Venezuela Halts Oil Sales to Exxon Mobil

CARACAS, Venezuela (AP) -- Venezuela's state oil company said Tuesday that it has stopped selling crude to Exxon Mobil Corp. in response to the U.S. oil company's drive to use the courts to seize billions of dollars in Venezuelan assets.

Exxon Mobil is locked in a dispute over the nationalization of its oil ventures in Venezuela that has led President Hugo Chavez to threaten to cut off all Venezuelan oil supplies to the United States. Venezuela is the United States' fourth largest oil supplier.

Have at it.

Venezuela Halts Oil Sales to Exxon Mobil



A smart reversal by Chavez from his initial threat to cut off all oil sales to the US. Chavez (IMO) would have been cutting his own throat if he did this.

Venezuela still owns CITGO which uniquely processes the heavier mixes Venezuala offers. These, in general, can't be processed in refineries in the rest of the world.

Now, only EXXON (which has enriched itself through exploiting Venezuelan crude, more than any other company), will take the heat. On the other hand, XOM is a big boy and can undoubtedly weather the storm, given the preferential treatment it receives in the US.

Having said that, XOM could now be harvesting millions more BPD by upgrading Venezuela's heavy oil reserves if they had just acted with less avarice and offered Venezuela a better deal for the rights to do this than they did in the late seventies and early eighties. Chavez (IMO) would never have come to power if they had.

Now, having failed to learn the less of Venezuela, XOM is pushing a law in Iraq in which they and their cohorts get the lion's share of the production rights. What would be wrong with a 50/50 offer?

Pity. What goes around, comes around.

The best thing the Bush Administration could do right now is to remain silent. Silence is an important communications tool. Used properly, it is highly effective in that once you have shown your hand to an adversary, he knows what you are thinking. Keep Mr. Chavez guessing.

The best thing the Bush Administration could do right now is to remain silent

I doubt it. The best course is to be honest and admit to peak oil, once you admit the problem then you can try and fix it.

Peak oil, at the least, means the end of cheap oil and hoarding of it ... have we any evidence we are near peak? ... we have seen massive year on year increases in the price of oil for 10 years or so, and the US, China and other importers are already increasing the size of their SPRs (and filling them) while exporters gradually take full control of their fate and 'net exports' start to decline.

The EIA statistics indicate we can expect more of the same, make your plans accordingly.

Venezuela's announcement came after Ramirez, the oil minister and PDVSA president, reiterated in a newspaper interview Tuesday that Venezuela is ready to cut off oil supplies to the United States if pressed into an "economic war."

"If they want this conflict to escalate, it's going to escalate. We have a way to make this conflict escalate," Ramirez was quoted as saying.

The White House on Tuesday declined to comment on Venezuela's threat. "When there's a litigation that's ongoing, different parties will say anything to try to win over on an argument," said White House press secretary Dana Perino.

Silence on the part of the Bush administration. Is Bush learning a thing or two about diplomacy? Is Venezeula's posturing for a showdown at the O.K. Corral? Or is the Chavez government trying to minimize further loss by focussing the penalty on Exxon alone? Too many unanswered questions to get a clear picture.

The next few days will tell. Will this heat up? Or will it amount to a tempest in a teacup? Stay tuned.

"We expect that gasoline prices could drop another 10 to 20 cents before the expected spring price increases begin in March."

I'm sure they'll just sell it to the Dipsey Oil Corporation who will sell it to Exxon, probably using the same boat. Most of the heavy oil refineries are in the US, so what are they going to do? I'm sure if they really had another buyer, they would have sold to that buyer a long time ago.

PO notwithstanding, they're not going to stop selling oil.

They still have the oil--
And it is not getting less valuable.
Next game?

How about this ----
America is addicted to OIL.
OPEC controls 2/3 of the worlds oil reserves.
97 percent of the transportation system in USA runs on OIL.
Game over !!!

Not entirely so. Altough Venezuela could go on (authough poorer) without selling oil, the Hugo Chaves goverenment can't.

I'm quite curious to see what interest will prevail.

My question is: How practical is it for Venezuela to take their oil elsewhere?

At least slightly more practical than for the US to live without it.

and on the back of this news XOM is up slightly for the day, down 1/2% in after hours trading, so it seems "the market" doesn't care much.

the helicopter "market", a well-oiled machine, no less!
umm, have the Chinese begun building heavy sour refineries since their last friendly with Chavez?

