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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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The Hemispheric Implications of Hugo Chavez's Illness

The recent dramatic pronouncement that Venezuelan President Hugo Chavez underwent cancer treatment in Cuba reverberated far beyond Venezuela, depressing his allies and elating his enemies.

While the leader of his self-proclaimed "Bolivarian revolution" is second only to his good buddy Fidel Castro in Washington's black book, the fact remains that Chavez has discreetly deployed Venezuela's vast oil and cash reserves to assist the struggling economies of a number of his Central American neighbors, which has earned him deep gratitude.

Ever the showman on alert for any opportunity to tweak Uncle Sam's snout, in March 2006 in the aftermath of Hurricane Katrina, which damaged the U.S. Gulf oil infrastructure sending domestic prices soaring, he offered shivering New England residents discounted heating oil, infuriating the Bush administration.

Venezuela has the largest conventional oil reserves and the second-largest natural gas reserves in the Western Hemisphere.

But the reality is that Venezuela remains the United States' fourth largest oil importer, accounting for roughly 1.5 million barrels a day. Should Chavez ever in a fit of pique turn off the taps, the only option that the U.S. would have to replace lost imports would be to turn to Saudi Arabia, the sole OPEC member, and ask them to ramp up production, as Saudi Arabia is the only OPEC member with the reserve capacity to do so.

This in turn would create political problems for Riyadh with other OPEC members, most notably Iran, as under the OPEC system each member state has a pumping quota, and Tehran has already accused Riyadh of breaching its quotas by stealth.

Chavez certainly has reason to be mightily annoyed with U.S. policy, which has been turning up the pressure on Chavez for years while carefully calculating how to avoid a total rupture.

In 2005 Washington classified Venezuela as a country that does not "cooperate in the fight against drug trafficking," with government officials stating that the lack of assistance should incur financial penalties. The following year the U.S. upped the ante, labeling Venezuela as a country that "does not cooperate sufficiently with the fight against terrorism" and imposed sanctions prohibiting U.S. arms sales to Venezuela or those from any company in the world using U.S. technology.

Upping the ante, in 2007 Chavez announced the nationalization of the country's oil industry. The foreign oil companies were forced to sign agreements giving majority control of hydrocarbons projects to Petroleos de Venezuela, S.A. (PDVSA), Venezuela's state-owned petroleum company. Projects owned by companies like ConocoPhillips and ExxonMobil, who failed to sign these agreements, were taken over by PDVSA.

U.S.-Venezuelan relations proceeded to deteriorate rapidly.

Most recently, on 24 June, during the "Sanctionable Activities in Venezuela" hearing in the House of Representatives Foreign Relations Committee, a number of Democratic and Republican House members requested that the Obama administration take more aggressive action against the government of Hugo Chavez. Sub-Committee on Foreign Affairs for the Western Hemisphere head, Connie Mack, a Florida Republican, called the Venezuelan government "terrorist," adding, "it's time to act to contain the dangerous influence of Hugo Chavez and his relations with Iran." Pandering to the committee members, In testimony before the Committee, the State Department's Assistant Under-Secretary of State for Latin America, Kevin Whitaker, stated that the administration is "seriously considering" labeling Venezuela a "terrorist state. No option is off the table and the Department will continue to study any further action as may be necessary in the future."

Washington's sanctions policy has isolated Cuba and crippled its economy for over fifty years, a relic of a long-gone Cold War.

It appears that Hugo Chaevz's mortal sin in the eyes of Washington is that he did not come from Venezuela's traditional white criollo population, less than 25 percent of the country's population, which had dominated Venezuela's politics since the nation achieved independence in 1811. Chavez came instead from the country's mestizo ethnicity, of mixed European, African, and Amerindian ancestry, which comprises about 65 percent of the country's population and a working-class background. Just as Obama smashed the color bar in U.S. politics by being elected to the country's highest office in 2008, Chavez, elected President in 1998, gave the majority mestizo non-white population not only of Venezuela, but of other nations across Latin and Central America, high hopes that one of their "own" could be elected, who would be more sensitive to their needs than their traditional white criollo elites (of whom his friend Fidel Castro is one), a political seismic shift of historic proportions.

As Washington remained fixated after 11 September 2001 on invading Iraq and Afghanistan, this political shift began to wash across Latin America, most notably with the 2006 election of Bolivia's Evo Morales.

More important than the ethnicity of the chief executive however is that since the early 2000s left-wing political parties have risen to power in most Latin American countries. Besides Chavez and Morales these include Lula da Silva and Dilma Rousseff in Brazil, Fernando Lugo in Paraguay, Nestor Kirchner and his wife Cristina Fernandez in Argentina, Tabare Vazquez and Jose Mujica in Uruguay, the Ricardo Lagos and Michelle Bachelet governments in Chile, Daniel Ortega in Nicaragua, Manuel Zelaya (later deposed in a coup) in Honduras, Rafael Correa in Ecuador, and Mauricio Funes of El Salvador.

Chavez has been at the forefront of attempting to wean these governments away from Washington's influence, most notably with the establishment of the Alianza Bolivariana para los Pueblos de Nuestra America (the Bolivarian Alliance for the Peoples of Our America," or ALBA), which Chavez first proposed in 2004. The initial member states were Venezuela and Cuba, but ALBA now also includes Bolivia, Dominica, Ecuador, Nicarauga and the St. Vincent and the Grenadine islands. In August 2008, shortly before the coup, which overthrew him, Honduran President Manuel Zelaya signed an agreement to join ALBA. Further threatening Washington, in October 2009 ALBA leaders agreed a cereate a regional currency, the sucre, to used used in alliance transaction in lieu of both local currencies and the dollar.

Is it any wonder then why Washington sees Chavez as a threat?

Accordingly, the 64,000 bolivares question, not only for Venezuela but Central America and the U.S. as well is - how serious is Chavez's illness, and what are the implications for Caracas if he is incapacitated? If Chavez leaves the scene, will a new government continue his policy of providing discounted energy to his poor neighbors, most notably Cuba, which receives 64,000 barrels a day, or the Dominican Republic, which pays Venezuela for the 50,000 oil barrels per day that it receives through Petrocaribe with chicken, lard, sugar and pasta? Nicaraguan businessmen are so concerned with the "precarious health" of President Chavez that they are insisting that the Ortega administration immediately negotiate a Free Trade Agreement with Venezuela. If Chavez leaves office, will these countries become more amenable to foreign investment, having nowhere else to turn?

Will a new administration let foreign oil companies back into Venezuela? These and many more questions hinge on the health of a single man, who whatever happens has had more impact on the Latin American political landscape than any other regional political leader of the last dozen years. Love Chavez or detest him, it is impossible to ignore both the man and his impact and the smart money will be gauging carefully the depth and longevity of the impact of the man and his vision should he leave the stage.

By. John Daly of OilPrice.com

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