Venezuela's Next Leader Faces Tough Choice On Oil Program
As Venezuela's president, Hugo Chavez thought in grandiose terms, and his country's vast oil riches enabled him to act on his vision. But Chavez died before he had to deal with the flaws in his model, and some hard choices await his successor.
Key to Chavez's notion of "21st Century Socialism" was the redistribution of Venezuela's oil earnings. The country's oil reserves — estimated by the Organization of Petroleum Exporting Countries to be the largest in the world — are worth tens of billions of dollars a year in potential revenue.
During his presidency, Chavez diverted much of that potential wealth to Venezuelan consumers in the form of cheap gasoline (18 cents per gallon or less). He propped up the Castro regime in Cuba, and he offered Venezuelan oil on highly preferential terms to 18 Caribbean and Latin American countries through an energy alliance he called PetroCaribe.
Oil production in Venezuela declined sharply under the Chavez administration, however, largely due to inadequate investment in the energy infrastructure, inefficiencies in oil industry management, and the replacement of skilled oil technicians and managers with political loyalists.
PetroCaribe Initiative
The drop in oil production — more than 7 percent just in the first quarter of 2013 — is severe enough to call into question whether the Chavista oil welfare programs can be sustained. For the Caribbean and Latin American countries that have been benefiting from the PetroCaribe program, it is a time of great anxiety.
Chavez saw the energy alliance as a way to free the member states from U.S. energy imperialism.
"There's no one who can slow our ever-faster march toward our great historical goals," he said, defining PetroCaribe as "energy unity."
For poor countries, the PetroCaribe deal was irresistible. Typically, they had to pay cash for only half the oil they received. The rest they got on credit, financed over 25 years at 1 percent. Among those who eagerly signed up for the program was Haiti.
“ In reality, PDVSA makes money from only a small proportion of the oil it produces. Now, can that continue? I don't think so.