2008 might be exactly the year that we leave the undulating plateau due to the coercion and conjuncture of :
- financial crisis (the long "expected" depression);
- geological determined shortages(Russia's peak...);
- political determined shortages(see Venezuela, Nigeria, etc) ;
- election year (US, Russia, etc..)
- drought (bye, bye biofuels)...
and many things that can go wrong:
- hurricanes, cyclones in Persian gulf?
- hot summer in the North Hemisphere?
- failure of electrical networks?
- food shortages?
- angry people?

How much oil could China absorb for their SPR ?

China uses AFAIK, above ground tanks, so their are limits to their ability to build new tanks.

A specialty refinery could be built to slowly transform the SPR crude into refined or semi-refined products for further storage.

My guess is that China can absorb 100,000 to 200,000 b/day into theri SPR. A long term deal at, say, $85/barrel might look good right now for both parties. The USA would lose that amount and sales elsewhere could bit be repurposed back to the USA.


I think China might be willing to build refineries to handle their heavy crude. It depends on what other deals that China can get. China is on the record as saying that they make deals with countries that the U.S. will not deal with. They will sell arms to the Saudis that we will not sell them, for oil. China is very active in securing their oil future and they have the U.S. dollars from trade to make the deals.

Hi Alan, would you guess that those repurposed sales could be at a repurposed price?:)

Here is a snippet from an article from Bloomburg that ilargi posted on the Automatic Earth this morning:

Exxon Mobil's "conduct is a classic example of unclean hands," Joseph Pizzurro, a lawyer with Curtis, Mallet-Prevost, Colt & Mosle LLP in New York who represents Venezuela, said in the Jan. 24 filing. "Not only is it a breach of contract, it is bad faith, plain and simple."

Question for the refinery engineers - I keep reading that Venezuelan crude needs to be processed in special refineries, and that normal refineries can't or aren't used to process it. Does this still hold true if you are willing to accept a lower grade end product? For instance, if you were willing to burn most of the crude as bunker oil for ships or power plants, rather than process it to motor vehicle fuel? Or is it a matter of corrosive contaminants, too-high viscosity, etc., that physically preclude processing in a normal refinery? Or both?

Venezuelan oil is heavy(needs hydrogen), and has lots of vanadiun(toxic metal) and sulfur in it. These impurities are bad for people and engines.
Gasoline and jet fuel are the most profitable products, these is what oil refineries want to make.

Here's what EIA says about the 2003 cutoff of Venezuelan crude.

I recall that Venezuela seized some oil drilling rigs that belonged to foreign companies in their mad quest to nationalize resources. The drilling rigs were working on sites and contracts approved by Venezuela. According to some the Chavez government was guilty of piracy in this case as tehy hijacked some rigs. In the case of Exxon, ConocoPhillips, Total, and others working in Venezuela, billions of dollars worth of investments were seized. Venezuela took at least 60% control of the projects. The projects were yet subject to taxes, royalities, rules, regulations etc. Venezuela offered to compensate companies for their losses, then gave no compensation to Exxon or ConocoPhillips.

How would you feel if you spent 10 billion dollars in a country and then the host country confiscated your investments? The current value of the upgraders, pipelines, and extraction infrastructure seized by Venezuela exceeds the amount of assets Venezuela has in the USA. Will he stop shipping oil to his three US based refineries at Citgo? Not all refineries are set up to handle heavy oil and there are trillions of barrels of bitumen in Canada, Venezuela, Russia, and elsewhere.

Chavez claimed rights to a minimum of 60% of all projects. That language leaves the option of further seizures open. Who would want to invest in such a nation as this?

Exxon has a right to file a lawsuit.

Exxon's net investment in Venezuela is not $10 billion. If they had invested this much and did not a get chance to extract billions of dollars in profits then you would have a point. According to Exxon, Chavez's nationalization, left them with a loss of $750 million.

Yes Rainsong, and what a good world citizen that legal entity has been. If it weren't for such self sacrifice by them and the rest of Oil-corp, in promoting the automobile, we would all be out shivering in the fresh clean air commuting on Alan's tooner trollys. Gee I would say they are just the peaky best, but I think Auto-corp edges them out in the just-what-the-world-needed department.

I think the human race would have been better off taking all the fossil fuels out and burning them:)

Why when legitimate criticism of venezualen nationalisation is raised do people consistantly erect strawmen?

Dezakin I think one erects straw men so that others may drive them to the ground with their insightful comments ... anyway it's fun and broadens the horizon IMO:)

No it doesn't. It just spams the debate with a bunch of off topic ideology.


