A smart reversal by Chavez from his initial threat to cut off all oil sales to the US. Chavez (IMO) would have been cutting his own throat if he did this.

Venezuela still owns CITGO which uniquely processes the heavier mixes Venezuala offers. These, in general, can't be processed in refineries in the rest of the world.

Now, only EXXON (which has enriched itself through exploiting Venezuelan crude, more than any other company), will take the heat. On the other hand, XOM is a big boy and can undoubtedly weather the storm, given the preferential treatment it receives in the US.

Having said that, XOM could now be harvesting millions more BPD by upgrading Venezuela's heavy oil reserves if they had just acted with less avarice and offered Venezuela a better deal for the rights to do this than they did in the late seventies and early eighties. Chavez (IMO) would never have come to power if they had.

Now, having failed to learn the less of Venezuela, XOM is pushing a law in Iraq in which they and their cohorts get the lion's share of the production rights. What would be wrong with a 50/50 offer?

Pity. What goes around, comes around.

The best thing the Bush Administration could do right now is to remain silent. Silence is an important communications tool. Used properly, it is highly effective in that once you have shown your hand to an adversary, he knows what you are thinking. Keep Mr. Chavez guessing.

They still have the oil--
And it is not getting less valuable.
Checkmate.
Next game?

My question is: How practical is it for Venezuela to take their oil elsewhere?

the helicopter "market", a well-oiled machine, no less!
umm, have the Chinese begun building heavy sour refineries since their last friendly with Chavez?

I think China might be willing to build refineries to handle their heavy crude. It depends on what other deals that China can get. China is on the record as saying that they make deals with countries that the U.S. will not deal with. They will sell arms to the Saudis that we will not sell them, for oil. China is very active in securing their oil future and they have the U.S. dollars from trade to make the deals.

Hi Alan, would you guess that those repurposed sales could be at a repurposed price?:)

Both.
Venezuelan oil is heavy(needs hydrogen), and has lots of vanadiun(toxic metal) and sulfur in it. These impurities are bad for people and engines.
Gasoline and jet fuel are the most profitable products, these is what oil refineries want to make.

Here's what EIA says about the 2003 cutoff of Venezuelan crude.

http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2003/venez...

Exxon's net investment in Venezuela is not $10 billion. If they had invested this much and did not a get chance to extract billions of dollars in profits then you would have a point. According to Exxon, Chavez's nationalization, left them with a loss of $750 million.

Yes Rainsong, and what a good world citizen that legal entity has been. If it weren't for such self sacrifice by them and the rest of Oil-corp, in promoting the automobile, we would all be out shivering in the fresh clean air commuting on Alan's tooner trollys. Gee I would say they are just the peaky best, but I think Auto-corp edges them out in the just-what-the-world-needed department.

I think the human race would have been better off taking all the fossil fuels out and burning them:)

What Venezuela did was legal under international law. They nationalized a higher percentage of the operations and offered adequate compensation (4 of 6 oil companies accepted the deal). XOM & COP refused the offer and now it is moving onto legal and arbitration channels.

Whether a nation wants to be an attractive place for foreign investment or not is an internal domestic policy issue (I would never invest in Russia for example, too corrupt and too much risk of Russian nationalism, but I would in Kazakhstan). But it is Russia's soverign right to be a poor place for foreign investors.

Alan

Daxtatter,...and how long do you figure for the unfolding economic quicksand under your feet to do it's job? "Hooray for Capitalism and corporate greed, that is all I need to confound my enemies", smiles Hugo Chavez :)

Well, if I'm not missinformed, the next presidential election is in 2012. Chavez is not eglible to run for presidnet again, as he have already been re-elected as president. You can only sit in the presidents office in Venezuela for two consecutive terms. So how, pray tell, would he stay in power for ten years?

And is there any support for your claims that the PDSVA is one of the worst run oil companies in the world? I'm just curious.

Counterpoint from another site, where his policies were criticized similarly:

14. I don't think anyone here is defending Venezuela's environmental record. And it's only going to get worse, the more of their ultra-heavy crude they produce.

Who do you think is voting for Chavez, if not the poor? Who do you think it was who staged the counter-coup, if not the poor? Who were the ~40% of Venezuelans who *tried to eliminate his term limit*, if not for the poor? The poor love him. Why? Because he's channeled huge amounts of money into social welfare. Check the above PDF for examples of how Venezuela's government spending has changed over the years (note the oil strike in 2003). For all of the following, realize that population has only grown from 23.4 million in 1998 to 27 million in 2006:

