|America’s Blind Spot: Oil, Chávez, and US security |
By Andrés Cala and Michael Economides
Posted on Mar. 28, 2012
Venezuela was a pillar of America’s energy security last century, not only as a reliable supplier, but more critically as a shortstop for bullish global pressure on oil prices.
Hugo Chávez’s ascent to power in 1999 drastically changed that, but to be fair, the consequences were mute throughout most of last decade. Chávez was annoying at best and Latin America a distant concern while the US tackled its priorities in the Middle East, China, and Russia.
But along came the global economic crisis to expose a major shift in global energy trends that has been a longtime coming. The era of oil producers is only starting and the US, the world’s biggest oil consumer, did not plan well for it.
Basic oil supply and demand considerations will inevitably keep oil prices high, and that’s without factoring in more geopolitical tensions in Iran, Sudan, or Venezuela.
America’s ability to confront challenges from a destabilizing Middle East, a rising China, and a resurgent Russia will depend on the resilience of its oil-dependent economic growth. Notions expressed by many American intellectuals, headed by the Liberal-in-Chief President Barack Obama, that alternatives such as solar and wind will reduce the country’s oil dependence are naïve and highly inadequate. The future of energy for the foreseeable time is still oil and natural gas.
For the US and other OECD oil consumers, it’s simply urgent that oil prices fall in order to spur more economic growth. That requires more global oil supplies, not as an alternative to other sources, but in addition to all current energy security measures, whether it’s boosting domestic oil and natural gas production or improving fuel efficiency measures.
Venezuela and Latin American as a region are the best placed to quickly deliver on essential output gains on top of current expectations.
But America’s idealist-driven regional policies –Republican and Democratic- are backfiring to threaten US security, not because China and Iran are moving in, but because not enough oil is coming out.
The US is diplomatically distancing itself from Latin America and companies are looking elsewhere to invest, while the rest of the world is happy to fill the political and economic vacuum left behind.
Obama, who set his own bar for improving American energy security, is missing the opportunity to level with the electorate on energy reality.
Regardless what candidates promise in this election cycle, US energy and national security in the short term is not about renewable energy, domestic oil production or so-called “energy independence” pipedreams.
Lowering imports is certainly welcome, but prices won't decrease as a result because there is little net change to the global supply and demand balance.
The Arab Spring has further complicated US calculations. Only Saudi Arabia has been able to raise output, despite supply disruption in Libya, Syria, and now Iran.
Also, heightened investment risks continue to erode the region’s output growth expectations, while the global oil price benchmark increased to over $100 from $75 a barrel in just five years as a result of rising costs.
Why Latin America
A little more than half of world’s oil is in the Middle East. Latin America, from Mexico to Argentina, comes in second with around 18 percent, led by Venezuela, Brazil, and Mexico, in that order.
The US and OECD are pessimistic about Venezuela, considering its track record under Chávez. But what if Venezuela could reverse that trend from depleting fields and the largely undeveloped Orinoco Belt?
Assuming hyped up numbers, Venezuela could conservatively add at least 2 million bpd on top of what it’s already expected to contribute, although Chávez says he expects to double output of 3 million bpd to 6 million bpd by 2020.
Global oil production gains this decade could conceivably be a third higher, that is, closer to 12 million bpd if Venezuela and the rest of Latin America beat pessimistic expectations.
It’s technically possible, but whether the politics are in place to attract the massive foreign investment required for such a feat is a different question, and ultimately the most important one.
Dealing with Chávez
Three American presidents have failed to tame Chávez. From the discourse, it would seem that the best available policy is waiting to see how Chávez’s cancer evolves following the removal of a second malign tumor earlier this year.
Chávez’s health will indeed be critical to Venezuela, especially with upcoming October elections that could extend his hold on power another six years.
But Chávez should be irrelevant to the US. The ideological spat with the tongue-lashing populist demagogue should be secondary to US energy security interests in this juncture.
That doesn’t mean the US should sacrifice its democratic principles. America can pursue its interests, without defending what it stands for, as relations with China and Russia illustrate.
Furthermore, Chávez’s anti-American movement climaxed years ago and the region is following Brazil's model and leadership, not Chavez's or America's.
Chavez needs to move to the center not only to win the next elections, but more critically to attract foreign investment into the oil sector in order to pay for his lavish spending.
It's an economic imperative, not a political choice. Even China, his biggest underwriter, is demanding it.
The best way to contain Chávez and to bring about democratic reform in Venezuela, regardless of who is in power, is precisely through increased oil production. The US, Chavez and any of his replacements in case he dies, share the goal of vastly increasing oil production in Venezuela.
But both Democrats and Republicans insist on enforcing idealist policies driven by immigration, drugs, and fighting back socialism or communism. In contrast, the region is worried about economic growth and maintaining internal political stability.
Even Colombia, the top US ally in South America, has moved to improve relations with Chávez, containing him by intertwining the economic growth and political stability of both countries.
In contrast, the Obama administration has been more hawkish and idealist than its predecessors, sanctioning Venezuela's oil company and widening the diplomatic divide with its southern neighbors over overhyped ties to terrorism that few deem threatening to the US.
The trend can only be bucked by implementing realist policies, ones that acknowledge Brazil’s regional leadership, Chávez’s irrelevance, and America’s ideological estrangement.