A timely look at Venezuela's controversial president Hugo Chávez
“A thoughtful, well-researched alternative to the majority of information available on Chávez in the English-speaking world.” Publishers Weekly
“A reasoned, historical presentation of Chávez's rise to power and the social context which produced him.” Political Affairs
“This book is highly recommended reading for those who want to understand Chavez beyond his rhetoric – the real basis of his support and his actual policies.” Journal of Peace Research
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Oil, Politics, and the Challenge to the United States
By Nikolas Kozloff
St. Martin's PressCopyright © 2007 Nikolas Kozloff
All rights reserved.
"OIL IS A GEOPOLITICAL WEAPON"
Oil looms large in the realm of U.S.-Venezuelan relations. Venezuela is the fifth largest oil exporter in the world and the fourth largest supplier of oil to the United States after Canada, Mexico, and Saudi Arabia. In 2004, Venezuela's state-owned oil company, Petróleos de Venezuela Sociedad Anónima (PdVSA), accounted for 11.8 percent (1.52 million barrels a day) of U.S. imports. In the event of a wider war in the Middle East, Venezuela could become a critical energy supplier.
Even before Hugo Chávez was first elected president in 1998, he was explicit in describing his views about petroleum. "Oil is a geopolitical weapon," he declared, "and these imbeciles who govern us don't realize the power they have, as an oil-producing country." Chávez had no need to be modest about his country's economic leverage. Consider: Venezuela is home to the western hemisphere's largest conventional oil reserves, estimated in 2004 at 77.8 billion barrels. That figure dwarfs the United States, which only has 22 billion in reserves. What is more, Venezuela has trillions of cubic feet of natural gas. In addition to its proved reserves, Venezuela has an estimated 260 billion barrels of heavy crude, more or less equal to Saudi Arabia's reserves, in the Orinoco belt lying in the center of the country. By 2020, analysts predict that Venezuela could outstrip Mexico as an oil exporter to the United States — if relations do not sour beforehand. Through bargaining and maneuvering Chávez has worked to achieve a higher price for oil through the Organization of Petroleum Exporting Countries (OPEC), the oil cartel of which Venezuela was a founding member. With oil prices hovering at about $59 a barrel in 2005, Chávez is awash in cash and wields considerable economic and political influence throughout his country and Latin America.
The evidence suggests that Chávez may try to follow through on his inflammatory electoral rhetoric. Ever since April 2002, when Chávez was briefly removed from power in a coup, he has accused the United States — not without merit — of sponsoring his attempted overthrow as well as supporting a devastating oil lockout in 2002–03. Never one to soften his language, Chávez bluntly refers to the United States as "an imperialist power." What is more, according to Chávez, Bush had plans to see him assassinated. In a further barb, Chávez declared that if he were killed, the United States would not receive a drop of oil for another thousand years.
To understand the power struggle over oil which is played out between the United States and Venezuela, it's essential to see how Chávez's position is a 360 degree turn away from the U.S.-friendly policies of earlier regimes. Those governments, according to Chávez, were unpatriotic and unduly subservient to U.S. interests, and failed to secure oil wealth for the good of Venezuelan society.
* * *
Perhaps no figure was more closely allied to U.S. oil interests than Luis Giusti, PdVSA's head from 1994 to 1999. The dashing Giusti, who has fair hair and a light complexion, was born in an oil field camp in 1944. Although Giusti came of age during the 1960s, a time of political ferment, student activism, and even communist insurgency in Venezuela, he seems to have steered clear of such rabble rousing. Pursuing his studies as a petroleum engineer, he graduated from the University of Zulia, located in the oil-rich city of Maracaibo, in 1966. He later earned a petroleum engineering degree from the University of Tulsa and worked for years in the scorching hot oil fields and refineries.
