The presence of oil was known in Venezuela even before the Discovery of the Americas in 1492; back then, Indians were aware of the existence of hydrocarbons that appear on the surface of their lands. They used them for medicinal and illumination purposes. Also, they collected oil from small creeks near seepages by impregnating blankets and then wringing them out. They also found asphalt, and they used it for caulking their canoes and impregnating the sails of their boats.
In 1499 Spanish conquerors were impressed with the natural occurrences of hydrocarbons in Venezuela. They learned from Indians to use them for medicinal purposes. They also used it for caulking their ships, illumination and lubricating their weapons.
On September, 1535, Gonzalo Fernandez de Oviedo y Valdes for the first time mentioned Venezuelan oil seepages in his “General and Natural History of the Indies”. He called it “the nectar from Cubagua” describing this substance as very useful to treat gout and other diseases.
In September of 1536, the Queen of Spain, Joanna, ordered officials who were in charge of Nueva Cadiz in Cubagua Island, to bring to Spain as much as possible “oil petroleum”. So in 1539 the first documented shipment of petroleum was sent to Spain in the Santa Cruz ship. The main reason for the Queen’s request was to alleviate the gout of Emperor Charles V.
By 1783, King Charles III of Spain dictated the Mining Ordinances for New Spain where mines were declared property of the Royal Crown, although the King can grant mining concessions. This included “any other fossils, be they perfect or semi-minerals, bitumens, or juices of the earth”.
After the Independence of Venezuela in 1811, Simon Bolivar, the Liberator and President of the Great Colombia, dictated a decree in Quito where he reiterated the national ownership of mines of all kinds. Two years after Simon Bolivar’s death in 1830, Bolivar’s decree was ratified by the Venezuelan Congress.
Meanwhile around the world, James Miller Williams began producing oil from shallow holes at Oil Spring, Ontario, Canada in 1858. One year later, Colonel Drake completed the first oil well in United States.
Later in 1878 in Venezuela, the first oil company was founded called “Compania Nacional Petrolia del Tachira” by Antonio Pulido. He asked the government to explore a 100 hectare parcel in the Venezuelan Andes. At the beginning, the oil was collected in buckets, but in 1880 they began to drill wells with a drilling rig imported from Pennsylvania.
In the next thirty years concessions were granted to small entrepreneurs and foreign companies to explore asphalt in Zulia State and other small regions of the country. At that time, Venezuela was known more for its agricultural production than for its oil production. In fact, Venezuela was an underdeveloped country with several political problems.
In 1908 General Juan Vicente Gomez took power to become the strongest dictator of the 20th century with 27 years in office. He opened the gate to foreign oil investors. In 1909 he granted to John Allen Tregelles, a British company representative, the rights to explore twelve of the twenty states of Venezuela. John Allen Tregelles founded a company called “The Venezuelan Oilfield Exploration Company” which had a lease of approximate of 27 million hectares. However, in 1911, Gomez revoked the concession because it was not giving him enough revenues and royalties.
Later Gomez gave almost the same concession to Rafael Valladares who formed the Caribbean Petroleum Company. This company made several million dollars exploring oil and asphalt on the Lake of Maracaibo. In 1913 the concession was transferred to a British-Dutch operator, the Royal Dutch-Shell Oil Company. This was the beginning of the modern economic history of Venezuela.
World War I was the trigger introducing Venezuela into the world oil market. After 1919, the investment and the exportation of Venezuelan oil increased tremendously. By 1922, Venezuela became an important supplier of oil in the world, and biggest reserves of oil were discovered in the Lake of Maracaibo. During World War II Venezuela was the most secure provider of oil to the United States.
In September, 1960, The Organization of the Petroleum Exporting Countries (OPEC) was created in Baghdad, Iraq. The countries that formed the organization at that time were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Then eight other members joined the organization: Qatar (1961); Indonesia (1962); Socialist Peoples Libyan Arab Jamahiriya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973–1992) and Gabon (1975–1994). As it was mentioned in the OPEC declaration of 1960, “OPEC's objective is to co-ordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry”.
Although OPEC was created in 1960, it was not until 1973 when OPEC became powerful and started to set the oil’s price. Also, their members took control of their domestic petroleum industries, so the price of oil produced and exported was determined by the OPEC members. At the same time, in the 1960’s Venezuela implemented a policy of “no more concessions” which was the beginning of the nationalization of the oil industry.
In January 1, 1976, President Carlos Andres Perez signed the law that reserved the government the industry and the commerce of hydrocarbons in Venezuela. The same day “Petroleos de Venezuela S.A. (PDVSA)” (Oils of Venezuela) was born as the company in charge of planning, coordinating and supervising the oil industry.
Figure 1. Venezuelan Oil Field
During its first year, PDVSA began operation with its three affiliates called Lagoven, Maraven and Corpoven. That year PDVSA produced 2.3 million barrels per day of oil and the investments were multiplied by four.
In the 1980’s, PDVSA was considered as a reliable oil supplier, and it was consolidated as one of the most important oil companies around the world. In the middle 1980’s, PDVSA began to buy refineries in Europe, United States and the Caribbean. Specifically, it started operations in Ruhr Oel (Germany), Nynas (Sweden and Belgium) and Curacao Island.
Moreover, in September, 1986, PDVSA bought Citgo, in Tulsa, United States, which became be the most important way to sell hydrocarbons in the US. Currently, Citgo has more than a thousand gas stations and occupies more than 20% of gasoline market in the U.S.
In the 1990’s the company started a program of operation agreements that gave the opportunity to foreign companies to explore and produce oil in inoperative oil fields. At that time more than 20 companies around the world applied for these agreements. Between 1993 and 1996 PDVSA began the first three rounds of operation agreements. This brought an investment of more than 2 billion dollars and increased the oil production by 260,000 barrels per day.
In January, 1998, the three affiliates that formed PDVSA for more than 20 years, Lagoven, Maraven and Corpoven, merged. The main goal was to create company with a unified goal to generate the highest revenues. Consequently, three divisions were formed PDVSA Exploration and Production, PDVSA Manufacture and Marketing, and PDVSA Services.
Currently, Venezuela has proven reserves of 78 billion barrels of Crude and 148 trillion cubic feet of Gas. This puts it as the country with the largest hydrocarbon reserves in the Western Hemisphere, and positions it as the 5th country in the world in proven reserves. With the Orinoco Belt reserves, the country possesses the largest accumulation of liquid fuel on the planet.
