Skip to: Content
Skip to: Site Navigation
Skip to: Search

Hugo Chávez challenges Venezuelan 'birthright' to cheap gas

In Venezuela, Humberto Patadilla pays just under $1 for 21 gallons of gasoline. If Hugo Chávez raises gas prices, he says, it could 'cause an explosion against him.'

(Page 2 of 2)

If the minister was implying that current use is irrational, at least some locals agree. "We drive around a lot and practically throw [gasoline] away," Maria Eugenia Mored says as a gas station attendant pumps 11 gallons into her Jeep Cherokee for about 50 cents. "The streets are always packed."

Skip to next paragraph

Such waste leads to reduced oil export revenues, hampering the ability of state oil company Petroleos de Venezuela (PDVSA) to invest in production and forcing the company to occasionally purchase gas from other nations, an extraordinary situation that some critics liken to Saudi Arabia importing sand.

Subsidy cost $9 billion in 2010

Unrest in the Middle East has pushed up oil prices, which will boost Venezuela's oil revenues, but analysts say several factors could yet force Chávez's hand.

Exports of refined oil products have fallen to almost 100,000 barrels a day from 379,000 b.b.d. in 1997, in part brought on by poor maintenance and months-long work stoppages. Because of this, between 2009 and 2010, Venezuela imported millions of barrels of gasoline and blending components, buying as high as $60 a barrel on the international market to supply domestic demand, where gasoline was sold at the equivalent of $12 a barrel, says Gustavo Coronel, a former PDVSA board member and critic of Chávez's oil policies.

"They cannot afford to go on like this any longer," he says. Were PDVSA to sell all oil at real prices, says Barclay's analyst Alejandro Grisanti, the government would have seen an additional $9 billion in revenue last year, representing 4.5 percent of gross domestic product. Instead, this was one of the few Latin American economies to contract in 2010.

PDVSA regularly issues billions of dollars' worth of debt, but is struggling to meet obligations as Chávez has redefined the company's mandate to not only produce and refine oil but also distribute food, support social missions, and sell discounted petroleum to friends. London-based Capital Economics recently warned of "a growing risk that the government will default on its obligations in 2012."

"Even with oil prices approaching the $100-per-barrel mark, PDVSA continues to face a very challenging financial situation," says Juan Pablo Fuentes, a Venezuelan economist at Moody's Analytics. "This is due in part to the huge gasoline subsidy ... [but also] includes a bloated payroll, increasing transfers to the central government, declining exports, and increasing capital costs."

All this might point toward austerity. Instead, with elections next year, Chávez is expected to ramp up spending. Still, observers agree, if anyone can convince Venezuelans to forgo the world's cheapest gas and simply accept cheap gas, it's Chávez.

"President Chávez knows that the subsidy represents an immense burden," says Mr. Fuentes. "This time around he seems more determined to do something about it, however."


Read Comments

View reader comments | Comment on this story