* Government social rose 314% from 1998, from 8.2% of GDP to 20.9% in 2006.
* Poverty rate pre-Chavez was 43.9%. Rose to 55.1% during the strike, and is now down to 30.4% (as of 2006). But poverty rates only consider income, not "quality of life", which is what social programs provide (free food, medical care, education, etc)
* Unemployment pre-Chavez was 15%. Reached 18.4% in 2003, now down to 8.3% (as of 2006)
* Inflation pre-Chavez was 36%. Rose to 40% in 2003. Now 19.4% (still too high, though, but typical for the third world).
* Fastest economic expansion in Venezuela's history -- 76% since 2003 (previous fastest was 31% from '73 to '77, and oil prices rose a lot more then, and '73 to '77 had its own downturn preceeding it like 2003 did.) The oil strike only cost Venezuela 24%.
* Private sector has grown faster than the oil sector. Fastest growing private sector, finance and insurance, has grown 240% from 2003 to 2007. Construction is up 144%, trade and repair 127.5%, communications 99.5%, and transport/storage 87%.
* Primary care physicians in 1998: 1,628. 2006: 19,571
* Emergency rooms in 1998: 417. 2006: 721
* Rehab centers in 1998: 74. 2006: 445
* Primary care centers in 1998: 1,620. 2006: 8,621
* HIV patients recieving retroviral treatment in 1998: 335. In 2006: 18,538
* School children benefitting from a school food program in 1999: 252,000. 2006: 1.8 million
* Opened 15,726 stores providing subsidized food; these plus expanded programs for the extremely poor, benefitted 67% of the population in 2005 and 43% in 2006.
* Primary school enrollment in 1999/2000: 271,593. 2005/2006: 1,098,489
* Formal sector employment in 1998: 4.41 million. 2003: 4.72 million. 2006: 6.06 million.

I could keep going if you like.

The rural poor? You have got to be kidding me. Chavez gained a tremendous amount of ire among wealthy landowners by *helping the rural poor*. It was one of the sparks of the coup against him, and one of the first things that Carmona did after Chavez was overthrown was to reverse Chavez's land reforms. What land reforms? He allowed the rural poor to confiscate any unused land so long as they put it to use. Basically, legalized squatting.

Chavez is no role model. But let's not repeat talking points that have no basis in reality. The facts are that the Venezuelan poor are his biggest supporters, and he's funneled a truly staggering amount of money into social programs to help them over the past several years.

Oh, and by the way: pull up Google Earth and show me where I can find a *single* food line in Caracas. Go on, I dare you. Things like that are visible on Google Earth. I'm browsing around Caracas right now, and there's not a line in sight. Perhaps I'm missing these "humiliating lines" you speak of.

From ABG comments

Not all of the world has the luxuries we enjoy in the US - it's a third world country, and Chavez appears to have done quite a lot of good for it. While I abhor his human rights abuses, the fact is he stared down a coup which was canceled because of popular revolt. It's a different scale to think about politics in. The coup was about resistance to nationalizing the oil company, sparked in particular by the televised firing of the top executives (which was seen as class warfare).

"Not supporting him politically" is a different matter than leading a riot which claimed several lives and threw the capital into chaos, then gaining military support for a coup. I daresay that in most countries many would have been executed for high treason without much deliberation. As it is, first their courts ruled that there was no coup, then the supreme court intervened and said that there was, and then the prosecutor of 400 people involved in the coup was assassinated. The mass-firings and loyalty-based hirings, months after the coup was over, followed a 2 month long strike by the oil company workers.

The neocons believe that we're not a constitutional republic, but an empire which owns the world by God-given right. They use words like "Use the oil weapon" to describe someone who doesn't choose to sell us oil. They positively foam at the mouth on thoughts of invading Iran or Venezuela for their oil. This, naturally, pisses a lot of people off. Whether MIGs would protect them is immaterial as long as a strong majority of Americans don't give in to this belief, and we don't go into a public policy of outright colonialism. The trash-talking of Hugo Chavez is largely an attempt to make that possible.

BTW -- General Wald's prepared remarks begin on page 32 of the 90-page PDF.

His statement and answers to questions later are as relevant today as they were a year ago -- if not more so.

You're talking about a rising inefficient welfare state and paid Chavista mobs (I wouldn't call these 'cadres' a 'good' representation e.g. Venezuela has a very high crime rate) as if these were a good things. Oil is perpetuating a would-be totalitarian state, just as high oil prices perpetuated the oil/gas exporting Soviet Union in the 1970s.

It's ridiculous to claim that oil companies are REDUCING the standard of living of people in oil exporting countries.
Your idea is that oil exporting countries are ruled by
corrupt elites that are reinforced with money( to prevent the inevitable socialist revolutions no doubt), but there are corrupt elites in oil-poor countries as well.

If we intervened to spread democracy to oil producers ala Bush you'd denounce that too as neo-colonialism.

I'm not sure how compelling the logic of national sovereignty over resources is.
For example, Saddam Hussein lit Kuwait's oil fields(the 13th(?) province of Iraq, he said) on fire. That's the logic of national sovereignty.

Yes, if you throw money at the poor, they will be better off. However, when your source of money that you give to the poor is oil, and when you fill the state oil companies with political cronies that don't know what they're doing, and don't invest in new drilling, and promote massive oil consumption, where does that money come from. You don't have any petrodollars to spend when you become a net importer of oil (which is a very real possibility for Venezuala).

Anyone acquainted with the history of oil development is aware of "the curse of oil." Somehow, oil gets extracted from many countries at terms which are very profitable for the corporations extracting the resource, but extreme poverty and oppression result for most of the people.

There are non-sinister explanations for this.

One is that oil production (or any other easy source of wealth), especially by the government, eliminates the link between most forms of productive effort and worthwhile rewards.  Governments financed by oil (or gold, or diamonds) don't need support from workers to keep their programs running and leaders compensated.  Real estate and other resources get bid up by the extraction business so that other productive enterprises cannot compete, so those markets are supplied by imports.  This is not unique to oil; Spain's gold-driven wealth in the 16th century did the same thing.

If this is a predictable and nearly inevitable economic phenomenon, it's wrong to ascribe it to evil motives.