PDVSA has a production capacity of 4 million barrels per day (BPD); actually its production exceeds 3 million BPD and 8.81 billion standard cubic feet/day of gas. Also, PDVSA is among the leading corporations in the refining business, with a petroleum processing capacity of 3,285,000 BPD (1,285,000 BPD in Venezuela and 2 million BPD outside the country) through 24 refineries: six complexes in Venezuela, one in the Caribbean, eight in the United States and nine in Europe.
Moreover, PDVSA generally exports 93% of its total hydrocarbon production. Approximately 54 % of these hydrocarbon exports go to the U.S. and Canada. Just to the U.S. PDVSA exports 1.5 million BPD. In 2010, PDVSA is planning produce 5 million barrels per day of oil with an investment of more that 43 billion dollars from private and public sectors.
President Hugo Chavez
Hugo Rafael Chavez Frias was born on July 28, 1954, in Sabaneta, Barinas, Venezuela. When he was only a teenager, he chose the military career. In 1975 he got a M.S. in military sciences and engineering at the Venezuelan Academy of Military Sciences. Then he began a graduate studies in political sciences at the Simón Bolívar University, but he never finished the program.
In 1989, Carlos Andres Perez was the president of Venezuela for the second time, and he implemented a set of unpopular measures suggested by the International Monetary Fund (IMF). These measures provoked a series of protest that were brutally repressed by the police and military forces and several hundred of civilians were killed.
On February 4, 1992, Lieutenant-Colonel Hugo Chavez lead a military coup against President Perez. The military coup failed, and Chavez appeared on national T.V. asking for the surrender of his bother of arms that were still in control of military bases across the country. He said on T.V. that he and his co-conspirators had not achieved their goals “for now”. That courageous “for now” was the beginning of an amazing political career.
Figure 2. Chavez appeared on T.V. after the coup.
Chavez was sentenced to several years in prison, but after spending two years he and his companions were pardoned by President Rafael Caldera in March, 1994. Immediately after he was released, he formed a new political party called the Movement for the Fifth Republic and began his political career.
In 1997, he ran for president against the traditional political parties. His program offered an anti-poverty and anti-corruption exit to four decades of scandals and money malversations. Moreover, he offered a participative and pacific democracy where the welfare of the people would be the main focus of his presidential agenda. On December 6, 1998 Hugo Chavez won the elections by 56.2 percent, the largest percent of voters in four decades.
Before Chavez took office on February, 1999, he went to visit the presidents of the OPEC countries. Knowing that the main objective of industrialized countries was to substitute oil as a source of energy and the main economic support of the OPEC countries is oil exportation, he convoked a high level meting among the OPEC country leaders. Consequently, in September 2000, it was held in Caracas, Venezuela, the Second Summit of OPEC Sovereigns and Heads of State. The first one was held in Algiers in March 1975.
Chavez purposed this meeting with very specific objectives which were:
• Reestablished the dialoged among OPEC country leaders noticing that the last meeting was held 25 years ago.
• Recover the credibility of Venezuela in the Organization.
• Fortify the OPEC in the world.
• Recover oil prices.
• Regain the leadership of the OPEC in the oil market.
• Consolidate the relations among Venezuela and the Arabic Countries.
The Second Summit of OPEC Sovereigns and Heads of State ended with the Declaration of Caracas, on September 28, 2000. In this declaration, they ratified the unity of the organization. They also committed to maintain price policies that “are lucrative, stables and competitive with other sources of energy”. They also invited to the consumer countries to participate in debates and negotiations in oil subjects.
Figure 3. II Summit of OPEC Sovereigns and Heads of State.
Finally, they discussed the influence of taxes in the final oil price, so they solicited that consumers studied their tax policies. They also asked to the consumer countries not to discriminate oil in environmental, energetic and commercial policies.
Hugo Chavez moved to rebuild and revive the OPEC; as a result, Venezuela received a better price for its oil. In fact, the price of oil doubled to over $20 and Ali Rodriguez Araque, a Venezuelan, became the secretary of the organization.
Chavez took office on February 2, 1999, and the same day he signed a decree that called for a referendum where the people would decide if they support Chavez idea of the creation a new constitution. In the referendum, Chavez got more that 71% of the votes. So the idea of a new constitution was fully approved by the Venezuelan people.
Figure 4. President Chavez
Next, Chavez organized a second election where the delegates of the assembly would be elected. Those delegates would be in charge of creating the new constitution. This assembly was called the Constitutional National Assembly. After a successful political campaign, Chavez won 120 of the 131 assembly seats.
The project for a new constitution was submitted to the Venezuelan people on December, 1999, and it was approved by 72% of the voters. Consequently, on December 30, 1999, the Constitution of the Bolivarian Republic of Venezuela was published. The new constitution designed a new roll of the State in the society creating new and more balanced public powers. Also, it incorporated several mechanisms of citizen participation such as a new procedure to recall any elected figure like mayors, governors, congress representatives and the President. Moreover, it also increased the presidential term of office to six years and added provisions for presidents to serve two terms, and it changed the congress to a unicameral assembly. Finally, it changed the name of the country to Bolivarian Republic of Venezuela after Simon Bolivar, the independence hero that liberated Colombia, Ecuador, Peru, Panama, and Venezuela, and founded Bolivia in the 19th century.
In July 2000, a new election was held to elect the new congress representatives. Chavez won 2/3 of the majority of the congress members. This same congress allowed him to govern by decree for one year, so he passed a set of 49 laws by decree in 2001 which included the new Hydrocarbons Law.
In the new Hydrocarbons Law the taxes that the companies pay for oil exploitation in Venezuela were increased. On December 1, 2001, after he signed the decree Chavez said to the media: “this new law will permit using our oil and the refinery activities as an instrument of the national development and the diversification of the production of the country”.
Ten days after the law was signed, the Venezuelan opposition launched a general strike. Contradictory, the organizers of this strike were the employers and not the employees. The strike was not successful, but it was the first step to a coup attempt against Chavez on April 2002. Actually, there has been three attempts to throw Chavez out of office.