Today Maracaibo is a sprawling city of 1.5 million people. The city rests on a lake, the largest in South America, which measures 200 kilometers north to south. I have visited the area twice, first in the early 1990s and later in 2000 as a graduate student conducting field research on the environmental history of oil. What I was immediately struck by in Maracaibo was the insufferable heat; to the north lies desert. A slight breeze from the lake brings some slight relief, but not much. On my first trip, I vividly recall exiting my hotel on the Plaza Baralt after breakfast. Walking in the downtown, I found sweat pouring off my wrist within minutes. Someone later remarked to me that one might fry an egg on the pavement in Maracaibo on a typical day, and I have no reason to disbelieve it.
The oil infrastructure dotting Lake Maracaibo is living testament to the engineering feats of a bygone age. On my first trip I was taken aback by the thousands of rusty oil derricks built by the Americans who were trying to get rich on petroleum decades ago, embedded in the waters of the lake. Visiting oil boom towns is hardly the most popular tourist itinerary, but I had developed a considerable curiosity about the area. To get to the other side of the lake from Maracaibo, I took a dilapidated taxicab across a long causeway. The terrain is barren and desolate, with desert shrubs peeking up from the ground. In Ciudad Ojeda, the streets were cluttered with vendors and useless junk. I retreated to a luxury hotel that was air conditioned, probably for visiting oil executives, as no one else would likely be able to afford it. Touring around, I saw old company towns, which had been inherited by the state-run Maraven, a PdVSA affiliate. Pristine and protected compounds are surrounded by tall iron fences. From the outside they look like orderly American company towns with streets, stores, hospitals, and pharmacies.
Although many Venezuelans working for American oil companies achieved much higher wages than they would have made in the countryside, not everyone in the oil boom towns benefited. During my trip, I saw the result of the long-standing neglect. I rode to an area known only as R-10. There I spotted wells spewing oil into people's backyards. Most of the houses were made of concrete or aluminum. At one house I spotted a pool of green toxic waste at the front door. Nearby, oil leaked onto the ground where children were playing. Meanwhile, flames spewed from a pipeline.
* * *
In a small country where U.S. political and economic influence has been pervasive, being too closely identified with foreign petroleum interests can prove politically costly. Luis Giusti's 'crime,' according to nationalists such as Chávez, was that he identified too closely with foreign oil men as opposed to looking out for Venezuelan interests. Giusti came of age at a time when the country sought to exert greater control over oil resources. Although some oil wealth had filtered down to the poorest and successive regimes were able to carry out important works in health and education, the nation still suffered from persistent poverty and unequal distribution of wealth. Nationalization of the foreign oil companies in 1975–76, designed to "sow the petroleum" more equitably, was supposed to change all that. With the creation of PdVSA, Venezuelans gained a sense of national pride. In the same year that nationalization was carried out, Giusti was working with Shell Oil. Under the nationalization, Shell then became Maraven, a PdVSA subsidiary. The ambitious young man quickly ascended the corporate ladder at Maraven, gaining valuable experience in exploration, production, refining, corporate planning, and marketing. Giusti's hard work and determination paid off; in 1994 he became PdVSA's chairman and chief executive officer.
But Giusti's tenure at PdVSA proved controversial. According to Chávez, who later sought to bring the state oil company under greater government control, Giusti and others pursued an oil policy that was closely allied to the interests of Washington and foreign oil companies, a policy that was antithetical to Venezuelan interests. Specifically, under his direction, PdVSA started to open up to private participation and to increase production. In a country where oil was seen as a symbol of national independence and sovereignty, Giusti's "apertura," or opening of the oil sector, proved particularly divisive and created hostility toward PdVSA executives. Reportedly, Giusti questioned the traditional economic orientation of the country. "Here [in Venezuela]," he remarked, "people brandish the terms 'sovereignty' and 'patriotism'. Enough of that." According to Giusti, there is no greater loss of sovereignty than poverty, which is how he justifies his strategy to develop Venezuela's natural resources.
