STRATFOR.COM
Global Intelligence Update
Weekly GIU August 31, 1999
Venezuela's Chavez Takes the Lead In OPEC
Summary:
Venezuela's nationalist president, Hugo Chavez, has not just taken
on the Congress and judiciary, but also the state-owned oil
company, the world's second largest. The nationalist president is
also trying to grab a lead role in OPEC. If he succeeds on both
fronts, he may restore the feeble cartel to some of its previous
glory, when it could dictate much of the world's oil production and
price.
Analysis:
Roberto Mandini resigned August 30 from his position as head of
Venezuela's state-owned oil company, Petroleos de Venezuela, SA
(PDVSA). Mandini reportedly said he stepped down so as not to
interfere with the Venezuelan government's oil policy, but the El
Observador newspaper cited unofficial sources that claimed the
Chavez administration asked for Mandini's resignation on August 29.
But an apparent conflict was brewing between the company and the
government. Last week, Mandini spoke out against the government's
use of PDVSA to finance infrastructure and development projects.
PDVSA has already committed 12 billion barrels to financing more
than half of the 216 projects included in the president's Plan
Bolivar 2000 social agenda, according to Venezuela Online News.
Mandini's likely replacement is the vice president of strategic
planning, Hector Ciavaldini, reportedly a close friend of Chavez,
according to El Universal.
PDVSA's cash flow into state treasury is critical to the
president's populist agenda and he is leaving no doubt as to who is
in charge. Chavez ran for office on promises to cleanse the
government of the gross corruption that squandered the country's
oil wealth. He promised to rewrite the constitution, reform the
judiciary and purge the Congress. He is dramatically carrying out
those promises. The constituent assembly he convened to rewrite the
constitution is stripping the Congress and judiciary of most of
their powers, recently sparking clashes in the streets between
legislators, Chavez loyalists and the national guard.
Chavez is also taking firm and very public -- control of oil
policy. The days when PDVSA told the state what it would and would
not do are over. Venezuelan state oil policy will be the state oil
policy and the state oil company will be the state oil company.
Chavez is not waging street battles with government officials who
enriched themselves on oil revenues just so PDVSA executives can
spend them as they see fit. The president fully intends to
redirect the resources to fund his social platform.
But if free market economics suffer under routine graft and
corruption, they will last much less under full-scale, populist
state intervention. Chavez not only needs to have firm control
over PDVSA and Venezuela's oil policy; he needs to have a degree of
control over the larger oil market.
For that, he needs OPEC, and he has set out to prove to his cartel
members that he is not merely a team player -- he is the team
leader. At the conclusion of a recent meeting in Caracas, the
Venezuelan, Mexican, and Saudi oil ministers affirmed their
commitment to maintaining existing production cuts through March,
2000.
In a joint statement on August 29, the three ministers noted that
if they are strictly observed, cuts in production can boost prices.
OPEC has cut production by 1.7 million barrels per day (bpd).
Accompanied by a 400,000 bpd cut by non-OPEC Mexico, Russia, Oman,
and Norway, the initiative has more than doubled crude oil prices.
The ministers also insisted that it is too early to lift production
ceilings, with stockpiles not yet at normal levels and demand still
down because of sluggish economies in Asia.
Largely unnoticed, Chavez has been instrumental in drawing
Venezuela, Mexico and Saudi Arabia into closer cooperation in
keeping production down. Early in the year, all three competed
aggressively for U.S. market share and cheated, producing more oil
than they pledged. But on March 1, the new Venezuelan oil
minister, Ali Rodriguez, announced that his country would no longer
compete for the U.S. market share it had lost to Saudi Arabia in
1998 [ stratfor.com ]. With that
announcement, and an upturn in Asian demand, prices began to
recover. Crude oil was priced between US$18 and slightly more than
US$21 on world markets August 30.
Venezuela is quickly trying to seize a leading role in OPEC. At
the weekend meeting, Venezuela proposed that production quotas be
guided by a price band. If oil prices drop below a lower limit,
the cartel would automatically scale back production. If prices
rise above an upper limit, encouraging non-OPEC members to boost
production, cartel members would raise their output. This plan and
others aimed at maintaining oil prices will reportedly be discussed
at the upcoming OPEC meeting, scheduled for September 22.
Venezuela is urging another item for the September meeting: Iraq.
Iraq is rapidly nearing its UN-mandated production cap of 3 million
barrels per day and could drive prices down. Rodriguez told El
Universal that the organization should address Iraq's increasing
oil production.
Chavez is also planning to host a summit in March, 2000, for the
heads of state of oil-producing countries, including all OPEC
members and producers such as Mexico, Russia and Oman. The
Financial Times cited Ali Rodriguez as reporting that all the heads
of state have agreed to attend. The only previous full summit of
OPEC leaders occurred in Algeria in 1975 and the participation of
non-OPEC leaders is unprecedented.
OPEC is not what it used to be, controlling only about 35 percent
of world production, and the participation of non-OPEC nations is
vital to controlling production and price. Chavez and other OPEC
members are seeking to strengthen and perhaps formalize cooperation
with these countries to make cartelism work.
His international strategy is closely tied to his nationalist
domestic strategy. He needs increased oil revenues to pay for his
domestic agenda; for that he must firmly control state oil policy
and the state oil company. But none of this is of any value unless
OPEC and other producing nations can enforce greater discipline on
production and on price.
Chavez must act quickly, though. Oil prices are leading off of
expectations of renewed growth in Asia. But there are indications
that growth in that region is just a temporary uptick, not a
prolonged upswing. And Iraq is poised to increase supply.
__________________________________________________
SUBSCRIBE to FREE, DAILY GLOBAL INTELLIGENCE UPDATES (GIU)
stratfor.com |
