Chávez seeks influence with oil diplomacy

In just one month, Venezuela has cut deals with five countries.

When protesters in Ecuador started dynamiting pipelines and vandalizing pumping machinery last week, crippling oil exports - Venezuelan President Hugo Chávez sprang to the rescue.

"We are going to help Ecuador," Mr. Chávez announced from Cuba, where he was making his 13th visit since coming to power in 1999. "Venezuela will cover the [oil export] commitments that the Ecuadorean government has not been able to fulfill these days. They will not have to pay a cent."

A generous offer, but not a surprising one.

Chávez, whom Christian televangelist Pat Robertson says the US should assassinate, has been traveling the hemisphere offering preferential oil deals, barters, and loans to leftist and left-of-center governments. In the past 30 days, the leader of the world's fifth-largest oil exporting country, has inked deals with Argentina, Brazil, Uruguay, and Paraguay. Thirteen Caribbean nations signed a deal for cheap oil in June. And since April, Cuba has been getting almost all of its oil from Venezuela in exchange for doctors and gym teachers.

It is, Chávez says, his way of helping neighboring countries cut energy costs and improve living standards in the region. "Altruism," says Eric Wingerter, a spokesman at the Venezuela Information Office in Washington, D.C., simply. "This is part of larger process involving regional solidarity and helping other countries economically."

But critics charge Chávez is buying friends and influence with the objective of extending his regional hegemony - and undermining the US.

"Chávez is a man with a mission. He is determined to use the enormous windfall from record oil prices to pursue his Bolivarian Revolution on the regional stage as aggressively as possible," says Michael Shifter, vice president of the Inter-American Dialogue, a think tank in Washington, D.C. "He is intent on building a counterweight to US influence in the Western Hemisphere."

Chávez's antiglobalization and anti-US discourse, which comes part and parcel with the petrodollars, adds Shifter, "is resonating more and more with marginal sectors throughout the region, many of whom have been ignored by the US and are now looking for alternatives to their stubbornly acute poverty."

Carlos Granier, an economist at Cedice, a Caracas think tank, says that the 13-nation Petrocaribe group formed by Chávez, is described as a "nonprofit political enterprise" of strategic importance by Venezuela. "This peculiar jargon hardly conceals the pretense to use "oil as a diplomatic weapon," says Mr. Granier.

Ricardo Hausmann, an economist at Harvard University's Kennedy School and a former minister of planning in Venezuela says, "There is no economic rationale in these deals.... It is a political investment." The opportunity cost of the deals - a loss of payment at market price - is clear, says Professor Hausmann. "What is less transparent is what Venezuela is going to get in return - is it good will? Is it Latin American support for the day when Chávez decides to radicalize his revolution, prompting an international reaction?"

According to Granier, the opportunity cost for the Cuban-Venezuelan oil "deal" alone is costing Venezuelans an estimated US$ 1.7 billion in 2005. In dollar terms, says the economist, this is equivalent to all US official aid to Latin America, including military and non-military disbursements.

Today, the US remains the top buyer of Venezuelan crude. Venezuela is still the third-largest foreign supplier of oil to the US, and owns CITGO, one of the largest refinery complexes and gas distribution networks in the US. But this could change. Chávez warned recently that the daily 1.5 million-barrel supply to US ports could be halted if US "aggressions" against his government continue. "Ships filled with Venezuelan oil, instead of going to the United States, could go somewhere else," he threatened at a World Youth Day event on Aug. 14 in Caracas. "The US market is not indispensable" for Venezuela, he said.

A week after Chávez made these comments, Venezuela announced plans to expand its fleet of oil tankers to diversify its client base and sell more crude to Asia and other faraway markets. Asdrubal Chávez, head of PdVSA's shipping and sales, said $2.2 billion would be invested over the next seven years to expand the fleet from 21 to 58 tankers. Eulogio Del Pino, a PdVSA director, said Venezuela would open its first office in Asia - in Beijing - "in coming days."

Reflecting perhaps the tension between Chávez and the US, religious broadcaster Pat Robertson suggested this week that the US "take out" Chávez to stop Venezuela from becoming a "launching pad for communist influence and Muslim extremism." Secretary of Defense Donald Rumsfeld immediately distanced the administration from his comments, even as Chávez's vice president described Mr. Robertson's remarks as a "terrorist statement."

Meanwhile Chávez is picking fights with foreign oil companies - including Shell, ExxonMobil, Repsol YPF, Chevron, BP, and Total that have been working in Venezuela for years. Thirty-two publicly traded oil companies are accused of owing Venezuela $4 billion in back taxes for overproduction - something they deny. This follows Venezuela's hikes in production royalties from 1 percent to 16.7 percent in October, hikes in taxes on operating agreements from 32 percent to 50 percent in April, and a declared end to contracted dollar payments to foreign oil field operators in May. "The desire to operate in Venezuela," Kyle Cooper, energy analyst for Citigroup Global Markets said in a report last week, "is fading fast."

The US is not alone in its concern over Chávez's oil diplomacy. An increasing number of Venezuelans, according to Alfredo Keller, an independent pollster in Caracas, are also watching events unfold nervously.

"Sure, Chávez is becoming a major regional force," says Mr. Keller, "...but he is losing popularity at home." According to national polls Keller conducted in July, he found 75 percent of Venezuelans against the favors and generosities Chávez is showering on other countries. "Venezuelans don't like their resources going to foreigners," says Keller. "At home problems such as cost of living, housing, unemployment, remain unchanged ... and people are wondering: Whose leader is he?"

Ms. Harman is Latin America bureau chief for the Monitor and USA Today.

Oil deals across the hemisphere

1) The Caribbean- Chávez was in Jamaica Tuesday to finalize details on the PetroCaribe agreement signed in June. The deal, which is meant to help small Caribbean economies cope with high fuel prices, offers generous financing for oil sales and favorable rates in exchange for goods, services, or credit. Thirteen of the 15 members of the Caribbean Community group, or Caricom, have already signed on.

2) PetroSur Chávez is pushing for the creation of a southern America group with Argentina, Brazil, and Uruguay, offering oil deals similar to the PetroCaribe pact.

3) PetroAndina - Another proposal to sell discounted oil to the Andean countries of Bolivia, Ecuador, Peru and Colombia.

4) Cuba - Venezuela has become a vital economic lifeline for Cuba - shipping in 90,000 barrels a day of oil. In return, Havana has sent more than 30,000 physicians, sports coaches and teachers to Venezuela. Further, the Venezuelan state-run oil company, Petroleos de Venezuela S.A (PdVSA) opened its Caribbean headquarters in Cuba in April.

5) Uruguay - Earlier this month, Chávez signed an oil-supply and energy accord with that country's first elected leftist President Tabaré Vázquez. Under the accord, Caracas will guarantee oil supplies to Montevideo for the next 25 years at preferential terms: Uruguay will pay for 67 percent of the oil with export products, and the rest under low-interest financing. PdVSA also announced plans to upgrade Uruguay's La Teja refinery to process Venezuela crude.

6) Paraguay - Venezuela just agreed to start shipping to Paraguay 8,600 barrels per day of crude oil byproducts, particularly fuels, at a 25 percent discount and with no interest.

7) Ecuador - After oil workers forced state-owned Petroecuador to shut down production last week, Ecuador's President Alfredo Palacio asked Chávez for an oil loan to meet its export commitments. It was immediately provided. Prior to these events, Venezuela had offered to process Ecuador's oil (Ecuador has no refineries) and sell products produced from Ecuadorian crude in the international market.

8) Argentina - Venezuela has been supplying Argentina with emergency fuel oil since last year to help it cope with energy shortages in exchange for cash and agricultural products. This month, Chávez and President Néstor Kirchner announced plans to supply Argentina with an addition 4 million barrels of Venezuelan fuel oil, in return for which Argentina would provide shipbuilding expertise and farm machinery to Venezuela.

Also, Argentina's state owned oil company Energia de Argentina (Enarsa) joined with PdVSA this year, and opened two service stations in Buenos Aires. Several hundred more joint service stations in Argentina are planned.

9) Brazil - Chávez and President Luiz Inácio Lula da Silva are discussing plans to jointly build a $2.5 billion refinery in Brazil. Brazilian state-controlled Petrobras is also considering oil and gas exploration and production activities in Venezuela.

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