuela is home to the western hemisphere's largest conventional proven oil reserves at 77.7 billion barrels, as of January 2002. Substantial heavy oil and bitumen deposits are not included in this total. In 2001, Venezuela produced an estimated 3.07 million barrels per day (bbl/d), down almost 70,000 bbl/d from 2000 production figures. Of this 3.07 million bbl/d, about 476,000 bbl/d were consumed domestically, while the remaining 2.59 million bbl/d were exported. About 1.54 million bbl/d (59% of total exports) were bound for the United States”. (EIA Online).
Venezuela is expected to earn $18.9 billion in oil export revenues during 2002, down 6% from 2001 revenues, and 23% lower than 2000 revenues. This decline in oil export revenues (which account for around 80% of Venezuela's total export earnings and 40% of government revenues), could have serious repercussions for Venezuela, which has already experienced a year of political, social, and economic instability
(EIA).
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Graph that shows how prices have varied oscillated widely around the price band in the years 2001-2002. OPEC "basket" price (a weighted average of Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arabia's Arabian Light, Dubai's Fateh, Venezuela's Tia Juana, and Mexico's Isthmus).
Venezuela nationalized its oil industry in 1975-76. Petróleos de Venezuela, S.A. (PDVSA), one of the world's largest oil companies, is by far the largest business and employer in the nation. Alí Rodríguez Araque is current the president (although under the current situation this seems to change constanly). Araque was the former President of OPEC, and thus appears to bring good credentials to the table. However, in three years Chávez has named five presidents to lead PDVSA generating insecurity among the company's top management and workers. Thus, while many of the board of directors still respect Chavez’s rule, he has lost the support of many upper level administrators and workers who are tired of battling Chavez over control of the company.
However, PDVSA has faced numerous problems over the Chavez administration. Over the past few years under President Chavez, “cuts in State Oil Company PDVSA's budget (down 28% in 2002), combined with a lack of adequate foreign investment and a policy of strict adherence to OPEC quotas (to be debated later), has crimped the company's ambitious long-term expansion plans” (EIA). Most people agree that it was Chavez's “effort to tighten control over the state oil monopoly that triggered his fall” (Houston Chronicle). Demonstrations have undercut Chavez’s attempt to control the oil company. For example, when he tried to appoint his loyalists to run the company, Petroleos de Venezuela, managers revolted. Behind this is, of course, a struggle for power. By refusing to cede its power over oil policy, the PDVSA leadership was “demonstrating its unwillingness to accept the government's decision to return control of oil policy to the Ministry of Energy and Mining. Pdvsa had become "a state within a state," and its top leaders were committed to blocking the reforms from altering this situation” (Oil and Venezuela’s Attempted Coup).
The main change for the Chavez administration occurred as Chavez replaced the old administration’s desire for foreign investment with a process of shutting off from foreign investment. Whereas before in 1992-1998, foreign investment was welcomed, “privatization of PDVSA is banned by the 1999 constitution” (EIA). Moreover, in policy reversal for Venezuela, the Chávez administration negotiated with other OPEC nations to keep oil prices in between $22-$28, and keep oil quotas for all nations. This reaction was the result of the low prices that oil faced in 1998-1999, that Chavez wanted to rectify.
![[]](finalpaper.mastercopy1_files/image005.jpg)
Recently, the price of oil closed at $26.13. Like other energy forms, the oil industry is cyclical and highly based on outside influences such as the conflict in Iraq and the turmoil in Venezuela. Venezuela proposed the OPEC price band of $22-$28 per barrel, so that oil prices will be fair and reasonable for both producers and consumers. Despite rhetoric otherwise, Chavez has not been following OPEC quotas. According to one source, Chavez has been “busting OPEC's price levels to rake in dollars and help pay off Venezuela's debt” (Village Voice).
Since his election, Chávez has tried to maintain a policy of strict adherence to OPEC quotas. However, “Chávez indicated in March 2002 that the social cost of maintaining the OPEC quota was becoming increasingly difficult, as Venezuelan workers need jobs. He says that OPEC will not cut production any further in 2002” (EIA). Thus, despite his initial rhetoric about how he was going to restrict prices and keep quotas within the bounds, neither of these policies have been adhered to. “OPEC member nations are cheating on the cartel’s self-imposed quotas almost at will, with oil production running 10% above the current official target — and still rising” (MSNBC). When he took office in February 1999, President Hugo Chávez “launched a reform of Venezuela's oil policy, overturning the previous decade's process of "oil liberalization" and seeking to reinstate key aspects of traditional oil policy in Venezuela” (Oil and Venezuela’s Failed Coup). "OPEC's production policy has suffered a decline in credibility, as the cartel refused to legitimize rampant overproduction at its last meeting, effectively disconnecting quotas and actual production," said Thorsten Fischer, an energy economist at Economy.com.
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II. Venezuelan Politics
Chavez one once described oil executives as living in "luxury chalets where they perform orgies, drinking whisky" (BBC). However, as this section of the paper describes, Chavez is not much better.
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A map of Venezuela showing its’ location in South America.
The majority of the problems in contemporary Venezuelan politics involves the oil industry and the struggle between for control over the lucrative industry. Moreover, Chavez also faces opposition from the opposing political party which portrays him as a dictator and blame him for ruining the oil-rich economy” (Miami Herald, November 8, 2002). Thus, with this brief introductory paragraph in place, it is now necessary to present a timeline that shows the major events that transpired in Venezuela over the past year, and have adversely the oil industry. Thus, without further adieu, these summaries have been taken from various online news cite summaries and will be credited at the end of the timeline.
VENEZUELA OIL TIMELINE 2002
January 2 At a rally celebrating new hydrocarbons laws that were announced on November 13, 2001, and went into effect yesterday, Venezuelan President Chavez announces the need for “a new oil strategy.” The new hydrocarbons laws give the state more control over the petroleum industry and impose higher royalty rates on companies operating Venezuela’s oil fields. (AP)
February 9 Venezuelan President Hugo Chavez replaces General Guaicaipuro Lameda with central bank Vice President Gaston Parra as the head of the state-owned Petroleos de Venezuela, S.A. (PdVSA), South America's largest oil company. General Lameda's replacement comes amidst public expression of discontent by several military officers with President Chavez's leftist government. On February 20, the Ministry of Energy and Mines announces the replacement of five of the seven members of the board of directors of PdVSA with new board members more closely aligned with President Chavez. This move sparks daily protests by PdVSA employees. (Reuters, DJ, OD)
Another shakeup in the main company shows Chavez’ tumultuous relationship with the company, and his desire to more closely run the company. Further shakeups will soon be seen.
