 | Winchester Lets Brown Have Both Barrels | The Oil Drum: Europe | European Energy Conference, Aberdeen 22nd February 2008 |  |
Chavez vs ExxonMobil war escalates
Posted by Jerome a Paris on February 11, 2008 - 10:59am in The Oil Drum: Europe
Topic: Policy/Politics
Tags: exxonmobil, hugo chavez, PSA, venezuela [list all tags]
Late last week, ExxonMobil won a court order to freeze PDVSA (the Venezuelan national oil company) assets overseas, up to a value of $12 billion, as part of a dispute over oil fields in the country that Venezuela has nationalised, but for which Exxon has refused to accept the compesantion proposed by the Venezuelans. 6 oil companies are in that situation, and 4 of them accepted Chavez's terms, Conoco being the other holdout with Exxon.
Today, Chavez hit back, by threatening to cut off oil deliveries to the USA
"If you freeze us, if you really manage to freeze us, if you damage us, then we will hurt you. Do you know how? We are not going to send oil to the United States," Chavez said on his weekly TV show.
He's also made a slew of other accusations:
Chavez Says U.S. Is Selling Cocaine, Arms to Venezuela's Poor
Feb. 10 (Bloomberg) -- The U.S., supported in part by factions in Colombia's government, is selling cocaine and weapons in Venezuela's low-income neighborhoods as a way to destabilize the country, Venezuelan President Hugo Chavez said.
Now, as the first article notes, Chavez regularly threatens to cut off supplies to the US, but has not actually done so in the past, so that threat may be an empty gesture again. And it must be noted, as a first point of background, that the only way to cut off deliveries to the US is to cut off deliveries altogether, as any oil delivered elsewhere will be in the global market and no actual imbalance will have been created. So Chavez would need to be willing to take some pain (in the form of lower revenues) to hurt the US - and that would work only if supplies from elsewhere could not cover the difference. The question of what the worldwide spare capacity is today is a fraught one, but it's likely that it's quite small, so Chavez's threat has teeth - especially as a lot of Venezuelan crude has technical specifications for which some US refineries are specifically adapted, and these would definitely be hurt more. Of course, the goal may simply be to get prices up, which delivery cuts would definitely achieve, but which the mere fact of threatening cuts also provides to a lesser extent.
Similarly, ExxonMobil's action is not likely to prevent PDVSA from continuing its activities and its exports (and its debt service to foreign lenders); as many analysts have noted, it is but a legal manoeuver to put pressure on the Venezuelans and get them to pay more for the assets they nationalized.
For a breathless, "We're Winning the War on Terra" description of Exxon's stand for freedom and apple pie, you can go read this text circulated by CNN which I cannot resist to quote:
Exxon Mobil, a $440 billion company with operations across the globe, has for decades dealt with crazy, corrupt governments. It routinely does business with the likes of Chad, Russia and Angola and knows all about them. But it's never run into a partner as outrageously bad as Venezuela. That's why its unprecedented move to take Venezuela all the way to international courts over Chavez's seizure of its assets is a big blow from the private sector against a dictatorship that otherwise seems to hold all the cards.
Exxon sends the message that playing within the rule of law is a far better means to succeed, win and play with the big boys than to break contracts, steal assets and violate internationally recognized norms, as exemplified in Chavez's Venezuela.
Last year, the power-mad petrotyrant declared Exxon and Venezuela's other foreign investors "robbers" and vowed to conquer them like Simon Bolivar taking the Andes. He hurled leftist nationalistic rhetoric against these private companies whose only "crime" was to invest in and bring jobs to Venezuela.
But what I found most intriguing and curious was this small paragraph buried in the first article I quoted:
Washington has distanced itself from the Exxon legal offensive in which the largest U.S. company won international court orders freezing up to $12 billion of the state oil company PDVSA's assets.
Washington has distanced itself from Exxon legal actions against Chavez? I have been unable to find any other reference to this, but it is really strange, and I wonder if anyone else has seen more on this, or would have any explanation for it...
In any case, Chavez is ratcheting the rhetoric against the US government as well as against Exxon, so that point may be moot, and we can expect the oil markets to take notice as they re-open in the morning tomorrow.
As this happens in the midst of the US primary frenzy, it's likely to be overshadowed by the discussion of the McCain-Huckabee-Clineton-Obama ratraces, but one can wish that the campaigns focused a little more on actual issues, given all that's going on right now. Beyond this outburst you have in the background the pending IAEA report on Iran, the worsening credit crisis, and NATO allies profoundly divided over Afghanistan, not to mention Iraq, the housing collapse, global warming or doubts on future oil production levels....
I wonder if some organizations could help to mediate this conflict?
Could OPEC or the UN provide a context for mediation?