The first coup attempt occured on April 11, 2002. It started with a two day general strike was called by the Venezuela’s largest union and business federation on April 9, 2002. The private media openly covered and encouraged the strike. In fact, Venezuela's four largest private television stations, Venevision, Radio Caracas Television, Globovision, and Televen aligned with nine of the ten most important national newspapers to promote destabilization and justify a coup against Chavez.
To explain this phenomenon is important to point whose controls the media in Venezuela. “The most important and widely-watched television network - Venevision - is part of a media empire owned by multimillionaire Gustavo Cisneros. The Organization Diego Cisneros has over 70 outlets in 39 countries. These include: Univision, which accounts for 80 percent of Spanish language broadcasts in the US; Canal 13, Chilevision, DirectTV Latin America, Galavision, Playboy TV Latin America, Playboy TV International, Uniseries, Vale, TV, Via Digital, AOL Latin America. In addition to its joint ventures with Playboy and US media giant, AOL, the Cisneros group also enjoys profitable partnerships with Coca Cola and Pizza Hut. Not surprisingly, Cisneros is a strong advocate of the neo-liberal economic model tirelessly promoted by bodies such as the International Monetary Fund (IMF) and the World Bank” (Maurice Lemoine, Le Monde Diplomatique, Sept 2002).
On April 11, 2002, the opposition organized a march that would end at the PDVSA building located in Chuao, Caracas. But the march was relocated to the Miraflores Presidential Palace. The media strongly supported the protest leaders’ idea. Not only the media owners, but also the leaders of the protest knew that thousands of Chavez supporters were around the Miraflores Palace. They also knew that mixed these two groups would bring disturbance to the public order, an excellent environment for a coup.
At the same time the Metropolitan Police directed by the mayor of Caracas, who was in favor of the coup, began to open fire against Chavez supporters located in Yaguno Bridge. The supporters fired back and after some minutes of confusion and aggressive confrontations 17 people were killed and hundreds were injured. Suspiciously, almost all of the people were killed by long range weapons and many of them appeared to have been shot from above in a sniper-like fashion. Those presumed snipers were never found.
The shooting was covered by the media, and they repeated these images again and again saying that Hugo Chavez ordered hi supporters to kill the opposition marchers. When in actuallity they were defending themselves against the Metropolitan Police. On screen, the media repeatedly broadcasted selectively edited TV footage that appeared to show Chavez supporters shooting into a crowd of unarmed opposition marchers. Consequently, high-ranking military officers asked President Chavez for his resignation. On the early morning of April 12, 2002, Chavez was arrested and taken to the Tiuna Fort.
Pedro Carmona Estanga was appointed by the military as interim president. With the support of the media, a big show was held in the Miraflores Palace where he announced his first decree. In that decree Carmona dissolved every constituted power such as the Congress, the Supreme Court, and the Attorney General among others. He also changed back the name of the country to Venezuela. This decree was signed by him and also by several “representatives” of national life like the Catholic Church, political parties, the media owners, military, etc. It is important to mention that the U.S. government accepted and encouraged Carmona’s Government and decree. The U.S. was the first country that openly recognized the “legitimacy” of the new President while the rest of the world was more conservative in its comments about the Venezuelan situation.
But the people were not happy with the new president and the “de facto” government. They began to concentrate at the Miraflores Palace where they asked for the reinstitution of President Chavez. On April 13, 2002, the people and the middle to low ranking military took control of some military bases and later took control of the Miraflores Palace. They took control of the state T.V. station “Venezolana de Television” also where they broadcasted that Chavez had not resigned, but he instead was held as a prisoner in an unknown location. At the same time, the private media refused to acknowledge the reality of the situation the country was in. Instead of broadcasting the events of the military take over, they aired cartoons, cooking programs and action films.
The same day around 10:00 pm, Ministerial officials made a TV broadcast from Miraflores Palace and Vice-President Diosdado Cabello assumed the presidency temporally. Minutes after, Carmona announced his resignation and recognized Cabello as interim president. Later, on Sunday April 14, 2002, the deposed president Chavez returned to Miraflores Palace to reassume his post. This was the first time in the history of the democracy that a President is restored by the people in less than 36 hours.
Figure 5. Chavez arrived back to Miraflores Palace on April 14, 2002.
The U.S. government created an agency called the National Endowment for Democracy (NED) to oppose Chavez. This organization has given money to fund Venezuelan anti-Chavez groups and opposition political parties. In fact, the NED quadrupled its funding in the year leading up to the coup. NED funding of the opposition totaled $877,000 in 2004.
The second attempt to throw Chavez out of office was the PDVSA strike which began on December 2, 2002 and lasted for 2 month. The strike began as a part of general strike called by the Venezuela’s largest union federation and business federation similar to the April 2002 coup. However, this time the opposition leaders wanted to include the oil workers. The oil strike was led by a coalition of labor unions, industry captains and oil workers. As a result, many high-and mid-level technicians and skilled workers walked off the job bringing oil drilling, processing and transporting to a standstill.
The PDVSA strike began when the captains of the oil ships declared that they had joined the strike and their ships will stay anchored in the Venezuelan ports. Those ships are the only way that PDVSA can export its hydrocarbons. Hence, the production inland had to stop in order to avoid splits and control inventory. Fifteen days after the beginning of the strike, PDVSA decreased its production from 3.1 million barrels per day to approximately 100,000 barrels per day. This low production was only to maintain the pressure in the systems and plants.
Figure 6. Strikers at the PDVSA building in Caracas.
The strategy was simple; cutting the income would force President Chavez to resign. However, this strategy caused one of the most profound damages to the Venezuelan economy and its most important company. As a consequence of the strike, Venezuela began to import of gasoline from Brazil for internal use. In fact, President Lula Da Silva and the Brazilian government helped Venezuela tremendously. They sent several ships of gasoline to reactivate the Venezuelan public transport inside the country. The gasoline was distributed in some gas stations and the lines to pump gas were incredibly long. Some Venezuelans spent more than 36 hours in line to pump the tank.
In the mean time, the army took the oil ships by force sequestered by the PDVSA captains and the system started to move. Also, PDVSA had some workers who did not like the idea of the strike and supported President Chavez. Those loyal to Chavez, with the help of the Venezuelan Army, retook PDVSA facilities and began to produce hydrocarbons again. However, it took more that two months to reach the normal levels of production.