What Venezuela did was legal under international law. They nationalized a higher percentage of the operations and offered adequate compensation (4 of 6 oil companies accepted the deal). XOM & COP refused the offer and now it is moving onto legal and arbitration channels.

Whether a nation wants to be an attractive place for foreign investment or not is an internal domestic policy issue (I would never invest in Russia for example, too corrupt and too much risk of Russian nationalism, but I would in Kazakhstan). But it is Russia's soverign right to be a poor place for foreign investors.


They nationalized a higher percentage of the operations and offered adequate compensation

I am curious, Alan. What is your basis for saying the compensation was adequate? ConocoPhillips has several billion dollars invested in the ground, and was offered pennies on the dollar in compensation. They were offered less in compensation than they still owe to the banks on the project. In order to get compensation they were being asked to sign a contract giving up rights to dispute any future disagreements. Personally, that doesn't sound adequate.

The compensation may have been adequate to some that didn't have significant investments, but to make a blanket statement like that is like saying offering $50K to all homeowners for their homes is adequate. I don't think you would say that if your home was worth quite a bit more, and especially if you still had a mortgage of well over $50K left to pay.

The US Gov't offered $150,000 maximum for those whom homes & contents were destroyed by a failure of federal levees, and we were told that this was fair.

And people were offered toxic trailers (I talked to several homeless people (formerly home owners) who told me that they had to leave their FEMA trailers due to illness and either sleep on friends couches or on the street. FEMA lawyers ordered FEMA field personnel to NOT test the trailers despite numerous complaints.

I am sure that they will also be offered fair compensation.

Should I hold the Venezuelan Gov't to a higher standard than the US Gov't ?


Unless people had $5 million homes, then the government made a better offer than Chavez did.

But the U.S. government didn't seize their homes, so apples and oranges. If they had, and had offered pennies on the dollar, then you would have a similar comparison.

Million dollar plus homes, plus contents in LakeView (Fats Domino's home was worth ??) plus disruption. The maximum flood protection available is $250,000, add $150,000 and many declared bankruptcy.

The taking was due to the failure, via malfeasance, of a promise made in 1928 and reinforced in the mid-1960s for a specific level of protection.

The second taking was the delivery of toxic trailers (CDC today ordered all residents out ASAP) and the willful decision not to test for over a year.

What is the fair compensation for someone previously living a normal life, who home was destroyed via malfeasance, and is then offered a trailer that makes them ill (again with willful failure to assure safety), they then end up sleeping in a tent outside, go into a deep depression and commit suicide (succeed or fail) ? This describes hundreds if not thousands of New Orleanians.

Granny Smith apples vs. Delicious apples,

Should I hold the Venezuelan Gov't to a higher standard than the US Gov't ?


Should I hold the Venezuelan Gov't to a higher standard than the US Gov't ?

If you did, those folks would have gotten about $20,000 for their million dollar home - and that presumes that the government actually seized a perfectly good million dollar home. Sound like adequate compensation?

Much more adequate than driving a "normal patriotic" American to homelessness and suicide by a series of malfeasance and deliberate policies.

I have heard their stories, seen their faces and they affect me *FAR* more than any negative impact on my ownership of oil company shares if said companies had been operating in Venezuela.(not XOM or COP but APA, PBR, Tullow, STO, ECA, CNQ).

I feel not 1% of the outrage towards the Venezuelan Gov't and the damage the have done to shareholders as I do the recent actions of the US Gov't.

The US Gov't has not treated it's own citizens any more fairly than Venezuela has treated foreign multinational corporations. I would argue that the V actions are morally flawed but still superior to that of the US Gov't. as shoplifting is a lesser crime than armed robbery.

AFAIK, the Venezuelans have not forced any COP or XOM employees into toxic boxes for two plus years or caused hundreds of them to commit suicide.


I would argue that the V actions are morally flawed but still superior to that of the US Gov't. as shoplifting is a lesser crime than armed robbery.

Alan, this just isn't a credible analogy at all.

True, the US Gov't was murdered over 1,100 of her citizens via malfeasance and thousands more via deliberate policies (the death rate in New Orleans went up 48% in the six months after Katrina and remains elevated).

Venezuela has, perhaps, committed a minor economic crime against foreign non-persons (corporations).

And then there is Iraq.

Murder vs. putting a cheap apple sticker on an expensive fruit might be a closer analogy.

