Croker Sack

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." — Henry Louis Mencken (1880-1956)

Monday, April 03, 2006

Venezuela's Chavez Mimics Mao

According to the New York Times, Hugo Chavez is spending his countrymen's fortune in an effort to make himself a big man:

Chávez, Seeking Foreign Allies, Spends Billsions [sic]
Published: April 4, 2006
CARACAS, Venezuela — President Hugo Chávez is spending billions of dollars of his country's oil windfall on pet projects abroad, aimed at setting up his leftist government as a political counterpoint to the conservative Bush administration in the region.

Mao tried that in Red China -- starving his countrymen so he could spend what little China had to buy himself a big name.

Here's to the high cost of oil: May it save the Venezuelans from suffering anything more than lost opportunities.


Blogger JasonSpalding said...

The Venezuelan President Hugo Chávez seems to be considering pegging the price of oil at $50 a barrel according to the UK’s Guardian newspaper. Why?

April 03, 2006 9:30 PM  
Blogger Micajah said...

According to the article, he needs a long-term promise of payment at that price level to make it cost-effective to develop his country's heavy crude oil resources:

According to US sources, Venezuela holds 90% of the world's extra heavy crude oil - deposits which have to be turned into synthetic light crude before they can be refined and which only become economic to operate with the oil price at about $40 a barrel. Newsnight cites a report from the US Energy Information Administrator, Guy Caruso, suggesting Venezuela could have more than a trillion barrels of reserves.

A $50-a-barrel lock-in would open the way for Venezuela, already the world's fifth-largest oil exporter, to demand a huge increase in its official oil reserves - allowing it to demand a big increase in its production allowance within Opec.

If he developed the infrastructure needed to exploit those heavy crude oil reserves, and the market price dropped well below $50, he might be stuck with a debt he cannot pay. (Also, as the article points out, the cartel allocates production based on reserves; so his reserves would be higher if he could include the heavy crude -- and he could produce more under the cartel's current rules. I wonder if OPEC would change the rules rather than let him have a bigger share of the market.)

He's a Marxist, but he's apparently not completely unaware of how the market might be worked to his advantage.

April 03, 2006 10:42 PM  

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