February 13 Venezuelan President Hugo Chavez decides to let the Venezuelan bolivar float against the U.S. dollar. The bolivar loses 19% of its value on its first day of trading under the new system. The decision comes as part of a package of fiscal and monetary reforms that are aimed at closing a projected government budget deficit. Low world oil prices have reduced projected government revenues for 2002. Oil revenues account for about half of government revenues and about one third of Venezuela's gross domestic product (GDP). (DJ)
Thus, oil plays a huge part in the Venezuelan economy, and without the necessary revenue, the Government cannot fully operate.
February 25 Venezuela declares force majeure on some crude oil loadings in order to comply with the OPEC quota cuts begun on January 1. Venezuela had agreed to reduce its quota by 170,000 barrels per day. (Reuters)
March 8 Administrative workers of Venezuela's state oil company PdVSA, who have been holding protests for a week, stage a four-hour work stoppage. The stoppage does not affect exports, but signals rising tensions between PdVSA employees and the government of President Hugo Chavez, who replaced PdVSA's board of directors in February, a move unpopular with employees. (Reuters)
The March 8 strike was the first in the company's history that involved management rather than laborers. The slowdown involves both management and laborers working a minimum of contract hours with no overtime and extensive use of allowed absences (such as medical appointments). Employees are demanding that the five new board members be replaced, charging that Parra and the board members were appointed as a result of their loyalty to Chávez rather than a result of their own merit.
April 7 Venezuelan President Hugo Chavez announces that he has fired seven executives of state oil company Petroleos de Venezuela (PdVSA) and sent 12 others into early retirement. This action comes in response to the executives leading protests and work stoppages that have intensified since April 5. These protests began after President Chavez installed new PdVSA board members on February 20, 2002. (LAT)
PDVSA v. Chavez intensifies as Chavez attempts a major shakeup of the board and PDVSA reacts in force. Further action soon.
April 12 Venezuelan President Hugo Chavez is ousted by the country's military after three consecutive days of general strikes during which oil production, refining, and exports-the mainstays of the Venezuelan economy-were seriously affected. After at least a dozen protesters are killed, high-ranking military officers, including the army commander general, request President Chavez to step down. (WSJ)
April 12 Pedro Carmona is named interim President of Venezuela by the military high command. He dissolves the National Assembly and Supreme Court. PdVSA operations that had been halted start up again, but rioting begins again the following day. (Reuters)
Yup, more turmoil. Not exactly the best year to live in Venezuela.
April 14 Interim President Pedro Carmona announces that he has resigned following large, and sometimes violent, pro-Chavez protests and a lack of support among many military officers. Carmona also loses support of Venezuela's largest labor group. Several hours later, Hugo Chavez returns to power in Caracas and claims that he never resigned the presidency. Chavez announces that PdVSA's Board of Directors had submitted its resignation on April 11. (AP)
And the PDVSA is further shaken.
April 15 Venezuelan President Hugo Chavez attempts some rapprochement with the employees of PdVSA as oil exports return to normal. PdVSA executives support continued normalization of the company's operations. Minister of Energy and Mines Alvaro Silva asserts that Venezuela will continue to abide by its OPEC quotas, but the government also asserts that it will be a reliable oil supplier to the United States and will not participate in any oil embargo. (Reuters)
April 19 A Venezuelan government spokesman announces that OPEC Secretary General Ali Rodriguez will quit this position in order to become the new president of PdVSA. It is not clear who will succeed Mr. Rodriguez as OPEC Secretary General at this time. (DJ)
April 22 The government of Venezuela and executives of PdVSA agree on a new board of directors for the state oil company. Recent protests and strikes by PdVSA managers and employees that led up to President Chavez's temporary ouster on April 12 began in response to a board of directors appointed by President Chavez on February 20. (Reuters)
June 26 OPEC ministers meeting in Vienna decide to leave their combined output quota, excluding Iraq, unchanged at 21.7 million barrels per day for the third quarter of 2002. It is estimated that OPEC-10 countries (i.e. excluding Iraq) are producing between 1 million and 1.5 million barrels per day above the quota agreement. OPEC members also agree to appoint Venezuelan Oil Minister Alvaro Silva as the cartel's new secretary general, replacing Ali Rodriguez, who will now head Venezuelan state oil company PdVSA
This graph shows how OPEC was producing at well above quotas between January 2000 and October 2002. Clearly there is no clear cut answer between keeping oil prices high (limiting demand) and keeping all the nations supplied of their necessary oil. While Venezuelan President Hugo Chavez says he has no plans to increase oil production, this graph clearly shows otherwise. There is a clear gap between Chavez’ creed and context. President Chavez told reporters during an official visit to Norway that Venezuela would respect OPEC quotas. Mr. Chavez said oil prices currently are fair, but would fall if production increased.
July 17 Venezuelan President Hugo Chavez appoints Rafael Ramirez
as the country's new oil minister, replacing Alvaro Silva, who was chosen in June to be OPEC's new Secretary General. Ramirez is currently head of Venezuela's state natural gas regulator, Enagas. (OD, Reuters).
Chavez appoints someone in his own political party to maintain control of the party.
October 22 Venezuela's Minister of Finance forecasts the Venezuelan economy to contract by 4.8% to 5% for 2002, despite relatively high oil prices. Venezuela's government has been dealing with a number of nationwide strikes, as well as high-ranking military officers calling for the end of the government of Hugo Chavez. (Reuters)
All of the preceding timeline, except for the comments that the author of this paper interjected, is courtesy of the EIA.
http://www.eia.doe.gov/emeu/cabs/orevcoun.html
Thus, the current political and economic situation in Venezuela is in turmoil as the oil industry is floundering under the political change. According to one site, “Venezuela’s economy will shrink 6.8% in 2002” coupled will an inflation rate of “36.2%”, (Reuters) which is the highest level in five years. So what can this huge economic change be attributed to? In my estimation, the key factor for this inflation and economic turmoil is the clash between opposing parties and the left-wing former paraptrooper, Chavez. Now, while Chavez puts out press releases that the coup in April and other work stoppages in the country have had little to no affect on the oil industry many leading economists strongly disagree. According to one, "on the oil side, we saw the interruption (in April) and the effects of the problems in the first half of the year. I'm talking about April in PDVSA," Bear Stearns analyst Jose Cerritelli said.
Not only is the internal structure of the PDVSA at stake, but so is the Venezuelan export market. According to some research, oil amounts to approximately 75-80% of the government’s export revenues, and thus is invaluable to the economy. With labor disputes continuing, there is no question that the economy has suffered. With the supply of oil in question, analysts believe that a “12.1 percent contraction of the strategic oil sector in the first half of the year occurred as well as a dragging down the overall economy by 7.1 percent over the same period. (Alertnet). As seen in the graph below, crude oil production has suffered in the wake of the Chavez administration. Although it has slightly rebounded in the fiscal year 2002, the current turmoil will make sure that the oil production cannot return to its 1998 level.
