dittologica

On 1 May 2007 Republican Senator Kay Bailey Hutchison of Texas made a shocking revelation. Speaking from the floor of the US Senate she announced to her colleagues that Hugo Chavez was  “completing his latest and most ominous scheme out of the Fidel Castro playbook”. [link]

Senator Hutchison was referring to the Venezuelan government’s decision to purchase a majority stake in the heavy oil operations of the Orinoco River basin. In 1975 Venezuela had nationalized all of the oil production in the country, but liberal reforms in the 1990s resulted in much of it being re-privatized. The objective of Chavez’s government was to ensure that a substantial portion of the revenue generated from the nation’s oil resources stayed in the national economy to be used for reinvestment and social programs. Shocking indeed.

On the same day as Senator Hutchison was sounding the alarm in the Senate, Time Magazine ran a story about the Venezuelan oil nationalization in which it was noted that when Hugo Chavez “announced his government’s takeover [sic] of the nation’s lucrative heavy oil industry, it sent the usual panic through Washington and the international media.” The article went on:

“But the truth - one that both Chavez and his arch foe, the Bush Administration, would prefer you not know - is that when it comes to oil nationalization, Hugo is hardly the most radical of his global peers. In fact, even after today’s petro-theatrics, Chavez is just catching up with the rest of the pack. From Mexico to China, more than 75% of the world’s oil reserves are controlled by national oil companies today. Of the world’s top 20 oil-producing firms, 14 are state-run.” [link]

The article might also have mentioned the West’s favorite autocracy, Saudi Arabia. The Saudi government carried out a 100% nationalization of Aramco in 1980, which up until then had been part of the Standard Oil empire, today’s ExxonMobil.

The current process in Venezuela involves the transfer of a percentage of shares in each company’s Orinoco operations to the Venezuelan state oil company, PdVSA, with compensation being paid to the respective companies. Although this was no expropriation, that is how Senator Hutchinson and much of the press tried to spin it.

For instance, on 14 February 2008 an article in Reuters declared: “Exxon Mobil was pushed out of Venezuela along with ConocoPhillips last year during a nationalization drive by Chavez, who wants to turn Venezuela into a socialist society. Conoco is still in talks over compensation.” [link]

In fact, no one was “pushed out of Venezuela”. Chevron, BP, Statoil, Total, and Eni SpA are among the companies that have accepted the Venezuelan government’s compensation offers and will continue to operate as partners with PdVSA. ExxonMobil and ConocoPhillips both decided to pull out and sought outside arbitration over the valuation of their assets. ConocoPhillips expressed satisfaction with the direction of the arbitration proceedings, but ExxonMobil took a different approach. Filing injunction proceedings in several courts, the world’s biggest corporation sought to freeze the assets of Venezuela’s PdVSA in the U.S., Britain, the Netherlands and the Netherlands Antilles. All told, ExxonMobil managed to obtain court orders to allow the freeze of up to $12 billion of PdVSA’s overseas assets.

Speaking on behalf of the U.S. Government, Department of  State spokesman Sean McCormack announced, “We fully support the efforts of ExxonMobil to get a just and fair compensation package for their assets according to the standards of international law”.

Interestingly, an Associated Press article of 12 September 2007 stated that ExxonMobil’s interest in the Orinoco operations had a book value of just $750 million. And in the company’s original compensation filing, they asked for $5 billion. ExxonMobil explained that the $12 billion payout they are now demanding is justified by “estimated cash flows stretching out 28 years” according to a Venezuelan source quoted by Reuters. [link]

There are a number of extraordinary factors in this unfolding scenario. First, unlike ConocoPhillips, ExxonMobil was unwilling to wait for the outcome of arbitration proceedings and sought freezing orders from the courts while arbitration was still in progress. Then, they escalated their claim from the $750 million book value to the $12 billion freeze granted by the courts. Finally, there was the intervention by the U.S. State Department on ExxonMobil’s behalf, again, while arbitration proceedings were still underway.

In the annals of empire, nationalization, like dictatorship, has sometimes been tolerated and other times not: it all depends upon who is doing the nationalizing. Saudi Arabia’s nationalization of Aramco was tolerated but the 1953 Iranian nationalization of the Anglo-Persian Oil Company was not, and Iran’s government was overthrown. Likewise, the nationalization of Iraq’s oil in 1972, which excluded British and American interests, led inexorably to the 2003 invasion which reestablished the supremacy of U.S. interests.

The contempt the U.S. has for the Chavez government is certainly no secret. That government has committed the double sin of not allowing itself to be subordinated to U.S. interests and of encouraging its neighbors to do likewise. The U.S. government has already made one attempt to topple Chavez in the short-lived coup of 2002, and loses no opportunity to slander the Venezuelan government and its leader. There is little doubt that the U.S. would grab any convenient opportunity to unleash on Venezuela the treatment meted out to Allende’s Chile in 1973 following the nationalization of the copper industry there.

Ironically, however, the ongoing war in Iraq has benefited Venezuela in two ways. Firstly, that war is being fought for the control of greater proven and more easily tapped oil reserves than those in Venezuela and thus has a higher priority. Secondly, the Iraq war has created an international political backlash which makes further adventurism by the U.S. less convenient for the moment.
 
The oil companies are split on how to cope with this situation. Some have taken the position that a smaller profit is still a profit. Staying in Venezuela also positions them advantageously should the situation for transnational businesses improve there. It is worth noting that these are mainly the non-U.S. based companies, which would have a tougher time competing if the U.S. eventually succeeds in installing a more sympathetic regime in Venezuela. On the other hand, ExxonMobil has little to lose by playing hardball at this point. It has the full backing of the current, and probably any future, U.S. administration. While aiming to extort as much money from Venezuela as possible, it can comfortably absorb any losses incurred from disengaging with that source. And, unlike the non-U.S. companies, it is likely to be in the vanguard of oil companies admitted to the Venezuelan scene if “regime change” takes place there.
 
The fact that the potential oil reserves of Venezuela are thought to rival if not exceed those of any other country ensures that Venezuela will continued to be in the center of the international scramble for energy. While there is no way to predict the outcome of the current situation, it is certain that we will be hearing much more about Venezuela and its “vital” resources.