The Saudis certainly wanted control of their own oil resources -- and got it back, eventually.
I wonder about the World Trade Organization as a venue for mediation, but fear that the Corporatist's would simply use that venue as another tool to oust Chavez as a "non-compliant government leader" and put in a compliant leader.
The WTO sure seems like an organization designed to subvert democratically elected officials and legislation passed by legitimate governments.
Will this in fact be resolved in a World Court of some sort?
Will this be resolved by use of force in combination with the obvious "soft power" or economic power being thrown around by Chavez and EM?
At least Chavez offered compensation, apparently insufficient for Mobil-Exxon and Conoco.
Further negotiations are in order. Who will faciltate?
Yo everyone... I'm having some difficulty understanding the whole Venezualan oil and our potential freeze on them. We have a conversation going on at:
www.purplestates.tv
Go to "Elizabeth" and help us out. There's a guy on here that really knows what he's talking about when it comes to oil subsidies, and I, frankly, need some help.
Having read all the comments about Venezuela and Huge Chavez, one comes to few rather sad conclusions; the level of ignorance and prejudice expressed, relating both to Chavez's political movement and Venezuelan history, social structure, and economy is truly staggering and what little knowledge there is, is grossly simplistic and smacks of traditional Gringo atttitudes to Latin America in general.
Is there a market out there taking bets on whether or not the U.S. invades Venezuela? Probably not a great idea, even in the eyes of the Bush administration. Total chaos in the world oil market would probably not be timely in helping the Republicans to retain power
A few months ago, one of the talking heads on the Fox News Channel (one of their staff) asked if Chavez cutting off oil supplies to the US was equivalent to the use of weapons of mass destruction against the US. Of course, Chavez has to sell the oil somewhere, so presumably the oil not sent to the US would be offset, for the time being, by oil from elsewhere. Of course, IMO all of this is against a backdrop of declining oil exports. However, the Fox comments do illustrate the thinking by some Neocons.
On the other hand, IMO most of the US is clearly suffering from "Empire Fatigue," which is a point that "Mish" discusses. He has an interesting take on Barack Obama and the war in Iraq. He is making the case that there is a groundswell of support for pulling out of Iraq--not only because of the bloodshed, but because of the financial cost:
http://globaleconomicanalysis.blogspot.com/2008/02/obama-next-president-...
Excerpt:
As a political slogan, it has the major advantage of being totally true.
I've heard this, "I'm a uniter, not a divider!" line once before from a politician. I'm not saying this time it isn't different (it is different), but to argue against that point, exit polls in California suggested anyway that the people who were sick of Iraq tended to vote to Obama, those concerned about the economy tended to vote more for Clinton:
http://krugman.blogs.nytimes.com/2008/02/06/the-issues-primary/
Hard to say since that war in Iraq is rather costly.
I have heard "I'm a uniter, not a divider!" and also "you are either with us or you are against us". Which is it and in which case? Can you believe anything this person says at any time?
tstreet,
I don't know of prediction for this event. Intrade may start one.
It has one for an attack on Iran.
www.intrade.com
From Reuters’ “UPDATE 3-Venezuela threatens to stop US oil sales over Exxon”
Is America’s increasing dependence on foreign oil supplies raising to the forefront another great American tradition, litigation?
Unfortunately, diplomacy and negotiation, the stuff of real politique has not been the U.S.’s strong card lately. So back to the law courts.
Don’t worry folks about $4-$5/gallon oil. The corporate lawyers will earn extra earnings to cushion the blow. At least for themselves.
Chevez is not a sterling icon of “rule of law” and “diplomatic niceties” either. The pathologies of Bush and Chevez mirror each other. One armed with neo-con rhetoric. The other with neo- socialist gibberish. On the stage of world history, in a bizarre and twisted way, the two presidents are made for each other.
Too bad. Like in most family squabbles between contesting willful relatives, it’s everyone else who has to cope with the mess.
Do I think Bush would send in the Marines to settle the question or keep oil flowing? Nothing would surprise me. As I say above, real politique has not been Bush's strength.
Sending the Marines into Caracas might have the same result as sending the Marines into Baghdad. OTOH, it might be a marginally smarter move than attacking Iran. At this point nothing that this administration might do would surprise me...even nuclear war.
Chevez is pressing hard so he might have some real cards...or, he might be bluffing. Does anyone know what sort of treaties, if any, were signed between Iran and Venesuela? What effect would a cut off of Venesuelan oil have on the US economy? Could we get enough oil from elsewhere to make up for the loss from Venesuela? Could Joe Sixpack be convinced that his job loss and rising prices were caused by Chevez? Do we have enough troops (not committed to Iraq/Afganistan and other bases) to take over Venesuela and insure oil flow is not impaired by insurgents? If Exxon wants their investments back will China want their investments in Venesuela back after a possible US invasion? I have a lot more questions...Just asking.