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Additionally more economic distress can be given to Chavez’ administration. For example, “foes of President Chavez say his belligerent leadership style and left-leaning interventionist economic reforms, which include plans to redistribute idle private lands to the rural poor, have spooked foreign investors and triggered heavy capital flight out of the country” (AlertNet). "The constant exchange rate pressure is an indication that the capital flight is continuing and that means that the economy's resources are not being recycled or reinvested," said Luis Oganes, an analyst with J.P. Morgan.”
There is a clear division in the country. According to an officer in the Venezuelan Army, “we’ve never had such division in the country,” says General Medina. “The vast majority realize that Chavez has taken his mandate for social change and used it for a revolution that takes the country down a road it doesn't want to go.” Businesses have similar views: One local businessman declared that the president is “a criminal, with blood on his hands” whose project is “Cuban communism”, he says (Economist). Clearly the words of unhappy men.
III. Venezuela and the United States
As discussed in his address to the United States on July 24, 2001, the Venezuelan ambassador to the United States Ignacio Arcaya declared that “currently, Venezuela sends directly to the US 57% of all its oil and oil products exports.” Moreover, Arcaya reported that ”we (Venezuela) have the largest proven oil reserves outside of the Middle East, 77.7 billion barrels of oil at the close of 2000” (Arcaya Address). Thus, Venezuela has proven itself in the past as a proven oil provider to the United States. However, this may no longer be true.
The relationship between the Venezuela and the United States is defined by one word: oil. Venezuela is the world’s fifth-largest oil exporter and the third-largest source of imported oil for the US, sending it about half the 3 million barrels it produces daily. As the war in Iraq approaches, the United States has a now greater desire to stabilize Chavez in order to ensure a steady supply of oil. Thus, in the past year, the United States has attempted to replace Chavez, and is believed to have been involved in the coup to remove Chavez from option. According to the media that I read, the desire to replace Chavez is shared by many Venezuelan outlets. According to one, “the Venezuelan media, together with the Spanish-language network of CNN, have given unabashed support to the efforts to organize another coup, broadcasting the generals’ appeals and lionizing the opponents of Chavez” (World Socialist Website Oct 28, 2002). Evidence, though inconclusive, points to U.S. officials' having fomented the abortive coup against Venezuelan president Hugo Chavez last April because they feared his populist politics. More to the point, as a recent head of OPEC, Chavez could direct the oil cartel from Bush's backyard, although in recent months he's been doing just the opposite—busting OPEC's price levels to rake in dollars and help pay off Venezuela's debt. Nonetheless, Washington has always dreaded the prospect of Venezuela linking up with Mexico inside OPEC (Village Voice Oct 23-29). The United States blames Chavez for letting the situation for spiraling out of control and wishes to replace him. There is evidence that a high ranking official of the United States was in direct contact with the plotters before and during last April’s abortive coup. The Bush administration sees the former paratrooper colonel’s populism as dangerous, and his friendly ties to Cuba’s Fidel Castro as unacceptable. (World Socialist Website Oct 28, 2002).
As discussed above, Chavez attempted to reform the oil industry in four ways. However, it is last of these two factors discussed above that “generated a great deal of tension between the Chávez government and the U.S. government” (Oil and Venezuela’s Failed Coup). Venezuela is the 3rd largest supplier of oil to the United States and supplies about 13 percent of U.S. oil imports (Reuters). Thus, the United States interests are treated with utmost respect as Venezuela needs the United States to buy their oil.
A graph that shows the vast amount of oil that Venezuela exports to the United States. Venezuela relies on the United States as a market for the oil whereas the United States could most likely turn elsewhere to find cheap oil.
IV. Environmental concerns
While Venezuela boasts an impressive oil industry, the environmental impact of such a resource is often forgotten. As does any country who processes the amount of crude oil and other forms of energy that Venezuela does, particulates and other forms of emissions often occur. For Venezuela, the main environmental problems are pollution and deforestation. Since Venezuela heavily subsidizes energy consumption levels of carbon in the atmosphere, and use of energy is much higher per capita than its South American neighbors.
This graph shows the high per capita carbon emissions for Venezuela in 1999. While it does not approach the United States or Canada, it is still higher than its neighbors in South and Latin America. As Venezuela enters the 21st Century, the high levels of emissions and use of non-renewable energy must be addressed. According to the Energy Information Administration, a department of the United States Department of Energy, Venezuela’s “use of non-hydro renewable energy sources is low” (EIA Venezuela Environmental Issues).
As discussed at length above, Venezuela is one of the world's top oil producers and an OPEC member. Ever since the discovery of oil reserves in the 1920, oil has played the paramount role in Venezuela’s economy which obviously puts Venezuela at a risk for numerous environmental problems. Fossil fuels are not the most environmentally friendly energy sources, and even with the most high-tech means of cleaning and refining the crude oil before protection many emissions occur. Thus, with the heavy subsidization that the government offers for energy consumption, environmental problems will continue to occur. A key example of an environmental problem occurred in October 2001, when political turmoil in Columbia, lead to the dynamiting of one of the oil pipelines that flows into Venezuela. According to the EIA, the attacks caused “43,000 barrels of crude oil to spill into Catatumbo and Tarra Rivers that flow into Venezuela” (EIA Venezuela Environmental Issues). Thus, while the PDVSA may attempt to control environmental problems within Venezuela’s boundary, it is often hard to nearly impossible to prevent occurrences such as the one in Columbia. Pipelines are never fully sound, and problems are bound to occur.
This graph demonstrates the huge gap between coal production and consumption in Venezuela. Clearly, coal production leads to further environmental degradation as the process of refining coal leads to particulates such as Carbon Monoxide (CO) and Sulfur Dioxide (SO2).
The lack of alternative forms of power generation is shown in this graph. Oil generation far outpaces the production of hydropower or thermal energy. However, as evidenced by the graph, hydropower maintains a promising future.
More problems that occur due to the high level of oil production include air pollution. Much like in other countries, air pollution most adversely affects urban and industrial areas (EIA Venezuela Environmental Issues). Steps are being taken by the Venezuelan Government to stem the tide of pollution. For example, “the Venezuelan government is in the process of assuring reduced levels of lead in gasoline and developing a natural gas infrastructure for the public transportation” (EIA). Moreover, “in February 2001, the Miranda state National Guard began checking bus pollution levels as part of "Operación Humo 2001" to control emissions from public transportation vehicles” (EIA).
Thus, in conclusion, as shown in the graph above, Venezuela’s use of energy is much higher per capita than many other countries and appears to be increasing. Thus, a more strict environmental policy must be enforced in order to avoid further contamination of the air. As a big energy producer and user Venezuela should attempt to stem the tide of pollution, and find other means to produce energy. Fossil fuels are things of the past, and should be replaced by more renewable and eco friendly forms of fuel such as solar and hydro-power.