When PDVSA began to produce again, some of the workers who were in strike came back to work. At the same time, the government began to lay off the workers who still decided to strike. Later, every worker who stayed on strike was fired from the company. At the end approximately 18,000 out of 40,000 employees were laid off.
This second attempt to throw Chavez out of office cost the nation more than 13.5 billion dollars in direct losses. The damage made to the other sectors of the national economy is calculated in 6.5 billon dollars. Hence, the total accumulative damage of the PDVSA strike of 2004 was 20 billion dollars. In PDVSA several experienced workers and manager were fired, so the technological damage is almost impossible to calculate. Venezuela is still trying to recuperate from the production losses.
Currently, PDVSA is under the control of the Venezuelan Government, and it is more involved in the development of social programs. Oil Secretary and PDVSA President Rafael Ramirez said on May 18, 2005 in the First Latin-American Meting of Oil Workers that “PDVSA now has distinct relationship with the society. It is not only a company oriented to obtain its own commercial goals, but it is also centered in the social battle for the advance of Venezuela. PDVSA is now a blessing to our people”.
In addition, he informed that last year PDVSA spent 4 million dollars in social plans such as education missions where the poorest are taught how to read and write and young people receive scholarships to go to college.
PDVSA also has been the most important mechanism used by Chavez to unify South America and to support programs like Telesur (a TV station of South America), Petrosur (an oil company of South America), (Petroamerica an oil company of South America and the Caribbean), and the South American Development Bank.
The last and third attempt to throw Chavez out of office was a recall vote held on August 15, 2004. In the new constitution, proposed by Chavez and approved by the Venezuelan people, there is a mechanism that any elected official can be recalled. The opposition launched a multi-million dollar campaign against Chavez with the support of the U.S. government agency National Endowment for Democracy. In fact, $54,000 of those funds went to the group that gathered the 20% of the voters needed to sign the recall.
Millions of voters headed to the polls and waited more that 8 hours in line to cast their vote. The election had the presence of several international observers such as Jimmy Carter of the Carter Center and César Gaviria as Secretary General of the Organization of American States. One of the claims of the opposition was that they would only accept the results if international organizations acting as observers approve them. At the end of the day the Electoral National Council said that President Chavez won the recall by 59.25 percent of the votes. Moreover, the international observers endorsed the results of Venezuela's recall referendum.
The latest polls show that President Chavez increased his popularity from 59 to 70 percent in the February and March, 2005. Those numbers were taken from a private company called Datanalisis. This company also pointed that the key factor that Chavez had this increment in his popularity were the social plans that he and his Bolivarian Revolution have undertaken.
Chavez is revolutionizing the oil industry in Venezuela and the entire world. He frequently and unexpectedly declares new changes in foreign oil policy within Venezuela, and has also been an influential member of OPEC to increase the price of oil. Recently he has announced that OPEC will be fixing the price of oil as a move to eradicate cheap oil prices. He consistently threatens the United States, Venezuela’s major customer, to sell their share of Venezuela’s oil production to other nations. Chavez has also become stricter with the foreign oil companies producing in Venezuela to increase taxes and royalties from 34% to 50%. Chavez believes the rising demand and price of oil in the world will allow these changes to occur economically. Chavez wants to increase the Venezuela’s share in the oil revenue and use it to develop the country and to help lower poverty in Latin America. The overall increase in Venezuela’s share of oil production within the country has risen from 1% to 13%, because of Chavez’s changes in oil policies. The increased priced and revenues should result in approximately $300 billion within the nest seven years.
Relations with other countries
Argentina and Venezuela
Nestor Kirchner the President of Argentina, won the election in May 2003 after his rival candidate and former president Carlos Menen forfeited the race in the run-off vote. Kirchner is a left-wing Peronist who was imprisoned for a short time during the military dictatorship. The main promises of his campaign were to create jobs for the people, improve the administration of human rights of the people seriously abused for years by military forces, and improve the efficiency of the government.
When he took office Argentina was still suffering form the economic collapse of 2001 when the Government lost control of its state companies such as Oils of Argentina. This situation was caused by the implementation of neoliberal policies suggested by the International Monetary Fund (IMF) and drove the Government to a financial emergency.
President Hugo Chavez has excellent relations with the Argentinean President. On his visit to Venezuela in July 23, 2004, Kirchner ratified his will to work on the integration South America countries as “the unique path to reach a truly sustainable development”. The purpose of the Argentinean President’s visit was to install the First Negotiation Meetings between Argentinean and Venezuelan investors. More that 300 entrepreneurs, from both countries, were in the meting with the goal of enriching the commercial interchange.
Kischner agreed in the necessity of promoting changes in the production levels that permit countries to function in an environment of equity and social justice. He said that “Cooperation, association, trust and solidarity are the values that gave us independence and today are the pillars of our integration”. Also, Kischner invited the Latin-American people to “instead of always looking to the north, begin to look to the south”.
The same day President Kischner went to the Puerto La Cruz oil refinery with President Hugo Chavez. There Chavez said: “In Venezuela, we are decided to be free and we will never be a North American colony”. He also remarked upon the importance of the inclusion of Venezuela in the Common South American Market (Mercosur), “a strategic alliance that will set us free”. He also said: “The twentieth century caught us dominated, but the twenty-first will be the century of the liberation of our countries. That is the path that Venezuela and Argentina have taken and it will be taken by all the other countries in South America. What is needed is unity, as Simon Bolivar dreamed”.
Figure 7. Presidents Chavez and Kischner.
The oil situation in Latin America was an important issue discussed by Kischner and Chavez. Kischner commented that they are looking for managing their oil resources again, after the Argentinean state oil company was sold to international firms in the past decade as part of the neoliberal plan”.
After this visit, Presidents Kischner and Chavez have had several meetings and presidential events. As a reward of this important relation, the commercial interchange between Venezuela and Argentina has increased form 160 million dollars in 2001 to 500 million dollars on 2004, and at the end of 2005, it will be more that 1 billion dollars.
Brazil and Venezuela
Luis Ignacio Lula Da Silva is the President of Brazil. He is a former factory worker and the leader of Brazil's only socialist party, the Workers' Party, who became the country's first working-class president. He has taken the role as a spokesman for developing countries, openly criticizing the U.S. for the war in Iraq and the treatment of regional leaders such as Fidel Castro and Hugo Chavez.