If the USA wants to Invade Venezuela then it must institute the draft. This is a non-starter.
As the American economy collapses, more disenfranchised uneducated southerners will hand their lives over to the American military machine anyway.
With a draft, presumably young people of all social standings would be eligible for warfare, increasing the anti-war pressure from their concerned parents.
National service in America would have resulted in fewer wars.
And of course our old standby immediate citizenship if you join the army.
I happen to agree national service esp if it had a large humanitarian component would have been a good thing in the US. Even if it became a pork barrel I'd have rather seen us building bridges and roads than selling arms.
It's a good thing oil isn't subsidized like ethanol. Sarcasm off.
River, about insuring the flow of oil from Venezuela, I imagine someone here will be able to quote chapter and verse as to how much oil flowed from Iraq before the US invasion and how much is flowing in 2008, five years later.
But from this:
https://www.cia.gov/library/publications/the-world-factbook/print/iz.htm...
http://en.wikipedia.org/wiki/Invasion_of_Iraq
If Greenspan was correct about 5 million barrels a day in that statement then Bush should be given a medal for reducing the amount that could be shut off from 5 million barrels a day to a mere 1.6 million a day.
Will he be even more successful in Venezuela? Good question!
Hussein NEVER had a navy to give him even a method of controling the Staits of Hormuz, thereby revealing Greenspan's level of knowledge of such things.
Point well missed karlov1 :)
I was not commenting on your main point; rather, it was Greenspan's ignorance, which I made clear enough.
karlof1, I think CrystalRadio was agreeing with you - saying Greenspan missed the main point too. The happy face at the end gives it away.
Thanks Zadok, but sorry, I'm not that deep, karlov was right about Greenspan but I just wanted to say to him that Greenspan was immaterial to the point I wished to make which was about the effect an invasion of Venezuela would have on oil exported to the US. But that was a right good interpretation of yours I wish I had thought of it, anyway here we all are, being right ... neat!:)
If Sadam were a Bismark, he would have not stopped at Kuwait but continued across another 400 miles of undefended desert and occupied Ghawar. That would have made much more sense than trying to control the Straits of Hormuz which is the other side of Iran.
Obviously, if he had done that, we would all be eating out of his hand right now and he would have been sanctified by the Pope himself.
I think this oil cutoff is a self-resolving threat.
Crazy Hugo: We're gonna cut off selling oil to you for three months!
Crazy George: We'll call your three, and the Navy will blockade you for another nine.
(Chavez's accountant reminds him of the monthly bill for paying off his cronies.)
Crazy Hugo: Imperialist Warmonger!! We DEMAND you allow our oil exports!
Crazy George: Well, OK, but I gotta call Exxon and Halliburton first and see what they prefer. Turns out they kinda like $6 gasoline.
Have any of you been to Venezuela lately?
The political literacy here is slightly below the frat level at Texas Tech--
CNN doesn't appear to be doing much better with journalistic literacy:
Is there any height or depth that CNN won't go to in order to provide professional, balanced, and accurate reporting to an international, intelligent and savvy public? With integrity and language like this, no wonder the National Enquirer is finding it hard to compete.
Al Jezeera will have to go a long way to top this.
"Power-mad Petrotyrant" -- Let's see, does that refer to the non-elected President-Select of the USA, or to the elected President of Venezuela?
Perhaps the one who invaded Iraq without cause -- a war crime for oil -- would be considered by many people in many nations to be the power-mad petrotyrant?
Meanwhile, which country has Chavez invaded?
The control over natural resources may be usurped by multinational corporations, but doesn't it rightly belong to the people who live where that resource is located? Or better yet, don't we belong to the earth, and need to learn what this means?
As has been pointed out before, perhaps Chavez and Bush mirror one another in many ways.
What would it be like if the presidents of both countries sat down together and had a conversation about how we are all competing for too few (and dwindling) resources, and we need to come up with a non-violent plan to power down and shift to a sustainable energy paradigm? Would that not be a conversation more worthy of great leaders, rather than all of this macho wrangling tangled in the morass of Corporatist Voodoo Economics and Free Market Mumbo Jumbo?
Extra-territorial judicial machinations by courts in the USA and its allies are clearly of dubious legitimacy. When Canada tried to sue US tobacco companies for smuggling cheap cigarettes into Canada in the USA over 10 years ago, the US judge claimed that Canada had no legal standing in the USA. The USA and its corporate and legal entities have no legal standing in Venezuela.
XOM is/was an entity in Venezuela, too. It's the Venezuelan assets of that entity which are at issue here.