![[]](finalpaper.mastercopy1_files/image016.gif)
V. Recommendations
Unlike most of its neighbours, “Venezuela had enjoyed an unbroken period of democratic government since 1958, but the two main parties which had alternated in power stood accused of presiding over a corrupt system and squandering the country's vast oil wealth” (BBC Online).However, with turmoil since April, it is clear that there is a large amount of political discontent in Venezuela. At best, the turmoil in Venezuela. This turmoil may be lessened by one of 2 means- either the United States intervenes and helps a coup to replace Chavez and thus help to stabilize the oil supply and prices in Venezuela, or Chavez retains power, and the conflicts continue. The underlying factor for all the turmoil clearly points to one thing: oil. As discussed above, the Venezuelan economy relies heavily on oil, and stability in the government and the PDVSA is necessary for a healthy GDP and other economic factors. Through my extensive research, I believe that the replacement of Chavez, and a further shakeup in the PDVSA is the only viable solution to the turmoil in the country. While this will create numerous short term conflicts (a new administration must adapt and attempt to solve what the old administration has left in its wake), I believe that Chavez needs to be replaced. Thus, let me propose a few scenarios for the future, and finally, what I believe is most likely to occur.
First, if Chavez remains in power, it is highly likely that the strikes will either continue, or worse, exponentially increase to an uncontrollable level which will surely lead to an extreme amount of turmoil. Unfortunately, I believe that Venezuela is headed toward further, more national violent strikes that will grossly affect the oil-industry, and drive oil prices up. Although, in the past oil workers have not participated in strikes, soon oil-workers (the vast majority of whom do not support Chavez) will join the demonstrations as a sign of solidarity for their fellow country-men who have been betrayed by Chavez’s promise to reform the political system in Venezuela and narrow the gap between rich and poor. Thus, when the oil workers join, the main oil-producing company in Venezuela, PDVSA, will be stagnated, and oil prices (and oil futures) will increase as the supply of oil has been severely limited.
Next, the option of Civil War is a potential threat to Venezuela and shows just how far the country has degraded in recent years. The fact that Civil War is this close to occurring is staggering considering the fact that Venezuela has enjoyed a steady run of Democracy. The second reason why Venezuela's divide has become so dangerous is that both sides are armed. General Medina says that “2,000 to 3,000” members of the Bolivarian Circles, a grassroots organisation set up by Mr Chavez, are armed. They include men identified as having opened fire on a peaceful opposition demonstration in April, killing 19, the action which brought the president's brief ouster (in all, 70 died in these events). Apprehensive opposition supporters have set up armed neighbourhood-watch groups in many middle-class districts (Economist). As Chavez recently proclaimed, I'm not going to die. I'm not leaving the country. I'm not going to be overthrown," Chavez maintains a revolutionary attitude despite the lack of support from his fellow countrymen. It is in my estimation that Chavez will not go down without a fight, as he models after prior revolutionary leaders of South America. For Example the UK’s most popular website Newspaper, the Guardian declares that Chavez models himself on “Simon Bolivar and even renam[ed] the country the Bolivarian Republic of Venezuela, [as] he charmed the poor with populist rhetoric (Guardian Unlimited). However the key assessment of the Chavez administration is offered next by the Guardian as the paper states: “but his revolution did little to change their lives” (Guardian). The revolution that Chavez offered upon his inauguration has amounted to little as the majority of the citizens suffer from chronic poverty and widespread unemployment despite the country's oil wealth. Thus, due to his inability to bridge the gap between rich and poor, “his popularity rating had fallen from a high of 80% to 30% last December, when the first mass street protests erupted” (BBC NEWS). Clearly, a Civil War between the disgruntled masses and the powerful Chavez is a distinct possibility. Chavez’ attempt at revolution may actually be realized in a Marxist sense as the poor will rise up, overturn the rich and powerful aristocracy, and gain control of the country. Only time will tell.
I believe that oil workers joining in the strikes and pushing in oil prices is the most likely scenario. But this all depends on who you ask. If an outsider were to ask the Chavez administration whether the strikes has any affect on the oil industry, an answer such as this would be given: Given the very particular situation that the country is going
through, we can say that activities in the oil industry have been basically normal," said state oil corporation Petroleos de Venezuela S.A. (PDVSA) President Dr Ali Rodriguez Ararque during a news conference to report on his company's activities during a recent strike. However, through my research, I believe that this pro-Chavez stance is like a willow in the wind- ready to be blown over by a stronger force. A civil war will never be allowed to occur, as the rest of the world has too much invested in Venezuela’s natural resources. Thus, the proper solution is for the Organization of American States (OAS), and the United States, to work together as fellow members of the Western Hemisphere, and help Venezuela transition from Chavez to a new president. According to the World Socialist Website, the “administration in Washington sees the evident shift in Latin American politics as a threat to its undisputed hegemony in the region” (WSW, Oct 28, 2002). Thus, the United States will further delve into Latin American politics and rectify the situation in order to preserve the constant supply of oil. This transition, I believe, will be best found in a call for early elections, instead of in violent protests. With little support for Chavez (his approval rating has fallen from 80% on inauguration to office to 30%), it is most likely that the opposing political party will gain office. Through this solution, all sides will benefit. Venezuela will finally have a new leader, and less turmoil, and the United States and OAS have limited the drama in their sphere of the world, and secured oil supply to themselves as well as other nations. A happier world will hopefully occur.
Examining President Chavez
Prior to Chavez’s meteoric rise to power, Venezuela was in a poor state of affairs. The two leading political parties, COPEI and Democratic Action, were rife with corruption and have left the economy in tatters. Moreover, the main two parties catered exclusively to the middle class and wealthy components of society, leaving the poor with little power and no friends in the legislature. Much of the nation lived below the poverty lines and unemployment was rampant. Much of the PDVSA was in the hands of foreign investors and Venezuela had little say in the course of its own economy. Quotas were rarely hit and fellow OPEC countries were annoyed at Venezuela’s lack of restraint. This all set the stage for an outsider to explosively take over power in the nation. This outsider was to be Hugo Chavez.
Chavez’s political career began when he became a folk hero overnight when he led a bloody attempt to overthrow the government in 1992. Released in 1994, Chavez created his own political party to take on the dominant two political parties that were infamous for corruption (Whinbeck). This new party shocked Venezuela when it won a plurality of seats in the Congress in the 1998 Congressional races. Chavez was viewed as a savior for the numerous impoverished souls in Venezuela while the opposing parties were viewed as catering only to the rich and middle class components of society. Chavez won the hotly contested presidential elections in 1998, then used his popularity to push through a new constitution. He also won his reelection bid in 2000.
