International Politics

	Vol. 226 No. 10
MAYRA RODRÍGUEZ VALLADARES, CONTRIBUTING EDITOR, SOUTH AMERICA

Venezuelan influence grows. More than ever, Venezuela has dominated Latin American oil markets, cutting deals across the region. Ecuador, on the other hand, has been mired in Amazonian protests. In the last few months, Venezuela has catapulted itself into the international arena by using oil to increase its influence. Venezuela continues to be a thorn in the Bush administration’s side, with President Hugo Chávez and US luminaries – either officials or private individuals – trading barbs.

Venezuela remains very important, since it is the third largest foreign oil supplier to the US. Furthermore, CITGO Petroleum, a subsidiary of Venezuelan state oil company PdVSA, operates one of the largest refineries in the US, as well as a gasoline distribution network.

Ironically, despite the political tensions, Chávez authorized CITGO to donate $2 million to Hurricane Katrina’s victims along the US Gulf Coast. CITGO also opened a 2,500-man shelter for hurricane refugees in Corpus Christi, Texas. Moreover, Venezuela offered 66,000 bopd during the winter for indigent US citizens and one million bbls of gasoline. US ambassador to Venezuela, William Brownfield, unexpectedly welcomed Chavez’s offer, but he said Chavez’s criticism of Bush’s handling of Katrina relief was inappropriate.

Some people may regard Chávez’ recent overtures to the US as a method of taunting President Bush and his advisors, but Chávez’ use of oil diplomacy in South America has definitely boosted Venezuela’s influence and increased regional solidarity. And, as Chávez closes more transactions in South America, many senior political advisors in Washington contend that he is minimizing US influence in the region. This summer, Chávez closed deals with Argentina, Brazil, Uruguay and Paraguay. He also signed deals to sell oil below market prices to 13 Caribbean nations.

A recurring news theme is Venezuela’s courting of Washington’s arch nemesis, Cuban President Fidel Castro. Since April, Venezuela has received doctors and gym instructors, in exchange for providing very subsidized oil to Cuba. According to economist Carlos Granier of Venezuelan think tank, Cedice, this oil contract could cost Caracas about $2 billion this year. According to Granier, this equals all official US aid to Latin American nations, including military and non-military disbursements.

Other deals with Latin America are also coming at a great economic cost to Venezuelan coffers, since most are closed at below global market prices. Whether this effort will earn Chávez political favors or goodwill from Latin American countries remains to be seen.

Also of interest to the Bush administration, particularly in the aftermath of Hurricane Katrina, is Venezuelan oil officials’ efforts to diversify their oil sales to Asia and away from the US. A PdVSA director, Eulogio Del Pino, recently announced that Venezuela would open its first Asian office in Beijing, possibly as early as this autumn.

Although Chávez has successfully cemented good, albeit often uneconomic relations throughout most of Latin America, the same cannot be said of his dealings with international oil companies. Allegedly, he contends that more than 30 foreign oil companies collectively owe Venezuela $4 billion in back taxes, due to the firms’ overproduction; the companies deny such debt. Their management teams are attuned to whether this dispute will lead to litigation or any threats of expropriation.

Ecuador struggles. While Venezuela’s increasing influence has left Chávez upbeat, Ecuadorian President Alfredo Palacio has been battling his greatest challenge since taking office last April. He has contended with large protests, the smashing of oil equipment and attacks on small pipelines. These disruptions caused August’s output to fall significantly, to about 33,000 bopd.

This situation’s severity has forced Ecuador to seek an oil loan from Venezuela, so that it can meet its oil export commitments. Moreover, it will have to import oil for its domestic use and borrow about $400 million to avoid balance-of-payment problems exacerbated by oil production declines.

Oil officials believed that it might not be until November that Petroecuador could return to its normal output level of about 201,000 bopd. After Venezuela, Ecuador is South America’s largest oil exporter to the US. Some countries’ problems are often other nations’ fortuitous advantages. In this case, Chávez is only too pleased to offer Ecuador oil loans and other aid. He is also happy to use Ecuador’s reduced exports as a route toward increasing Venezuela’s influence. 

Mayra Rodríguez Valladares is president of New York-based MRV Associates Inc. (www.MRVAssociates.com). She is a regular contributor to this column.