And I will not apply a higher moral standard of "fairness" to Venezuela than that exhibited by the US Gov't.


When you're using phrases like 'murder via malfeasance' you're engaging in a campaign of deception Alan. There aint no such thing. All you're doing is labasting rhetoric, and not very credible rhetoric at that.

And then there is Iraq.
And Nazi Germany and the Roman Empire and a bunch of other things that are entirely unrelated.

This is what passes for serious debate here?

The US Army Corps of Engineers was given the specific mandate by Congress to provide a specific level of protection. They proclaimed that they had done so, while knowing that they had not.

A single specific case was the levees for St. Bernard Parish and the Lower Ninth Ward of New Orleans. The "as designed" zero elevation was 1.5 to 1.8 feet above the "as built" zero elevation.

Roughly a third of the levees was built to this "below spec" in error. Simple, massive incompetence to that point ! However, the error was discovered internally, and there were several honorable choices, such as

1) Finishing the remaining 2/3rds to the correct design elevation and then going back and adding a foot and a half to the third already built.

2) Going back and raising to already built levees to the proper elevation (the most critical were built first).

3) Disclosing the error to the public and continue building a short levee with budgeted funds and await further funding to build then right. (Such a disclosure would have prompted a multi-year effort to add more years to the budget).

Instead they kept their error secret and continued building short levees. This deceived those protected by the levees as to the degree of protection they had and this deception was malfeasance !

There were other significant errors, known to the US Army but not disclosed, regarding T wall levees, surge dynamics and soil support that created additional acts of malfeasance.

A good analogy would be that GM discovers that the plastic is a large batch of seat belts is significantly weaker than design spec, and does nothing about cars on-the-road, but builds more cars from the same batch and hides this knowledge. Or GM decides to save money on seat belts and buys cheap, weak, plastic. And then your friends die from seat belt failures.


The moral failures of the Venezuelan Gov't are dwarfed by the moral failures of the US Gov't. Given the lack of outrage (and lack of an 8/29 commission) about the US Gov't failures, I refuse to hold the Venezuelans to a higher standard than my own government.

Alan, you're comparing less than competant engineering trivia to outright theft, and then throwing perjorative phrases like murder around. The sad thing is, you probably believe your own rhretoric.

Its kinda sad that you actually think that this is a good analogy. This comparison is bunk.

You're right there Dezakin, we shouldn't be comparing individuals to either corporation or state entities, people tend to do silly things like bleed at the ears.

I do not think that comparing buying homes threatened by levee breaks to a country nationalizing its oil industry as quite the same thing. There are some similarities that allow you to make comparisons, but so many differences.

The government provides floor insurance and helps people when there are floods, so it is proactive to save that it is more cost effective to move the people than to insure them, rescue them or fortify expensive levees.

The government owned oil may be the only valuable resource that the country and its people have. If it is extracted rapidly at a low payment, the country and its people are left with very little to show for it, but the oil companies have made a lot of money and move on to the next country.

Wow, it's unbelievable how much Hugo Chaves is destroying his country. First, he nationalizes the oil industries in Venezuala, fires all the people in PDVSA because they didn't support him politically (and in doing so turning one of the best run oil companies in the world to one of the worst), spending all the money he made from the oil exports on short term social programs, pointless military tech (if we wanted to we could blow his shiny new MIGs out of the sky), and just plain corruption, supporting unsustainable economic policies (such as $.06 per gallon gasoline, which is a Venezualan import--GM sells a huge number of Hummers in Veneseuala, not to mention oil smuggling), which has lead to inflation of 22%, just to name a few "issues".

If Hugo Chavez remains in power, I'd give the country no more than 10 years to implode.

Daxtatter,...and how long do you figure for the unfolding economic quicksand under your feet to do it's job? "Hooray for Capitalism and corporate greed, that is all I need to confound my enemies", smiles Hugo Chavez :)

Does this little rant have anything to do with what Daxtatter was talking about?

If Hugo Chavez remains in power, I'd give the country no more than 10 years to implode.

Duh, maybe this?

Say, correct me if I am wrong but wasn't that you chasing off Chernkov, the other day, for using capital letters and exclamation marks?

Are you capable of actually making an argument? I dont know what you're talking about at all. You seem to just spout slogans and strawmen and off topic character attacks; I have no idea what you're talking about with the Chernkov thing, I never respond to his trollish doomerism anymore. To be honest all I got from your previous post was smug condescention. I couldn't tell what you were attempting to say at all. Something to the effect that capitalism and corporate greed are bad and Hugo doesnt want that as far as I can tell, but nothing countering Daxtatters arguments.