Since President Lula took office in January 2003, he has had an excellent relationship with President Chavez. Several meetings and bilateral encounters have been held between them; the most recent happened in Caracas on February 14, 2005. There, they signed a resolution that instituted a strategic alliance between Brazil and Venezuela. This document expressed the necessity of reducing poverty in the region. To do so, they agreed on creating a program that helps their countries satisfy basic needs such as health, alimentation, education and housing.
Figure 8. Presidents Chavez and Lula.
Also, they coincided that Venezuela and Brazil have to contribute to the fortification of the South American Community of Nations, and they agreed on the idea of promoting a fairer commerce system that improves the developing of their countries.
In that meeting Lula Da Silva said that “South America is only looking for improving its commercial relationships and that should not disturb the U.S. or any other nation. What we want is to occupy our space in the world, respecting every country but being respected as well. We just look for diversifying our economies”.
The same day during the press conference, he was asked about the possible reactions of the U.S. in this alliance, and he answered: “everybody knows the importance of the U.S., the most important partner together with the European Union and China. But it is important not to depend on only one commercial supplier. In fact, we are going to continue working to have a heterogeneous commercial relation to depend less on a single country”.
The consequence of this approach between Venezuela and Brazil is their commercial interchange has increased form 880 million dollars in 2003 to 1,600 million dollars in 2004. Also, they are evaluating projects which involve the production of biodiesel and ethanol through PDVSA and PETROBRAS.
Cuba and Venezuela
The relations between Cuba and Venezuela have always been good. However, after Chavez took office the relations have improved notably. Hugo Chavez and Fidel Castro shared a friendship even before Chavez was elected president of Venezuela.
In 2000 Presidents Chavez and Castro signed a Cooperation Agreement. On one hand, Cuba agreed to treat Venezuelan medical patients in Cuba at no cost. Also, around 12.000 Cuban doctors and technicians work in Venezuela to support a Chavez social plan called “Bario Adentro” (inside the poor communities). This plan brings medical assistance to marginal and isolated communities that usually do not have access to medical services. In fact, the Pan-American Health Society reported that in 2004 more than 17 million of Venezuelans have been received treatment for this plan. On the other hand, Venezuela agreed to provide 53,000 barrels per day of oil at a reduce price which represent one third of the total oil consumption of the island.
On October 7, 2004, in Havana, Cuba, President Fidel Castro said that “the Latin-American countries have to get together in order to not be swallowed by the great centers of power. The money that our nations have given to the rich countries can be used in social programs, as Venezuela and its Bolivarian Revolution are doing currently”.
The latest meeting between Castro and Chavez was in Cuba on April 29, 2005. There, they signed the Final Declaration that included 49 commercial, energetic, financial, communicational, agro-industrial and technological agreements. For example, Cuba will provide Venezuela with technical equipment to produce soy milk that will help more than 350,000 children around the country. Also, Cuba and Venezuela will build annex in electrical plants in both countries.
Figure 9. Presidents Chavez and Lula.
In that visit to Cuba, President Chavez inaugurated a PDVSA office in Havana City. This office will contribute to improve the cooperation in refining, storing, transporting and marketing of hydrocarbons. PDVSA and the Cuban government have planed to re-launch the Camilo Cienfuegos Refinery in Cuba and to build an oil pipeline that interconnects this refiner with a Cuban oil terminal called Superbanqueros de Matanzas.
In 2005, Venezuela and Cuba will have more that 115 projects in common. In fact, the bilateral commerce between these countries went from 464 million dollars in 1999 to 912 million dollars in 2001.
Meeting of Spain, Brazil, Colombia and Venezuela: March 29, 2005.
Cuidad Guayana. Venezuela.
On March 29, 2005, the presidents on Spain (José Luís Rodríguez Zapatero), Brazil (Luiz Ignacio Lula Da Silva), Colombia (Alvaro Uribe Vélez) and Venezuela (Hugo R. Chavez) had a meeting in Cuidad Guayana, Venezuela. They declared, they recognized the improvement of their relationships, and they agreed on having a common position in international forums. Also, they asked the international community to avoid getting involved in the internal affairs of any country.
Furthermore, they set a position on poverty. Brazilian President Lula said that “Poverty is the most powerful weapon of mass destruction in the world”. They agreed on the necessity of decreasing the levels of hunger and poverty on their countries. Consequently, they supported Venezuelan President’s idea of creating an International Humanitarian Fund to fight against poverty and hunger.
Figure 10. The presidents on Spain, Brazil, Colombia and Venezuela
One of the most important ideas that came in the meeting was the Spanish President’s proposal of trading national debts for education. This idea will be explained in greater detail in a later section in this report. The presence of the president of Spain in this meeting was an important sign that the European Community of Nations is interested of improving their relations with the South American Community of Nations.
Also they discussed the integration of the South American countries; the presidents pointed the significant advances of the Andine Community of Nations (CAM), the South American Common Market (MERCOSUR), and the South American Community of Nations. Moreover, they applauded the efforts made by the Caribbean Community (CARICOM) to form a common market between Caribbean and Central America countries.
US and Venezuela
Chavez is the most visible and vocal Latin American leader spreading anti American sentiments around the world. His fervor is mostly based on increasing disillusion of democracy and free-market economies in Latin America during the past decade. Many feel that US “Free Trade” policy has done virtually nothing to alleviate poverty and economic inequality in Latin America. Chavez himself has been quoted to say “America wants to keep all the good things in the world for itself. But we will not let them do it.” Chavez has gone as far as to cast himself as the “Anti-Bush” in showing his dislike for current US foreign policy. Chavez’s anit-Bush sentiments are only strengthened by his belief that President Bush and his associates have tried to assassinate him and sabotage him politically. The US has claimed no responsibility for these allegations.
The US recognizes Chavez as a threat to US interests in different parts of the world. Secretary of State Condoleezza Rice has called Chavez a “Negative force in the region.” Chavez is not without his share of name calling toward the Secretary of State. One of his most sarcastic gestures was to refer to her as “Condolenica”, which means “condolence”. He has also made more direct insulting remarks about her, by calling her “pathetic” and illiterate. His blatant disrespectful statements about Rice continue to oblique sexual references to her. “I have been told she dreams about me,” he said on one occasion. Back biting and name calling may seem merely childish, but they more realistically represent the strong disrespect for the US state department’s tactics.