Giusti, however, must have been aware that many Venezuelans did not share his business views, and he did his best to sell his vision to the country. "Garrulous and candid," remarked Business Week, "Giusti mobilized support with a campaign of talking to ministers and politicians, lobbying congressional committees, making speeches, and writing articles." Giusti's impact on Venezuelan oil policy was remarkable, and fiercely criticized. According to government officials, between 1976 and 1993, out of every dollar of oil exports, 66 cents on average wound up in government coffers. However, this was reversed dramatically from 1993 to 2002. Government figures have said that during this period, government revenue from oil fell dramatically, from 66 cents to 33 cents on the dollar. According to energy minister Rafael Ramírez, "apertura amounted to a veritable assault on Venezuelan oil."
The government's own Ministry of Energy and Mines was increasingly losing power over PdVSA. Bernard Mommer, a respected German-born oil analyst who himself has worked at PdVSA, writes that the Venezuelan company's board of directors was dominated by former executives of the foreign oil companies. It was they, charges Mommer, who actually took over oil policy. Having become a political actor in its own right, PdVSA, in line with Giusti's new emphasis, started to concentrate more on the development of the oil industry as opposed to fiscal revenues. "To put it differently," adds Mommer, "the policy issue was no longer prices but volumes." Giusti increased oil output by 1 million barrels a day to 3.6 million by 1997. The new PdVSA head also announced that the state-run petrochemicals company Pequiven would be privatized following a legal reform. Meanwhile, the country was opened up to foreign competition in the petroleum sector and joint ventures. Not surprisingly, complying with OPEC quotas was not a high priority within PdVSA. Giusti himself remarked that OPEC's quota system was "an obsolete subject" that was "no longer relevant in today's market." In 1994, Venezuela went over its OPEC production quota.
By 1998, Giusti's PdVSA was producing about 800,000 barrels over its OPEC quota. What is more, Giusti was becoming a household name in Venezuela. His most vocal cheerleader was the American press: in 1998, Business Week gushed, "He denies any national political ambitions, although his name has been mentioned as a future presidential candidate"; Time magazine even named Giusti "Manager of the Year." Meanwhile company executives enjoyed large expense accounts and, according to Chávez, earned up to $180,000 a year. Giusti himself made $315,000 a year. In the words of Chávez, PdVSA executives were living it up in "luxury chalets where they perform orgies drinking whisky." A social divide was developing between PdVSA's staff, which employed only 40,000 workers (less than 1 percent of the working population), and the rest of the country. Indeed, the company "was viewed as a den of arrogant, pampered technocrats — and a cookie jar for Venezuela's elite, whose corruption has left two-thirds of the population in poverty."
Even more damning from Chávez's point of view, in 1996 PdVSA entered into a joint venture with a San Diego-based company called SAIC (Science Applications International Corporation). SAIC is a corporate behemoth: in 2005 the company earned $7.5 billion and it holds a lucrative contract with the U.S. Army to develop the next generation of combat vehicles. SAIC moreover "provides high-technology physics and engineering services to support Defense Department research." The company, according to the World Policy Institute, a New-York based organization concerned with domestic and international policy, works on everything from intelligence gathering to missile defense to Iraqi reconstruction for the Pentagon. What is more, SAIC had contracts with oil companies to handle information technology (IT). The joint venture between SAIC and PdVSA, known as INTESA (Informática, Negocios y Tecnología), was in charge of managing PdVSA's IT operations. But SAIC, according to Chávez, had ties to the U.S. Central Intelligence Agency (CIA) and was using INTESA to conduct espionage and sabotage in Venezuela. The development of INTESA, according to current energy minister Rafael Ramírez, was a terrible blow for PdVSA. "There is nothing more valuable for an oil-producing country nor for any enterprise than the information about its deposits, its production, its capacity," he remarked. "That is, this information is worth very much and also has a strategic geopolitical value." The list of SAIC executives reads like a who's who of Washington insiders. Former NSA director Bobby Ray Inman, former Defense Secretary Melvin Laird, and ex-CIA director Robert Gates all served on SAIC's board of directors at one time or another.