If you have something serious to post, go ahead but all you seem to do here is troll.

Maybe Professor Goose meant something else by his statement "Have at it", but to me that implies a certain freedom of response to the article.

And sorry you don't dig my patter, my dear, but neither of us will be harmed by it, unless of course you die of apoplexy ... now take three deep breaths, and try not to think of Cherenkov even a bit. BTW thanks for your condescension and great consideration in giving me permission to post something YOU consider serious.

For me it has been fun and would prefer it were for you as well, but gotta go now to buy a few garden things for my ELP plan, things looking economically rather unwholesome in the kingdom these days, take care and shun those trolls:)

Try to wrap this around your brain. Oil is 90% of Venezuala's export revenue, 50% of its federal revenue, but meanwhile their oil consumption is skyrocketing because they subsidize gasoline to $.06 per gallon and their oil industry is strugling to maintain production because he replaced PDVSA's competant employes with cronies, and instead of investing in more oil production (you know, the kind of stuff you need to maintain production), he's throwing money to his cronies, buying billions worth of foreign military equipment, and giving to social programs to keep the people happy.

Net result--22% inflation, shortages of basic good from price freezes, and the erosion of the backbone of the Venezualan economy (oil). Who knows, 10 years might be generous.

You dont honestly think hes going to respond with anything that is remotely relevant to any of these arguments do you?

'And when do you think that the US with their falling dollar and corporate cronyism will manage to sustain its own habits!' or something along those lines.

If Chavez wants to pursue a more socialist policy he could certainly do that more efficiently by making Venezuala more amenable to foreign investment and jacking up oil revenues than by this nonsense.

The falling dollar is a good thing IMO because the dollar was never worth what it was valued to be in the past--it's now going down to it's actual value. The artifically inflated value of the dollar has contributed to massive trade deficits for decades. If you've looked at the trade deficit numbers, the non-petroleum trade deficit is the lowest it's been since 2003, and in terms of percentage of GDP significantly lower than when it peaked in 2006 Exports grew at 13% last year.

Well, if I'm not missinformed, the next presidential election is in 2012. Chavez is not eglible to run for presidnet again, as he have already been re-elected as president. You can only sit in the presidents office in Venezuela for two consecutive terms. So how, pray tell, would he stay in power for ten years?

And is there any support for your claims that the PDSVA is one of the worst run oil companies in the world? I'm just curious.

Yes, HE is not eligible to run, but his party sure is, and he is the figurehead for his party, even if he's not actually president. He tried to eliminate term limits, but the Venezualans found that to be unacceptable, despite Chavez' bought and paid for popularity.

Counterpoint from another site, where his policies were criticized similarly:

14. I don't think anyone here is defending Venezuela's environmental record. And it's only going to get worse, the more of their ultra-heavy crude they produce.

Who do you think is voting for Chavez, if not the poor? Who do you think it was who staged the counter-coup, if not the poor? Who were the ~40% of Venezuelans who *tried to eliminate his term limit*, if not for the poor? The poor love him. Why? Because he's channeled huge amounts of money into social welfare. Check the above PDF for examples of how Venezuela's government spending has changed over the years (note the oil strike in 2003). For all of the following, realize that population has only grown from 23.4 million in 1998 to 27 million in 2006:

* Government social rose 314% from 1998, from 8.2% of GDP to 20.9% in 2006.
* Poverty rate pre-Chavez was 43.9%. Rose to 55.1% during the strike, and is now down to 30.4% (as of 2006). But poverty rates only consider income, not "quality of life", which is what social programs provide (free food, medical care, education, etc)
* Unemployment pre-Chavez was 15%. Reached 18.4% in 2003, now down to 8.3% (as of 2006)
* Inflation pre-Chavez was 36%. Rose to 40% in 2003. Now 19.4% (still too high, though, but typical for the third world).
* Fastest economic expansion in Venezuela's history -- 76% since 2003 (previous fastest was 31% from '73 to '77, and oil prices rose a lot more then, and '73 to '77 had its own downturn preceeding it like 2003 did.) The oil strike only cost Venezuela 24%.
* Private sector has grown faster than the oil sector. Fastest growing private sector, finance and insurance, has grown 240% from 2003 to 2007. Construction is up 144%, trade and repair 127.5%, communications 99.5%, and transport/storage 87%.
* Primary care physicians in 1998: 1,628. 2006: 19,571
* Emergency rooms in 1998: 417. 2006: 721
* Rehab centers in 1998: 74. 2006: 445
* Primary care centers in 1998: 1,620. 2006: 8,621
* HIV patients recieving retroviral treatment in 1998: 335. In 2006: 18,538
* School children benefitting from a school food program in 1999: 252,000. 2006: 1.8 million
* Opened 15,726 stores providing subsidized food; these plus expanded programs for the extremely poor, benefitted 67% of the population in 2005 and 43% in 2006.
* Primary school enrollment in 1999/2000: 271,593. 2005/2006: 1,098,489
* Formal sector employment in 1998: 4.41 million. 2003: 4.72 million. 2006: 6.06 million.

