US military sees oil nationalism spectre

By Andy Webb-Vidal in Caracas
Published: June 25 2006 22:03 Last updated: June 25 2006 22:03

Future supplies of oil from Latin America are at risk because of the spread of resource nationalism, a study by the US military that reflects growing concerns in the US administration over energy security has found.

An internal report prepared by the US military’s Southern Command and obtained by the Financial Times follows a recent US congressional investigation that warned of the US’s vulnerability to Venezuelan President Hugo Chávez’s repeated threats to “cut off” oil shipments to the US.

The Southern Command analysis cautions that the extension of state control over energy production in several countries is deterring investment essential to increase and sustain oil output in the long term.

“A re-emergence of state control in the energy sector will likely increase inefficiencies and, beyond an increase in short-term profits, will hamper efforts to increase long-term supplies and production,” the report said. So far this year, Venezuela has moved to double the level of taxes levied on oil production units operated by multinationals, Bolivia has nationalised its oil and gas fields, and Ecuador has seized several oilfields from Occidental Petroleum, the largest foreign oil company in the country.

The report also noted that oil production in Mexico, which faces elections next weekend, is stagnating be-cause of constitutional re-strictions on foreign investment.

Latin America accounts for 8.4 per cent of daily world oil output, according to the US Energy Information Administration, but energy supplies from the region make up 30 per cent of US energy imports, or about 4m barrels a day.

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Venezuela Takes on Exxon Mobil in Oil Play

Hugo Chávez won the presidency of Venezuela by a landslide in 1998. Has he also won the hearts of his people?

Get a taste of what awaits you in print from this compelling excerpt.

The president of Venezuela has many enemies—partly, at least, because he so clearly relishes the fight. In late 2002 the anti-Chavista workers and managers of Petróleos de Venezuela joined forces to stage a two-month strike, crippling the Venezuelan economy. The president sought to take control of the company by firing nearly half its workforce, but there is no way to tell whether those who got to keep their jobs are any more loyal to him now than they were before the strike. The middle classes appear to be almost unanimous in their hatred of him. Doctors have marched in the street against him, demanding better wages. An unknown number of military personnel—including several army officers I interviewed—dislike Chávez and his leftist politics intensely, if not openly (many others joined forces to lead the coup against him in 2002 and have since been discharged). For the moment, however, the aggregate numbers of his enemies don't add up to an opposition, and they have lost every battle so far.

In fact, his opponents told me repeatedly, Chávez has so many enemies that if it weren't for oil, he would no longer be in power. Oil is by far the largest source of foreign income: From 1928 to 1970, Venezuela was the largest oil exporter in the world. The country ranks fifth now, but there is more oil money than ever. The war in Iraq and gradually shrinking oil reserves worldwide have combined to push the price of oil from just over nine dollars a barrel the year Chávez took power to a recent high of more than sixty. The misiónes programs could hardly exist without this extravagant income.

Is oil really the key to Chávez's success? His supporters say that previous regimes used the rivers of oil wealth that streamed through the economy for their exclusive profit, but no one else seriously claims that the new elites—with their gleaming Mercedes-Benzes, flashy watches, hunger for pricey real estate, and, above all, their direct access to the budget—lead austere lives. It is also said that only oil has allowed Chávez to get away with his anti-U.S. policies and his cheeky foreign-policy rhetoric: Venezuela's head of state publicly called President Bush a pendejo—in Venezuela, a moron, a jerk—but sales of oil to the U.S. have continued at their same smooth pace during the years that Chávez has been insulting Bush.

Oil money and heavy public spending help explain what is happening in Venezuela, of course, but in the end only Chávez can account for Chávez. The sheer force of his personality, the astonishing and overwhelming strength of his self-satisfaction, his utter lack of inhibitions, his inflamed nationalism, his obsessive need to cast himself as a hero of the people, forever vanquishing the "demonios" (demons) that conspire against him and against the Venezuelan nation, are a hypnotic and unique combination.

Get the whole story in the pages of National Geographic magazine.