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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 True Legacy of Venezuela’s Hugo Chavez

The True Legacy of Venezuela’s Hugo Chavez

Venezuela’s President, Hugo Rafael Chávez Frías, succumbed to cancer on 5 March. Vice President Nicolás Maduro announced on state television that Chávez died in Caracas at 4:25 p.m. local time, telling journalists that Chávez died "after battling a tough illness for nearly two years.”

His deification and demonization has already begun, and one can expect an ungodly scuffle behind the scenes in the coming weeks over the country’s energy reserves, the largest in the Western hemisphere.

That Venezuela is richly endowed with petroleum assets is verified by no less an authority than the Organization of Petroleum Exporting Countries, which in 2011 stated that, of the organization’s 81.33 percent of the globe’s known oil reserves Venezuela had 24.8 percent, exceeding Saudi Arabia with 22.2 percent.

According to the U.S. Energy Administration, the United States total crude oil imports now average 9.033 million barrels per day, with the top five exporting countries being Canada (2.666 mbpd), Mexico (1.319 mbpd), Saudi Arabia (1.107 mbpd), with Venezuela in fourth place at 930,000 barrels per day.

Despite the primacy of Venezuelan oil sales to the U.S. Caracas is shifting gears however, and China will soon to become Venezuela’s main trade partner, as oil sales surged 60 percent in 2012.

Whatever one thought of President Chávez’s politics, he was Venezuela’s first head of state to have come up from the laboring classes of the country’s marginalized indigenous people by dint of hard work, ambition and character. His administration accordingly focused massive efforts to alleviate the appalling poverty afflicting Venezuela’s lower classes, in turn earning the enmity of the country’s political and business elites.

As the administration needed increased oil revenues to fund its social program, in February 2007 Chávez announced a new decree to nationalize the last remaining oil production sites that were under foreign majority company control, to take effect on 1 May, allowing the foreign companies to negotiate the nationalization terms. Under the new regulations, the earlier joint ventures, involving ExxonMobil (NYSE: XOM), ChevronTexaco (NYSE: CVX), Statoil, ConocoPhillips (NYSE: COP) and BP (NYSE: BP), were transformed to give the state-owned energy firm Petroleos de Venezuela S.A. (PDVSA),  minimum 60 percent stake. The process completed a government initiative begun in 2005, when the Chávez administration transformed earlier “operating agreements” in Venezuela’s older oil fields into joint ventures with foreign companies. Thirty out of 32 such operating agreements were transformed, with only two being challenged in court. Most foreign companies accepted the new arrangements, including Chevron, Statoil, Total and BP, but America’s ExxonMobil and ConocoPhillips refused.

Simply put, on the issue of whether Venezuela’s oil wealth would go to the people or the elite, Chávez came down in favor of the former.

If these policies hit foreign oil companies, used to having their way in the Third World in the pocketbook, the social policies that Chávez has implemented to benefit Venezuelans had a strongly socialist tinge that, even worse offered an alternative to Washington’s free market proscriptions. Case in point - Venezuela’s health care system. A joint Cuban-Venezuelan medical program, “Barrio Adentro,” has made health care free and accessible to all Venezuelans. Founded in 2003, Barrio Adentro expanded Venezuela’s national health care system by employing more than 30,000 Cuban medical professionals as the government equipped clinics and hospitals with advanced high technology diagnostic and surgical equipment.

By cozying up to Cuba, Chávez showed what socialism flush with redistributed oil wealth could accomplish, setting an alternative to Washington’s policies. The biggest geostrategic change of the past decade overlooked by Washington policy wonks in their fixation on their self-proclaimed “war on terror” since 9-11 is that Latin America has been throwing off the shackles of the Monroe Doctrine and Chávez, after Castro, showed that there were alternatives to the social inequities plaguing the rest of Latin America, which suffers the highest rate of unequal income distribution in the world. According to United Nations statistics about income inequality, after Cuba, Venezuela has now the least income inequality of South America. Again, as documented by the UN, the Chávez administration halved the nation’s poverty rate and decreased the extreme poverty rate by two-thirds.

To be sure, not all aspects of Chávez’s “Bolivarian revolution” went smoothly. In 2011 inflation in Venezuela produced food shortages, while deteriorating public services and infrastructure along with corruption, impeded further social progress.

But overall, the legacy of Chávez and his elderly friend Castro has been to hold up a more equitable social model of development for Latin America and Washington’s policy of treating Chávez and Castro as anathema has isolated Washington, not Venezuela and Cuba.

Colonel Lawrence Wilkerson, Collin Powell's former Chief of Staff and now at the College of William & Mary says that the Obama administration should have the courage to normalize relations with Venezuela and Cuba.

While few things are certain in politics, what is certain is that the death of Chávez will refocus sharply the interest of foreign countries and oil companies on the Western hemisphere’s largest energy reserves. While it is unclear at this stage whether there will be an election to replace Chávez, in the interim Vice President Nicholas Maduro acting as head of state can expect a long line of oil company executives and foreign diplomats to flood his office, seeking to determine whether the country’s energy policies will change, as ExxonMobil and ConocoPhillips lawsuits for compensation slowly wend their way through the U.S. and Venezuelan courts


But whether Washington does or does not normalize relations with Venezuela, Chávez has provided his nation with tangible proof that the country’s economy need not always be gamed to the rich, and that social and economic justice need not remain ideas confined to the pages of political science journals, that those previously marginalized by their country’s political system can still have a role to play.

And that is the true legacy of Chávez, a lesson that might be pondered by America’s first black president.

By. John C.K. Daly of Oilprice.com

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Leave a comment
  • Richard Kauzlarich on March 07 2013 said:
    OK I've got the theory of redistribution of oil wealth from the well-off to "the people." The very empirical question is: Did it happen? If it did not go for more food, better public services, and infrastructure, then where did the money go? Arms purchases from Russia (and maybe China)? Corruption? Drug traffickers? I don't know. Looking only at Venezuela it's hard to say Chavez's legacy is positive change and modernization rather than rhetoric. Let's see if the people of Venezuela have a free and fair opportunity to choose their next president.
  • Randy on March 07 2013 said:
    There is so much nonsense with what was written above that it is difficult to know where to start. First, Venezuela is on the verge of an economic catastrophe thanks to Chavez and his insane 'Bolivarian Revolution.' The country is carrying an astounding 145 billion dollars in debt over an above what they borrowed from China. They are also paying some of the highest interest rates in the world on their bonds, in some cases as much as 12.5%. Like Argentina earlier in this century, Venezuela may be forced to shave 70 or 80% of that debt just to be able to make the interest payments. That could happen this year!

    Second, prior to Chavez Venezuela was pumping about 3.5 million barrels of oil a day. Today it's dropped to 2.4 million, over 50% of oil potential oil revenue from the 2.4 mbd is squandered on the domestic market (cheapest gasoline in the world), Cuba and payback for Chinese loans. Were it not for Chevron's engineering expertise, many of the 'old' oil fields in Lake Maracaibo would be dry by now.

    Third, the oil refineries in Venezuela are almost at total collapse. Amuay and Cordon have been run into the ground. The fire last August cost the lives of 50 people. After almost 6 months Amuay is still operating under 50% capacity.

    If you want to read some of the spin on Chavez's international propaganda campaign, read the above. If you want the truth, read the Miami Herald's editorial on the death of Chavez. It was a disaster from start to finish
  • K harvest on March 07 2013 said:
    Great item. So nice to see a balanced view of the issue that does not blindly predict that the country will simply give its resources away.

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