I could keep going if you like.

The rural poor? You have got to be kidding me. Chavez gained a tremendous amount of ire among wealthy landowners by *helping the rural poor*. It was one of the sparks of the coup against him, and one of the first things that Carmona did after Chavez was overthrown was to reverse Chavez's land reforms. What land reforms? He allowed the rural poor to confiscate any unused land so long as they put it to use. Basically, legalized squatting.

Chavez is no role model. But let's not repeat talking points that have no basis in reality. The facts are that the Venezuelan poor are his biggest supporters, and he's funneled a truly staggering amount of money into social programs to help them over the past several years.

Oh, and by the way: pull up Google Earth and show me where I can find a *single* food line in Caracas. Go on, I dare you. Things like that are visible on Google Earth. I'm browsing around Caracas right now, and there's not a line in sight. Perhaps I'm missing these "humiliating lines" you speak of.

From ABG comments

Not all of the world has the luxuries we enjoy in the US - it's a third world country, and Chavez appears to have done quite a lot of good for it. While I abhor his human rights abuses, the fact is he stared down a coup which was canceled because of popular revolt. It's a different scale to think about politics in. The coup was about resistance to nationalizing the oil company, sparked in particular by the televised firing of the top executives (which was seen as class warfare).

"Not supporting him politically" is a different matter than leading a riot which claimed several lives and threw the capital into chaos, then gaining military support for a coup. I daresay that in most countries many would have been executed for high treason without much deliberation. As it is, first their courts ruled that there was no coup, then the supreme court intervened and said that there was, and then the prosecutor of 400 people involved in the coup was assassinated. The mass-firings and loyalty-based hirings, months after the coup was over, followed a 2 month long strike by the oil company workers.

The neocons believe that we're not a constitutional republic, but an empire which owns the world by God-given right. They use words like "Use the oil weapon" to describe someone who doesn't choose to sell us oil. They positively foam at the mouth on thoughts of invading Iran or Venezuela for their oil. This, naturally, pisses a lot of people off. Whether MIGs would protect them is immaterial as long as a strong majority of Americans don't give in to this belief, and we don't go into a public policy of outright colonialism. The trash-talking of Hugo Chavez is largely an attempt to make that possible.

This looks to me like the Resource War carried out with soft economic power alongside the covert power the USA has applied against Chavez all along. (I recall that the USA was in fact complicit in the coup against Chavez, and supports a small class of wealthy Venezuelans who oppose Chavez.)

So far Chavez looks exactly like the kind of populist leader who would arise to oppose the military and economic power of the USA that has become inextricably identified with Big Oil.

I recall General Charles Wald testifying that the military has been transformed into "1-800-Dial-A-Cop" for the multinational oil companies.

(Warning: large PDF)

Anyone acquainted with the history of oil development is aware of "the curse of oil." Somehow, oil gets extracted from many countries at terms which are very profitable for the corporations extracting the resource, but extreme poverty and oppression result for most of the people. A small compliant elite who usually rules with monstrous force is compliant with Corporatist?US "Interests"and is well-rewarded.

The Shah of Iran and Saddam Hussein come to mind as examples of this. Well, each of them started off as compliant. The Shah could not stay in power, while Saddam stopped being compliant.

The Neocons -- Dick Cheney being the most obvious -- have long held that the USA must use force to ensure that the next century is "The New American Century." (See PNAC.) The Neocons have every intention of capturing "the prize" of global oil supplies, using overt military might to do so. Control of petroleum is seen as key global to dominance.

And the USA has had a policy of ordering relations between nations to preserve the imbalance of wealth favoring the USA. (The famous Dean Acheson document is one early example of this idea clearly stated in a policy paper.)

