Tuesday, February 27, 2007

Chavez Seizes Oil Assets

Venezuela's Hugo Chaves has announced his intention to seize the assets of foreign oil companies:

Chavez had previously announced the government's intention to take a majority stake by May 1 in four heavy oil-upgrading projects run by British Petroleum PLC, Exxon Mobil Corp., Chevron Corp., ConocoPhillips Co., Total SA and Statoil ASA.

He said Monday that has decreed a law to proceed with the nationalizations that will see state oil company Petroleos de Venezuela SA, or PDVSA, taking at least a 60 percent stake in the projects.

"The privatization of oil in Venezuela has come to an end," he said on his weekday radio show, "Hello, President." "This marks the true nationalization of oil in Venezuela."

By May 1, "we will occupy these fields" and have the national flag flying on them, he said.

Obviously, this is a huge mistake for the country and the people of Venezuela. One need look no further than Mexico, where Mexico's nationalized petroleum company - Pemex - has for many years served as a cash-cow for government over-spending, and a slush fund for illegal political payments. As a result, the company has chronically under-funded development of new petroleum sources, and must find a way to bring an infusion of private capital. Venezuela's Pedeveza is headed down the same road.

I also find the timing of this move interesting. I doubt that it is coordinated to occur shortly before Bush's Central America trip; I suspect it's just coincidence. Still, we know that Chavez is watching closely.

Further, much of South America is currently teetering between the United States and Chavez. Lula da Silva in Brazil resents Chavez enough that he tends to side with the US - even if only on the old 'enemy of my enemy' rationale. Uruguay has sought closer ties, but has been unable to make progress on a hoped-for FTA with the US.

Chavez will be the unseen presence at each of Bush's meetings in South and Central America. His high-profile actions will be an interesting backdrop at these meetings.

No comments: