A Dagger in the Heart of America

Chavez is a clown. Left alone, he will be laughed off in no time. Even if he sells the oil to the Chinese, the money ends up in Miami.

Thanks for pointing this out, Bryan. People's misconceptions about where the US gets its oil are rampant.

The single largest supplier of oil to the US is, of course, itself. Most people also forget that some 40% of petroleum in the US is produced domestically.

Hi-

As something of a former foreign policy wonk, it's not that simple.

Saudi Arabia isn't just our supplier, but also that of Europe and Japan. For Venezuala, that's very much less the case. Having Saudi supplies disrupted means that US allies are also disrupted and would have massive, system-threatening world-wide repercussions.

But that said, Venezuala is a real problem: Chavez is funding populist/crypto-communist groups all over South America (Bolivia, Chile and Peru come to mind immediately) with oil money and is providing oil to Cuba at cost, effectively subsidizing Castro's regime. As a form of thanks, Cuba has provided Chavez with literally thousands of "experts" who are basically developing the same kind of pervasive security regime in Venezuala that has helped Castro keep power in Cuba for these many years.

Hence he shouldn't be ignored as a clown, but rather as the reincarnation of that old South American problem, the charismatic man on horseback who in realizing his vanities of glory ends up impoverishing everyone except his own cronies. But this time he's got oil money behind him.

Not a good development.

John

It is true that Chavez aligns Venezuela with communist China and Cuba, but in these days communism seems to have lost its virulent features. There may still survive a few pensioned-off cold warriors worrying about communist subversion, may be even having nightmares of a Russian invasion to East Germany, but lately there have been some developments. Chavez being the clown he is, it would not be surprising that he declares Venezuela not only a Bolivarian State as he did but also Bolivarian Communist People's Republic. He would be laughed off the map.

And I mean it. In Venezuela there is a new floruishing literary genre, the Chavez jokes. You dont have to be Venezuelan to enjoy them, but I would not even try to tell one in English.

Communists with nukes worry me. Communists with oil, not so much. Communists with neither, not at all.

Why isn't Venezuela just another example of the Bush administration spreading freedom around the world?

Really, you seem to want to credit the Iraq war with everything else-- why not Latin america.

Or could it be that a lot of things going on around the world have no tie to the Iraq war?

Hehe. Great post, Bryan. Funny, and with a good moral to it!

We are getting tough with Canada. Have you been over to Captain's Quarters lately?

It is curious to me how Caplan, who espouses many Libertarian principles, overlooks the fact that Venezuela is free to choose whom it sells oil to. What is the subtext of this missive he wrote? Are we to believe that the mere existence of oil under a nations land mass denotes an obligation to sell it to the United States?

Duane,

You took the words right out of my mouth. There is evidence the Bush Admininstration had its hands dirty in the initial ousting of Chavez.

Remember when the english newspaper the Guardian published a list of undecided voters in Ohio, and their readers wrote letters to US citizens sharing their opinion on who they believe should win the election (overwhelming Kerry)? There were cries from the State Department to mainstreet about foreigners meddling in our countries affairs.

How soon we forget what we have done in the internal affairs in South America, the Middle East, etc.

Leave Chavez alone ! We are not the only consumers of oil on the world market. Eventually Dutchs disease will spread thoroughout Venezuela and the people will decide whether,how and when they see fit to replace Chavez.

"Venezuela" is free to choose to whom it sells oil? Venezuelans are not individually free to choose the recipients of oil from Venezuela, that decision is made by government officials in Venezuela.

It doesn't matter who Venezuela sells oil to as long as they sell it. Its a world market. The danger (minimal) is that instability in Venezuela results in the oil being taken off the market.

China has already signed Development constracts with Chavez to the tune of $6b. It has also signed a Trade treaty with him for about $4b. They are planning on building a Pipeline to the Pacific. It is a worry!

The most telling point is China constructing a Cracking plant to use the sludge which Venezula calls Oil. I don't like the thought of a Chinese colony in South America. lgl

I'm with Randy. Absent some very inconvenient short-run hiccups, it's a world market.
If Chavez boycotts the US, he'll either have to sell his oil elsewhere or wreck total havok on the Venezuelan economy.

That'll mean either other suppliers will supply directly to the US with slightly higher transport costs or oil will be transhipped through countries that Chavez hasn't boycotted, raising prices slightly again.

Similar arguments apply about oil conservation, of course. Prices are dictated on a world market, so the relevant question is not how much a given conservation scheme reduces US demand, but rather how much it reduces world demand.

Conservation schemes aimed at reducing oil usage per $ of GDP or reducing the elasticity of GDP wrt oil prices would be more fruitful.

Randy said It doesn't matter who Venezuela sells oil to as long as they sell it. Its a world market. The danger (minimal) is that instability in Venezuela results in the oil being taken off the market.

Would you also consider it a danger if the US didn't drill ANWR and put it on the market? Why would it be a danger if Venezuela made a reasoned decision to sit on their reserves and choose to sell it in the coming decades, hedging on a chance to sell the same commodity for a higher value? I can't help but hear a presumptuous tone when you declare "as long as they sell it", which seems to imply a moral imperative to exploit natural resources and sell to the United States. Possibly you meant something different.

if Venezuela made a reasoned decision to sit on their reserves ... Venezuela is powerless to do that. A new generation of military, union, political leaders has adquired "licence to steal public monies". China will make them happy.

Duane,

Danger is probably the wrong word. Drawback is closer to what I had in mind. Less oil on the world market means higher prices for everyone - and yes, not drilling ANWR has the same effect.

No, I don't believe that Venezuela has a duty to sell to the US or anyone. I find it highly unlikely that they will choose to not sell. A little more likely that political instability could result in disruption of supply.

Sorry, I dont see export disruption or underinvestment in the future of Venezuela. China, having put her foot in the door, will do everything she can to turn its new partnership a success and a model for other LA countries searching for new patrons. If this new scheme of things fails, you know who to blame (or to congratulate).

If the authorities in Venezuela think it would be a smart idea to 'sit on their reserves,' but would also like to spend some money today, they could both check their judgement against world opinion and get both a check and a bank account by attempting to sell long-term options on their oil.

If the markets agree that the value of the oil will increase more rapidly than all other investments, the market will be happy to pay a premium to Venezuela today, for the right to pump their oil tomorrow.

Then again, the people who believe this don't have to play the game with Venezuela, do they - they could just buy oil wells in the US, where there is less chance of political chicanery, and cap them.

In other words, talk of Venezuela 'sitting on its reserves' is not much more than nonsense.

Rick, no one in his mind would give a cent to Chavez for the promise that he will sell him oil next year. Firstly, as Argentina showed, there is no way to enforce such contracts. Secondly, Chavez is scheduled for defenestration much earlier.

On a second thought, lots of people are looking for a chance to get separated from their money.

Bryan, you should know better about Venezuela, use google and find out the history of what really happened in the past few years in this country. Chavez is indeed very surprising, but he's been elected, won hand down a fair vote for his revocation, and is overall much better than the people that try to reverse him. Media are totally free in Venezuela and most of them, privately owned, routinely say things about their president that would cause any US citizen saying the same thing about Bush to spend their life in prison without trial (terrorists...).

Actually - Their main fields are in decline.

From 1985 to 1998 Venezuela's Avg daily oil production grew from 1,744,000 barrels to 3,510,000 (a peak).
From 1998 to 2003 production DECLINED to 2,987.000.

Perhaps A reason Venezuela sells less to USA is they are pumping less.

YES - I know they have had some labor and production stops that have had effect from time to time.