This clear merger of identity between "Big Oil," "Big Government," and "Big Military" may be unwelcome and even difficult to recognize for many Americans, but it is very real and longstanding. This is the military-industrial complex squared. Corporatism has spawned its mirror image in many places throughout the world. Hugo Chavez is one of them.

I don't see any "Good Guy versus Bad Guy" here. I see too many people fighting for too few resources. I see a plan on the part of Corporatists to dominate oil supply being challenged by a small but powerful leader who may upset plans in an entire important region. I also note that many poor people who back Chavez because he came up from the street and has been good to those who are still poor in Venezuela. This is better representation than they've ever gotten before.

How this plays out is anyone's guess. It is possible that ConocoPhillips will be able to negotiate a deal. Maybe EM could too -- who knows? The situation could still tip into a crisis, but I don't think any of the players stand to "win" enough at very good odds to risk the big losses which are likely if they push to hard.

I still guess that this will be resolved through negotiations.

BTW -- General Wald's prepared remarks begin on page 32 of the 90-page PDF.

His statement and answers to questions later are as relevant today as they were a year ago -- if not more so.

You're talking about a rising inefficient welfare state and paid Chavista mobs (I wouldn't call these 'cadres' a 'good' representation e.g. Venezuela has a very high crime rate) as if these were a good things. Oil is perpetuating a would-be totalitarian state, just as high oil prices perpetuated the oil/gas exporting Soviet Union in the 1970s.

It's ridiculous to claim that oil companies are REDUCING the standard of living of people in oil exporting countries.
Your idea is that oil exporting countries are ruled by
corrupt elites that are reinforced with money( to prevent the inevitable socialist revolutions no doubt), but there are corrupt elites in oil-poor countries as well.

If we intervened to spread democracy to oil producers ala Bush you'd denounce that too as neo-colonialism.

I'm not sure how compelling the logic of national sovereignty over resources is.
For example, Saddam Hussein lit Kuwait's oil fields(the 13th(?) province of Iraq, he said) on fire. That's the logic of national sovereignty.

Ideology aside, I think that this dispute between Venezuela and the two IOC's (who disagree with the offered compensation for nationalization) can and will be settled in some kind of negotiation.

Another important dimension of this conflict will develop as OPEC and perhaps other oil producers weigh in. Those who have oil will understand Venezuela's point of view very well. This may be a bit of a watershed. The new balance of power between producing and consuming countries will possibly be made clear for all to see.

As far as ideology goes, it does not really matter if Chavez leans to the right or to the left in this discussion. What matters to the IOC's -- and to the USA, with which they have become identified -- is whether Chavez in compliant with the "full spectrum global dominance" as envisioned by the NeoCons and expressed in plain terms by Rumsfeld.

Saddam Hussein was a monster, but was initially compliant, and so was supported as a useful tool. When he became noncompliant, he was broken.

Of course the USA overreached to take Saddam Hussein down, and now faces a larger problem in Iraq and throughout the Middle East. This makes it more difficult to threaten Venezuela with direct military intervention. Not impossible, but more difficult.

If Chavez is able to get a negotiated agreement then South America will assert even more independence from the USA. If not, then other leaders in South America will continue to work for independence. This is another situation where the USA could easily err by provoking more conflict than it can handle.

I just finished reading an historical novel with my son entitled "My Brother Sam Is Dead." It was about a Tory family that was split by the American Revolutionary War. At the heart of the conflict was the idea that the English needed to treat the colonies as fully independent nations, rather than as subjects. The English King simply could not concieve of such a world much to his own harm.

I believe that we see many people around the world concerned to maintain their independence rather than be quickly deceived or coerced into selling off their natural resources to other countries at what may turn out to be fire sale prices. This is a legitimate concern. The wealth and power of the IOCs and the USA is formidible, not to mention the very significant influence of other "developed" and "developing" nations.

Again, the bottom line here seems to be whether or not Venezuela and the two remaining OICs can come to terms through negotiations. If so, then this will be a victory for Chavez and Venezuela. If not, there will only be more trouble stirred up. Another quagmire awaits.

A pretty rational account of the "political" side. I think Chavez is really only taking the opportunity to take a few "pot-shots" for regional consumption, and not seriously cutting off exports of crude to the US. Perhaps a few refined products.

Before moving on, a few, perhaps not so minor points on other economic/technical factors.

