Oil, Climate Change, and the Life and Death of Hugo Chavez

A Petroleos de Venezuela storage tank. Photo: RJ Castillo.

A Petroleos de Venezuela storage tank. Photo: RJ Castillo.

This weekend there are three articles worth reading on the the impact of Hugo Chávez’s life and death on climate change, and where his country’s oil economy stands today.

On March 7 the British newspaper Guardian ran a blog post by Guy Edwards and Susanna Mage. In it, the authors ask the question:”Will the oil-rich country become a key engineer in a new global climate deal, or will it sabotage progress?”

In their blog post “Death of Hugo Chávez gives Venezuela a choice on climate change” the authors write:

“President Chávez oversaw a schizophrenic posture on climate change. He insisted that climate change is an existential crisis caused by capitalism, while simultaneously pushing for the development of the Orinoco’s heavy crude. Under Chávez, Venezuela’s oil dependency increased and it now obtains 94% of export earnings and more than 50% of its federal budget from oil revenues.

Due to high oil prices and Chávez’s leadership, poverty and inequality have dropped. Chávez’s administration appeared committed to increase oil production to continue funding its social programmes, often through long-term agreements with China to supply oil. Venezuela’s “commodity backed loans” from China, estimated at more than $35bn, require it to pay back China in oil.”

Read the full post here.

On 25 August, 2012, a there were massive explosions at the Amuay refinery in Venezuela. This Image of the explosion was taken from West Street Judibana # 1, the edge of the security zone. Photo: Jose R. Rodriguez

On 25 August, 2012, a there were massive explosions at the Amuay refinery in Venezuela. This Image of the explosion was taken from West Street Judibana # 1, the edge of the security zone. Photo: Jose R. Rodriguez

But what kind of an “oil rich” Venezuela did Hugo Chávez leave behind?

The next day, on March 8, the New York Times article, ‘Dwindling Production Has Led to Lesser Role for Venezuela as Major Oil Power‘ by Clifford Krauss, looked into the issue more closely.

In it, he writes:

“Mr. Chávez’s death on Tuesday has had surprisingly little impact on global oil markets, highlighting how Venezuela’s dwindling crude production and exports have undercut its global power in recent years.”

“Venezuela’s annual oil production has declined since Mr. Chávez took office in 1999 by roughly a quarter, and oil exports have dropped by nearly a half, a major economic threat to a country that depends on oil for 95 percent of its exports and 45 percent of its federal budget revenues.”

“In a fundamental geopolitical turn, Venezuela now relies far more on the United States than the United States relies on Venezuela.”

“Experts expect Venezuela to send barrels no longer needed in the United States to China, as payments in kind under oil-for-loans contracts. Venezuela’s broken refinery sector has left shortages of gasoline and diesel in parts of Latin America, opening the door for valuable markets to American refiners.

Over his 14 years in power, Mr. Chávez relied heavily on oil revenues to finance his social programs. Energy experts say his gasoline subsidies doubled domestic consumption, cutting deeply into exports, but that his hostility to foreign investment and mismanagement of the state oil company Petroleos de Venezuela were the primary reasons for the steep decline in production.”

You can read the full Times article here.

Aerial view from Plaza Venezuela, Caracas, 2009. Photo: Paulino Moran

Aerial view from Plaza Venezuela, Caracas, 2009. Photo: Paulino Moran

On March 9, The Economist wrote this of Venezuela’s oil economy:

“As the oil price soared the dollars rolled in, without the Bolivarian revolution having to work for them. Mr Chávez used this windfall to buy himself popular support, with social programmes and handouts. The oil-fuelled bounty seemed to vindicate his claim that before his advent, Venezuelans had been impoverished by “neo-liberalism”.

But the writing on the wall for Venezuela is no longer just Bolivarian slogans. Although commodity prices may not be about to fall, they are no longer rising as they did in the 2000s. After ramping up spending ahead of October’s election, the government posted a fiscal deficit of 8.5% of GDP last year, financed in part by mortgaging some of its future oil output to China. Last month it devalued the currency by 32%.”

Going back to the blog post in the Guardian, the authors Guy Edwards and Susanna Mage wonder:

“With the death of its great leader, Venezuela has a choice on climate change. It can rebrand itself as a proactive actor at home by working towards a low-carbon economy while joining with its ambitious neighbors at the UN climate negotiations. With the largest known oil reserves, Venezuela’s position on climate change is pivotal. En route to 2015, it remains to be seen whether it will be regarded as an engineer of an ambitious and equitable global treaty, or as a saboteur.”

Nepal, the current Chair of the Least Developed Countries Group at the United Nations Framework Convention on Climate Change, has its own oil exploration program too. You can read about that here.

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