The question here is whether Venezuela can be held to the terms of a contract it signed, or not. If it can break any contract it likes after receiving consideration (like large investments in infrastructure), then nobody (in their right mind) will do business with them. XOM is demanding that Venezuela either live up to the contract or pay the current value for those assets; you'll find this in all kinds of contracts.
This assumes that contracts between the state and corporations is on an equal footing. The US government can break contracts with some offer of compensation. Eminent domain is one form of this supreme sovereign status the government has in common and statutory law.
Engineer Poet-
That contract was signed when Venezuela was a client state of the US, just CorpWhores in it for the feeding at the trough. Any contract signed under the current elected government will be honored.
Fidel did not honor contracts signed by the Batista dictatorship.
That contract was signed when Venezuela was a client state of the US
Evidence of your claim? I doubt that you know the actual details of who signed what and when, but if you have evidence to back up your claim, I would be interested in seeing it. A number of people here have been making this claim, but I haven't seen any actual evidence.
Absence of evidence is not evidence of absence.
;}
The original contracts were signed in the 1990s (http://www.economist.com/displayStory.cfm?story_id=9412088) during the regime of Carlos Andrés Pérez, a "neoliberal" who backed IMF imposed austerity programs (http://en.wikipedia.org/wiki/1992_Venezuelan_coup_d'%C3%A9tat_attempts) that caused great hardship for Venezuela's poor. The IMF is basically an instrument of U.S. policy, and if you want a case backing that statement, I can make it.
I think it fair to call Venezuela under Pérez a client state of the U.S.
Chavez thought enough of ConocoPhillips to sign a contract with them in 2005:
http://www.venezuelanalysis.com/news/936
A contract he later shredded, after a lot of money had already been sunk into the project.
I say again, I don't care about the oil. Even Corocoro, which ConocoPhillips discovered:
http://goliath.ecnext.com/coms2/summary_0199-3288578_ITM
And agreements on this field were signed in 2003 - when Chavez was in power. Renegotiated in 2005 when Chavez decided to change the law. Torn up in 2007 when he decided to change the law again.
But I would like the investments back that we put into Venezuela. And I think we will get a positive ruling on this. And COP did have a lot more invested into Venezuela than ExxonMobil did.
Robert-
Exxon came into Venezuela under "Apertura Petrolera" (Rafael Caldera's government)--
He was essentially a US puppet, and the US did the pulling of the strings.
His followers protested Chavez, many arriving in ther Convertable Jag's.
OH NO! Conspiracy! Evil!
If you perhaps bothered to read the article, you'd see that it is an editorial from Investor's Business Daily republished on CNN as part of a content sharing agreement.
One should hardly be surprised at the tone of the editorial since it is an OPINION piece from a pro-business publication that is to the right of the Wall Street Journal. It was not ordered up out of the Cheney bunker.
This site loses credibility when its posters are constantly making groundless, _reflexive_ accusations that paint everything in simple-minded, left vs. right, conspiracy-laden puffery.
There is enough evil to deal with without the distractions of such hysterical, Chicken Little-type hyperbole.
I don't know about political literacy in Venezuela, but I do know Chavez is no dummy. The discounted oil to various communities in the US was a brilliant stroke. The more or less gracious acceptance of the narrow loss on the referendum was also a very smart move. He survived a coup and has since granted amnesty to most of the coup-plotters. Here you can be innocent and spend time in Guantanamo. Chavez is not losing the propaganda war with the neocons, and especially outside this country, and maybe not even in this country. He screws up sometimes, and maybe goes off half-cocked, but then he goes off and thinks. Latin America is in the process of breaking from the embrace of the empire. Chavez gets credit (and blame) for his very big role in that process. It's hard for me to see how there can be any justifiable complaint about that.
What I have a question about is the difference between Exxon and Conoco on the one hand, and the other companies that are going along with the deal. Were they all offered the same deal? Is there some difference in the position of these companies?
hightrekker asks,
"Have any of you been to Venezuela lately?"
I must assume that is a rhetorical question and not one designed to encourage dialogue....why in the freakin' hell would ANYONE go to Venezuela?
It's on my list of desired travel sites....right behind Chad and Cuba, and most people I know feel exactly the same way....such has Chevez been of benefit to the reputation of a once proud and respected Latin American nation....
RC
RC, ... err... speaking as I do living north of the American border, I can tell you that many Canadians do think of Cuba as a prime travel destination - low crime, hospitality, and sunny warm beaches to get away from the frigid cold.
Venezeula may not be at the top of many people's list of ideal holiday get-aways but the same holds true for Columbia or Guatamala, neither of which are bright stars in the Latin American constellation of nations even though their regimes are not condemned whole-heartedly by the US government.
Chavez is no saint and he tends to be blinded by his ideology, true, but then again the same can be said of practically every other world leader.
I have been to Venezuela. Not to Caracas, but along the coast in a yacht. It is sublim