1) The US Gulf Coast is a natural Venezuelan Market. It would cost five times as much to send a barrel of oil from Venezuela to China. The limited size of the Panama Canal is also an impediment. One might consider sending it through a new pipeline across the isthmus, instead. One on Collumbian territory was considered, but discarded by Venezuela due to animosity between Chavez and Uribe, AFAIK.

2) It would make no sense for China to build heavy oil refineries relying "solely" on a Venezualan supply--supply line too long, and too easily cut.

3) Any country, including China, if it wanted to or had access to supplies of natural gas, could make money upgrading heavy oil from any part of the world. There is plenty of it still in the middle east, with willing sellers. Also, it could use "long residue" as a feedstock (or even "cut" short residue) available from many coastal refineries in the world, who could increase their throughput of heavy oil if they had a place to send the excess long residue which they can't refine due to the lack of conversion capacity. However, they could still distill it without too much trouble or with minor upgrades.

Thanks for the keen eye on technical factors, HvyOilGuy.

I wonder if Venezuela -- over the long haul -- will want to build refining capacity at home and sell refined products rather than heavy crude.

Your comments about transporting and refining heavy crude on the Gulf Coast versus trying to ship to China help to clarify the situation. Shipping the crude around the world does not look too attractive.

Long term plans for Venezuela might include supplying more crude or refined products to near neighbors in south and Central America, but that requires developing the capacity to do so.

This dispute is theatrical but also significant in terms of the Exporter/Importer balance of power. The technical issues significantly impact the options of Venezuela as an exporter, and so tend to limit Venezuela's market at this time.

For maximum independence, Venezuela would need to develop the ability to refine at home and export the refined products, it seems to me.

Actually, back in the late seventies, Venezuela was ahead of its time in having a high capacity in refining with abilities to process and convert considerable amounts of "heavy" crudes (like Bachaquero, 17 *API--not extra-heavies 9* from Orinoco) into transportation fuel for both domestic consumption and export. Back then, Venezuelan engineers and PDVSA executives understood the technology as well as "basic economics".

As much as I criticize Exxon for its irresponsible corporate behavior today, I would be remiss in not giving them (and Shell) credit for the innovations and business decisions they made back then. It was truly a "win-win" result for both sides, even thought the transnationals didn't make as much money as they thought they would on the deal due to nationalization of the assets (for which I believe they were justly compensated for through technical assistance agreements).

Sadly, these facilities have fallen into disrepair with the current regime, and are incapable of processing even half of their nameplate capacity.

It just goes to show than no matter what side of the political spectrum the rulers come from, if they don't understand basic economic and technical concepts, disaster will eventually result. Pandering to the population by providing subsidized fuel for autos is the largest mistake they both are making.

These chickens will definitely come home to roost, in both the US and in Venezuela

Yes, if you throw money at the poor, they will be better off. However, when your source of money that you give to the poor is oil, and when you fill the state oil companies with political cronies that don't know what they're doing, and don't invest in new drilling, and promote massive oil consumption, where does that money come from. You don't have any petrodollars to spend when you become a net importer of oil (which is a very real possibility for Venezuala).

Anyone acquainted with the history of oil development is aware of "the curse of oil." Somehow, oil gets extracted from many countries at terms which are very profitable for the corporations extracting the resource, but extreme poverty and oppression result for most of the people.

There are non-sinister explanations for this.

One is that oil production (or any other easy source of wealth), especially by the government, eliminates the link between most forms of productive effort and worthwhile rewards.  Governments financed by oil (or gold, or diamonds) don't need support from workers to keep their programs running and leaders compensated.  Real estate and other resources get bid up by the extraction business so that other productive enterprises cannot compete, so those markets are supplied by imports.  This is not unique to oil; Spain's gold-driven wealth in the 16th century did the same thing.

If this is a predictable and nearly inevitable economic phenomenon, it's wrong to ascribe it to evil motives.


I agree with you that sometimes IOcs simply work with whomever is in power in a country. This is what businesses of all kinds do.

However, for one good introduction to some ideas about how the petroleum-military complex works, check out this video interview of Chalmers Johnson on "The Blowback Syndrome: Oil Wars and Overreach."

Chalmers Johnson is a respected scholar who thoroughly documents his written work.

Note that Johnson states that the first half of this century will be dominated by the blowback from the violent foriegn policy (covert and overt) that the USA pursued during the last quarter of the last century.

We are at the same time, according to Johnson, creating far worse set-ups for blowback with our wars in the Middle East.