* * *
In 2000 I conducted research at the historical archive of the government's own Ministry of Energy and Mines. Located in a depressing concrete high-rise in the area of Bellas Artes, the ministry's offices were ramshackle. At one point, however, I had to obtain permission to review materials from the Creole Petroleum Corporation, a U.S. oil company that had done business in the Lake Maracaibo region for many decades. Through some contacts, I was able to obtain a letter from a high executive at the ministry. I traveled across town to PdVSA offices and presented my credentials to the oil company archivist. I was allowed to look at some company records from the 1930s, hardly sensitive information. But returning from lunch, I noticed that the bound volumes I had been consulting were no longer on the table. Irritated, I approached the archivist. Defending herself, she remarked that a PdVSA executive had given her conflicting orders and that I would not be allowed to continue my research. I had been overruled, and no amount of lobbying could reverse the decision. The incident perhaps demonstrates the kind of corporate culture that pervades much of PdVSA.
When one visits PdVSA facilities, it is not difficult to see why many Venezuelans had grown distrustful of the company. At one point during my stay in Caracas, I went to interview a high-up company official. This time I was told to go far outside the city to another set of offices. To get there, I had to travel by subway and bus. Located in a beautiful pastoral setting, the facilities provided a strong contrast with the grimy, polluted downtown. Inside, company staff members dressed in expensive business suits ate in a splendid dining room.
Bristling at the corporate independence of PdVSA and its privileged executives, Chávez actively campaigned against the privatization of the company during the presidential election of 1998. The presidential hopeful promised to fire Giusti and to "review" oil deals with foreign companies. Provocatively, Chávez challenged vested interests at PdVSA by seeking to reestablish a predominant role for the presidency in the design and implementation of an oil strategy through the Ministry of Energy and Mining. This shrewd move no doubt secured more political support for the aspiring politician. Chávez cruised to victory in December of 1998, winning the presidential election with 56.2 percent of the vote.
Following through on his promise, Chávez promptly fired Giusti who became an energy advisor to U.S. president George Bush. Giusti became affiliated with the Baker Institute for Public Policy, a think tank headed by James Baker, secretary of state under George Bush Sr. There the former PdVSA head contributed to the U.S. drive to invade Iraq. In the days before 9/11, Giusti participated in laying the groundwork for an invasion. In a report entitled "Strategic Energy Policy Challenges for the 21st Century," Giusti and other members of a Baker Institute Task Force argued that "Iraq remains a destabilizing influence to ... the flow of oil to international markets from the Middle East." The report added that the United States should conduct a policy review towards Iraq, "including military, energy, economic, and political/diplomatic assessments." Baker submitted the report to Vice President Dick Cheney, the former head of Texas oil firm Halliburton. At the time Cheney was chair of the White House Energy Policy Development Group. In addition to Giusti, Baker also relied on other advisers for his report including Kenneth Lay, the disgraced former CEO of Enron, which went bankrupt following a massive accounting fraud.
Giusti also took a job as senior adviser to the Washington-based Center for Strategic and International Studies, a group that counts such figures as Henry Kissinger, Brent Scowcroft, Zbigniew Brzezinski, and William Cohen as counselors. Giusti also continued his relationship with Shell, becoming the company's nonexecutive director, and served as a member of the advisory board at the Riverstone Group, the energy branch of the Carlyle Group. The investment company is infamous for its ties to insider politicians. After losing to Bill Clinton in the election of 1992, former president George Bush became an advisor to Carlyle, helping to strengthen the company's ties to the Saudi royal family. Current U.S. president George W. Bush was appointed to the board of directors of Caterair, an airline food business acquired by Carlyle, in 1990.
Excerpted from Hugo Chávez by Nikolas Kozloff. Copyright © 2007 Nikolas Kozloff. Excerpted by permission of St. Martin's Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Meet the Author
Nikolas Kozloff is an expert on South America and a former fellow at the Council on Hemispheric Affairs in Washington, D.C. He contributes articles to Counterpunch, buzzflash.com, venezuelanalysis.com, Z Net, and blogs on senorchichero.blogspot.com. He has appeared on PBS World Focus, C-SPAN Washington Journal and The Daily Show and is the author of Revolution! He lives in Brooklyn, NY.
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