Chavez enjoyed immense public popularity in Venezuela in the early days of his administration. The economic woes of the day failed to hamper the appeal of Chavez, with the problems being blamed on Chavez’s predecessors. Thus, he enjoyed a popularity rating above seventy percent in spite of unemployment levels of eighteen percent (cnn.com). The majority of the country had opinions along the line of what one woman exclaimed, "with his thinking, he will help our country find its path, return to our culture and our roots" (cnn.com). The overwhelming endorsement of the new constitution reflected Chavez’s power over the people of Venezuela. Even then, however, signs of future problems lurked. Many outsiders worried about the new constitution, saying that “the proposal is riddled with unrealistic promises of free welfare, discredited interventionist ideology and clauses on the role of the military that would undermine one of Latin America's longest-lasting uninterrupted democracies” and might pave the way for Chavez to implement an authoritarian government reminiscent of Castro’s Cuban government (cnn.com). Chavez was even being compared to Mussolini.
On December 1st, Millions poured out of factories and onto the streets to protest Chavez’s continued presidency. Employees at the worker and managerial levels alike left work, while many small businesses also shut down. The goal of the strike is to force President Chavez to either resign or allow a non-binding referendum in February 2003 on whether his presidency should continue (Price, AP Online). Chavez has been arguing that such a referendum should not constitutionally be allowed to take place until August 2003, the midway point in his six year presidential term. The strike hasn’t been wholly effective in bringing these issues to a head. One of the main objectives of the strike was to disrupt oil production, because the government would be much more willing to make concessions if the source of a third of the nation’s GDP and more than half of the government’s operating revenues is threatened (CIA World Factbook). However, “operations at state-owned oil and gas producer PDVSA have remained close to normal capacity, despite a blockage by the majority of senior managers and administrative staff (United Press International).” Furthermore, many small businesses reopened as many small shopkeepers “were not prepared to lose any more sales given the extremely difficult trading environment in recession-hit Venezuela” (Untied Press International). Another blow to the strike movement comes from the mining and metals industry, as the primary area of mining operation, Guayana, is a Chavez stronghold, and “unions there have resisted any calls to strike” (Johnson). As much of the government’s revenue comes from oil and mining while little comes from the retail sector, the government can withstand such a strike for the short term. On the fourth day of strikes, however, the oil industry became impacted by the strike as the transportation industry began to break down. Oil tanker crews began to dock their vessels in busy shipping channels in order to disrupt the flow of oil, and many dock workers abandoned their posts, causing major delays at major Venezuelan seaports (AP, nyt).
With such a large scale strike it seems as if the whole country is opposed to Chavez, but this is not the case. Many groups such as those in Guayana vigorously support Chavez. What causes the great divergence in the views of the populace on Chavez? It seems that Chavez’s policies have created a lot of positive and negative effects on Venezuela’s economy and society.
Chavez’s detractors point to the state of the economy in particular to illustrate why he needs to be removed from power. In his Presidency, the economy has undergone two major downfalls with only mild growth in between. Just a few months into office, Venezuela fell into its worst recession in national history, with unemployment skyrocketing to eighteen percent. The next few years of 2000 and 2001 saw modest gains, as the GDP rose 3.2 and 2.7 percent, respectively (worldbank.org). This improvement was based upon rising oil prices, but was seriously undercut by a weak non-oil sector and capital flight (CIA World Factbook). However, the economy took an abrupt turn for the worst in 2002, wherein the “gross domestic product in Venezuela contracted 6.4 percent in the first nine months of 2002” alone (Johnson). This downfall began when Chavez changed the monetary exchange rate regime from a crawling peg to a free-floating exchange rate, causing the bolivar to depreciate severely. Also accentuating the problem was the fact that “with the president's economic cabinet attempting to reconcile a wide range of views, the country's economic reform program has largely stalled” as well as continued investor wariness over Chavez’s plans for reform (CIA World Factbook 2000). Furthermore, Chavez has helped cause economic ruin and a precipitous drop in popularity through his dealings with the PDVSA. He chose to fire key members of the Board of Directors based upon their protests of Chavez’s administration (rigzone.com). The replacements Chavez handpicked were chosen with an eye towards loyalty versus competence. Also, Chavez has stringently complied with OPEC quotas, decreasing the country’s income and depriving many Venezuelans of jobs. The royalty rates that compose part of the ‘hydrocarbon laws,’ in conjunction with Chavez’s resistance to privatization of the PDVSA, have served to discourage foreign investment in Venezuela, further dampening the economy. Moreover, the Economist Intelligence Unit states that "Venezuela has one of the most pervasive governments in South America, in so far as it is involved in the economy... The state still dominates production of oil, liquefied natural gas, aluminum... Other sectors dominated by the state include electricity generation and distribution and petrol retail sales, though both are being opened to the private sector..." This domination by the government has created substantial bureaucracy and red tape as well as corruption (sibelle.info).
Chavez has achieved a lot of successes in addition to the failures in his time as President of Venezuela. He helped forge “a new democratic constitution which broke the power monopoly of the two hopelessly corrupt and discredited main parties and put Venezuela at the forefront in terms of progressive constitutions” (Wilpert). Additional major reforms have come in the arenas of land usage and ownership laws, the tax system, and education. Now, it is much harder to engage in tax evasion in Venezuela, reducing tax evasion and boosting government revenue. In education, Chavez’s reforms have doubled investment in education, tripled literacy courses, all of which allowed over one million children to be schooled for the first time in Venezuelan history (Wilpert). Moreover, Chavez “financed numerous progressive ecological community development projects, cracked-down on corruption,” and “regulated the informal economy so as to reduce the insecurity of the poor” (Wilpert). Chavez also regained national control over oil production and sale and limiting production and raising the price of oil according to OPEC standards, greatly increasing the government’s income. Finally, Chavez also served to introduce a micro-credit system for the disadvantaged poor and women, to lower the infant mortality rate from 26.51 to 24.58 deaths per thousand live births in just three years, and to modernize the national legal system (World Factbook 1999, 2002, cia.gov).
Oil is currently a vastly important commodity in the U.S., powering most aspects of the transportation system, from automobiles to airplanes. Furthermore, in 2001 ten percent of all electricity produced came from natural gas, a byproduct of oil extraction, and three percent came from oil (www.eia.doe.gov). In 2001, the United States consumed 19.6 million barrels of crude oil per day, far outpacing any other nation on earth (www.eia.doe.gov). Of this oil, fifty-nine percent had to be imported, with a full thirty percent of imported oil coming from the Persian Gulf (www.eia.doe.gov). Thus, with so much in our economy dependent upon oil, fluctuations in export in the Middle East can have grave economical repercussions.
The U.S. has proven throughout its history that it’s willing to do anything to secure oil. All other considerations are dwarfed in importance. To illustrate this, consider how the U.S. chooses to protect governments that are often authoritarian in nature, restricting many of the rights Americans take for granted. A prime example of the U.S.’s methods can be seen in Michael Klare’s description of the U.S.’s dealings with Saudi Arabia.
To protect the Saudi regime against its external enemies, the United States has steadily expanded its military presence in the region, eventually deploying thousands of troops in the kingdom. Similarly, to protect the royal family against its internal enemies, US personnel have become deeply involved in the regime's internal security apparatus. At the same time, the vast and highly conspicuous accumulation of wealth by the royal family has alienated it from the larger Saudi population and led to charges of systemic corruption. In response, the regime has outlawed all forms of political debate in the kingdom (there is no parliament, no free speech, no political party, no right of assembly) and used its US-trained security forces to quash overt expressions of dissent. All these effects have generated covert opposition to the regime and occasional acts of violence (Klare).
Thus, the United States has provided the force and knowledge that enables foreign governments to oppress their people. Moreover, Every year, the U.S. spends fifty billion dollars in “safeguarding oil supplies in the Persian Gulf” alone, when the total value of imported oil from this region does not exceed nineteen billion dollars (Harper’s Index).
Thus, The U.S. obviously has the desire and precedent to meddle in the affairs of other nations. As if Chavez’s anti-privatization tendencies and oil production-curbing plans weren’t enough, Chavez has sought to further inflame wrath of the U.S. by meeting with Saddam Hussein. This has caused the U.S. to discourage investment and aid to Venezuela. Also, the U.S. has been undoubtedly at work destabilizing the country in order to get rid of Chavez, and finding a leader less confrontational would thus help stabilize the nation.
The United States have a long history of trying to manipulate foreign governments and peoples regardless of the consequences in order to secure oil. The U.S. has a vested interest in the downfall of Chavez. It was Chavez who ceased U.S. investment and control of the PDVSA, and it was Chavez who limited oil production, choosing OPEC considerations over U.S. concerns. A new president who reverses the leftist direction that Venezuela has been heading in will open up lucrative opportunities for the oil companies that wield huge influence in U.S. policy. The U.S. bias can easily be seen in the April temporary coup that removed- albeit briefly- Chavez from power. Immediately after Chavez was overthrown, the U.S. voiced support for the insurgent new leader. More ominously, many planners of the April 2002 coup, including the leader Carmona, consulted with U.S. aides at the White House in the months prior to the insurgency. During the meetings, “the coup was discussed in some detail, right down to its timing and chances of success, which were deemed to be excellent” (Vulliamy).
The Venezuelan economy has been intrinsically linked to the international oil market for decades. The unstable oil market played a role in the current financial situation. Moreover, the pre-existing economic conditions as Chavez came to power begs the question, would someone else have been able to do a better job? A sharp recession was inevitable no matter who was in charge, but Chavez further aggravated the situation with his policy decisions. First of all, his policy on strict OPEC adherence has cost Venezuela a lot of income as well as many jobs. Secondly, Chavez made poor decisions in relation to the PDVSA Board of Directors. He both alienated the business community and weakened the PDVSA in one fell stroke when he fired members of the board of directors and replaced them with candidates more known for their loyalty to Chavez than their competency. Ultimately, Chavez’s aspirations of reform according to his ideals have proved to be too broad and counterproductive to economical recovery, serving to stifle economical success.
The methods of removing Chavez must remain within the scope of the constitution in order to foster long-term stability. A referendum that induces Chavez to resign would be effective, as would a binding referendum in August 2002. One major problem with the opposition coalition is that the individual components have vastly different plans for the future of Venezuela and can only agree upon the need to remove Chavez. Exacerbating the problem is the fact that seemingly nowhere within the coalition lies potent leadership that can capture the imagination of the public. The opposition group must find a leader that can forge a coalition that most factions can accept, and that the public can stomach. Only then will the opposition be ready to be successful in elections in both the short term and long term. Once Chavez agrees to a referendum, the opposition must abandon the strike and focus its energies upon finding a leader and a common platform.
Environmental Effects
We would like to develop our last section to drawing attention to the environmental catastrophes caused by the massive transporting of oil. This section deals with the tragedy that occurred in 1989 off southern Alaska. The oil spilled caused by the crash of the Exxon Valdez supertanker could have and should have been avoided. The bird populations were severely affected. After examining this tragedy, it is clear that the American dependency on oil is to blame as the root of this problem. The Exxon Valdez crash occurred over ten years ago, but it is irresponsible to believe that this cannot and will not happen again. This section analyzes the effects that this oil “addiction” had on the environment around Prince William Sound.
The Effects of the Exxon Valdez Oil Spill on Bird Populations in Prince William Sound
On March 23, 1989, the supertanker Exxon Valdez departed from Valdez, Alaska carrying 53 million gallons of crude oil to Long Beach, California. As the ship began to make its way towards Prince William Sound (PWS), off southern Alaska, Captain Joseph Hazelwood violated Exxon’s manual of operations by not being on the bridge of the ship as it passed through hazards that presented a threat to safe navigation. On March 24, 1989, just after midnight, the Exxon Valdez ran aground on Bligh Reef, tearing open the hull and spewing oil into PWS at a rate of 200,000 gallons a minute. In all, eleven million gallons of oil gushed out of the ship, spreading over 2,592 miles of coastline. The oil spill caused more death of wildlife than any other single human catastrophe. The creatures most affected by the spill were the bird populations around PWS.
Birds, especially sea birds, suffered most from the oil spill in PWS because crude oil spilled into the sea can have acute and dramatic effects on marine birds. Sea birds spend much of their lives at the air-water or land-water interface, where floating oil accumulates. Due to this characteristic, along with other features of their behavior, ecology, and life history, sea birds are especially vulnerable to oil spills.
Oil spills may affect sea bird populations in several ways. Losses of individuals, through direct or indirect mortality or emigration from the spill area, can alter population size and structure. The remaining birds suffer through decreased reproductive performances as a result of habitat degradation. The oil washed up on the shoreline is also ingested, leading to the development of pathological conditions in tissues and a reduction in overall physical health. Crude oil that washed ashore in PSW was more persistent than oil that remained suspended in the water column. Thus, birds that inhabited shorelines were exposed to oil for longer periods of time than were pelagic species, or those that live in the deep sea.
In addition, some of the cleanup methods involved were more harmful than beneficial. Birds living in shoreline habitats had eggs and young chicks destroyed by the myriad of volunteers that flocked to PWS to participate in the cleanup effort. Consequently, adult behavior was affected, leading to the previously mentioned disturbed breeding and reproduction patterns. Initial estimates of total mortality of marine birds varied greatly, with reports ranging from 100,000 to 690,000 birds killed! The estimates varied substantially because there was a lack of existing data on sea bird population figures in PWS. Assessing mortality impacts requires careful, rigorous and objective science, along with solid data on the status of populations prior to a catastrophe. There has been intense controversy surrounding seabird-mortality estimates due to inadequate data, which some argue has been inflated by the emotional severity caused the spill.