Chavez has made extensive efforts to befriend known enemies of the United States. In August of 2000 Chavez went to Iraq to Saddam Hussein as an OPEC representative. He was the first head of state to visit Iraq since 1991 against the wishes of the United States. During his trip Chavez offered Venezuelan support against US policy in Iraq. The US was upset at Chavez’s fraternizing with the regime leader. Patrick Clawson a research director of the Washington Institute for Near East Policy said this of the event “I think he was looking for an opportunity to spit in the United States’s eye".
Chavez has also made trips to visit the long time dictator of Cuba, Fidel Castro with whom he shares many political sentiments. The two have helped formulate a Bolivarian Alternative to the US-backed Free Trade of the Americas, or FTAA. This alternative was designed to tie together the developing nations of Latin America without US direction. Currently, the Bolivarian Alterative is supported by the anti-FTAA political groups, but faces opposition.
Chavez pays no discretion in supporting the anti-American sentiments as it relates to the war on terror. He has performed interviews with the television network al-Jazeera where he openly ridiculed the United States. In fact, Chavez has informally been labeled as one of the enemies in the war on terror. Although an actual terrorist attack originating from Venezuela is improbable, the US State Department has deemed Chavez a threat because of his close ties to world leader who have been know to support terrorist and hold a large stack in the world oil market.
Chavez understands his unpopular position with the United States and has been buying arms in case of an invasion similar to the US dominated war in Iraq. He has recently purchased 100,000 AK-47 rifles from Russia, and 50 Mig-29 fighter planes from Brazil. He also called for an increase in reserve troops in response to his arms purchases. To motivate his troops and explain the need for more reserves, Chavez declared it is “an honorable answer to President Bush’s intention of being the master of the world.” Venezuelan officials have made it clear to the United States that if anything should happen to President Chavez they will withdraw their oil from the US. Given the history of the dealing of the Central Intelligence Agency in South America Chavez is worried about being forced out of office or assassinated.
Chavez has taken a stance on the nuclear power research occurring in Iran, against the United States. Bush has labeled the Iranian research as being secretive and part of the “axis of evil”. President Mohammad Khatami recently visited Chavez in Venezuela. During a press conference Chavez declared his support for Iran by saying “All over the, there is a clamor of equality … and profound rejection of the imperialist desires of the US government. Faced with the threat of the US government against our brother people in Iran, count on us for all our support.”
Chavez’s consideration of trading oil in euros instead of dollars has the Bush administration nervous. Iraq under the direction of Saddam Hussein was the first major oil producing country to change trading of oil from dollars to euros in the fall of 2002. Critics have declared this as Saddam’s “worst sin” against the Bush administration. Conveniently, shortly after the fall of Baghdad, Iraq quietly returned to trading in US dollars. And the newly formed government in Iraq has declared that they will officially trade oil on the international market in dollars. Leaders around the world are seriously considering the change from the dollar to the euro. Iran has already made the change, the euro offers greater financial benefits to them since most of their customers are in Europe. Russia has not made the change yet, but will likely follow for the same reasons. Venezuela on the other hand is considering the change as part of his vendetta against President Bush. These threats are extremely important to Bush, because he understands that the changing the exchange oil to euros would severely lower the value of the dollar. Even greater are the fears that Japan and China will unload their billions of dollars in US treasury bonds if all the countries change to the euro, because of the huge budget deficit Bush has accrued during his administration. The dollar is vulnerable, Bush is struggling to protect it and Chavez knows it.
China and Latin America
In recent years China has become the world’s most important growing economy. Latin American leaders are striving to increase relations with China to promote equality in the world market, social programs, and distill political ideals. Luis Inacio Lula Da Silva president of Brazil is a forerunner in the co-operations between China and Latin America. His policies of cooperation with China have influenced other Latin American leaders such as Hugo Chavez.
China has similar optimism for the mutually beneficial relationship between China and Latin America. The two regions share similar economic experiences and have similar goals of gaining strength against imperialistic forces in the world. Both China and Latin America realize the economic strength and potential existing between them. Currently, China is a technology rich country and has a large need for natural resources to fuel its large industries and people. Latin America on the other hand is rich in natural resources and has a far less population density than China. Thus, the mutually beneficial exchange of goods, are technologies from China for oil and agriculture from Latin America. China has also provided direct foreign investment in Latin American oil and agriculture to more efficiently extract the natural resources from Latin America, since many areas within Latin America need more infrastructures to meet Chinas demand.
China and Brazil have had a strong trade relationship historically; China is Brazil’s third most significant trading partner and both countries believe increased relations would be beneficial. Brazil feels future relations with China are extremely important, since China has 1.3 billion people and is the most economically growing country in the world. Silva has mentioned the importance of relations with China in many speeches, including his inaugural address in 2003.
April 2004 Silva along with 400 other businessmen and politicians went to China with an agenda of establishing stronger trade relationship. The agenda consisted of increasing the economic niche in the world market of both Brazil and China by increasing trade and social-cultural relations. While at the University of Beijing, President Silva opened a Center of Brazilian Studies, the first of its kind in Asia, and an art exhibit containing indigenous art of the Amazon. Silva did this in an effort to increase bilateral relations between the two countries’ societies and individuals. He feels long term relations cannot be strengthened by government cooperation alone
Silva plans to continue to utilize the United States and Europe for there economic power, but to use relations with China to overcome the limitations within the framework of the World Trade Organization. Brazil hopes that greater ties to China will grant Brazil access to Chinese capitalists to invest in railroads, dams, steel, energy, oil, and other infrastructure Brazil desperately needs. Brazil also believes that China could help them bolster their technology programs, especially those relating to space, satellite and rocket related initiatives.
One of the first things Silva did on his visit to China was to establish a Petrobras (Brazilian national oil company) branch in Beijing. Petrobras will work with China’s state oil company Sinopec to form joint oil exploration projects across the world, to increase their international expansion and capacity. This is central to the relationship formed by both nations; it defines the strategic integration of state and private enterprise.
China shares mutual enthusiasm with Brazil to increase economic and social relations. The president of China Liu Jianchao considers Brazil the most important developing country in the Western Hemisphere. China expects to quadruple commercial exchanges with Brazil within the next few years.
