In This Article
Subscribe to International UpdatesVenezuela Nationalizes Oil Industry
May 01, 2007 11:19 AM
by
findingDulcinea Staff
Venezuela has officially assumed control over the country’s last remaining privately run oil field in a May Day takeover that saw the holdings of six major oil companies appropriated by the government.
30 Second Summary
In what he has deemed the “last step” in regaining national control over domestic oil, Venezuelan President Hugo Chavez has taken over operations of the Orinoco River Basin oil field from six major oil companies, guaranteeing the state-run PDVSA with at least 60 percent of future operations.
The Orinoco field is recognized as the world’s single largest known oil deposit, and with the proper development could help Venezuela surpass Saudi Arabia as the country with the most oil reserves.
However, because Orinoco’s crude is thick and tarlike, requiring a great deal of refinement to make it marketable, Venezuela will most likely remain dependent on the resources of foreign investors.
Highlighting Chavez’s aggressive nationalization strategy, the oil industry has become the state’s most valuable acquisition in a series of planned private sector takeovers.
The strategy includes nationalizing Venezuela’s telephone and electricity utilities, creating a system of collective property ownership, and strengthening military and economic ties with Russia.
Although the government states that its intentions are to redistribute its wealth among the nation’s poor and disadvantaged, critics doubt that Venezuela can manage its industries well enough to accomplish its goal.
The Orinoco field is recognized as the world’s single largest known oil deposit, and with the proper development could help Venezuela surpass Saudi Arabia as the country with the most oil reserves.
However, because Orinoco’s crude is thick and tarlike, requiring a great deal of refinement to make it marketable, Venezuela will most likely remain dependent on the resources of foreign investors.
Highlighting Chavez’s aggressive nationalization strategy, the oil industry has become the state’s most valuable acquisition in a series of planned private sector takeovers.
The strategy includes nationalizing Venezuela’s telephone and electricity utilities, creating a system of collective property ownership, and strengthening military and economic ties with Russia.
Although the government states that its intentions are to redistribute its wealth among the nation’s poor and disadvantaged, critics doubt that Venezuela can manage its industries well enough to accomplish its goal.
Headline
Venezuela and the ousted oil companies have until June 26 to negotiate an investment deal. If the companies decide to abandon their investments, the region could end up lacking in the capital and technical expertise needed to fully exploit Orinoco’s potential.
Source: ABC News
Stock quotes for the oil companies affected by Venezuela’s Orinoco Basin seizure from SmartMoney.com.
Source: British Petroleum (BP)
Source: Conoco-Phillips
Source: Chevron Corp.
Source: Statoil
Source: Total SA
Source: Exxon Mobil Corp.
Background
On March 26, 2007, President Chavez announced plans for a system of collective property ownership that will be added to the Venezuelan constitution. Although Chavez didn’t offer any specifics about the plan, he said during his announcement that the “property belongs to everyone and its going to benefit everyone.”
Source: MSNBC
On January 8, 2007, Venezuelan President Hugo Chavez announced plans to nationalize the country’s telephone and electricity utilities. These latest statements, combined with his December 2006 plans to nationalize Venezuela’s oil, has American companies like Chevron, Exxon, and Verizon fearing the loss of hundreds of millions of investment dollars.
Source: The International Herald Tribune
Since his re-election in December 2006, Chavez has made changes within his own cabinet to pursue strong socialist policies, including the nationalization of key sectors of the Venezuelan economy: the four heavy crude joint ventures in Venezuela, the Venezuelan telecommunications company, and the main telephone and electricity companies.
Source: Forbes
Reactions
Patrick Esteruelas, Latin America Analyst at the Eurasia Group, Nelson Altamirano, Visiting Scholar at the University of California at San Diego’s Center for Iberian and Latin American Studies, and Carlos Miranda Pacheco, La Paz-based private consultant and a former superintendent of hydrocarbons in Bolivia, offer their views as to the future of Venezuela’s oil fields.
Source: The Latin Business Chronicle
CNBC’s Squawk Box features a discussion on whether it will be feasible for oil companies to remain in Venezuela as investors.
Source: CNBC
Historical Context
In 2003 the Russian government accused Russia’s largest private oil company, Yukos, of tax evasion. Some believe the alleged tax evasion was politically motivated because Mikhail Khodorkovsky, President of Yukos, was seen as a possible threat to Vladimir Putin’s presidency. In December of 2004, President Putin renationalized Yukos by ordering the indirect transfer of its assets to state-owned oil company Rosneft. As a result, the Russian government now controls 15 percent of Russia’s oil production.
Source: NewsRatings.com
Reference Material
When Christoper Columbus arrived in Venezuela in 1498-99, it was inhabited by the Carib, Arawak, and Chibcha peoples. The BBC’s timeline highlights the country’s most important events from that year to the present day.
Source: The BBC
Hugo Chavez’s first foray into politics came in February of 1992 when he led an attempted coup of the government of President Carlos Andres Perez, the price of which was two years in prison.
Source: BBC
Venezuela has coasts on the Caribbean Sea and the Atlantic Ocean and is surrounded on land by Colombia, Brazil, and Guyana.
Source: WorldAtlas.com
The Orinoco River starts in southeastern Venezuela, carving its way through the center of the country until the coast where it meets the Atlantic Ocean.
Source: Microsoft Encarta
According to the Columbia Encyclopedia, socialism is a political and economic theory that “advocates a system of collective or government ownership and management of the means of production and distribution of goods.”
Source: Answers.com
Related Topics
President Chavez has announced plans to deepen Venezuela’s military and economic relationship with Russia by cooperating on a number of projects. The projects include the construction of an oil pipeline from Venezuela to Argentina, and the creation of Russian weapons factories in Venezuela. In a press conference, Chavez said that he hopes “Russia will have a greater presence in Venezuela and Latin America with every passing day.”
Source: Bloomberg
Chavez shut down Venezuela’s oldest and most watched privately owned TV station, RCTV, inciting thousands of citizens to protest throughout the streets of Caracas. The President refused to renew the station’s broadcast license, a move protesters and station employees attribute to the station’s Chavez critical stance.
Source: The Miami Herald
Like Venezuela, the Bolivian state energy company YPFB has announced that one year after President Evo Morales announced the government takeover of the nation’s energy resources, it will take control of the production and marketing of oil and natural gas.
Source: Reuters
There are two distinct left-wing trends in Latin America: one with radical roots but “open-minded and modern, the other close-minded and stridently populist,” according to an article from Foreignaffairs.org.
Source: ForeignAffairs.org
Due partly to the murder of an oil worker in Nigeria, Africa’s biggest oil producer, the price of oil has climbed to $68 a barrel.
Source: Reuters
According to a recent report published by Venezuela’s opposition political party and Amnesty International, the country’s annual murder rate has nearly tripled since Hugo Chavez took office in 1999. Now, one in two of the Venezuelans polled consider crime the country’s most important problem.
Source: Bloomberg
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