Lower oil prices curtail Chávez's global, domestic influence

Amid a bid for reelection, Venezuelan President Hugo Chávez's oil subsidy and antipoverty programs may be on the chopping block.

By , McClatchy Newspapers

High oil prices allowed Venezuelan President Hugo Chávez to spend freely to spread his Socialist gospel and challenge the US role as the dominant player in Latin America and the Caribbean.

The sharp drop in oil prices is imperiling those ambitions, analysts said Tuesday, a day after the Venezuelan government announced that it's suspending free heating oil to poor people in the US. Oil accounts for 93 percent of the government's export income and some 50 percent of its overall income.

"Hemispheric politics are suddenly becoming too expensive for Chávez," said Carlos Alberto Lopez, an energy consultant in Bolivia. "He will have to allocate his dwindling resources to sustaining his political position in Venezuela."

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Mr. Chávez is facing a crucial political test in the near term. He's asking Venezuelan voters to lift term limits so he can seek reelection once again in 2012. The national referendum could be held as soon as Feb. 15.

Polls show that Chávez trails by 20 or so points and can't risk reversing his enormous expansion of government spending aimed at the poor, his core group of supporters.

That puts oil subsidies and other foreign assistance programs throughout Latin America and the Caribbean on the chopping block.

Recent news reports have put in doubt whether state oil company Petroleos de Venezuela (PDVSA) can finance planned oil refineries in Ecuador and Nicaragua, two Chávez allies.

"We know that PDVSA doesn't have the cash," said Jorge Pinon, an Energy Fellow at the University of Miami's Center for Hemispheric Policy. "We also know that the financial markets don't have any money to loan. Those projects are not going to be carried out."

Another potential target: the Petrocaribe program under which Venezuela sells 56,000 barrels a day of oil and diesel to some 20 Caribbean and Central American countries under generous terms. The countries have to pay up front for about half of the oil, the rest is to be paid over 25 years.

The program paid dividends in 2006 when the 15-nation Caribbean Community backed Venezuela's bid for one of the 10 rotating seats on the UN Security Council, although the effort ultimately was unsuccessful.

"We are quite confident that Petrocaribe will continue," Ralph Gonsalves, the prime minister of the island nation Saint Vincent and the Grenadines, told McClatchy in an interview. "I specifically raised this issue with Venezuelan authorities recently. I don't see a problem."

Venezuela also sells 15,000 barrels a day of subsidized oil to Central American nations and an unknown amount of subsidized diesel to Bolivia.

The Chávez government also provides some 100,000 barrels a day of oil and oil products to ally Cuba.

Bolivia gets millions of dollars a year from Venezuela for President Evo Morales to hand out to his nation's mayors for new schools, sewer systems, and health clinics. Venezuelan money also underwrites Cuban doctors in Bolivia who perform free eye surgeries, as well as helicopters that ferry Mr. Morales throughout the country.

In all, the oil subsidies and foreign assistance programs are believed to have cost Chávez billions in 2008, although no one has exact figures because the spending is off-budget.

Chávez could finance all of the programs abroad – and the vast antipoverty programs at home – with the high oil prices of recent years. But at some $50 a barrel, however, global oil prices lag far behind July's record of $147.

"Chávez's meddling will certainly be a lot less effective in 2009," said Jorge Quiroga, a former president of Bolivia. Mr. Quiroga added the oil price dive would scuttle PDVSA's plans to spend hundreds of millions of dollars to find natural gas in Bolivia, a priority for Morales' government.

Miguel Octavio is a Caracas-based financial analyst who writes a political and economic blog that outlined the coming cash crunch for the Chávez government.

In a Dec. 6 posting, Mr. Octavio estimated that Venezuela could receive only some $25 billion a year in oil export income with prices at the current level. Adding non-oil exports of about $5 billion and subtracting imports of about $50 billion, Venezuela is facing a $20 billion shortfall in dollars in 2009, if oil prices don't rise, Octavio estimated.

"The Venezuelan government could be in a lot of trouble," Octavio said in an interview. "Chávez is between a rock and a hard place."

Chávez initially pooh-poohed those warning the global economic crisis could threaten his so-called 21st Century Socialist Revolution. In recent weeks, he said Venezuela will have to tighten its belt but that foreign reserves — estimated to be $40 billion to $75 billion — will tide Venezuela over until oil prices rise again.

No longer providing heating oil to the poor in the US — at a value of about $250 per home — will save the Chávez government some $100 million. The government has saved another $2.5 billion by announcing that it will limit Venezuelans to spending no more than $2,500 abroad a year with inexpensive dollars provided by the government. The previous limit was $5,000.

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