Much like Brazil, Venezuela shares an interest in developing a stronger relationship with China. Hugo Chavez has followed the lead of his Latin American colleague and made his own diplomatic journey to China in December 2004. Much of Chavez’s intentions were similar to Silva’s on his visit. He wants to lower the dependence of Venezuela on the US oil market. Chavez considers the union of China and Venezuela vital move in oil reform policies. Over half of China’s direct foreign investment of 2004 went to Latin American countries, and trade grew by 50 percent. A mutually beneficial economic and political climate has created an important bond between these two countries.
In December 2004 Chavez visited the Chinese capital of Beijing to progress the birth of the new energy relations. After being welcomed by the unveiling of a statue of Simon Bolivar in one of Beijing’s main parks, Chavez vowed to increase fuel export to China. The increase would include an increase in fuel shipment, crude oil and natural gas cooperation.
China is the fastest growing energy market in the world. The current Chinese oil demand is around 6 million barrels per day, and it is estimated that the demand will grow to 10 million barrels per day by 2010. Chavez sees this as an opportunity to secure supply contracts early to be able to produce enough for this market, and further his plan to end US dominance of Venezuelan oil.
Although relations with China are beneficial, there are logistical obstacles complicating oil trade between the two countries. The US, Venezuela’s current main customer is in much closer proximity to Venezuela than China, and infrastructure is already in place to secure the transportation of oil between the two. It takes four to five days sailing time for oil shipments from Venezuela to reach the US, were as shipments to China can take well over a month. The current trade enthusiasm also contradicts previous marketing decisions of the PDV (Petroleos de Venezuela). In 2003 they sold its share of the Ruhr oil refinery in Germany, because they could not compete with the Russian in the European oil market.
Chavez is not without his solutions to this geographical inconvenience. Currently, Chavez is negotiating with Panama to reopen an idle 800,000 barrel per day pipe line connecting to a pacific port. This would drastically cut the time need to export oil to China. Also, as mentioned early China has expended their major portion of foreign direct investment into South America for the purpose of increasing the transportation of goods. Chavez during his December visit to China made agreements to open fifteen new gas and oil fields in Venezuela’s most desired oil reserves. The new Chinese production sites could allow the Chinese to produce the oil on their own and pay taxes to Venezuela. The transportation burden would be shared between the two countries. It seems Chavez believes a leftist politically driven oil revolution of state owned oil company coalitions offers a greater economic benefit in the future. Perhaps the past marketing decision regarding the selling of the German refinery, marking the retreat from the European market does not apply to China, since the China’s demand will increase in the future and will need many suppliers.
I Summit of South American and Arabic Countries.
Brasilia, Brazil. May 10-11, 2005
On May 10, 2005 in Brasilia, Brazil, began the I Summit of South American and Arabic Countries with the presence of 34 countries, 22 Arabic and 12 South American. The Brazilian President and host of the meeting Lula Da Silva said in his inaugural speech that “this is the beginning of the creation of a bridge between two civilizations”.
Figure 11. I Summit of South American and Arabic Countries
Also, President Chavez said when he arrived in Brazil that “For the very first time in a hundred centuries we got together the South American Union and the Arabic world. This is going to have very important consequences inside what Simon Bolivar called the ‘universe equilibrium’ or the new poly-polar equilibrium”.
President Chavez proposed in his intervention that both regions should join action to create a front against the domination of the empire (the US). He said that “these are two millenarian cultures that have been victims of several imperialistic aggressions such as invasions, crusades and genocides”. He also pointed to the similitude between South America and Arabic Nations, “Together we have the biggest oil reservoirs of the planet which trigger the voracity of the empire. In fact, those wars smell a lot like oil”. At the end of his intervention Chavez introduced the idea of the formation of a bank between the Arabic and South American blocks and a fund to fight against misery, hunger, AIDS, and illiteracy.
PETROSUR
PETROSUR was an idea proposed by Hugo Chavez that came to the public in a presidential meeting three years ago. The idea was to create an oil company owned by South American countries that would improve economical and social development of the region. In the beginning, PETROSUR was formed by Petróleos Brasileros S.A. (PETROBRAS); Energía Argentina S.A. (ENARSA) y Petróleos de Venezuela S.A. (PDVSA), which are the state oil companies of Brazil, Argentina and Venezuela respectively.
Currently, PETROSUR is a reality. The Brazil’s, Argentina’s and Venezuela’s oil secretaries defined the bases and initial projects of PETROSUR on May 10, 2005 in Brasilia, Brazil. There, they signed a base document to the constitution of PETROSUR as an instrument of energetic policy coordination. A fragment of this document said: “The Governments of Brazil, Argentina and Venezuela are aware that the adequate administration of the energetic resources will let the creation of more just societies”.
In this document they also defined the first three projects that the PETROSUR organization is going to undertake. The first one will be in the Orinoco Oil Belt in Venezuela which is one of the largest known accumulations of bitumen in the world. The estimated hydrocarbons in place are around 1,200 giga-barrels. The second project will be at the De Abreu refinery in Brazil, and the third one will be the exploration and production of oil and gas in new areas in Argentina.
PETROSUR is looking for minimizing the cost of energy to the countries of the region eliminating the intermediate cost, allowing financing and taking advantage of the commercial bounds of the region to solve the economics and social problems of the region. The main areas of cooperation are:
• The supplying and commercialization of oil and derivates
• The exploration and processing of oil and gas.
• The designing, construction and join operation of refineries, storage facilities, and terminals.
The South American Community of Nations
The South American Community of Nations is a plan between the countries of South America to create a union similar to the European Union. South American leaders hope to observe the strengths the European Union has generated since becoming united within South America. The South American Community of Nations believes that the unification of South America would improve the lives of hundreds of millions of people living in the region, strengthen the economic stability of the impoverished regions of South American, and free the South American countries from imperialistic exploitation that has existed in the past. Peruvian President showed his enthusiasm for this plan by saying, “We are here to give flesh, bone, soul, heart and life to the dream of Bolívar.” Others were quoted to say that this integration “will be useful to sow health, education, and productive ways to create jobs for the poorest”. Also, “there is not much time for protocols, and we have to find shortcuts to apply our ideas as soon as possible”.