There is no doubt that 30,000 birds were killed by the Exxon Valdez oil spill within a matter of days. The murre was the most affected sea bird of all 90 species that had recovered carcasses. In fact, murres, seaduck-sized, black-and-white alcids abundant along the northern Pacific coast, made up over 74% of the carcass count over the next four months. Carcasses retrieved on beaches represented only a fraction of the mortality caused by the spill, however, so the magnitude of this apparent mortality suggests that impacts on breeding populations might be severe.
Although the initial carcass count set off a great panic, the wide variation in pre-spill counts, due to different study and observation methods, made it difficult to actually authenticate any demographic studies. Counts of the murre populations at colonies in the Gulf of Alaska were conducted in the 1970’s. These counts were rough estimates, intended only to document colony locations and provide rough estimates of population sizes, even though they were used by investigators to make quantitative assessments of population changes after the spill. As a result, the actually mortality rates are hard to report. For example, the largest murre colony in the spill area was found on the Barren Islands, where oil remained for several weeks. A number of conflicting studies raised doubts as to the actual mortality rates. A 1970’s study on East Amatuli Island (one of the Barren Islands) recorded the murre population to be somewhere between 19,000 and 61,000 birds, with 25,000 being the most likely population figure. However, counts in 1990-1992 reported between 31,000 and 35,000 murres on the island. Therefore, it is not really possible to know if the populations actually changed at all after the spill.
The effect on breeding patterns for murres was also a big issue, mainly because of the estimated losses from the breeding colonies. Initial studies conducted by the US Fish and Wildlife Service (USFWS) reported that there had been total reproductive failure at some colonies in the spill path in 1989. The USFWS also reported that the onset of breeding phenology (egg-laying) in other colonies had been delayed by as much as a month, and that reproductive success remained below normal, causing phenology to be late up until 1991.
Several scenarios were proposed on the basis of the observations that breeding populations had suddenly declined following the spill. One was that the breeding densities on breeding ledges were reduced and replaced by young and inexperienced birds breeding for the first time. These changes in population structure were significant because the social structure was also affected, leading to delayed courtship and egg-laying, a reduction in breeding synchrony within other colonies, and an increased threat of predation on eggs or young. Consequently, reproductive success was reduced. The late breeding also exposed the chicks to fall and winter storms. Some experts claimed that over 300,000 chicks were killed in these storms, leading some to claim that these breeding failures could eventually lead to extinction.
The previous projections were made on educated assumptions, rather than observations, because of the uncertainty encompassing the actual population figures. The only testable components of the scenario are whether breeding densities were in fact reduced, whether breeding phenology was delayed, and whether reproductive success was drastically lower following the spill.
Once again, faulty biological surveys clouded the studies. Many murre colonies had a pool of non-breeding individuals who remained at sea in the vicinity of the colony. Individuals from this pool may have filled the voids created by the deaths of the breeding adults. The carcasses could also have been those of the non-breeding pool, rather than the breeding population. It would appear to be a contradiction to say that the birds out at sea suffered more than the ones at the shoreline, since it is evident that birds inhabiting the shoreline are exposed to oil for a longer period of time than their pelagic counterparts. The ocean surrounding the Barren Islands, however, is a productive and regional hotspot for many seabirds. It is possible that birds from other colonies were caught in an unfortunate circumstance and were in the spill path when the oil passed through. If such was the case, that means that mortality was disseminated throughout the colonies of the area, making spill-associated changes at particular colonies substantially difficult to document.
If demographic studies had been more meticulously performed, the phenolgy patterns of murres could have been used to clarify reproductive issues. Phenology is so variable over time and space, however, that it is difficult to establish what normal breeding patterns should be found in a colony, much less a region. Although the nesting phenology did occur two weeks later in the early 1990’s than in the 1970’s, the reason was attributed to natural variability characteristic of the system. Even though the Exxon Valdez oil spill had immediate effects on the murre population, the only mortality estimate that could be directly linked to the spill was the nearly 23,000 carcasses recovered. Many arguments have ensued among scientists over the long-term impacts, but accurate comparisons with post-spill populations are not possible because historical (pre-spill) data is old and horribly outdated, making any modern studies irrelevant.
The black oystercatcher was another seabird that suffered adverse effects because of the Exxon Valdez oil spill, as evident through its affected breeding patterns. Black oystercatchers are completely dependent upon marine shorelines for their life’s requirement, and were highly vulnerable to disturbances caused by the oil that washed ashore. The primary effect seen among these birds was a reduction in breeding capacities.
Brad A. Andres headed the observations, along with other members of the USFWS, on Green Island, one of the many islands found in PWS. Virtually all shoreline around Green Island was oiled within six days after the Exxon Valdez ran aground. The extent of shoreline oiling on the island varied from light (less than 10%) to heavy (more than 50%) among segments of shoreline. In 1990, black oystercatcher nest sites were placed in two categories. The sites were considered disturbed (if any treatment occurred between May 15, 1990 and August 3, 1990) or undisturbed.
Two-person teams were involved in the observations, searching by boat or foot, to determine the presence of breeding oystercatchers. For each oystercatcher, the location, breeding status (single, pair, pair with a nest), and the number of eggs or chick was recorded. Nests were revisited every 3-10 days in 1990 in order to assess their fate. Thus, the final outcome of the nest count was used to estimate productivity because exact nest history was unknown.
The results show the number of breeding black oystercatchers occupying Green Island to have actually increased 36% (from 28 to 36 pairs) from 1989 to 1991. The number of pairs occupying Green Island continued to increase from 1992 (43% increase from 1989) and 1993 (61% increase from 1989) (Andres, 1997). The 63% increase from 1989 to 1993 indicates that large-scale migration occurred in the oiled area because the growth exceeded the capabilities of local productivity. Despite shoreline oil, some oystercatcher pairs maintained nests and hatched young eggs on Green Island in 1989.
The breeding populations of oystercatchers appear to have suffered immediately following the spill. In 1989, a high proportion of pairs (39%) did not maintain their nest past June. No eggs appeared oiled in 1989, although oil was observed on the legs of adult oystercatchers. Factors that could have been responsible for the loss of chicks in 1989 could be that some chicks died as a result of contact with oil on nesting sites or while foraging beaches. Lower feeding rates of oystercatchers living on oiled shorelines, and a corresponding higher morality of mussels, who compose approximately 30% of their diet, indicates that reduced prey abundance might have contributed to the abandonment of breeding sites in 1989. The contamination of mussels was dangerous because it provided a pathway of exposure via ingestion.
Ironically, major contributors directly responsible for immediate mortality were the more than 10,000 cleanup volunteers deployed in 1989 to clean up floating and beached oil. In the absence of disturbance from the workers, reproduction increased. In 1989, there were, at most, 27 chicks hatched on Green Island, compared to 50 that were hatched in 1991. Although the oil spill reduced the breeding of black oystercatchers in 1989 and 1990, there was a substantial recovery in the population by 1991, showing that long-term effects were minimal, at most. Despite these findings, yearly surveys of breeding black oystercatchers should be carried out to ensure that recovery has fully occurred in all segments of the population.
Although the bald eagle is not considered a seabird, the effects it demonstrated show the extent of the damage caused by the Exxon Valdez oil spill. There are an estimated 45,000 bald eagles in Alaska, about three times the number living in certain areas of the mainland United States. The oil spill in PWS contaminated extensive shoreline used by the bald eagle. From April to August 1989, an estimated 247 bald eagles died directly from exposure to the spilled oil.
The effects on bald eagle populations in PWS and the surrounding areas all appear to have been short-term, as reported by researchers from the USFWS. However, the problem with the studies conducted was that the lack of adequate pre-spill data hindered any determinations that could indicate how bald eagle populations changed immediately after the spill. The only pre-spill data on bald eagle population size was a 1982 survey taken by teams comprised of a pilot and an observer, who counted all eagles with predominately white heads and tails, both signs of maturity. The same method was used in the current study, only this time 30 pilots were used instead of 16, as in the 1982 study. Certain assumptions were made beforehand to evaluate whether the bald eagle had returned to its 1989 pre-spill population levels. It was estimated that all the bald eagles killed by the spill died before the survey was conducted, even though not all adults would have been seen during the surveys. It was also estimated that 71% of the eagles killed were adults and that detection rates are about 70%, resulting in a pre-spill population index of 2,322 adult eagles.
The results of the study showed that the population index varied little in the three years following the oil spill, ranging from 1,935 to 2,199 adult eagles. The average percentage of immature eagles was 29.2%, out of the 510 adult eagles seen flying during population surveys in PWS throughout the five years the surveys were conducted. There was no significant difference since three years after the oil spill the average was 30.6%, with a decrease to 26.5% in 1995 populations.
Although eagle productivity was impaired due to the spill in 1989, the population has appeared to demonstrate steady growth in post-spill years. There is a degree of uncertainty as to population growth because a comparison of population change is difficult to make without concrete data on pre-spill population figures, and also without knowledge about the magnitude of oil-related mortality. As a result, the disproportional increase in the number of eagles between oiled and unoiled areas from 1989 to 1995 does not provide convincing evidence of an oiling effect, but rather reflects local shifts in distribution related to temporally abundant food (i.e., herring).
It is important to realize that not all species respond the same to oil spills as did sea birds in PWS. Sea bird populations appear to have considerable resiliency to catastrophic disruptions in the environment. Bald eagles, for example, have evolved in harsh and variable environments, and naturally experience episodic reproductive failures and localized mortality attributed to variations in food supplies and extreme weather. In many cases, the long life spans of many species compensate for poor reproductive years.
Despite the aforementioned, it is dangerous and foolish for humans to get a sense of complacency with regards to the apparent resiliency inherent in some species. The Exxon Valdez oil spill caused the deaths of tens of thousands of seabirds, not to mention other animals, bringing many short-term effects to reproduction rates and habitat quality. Although the effects of the oil spill appear to bear no long-term biological significance, the first stages of past complacency are evident in the lack of adequate population figures that could be helpful in correctly assessing the total damage. The effects of a severe environmental disaster could become cumulative, pushing the limits of resiliency, resulting in major long-term demographic changes. Those changes will be irreparable because there is only a vague idea of current population figures in some areas, as there was in PWS before the Exxon Valdez oil spill.
This analysis shows just how destructive the Exxon Valdez spill was to the marine animals and environment. The quantitative data clearly shows that a single event can have exponential destruction on the environment. This crash, a result of the oil dependency present in so many countries, should teach these countries a lesson to look more intensely into alternative energy sources.
Works Cited
The Andean Pact:
- Ahearn, Raymond J., “Trade and the Americas”. Columbus, Frank (ed.) Politics and Economics of Latin America. Nova Science Publishers: Huntington, N.Y, 2001.
- Ahearn, Raymond J., “Andean Pact—U.S. Trade Relations: Evolution and Prospects”. Columbus, Frank (ed.) Politics and Economics of Latin America. Nova Science Publishers: Huntington, N.Y, 2001.
- Alexander, Marc. “Privatization Opens Trade Doors in Venezuela”. www.bcbr.com/mar97/trade2.htm
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- O’Keefe, Thomas Andrew. “How the Andean Pact Transformed Itself into a Friend of Foreign Enterprise”. International Lawyer, Winter 1996, Vol 30, No. 4. pp. 811-824 www.mercosurconsulting.net/article2.html
- Wallender, Harvey W. III, The Andean Pact: Definition, Design, and Analysis. Council of the Americas: New York, 1973
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- “The Andean Pact: An Integration Pioneer.” www.dfat.gov.au/geo/americas/ la/publications/andpct.pdf
Venezuela Oil: An Industry in Transition:
Arcaya, Ignacio. “Venezuela and the United States: A Four-Pillar Strategy for Energy Security “Houston, Texas – July 24, 2001 http://www.embavenez-us.org/news.english/arcaya.speech.houston.htm
BBC Online. December, 5 2002, “Profile: Hugo Chavez” http://news.bbc.co.uk/1/hi/world/americas/1925236.stm
“Divided In Venezuela.” From the Economist Print Edition. Oct 10, 2002
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“Oil and Venezuela's Failed Coup” Luis E. Lander and Margarita López Maya. April 26, 2002http://www.fpif.org/outside/commentary/2002/0204venoil_body.html
Organization of Petroleum Exporting Countries (OPEC). Website. Www.opec.org
“OPEC Pumps up Production” By Thaddeus Herrick and Bhushan Bahree. Oct. 24, 2002
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Vaan, Bill. 28 October 2002. “Coup Attempts Continue in Venezuela”. World Socialist Website .http://www.wsws.org/articles/2002/oct2002/venz-o28.shtml
Examining Chavez:
Whinbeck – “Left-Wing Populist Chavez Wins Venezuelan Presidency”
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Vulliamy, “Venezuelan Coup Linked to Bush Team”
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Create bibliography, refine sourcing
Harper’s Index Harper’s Index
World Factbook 1999, 2000, 2001, 2002 www.cia.gov
Wilpert, “Coup in Venezuela, an Eyewitness Account”
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Exxon Valdez Spill and its Effects on the Environment:
- Bernatowicz, J.A., Bowman, T.D., & Schempf, P.F.” Bald eagle survival and population dynamics in Alaska after the Exxon Valdez oil spill.” Journal of Wildlife Management, Vol 59, No. 2, pp. 317-323.
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- Bowman, T.D., Hodges, J.I., & Schempf, P.F. “Bald eagle population in Prince William Sound after the Exxon Valdez oil spill.” Journal of Wildlife Management, Vol 61, No. 3, pp. 962-967.
- Wiens, J.A. “Oil, seabirds, and science: the effects of the Exxon Valdez oil spill”. Bioscience, Vol. 46, No. 8, pp. 587-598.
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