Prior to the creation of the Community of Nations there existed two separate international communities in South American. The Southern Common Market (MERCOSUR) consisted of the following countries: Argentina, Brazil, Paraguay, and Uruguay. The other countries in South American belonged to the Andean Community of Nations (CAN), which consists of Bolivia, Columbia, Peru, Ecuador, and Venezuela. These two communities were originally constructed to bring economic stability to the participating members with free trade agreements. In December 2004 at the third South American Summit for the Community of Nations, South American leaders consolidated these two communities, MERCOSUR and CAN, into one South American Community of Nations. The map of South America below shows the participating members of the South American Community of Nations in green. There has been talk between national leaders of also including the Caribbean Community of Nations (CARACOM) into the South American Community of Nations.
The third Summit of the South American Community of Nations in December 2004 was the most important meeting thus far for the establishment of the Community of Nations. During this meeting the Cuzco Declaration was presented to the South American Leaders. The formal name of this document is the Preamble to the Foundation Act of the South American Union, and all 12 South American leaders attending the meeting signed the document. The declaration called for a full scale unification of the South American Countries. It stated that there would be a congress to provide political structure to the Community of Nations. It established the proposal of a common market with free trade between all participating nations. A common currency will also be used to unite the economies of the South American countries. A constitution will be drafted to establish laws regarding the interaction between participating members.
Figure 12. Third South American Summit, December 8, 2004 (Cuzco, Peru)
ALBA- The Bolivarian Alternative to the FTAA
President Hugo Chavez has put forth a great effort to unite the countries of South America under Bolivarian ideals. Chavez has actively opposed the Free Trade Area of the Americas (FTAA) backed by the United States and the World Trade Organization. He feels FTAA will keep the already struggling economies in South America under financial bondage with large national debts. Chavez believes the FTAA would continue to exploit the poor. To combat the FTAA Chavez has proposed his own alternative called the Bolivarian Alternative for Latin America (ALBA). The objectives of ALBA are to provide a plan to alleviate hunger illiteracy, homelessness and environmental destruction.
To accomplish these objectives ALBA plans to consolidate South American funds into a South American Financial Fund or bank. The plan calls for converting the already existing Latin American Reserve Fund the South American Financial Fund, and to create a South American Bank with the merger of the Andean Development Corporation (CAF) and the Cuence Plata Fund (Fonplata). The money provided by the South American Bank would help develop infrastructure and industry to improve the quality of life of the people. Lowering the national debts of South American countries would also be a primary function of the bank.
The ALBA plan questions the validity of the International Monetary Fund (IMF), and proposes to find ways of canceling South America’s obligation to many of these debts. Because, the source of a large portions of South American nation debts are based on corruption. Large international corporations have bribed political leaders to borrow excessive amounts of money for frivolous projects executed at high margins by the international corporations. Thus, many of the people in South America suffer from these invalid agreements. For example it is estimated that Brazil pays twice as much in interest on their national debts than they do on healthcare.
ALBA challenges the validity of the financial situation, but also will consider Debt for Education Swaps funded by the South American Bank, to alleviate some of the debts of poorer nations. As mentioned before, some of the debts South American countries have assumed are nearly impossible to bay back. This means the real value of those loans are far less than the face value. Owners of the loans are often willing to sell the loan to a third party for a fraction of the face value. This means the South American Bank could buy these loans and forgive them in exchange for education funds equal to the original amount of the loan for the people of that country. A similar situation can occur with a Debt for Nature swap, instead of providing education funds they provide land or environmental funds. The swap system will help South American Countries in two ways, it will help alleviate national debt and provide social programs for the people and the environment.
PETROAMERICA
PETROAMERICA is a Chavez idea of a unified Latin American Oil Company to be the most powerful industry on the region. This company would improve the quality of life of more that 530 million people. Moreover, PETROAMERICA would control 11.5% on the world oil reserves. This multinational company is conceived as a strategic alliance among energetic operating countries of the region to convert them into instruments of an efficient integration.
PETROAMERICA is the last major factor in the ALBA proposal. PETROAMERICA provides the financial strength the ALBA plan needs. PETROAMERICA plans to consolidate all of the energy in South America and the Caribbean. It will be the biggest company in the entire region. Venezuela is the most important player in the PETROAMERICA idea, since it has the largest reserves of oil of all the members. Chavez has dramatically changed the policy on oil exploration and production in Venezuela in the past few years. He has drastically increased the taxes and tariffs oil produced in Venezuela, and has been an influential member of OPEC in raising the price oil. Given his policies on oil revenue generated for Venezuela, Chavez has secured a large source of money capable of supporting a Latin American Bank.
The graph below (Figure 13) shows the projected revenue Venezuela should generate over the next seven years. This estimation is based on the idea that the price of oil will stay between the current $45 dollars barrel, and the projected $70 per barrel, according to OPEC’s plan. Also, Venezuela’s oil production rate at the moment is at 2.6 million barrels per day, and Chavez has announced plans of increasing production to 4 million barrels per day by 2012. The graph incorporates an increase in price and production, causing the revenue to go up over time. The reason the supply and price are able to increase simultaneously is because the global demand for oil is ever increasing. According to the prediction shown in graph Venezuela should generate approximately 300 Billion dollars over the next seven years.
Figure 13. Venezuelan annual oil income.
Below is a list of nation debts and GDP of some South American countries. This table is provided to gain some sense of how the Venezuelan oil revenue will benefit the countries in South America. Venezuela could not possibly invest all of their revenues directly back into Venezuela, because they are a relatively small nation with a low GDP. The South American Bank provides a means for Venezuela to reinvest its oil earnings and improve the lives of the people in South America. 300 billion dollars in oil revenue will greatly improve the economic stability of the South American Community of Nations.
South American Economic Statistics
GDP (billions) National Debts (billions)
Brazil 1379 251
Venezuela 117.9 34.5
Argentina 432.7 155
Peru 146.9 33.1
Ecuador 45.46 14
Bolivia 20.88 5.8
Chile 153 3.6
Paraguay 28.04 2.9
Uruguay 42.94 7.7
Columbia 262.5 39
South American Community of Nation 2629.32 546.6
Conclusion
The future is bright for South America; many forces are being consolidated to improve the social and economic circumstances of the people. Chavez has been an important influence in creating coalitions against the powerful imperialistic forces in the world. Consequently, Chavez is both loved and loathed around the world, as most influential leaders are. Chavez is creating equality in a global environment with the use of Venezuelan Oil. For these reasons he was considered the fourth most influential person in the world in 2005.
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