Justin's Political Corner

Hugo Chávez promises to increase production and reduce dependence on US market by doubling crude exports to Asia

While giant rallies in Caracas may be drawing the world’s attention ahead of tomorrow’s Venezuelan presidential election, the global significance of the vote can be found hundreds of miles to the east in the oil-soaked Orinoco Belt.

According to studies, Venezuela has overtaken Saudi Arabia to become number one in the world for proven oil reserves, largely thanks to the heavy crude found in this vast alluvial plain.

Whether this multi-trillion dollar asset is controlled by Hugo Chávez or the opposition challenger, Henrique Capriles, will influence which countries and companies are given the priority to exploit them and how much drivers around the world pay at the pump. According to a report this year by BP, Venezuela has reserves of 296.5bn barrels, about 10% more than Saudi Arabia and 18% of the global total. At the country’s current levels of production, this would last about 100 years.

If Chávez wins – as most polls suggest – he has promised to ramp up production and reduce his country’s dependence on the US market by doubling crude exports to Asia. To further this goal, Venezuela plans to build a pipeline through Colombia to the Pacific which would reduce costs and transport times to China and other Asian markets.

Capriles, who has mounted a strong challenge, says he would fire the oil minister, Rafael Ramírez, and rethink how crude is extracted and used. Until now Russian and Chinese companies have struck the biggest deals for future exploitation.

“We have to revise every deal. I think they are agreements that are not functioning,” he said. During the campaign, he has also said he would halt subsidised oil shipments to Cuba, Belarus, Nicaragua and Syria. Critics say he is a stalking horse for US interests.

Both Chávez and Capriles are calling for more investment so that Venezuela can increase not only output but also the quality of oil through the use of upgrading technology. But the volatile mix of politics and oil has made it difficult to secure partners.

In recent years Venezuelan oil production has fallen due to poor maintenance, low investment and the loss of key workers. Plans to open new fields have been repeatedly delayed. The state-owned oil company PDVSA says the holdups are over. Last week its joint venture with Russia’s Rosneft and Lukoil pumped its first barrel. Another operation, with a Vietnamese firm, has also reportedly begun. Projects with Chevron of the US, Spain’s Repsol and others are due to start early next year.

Oil helps to explain why Chávez is vilified in the US. In 2000, a year after taking power, he made his first mark on global affairs with a tour of the Middle East to lobby key Opec members – Iraq, Iran, Libya, Kuwait and Saudi Arabia – to drive oil prices higher. Since then, the cost of Brent crude has risen from less than $20 a barrel to more than $100.

Saddam Hussein and Muammar Gaddafi were among the leaders who joined Chávez to drive up prices. Molina believes it is no coincidence that they were deposed and killed: “There’s a plan in place to control the global oil market. Anyone who tries to erode the monopoly ends up in conflict with the [US] empire.”

In the past, Molina said foreign oil firms were paying only 3% royalties to the government, but Chávez pushed this up to 16%. He also helped to raise the value of the output from the Orinoco Belt by relabelling it as valuable heavy crude instead of cheap bitumin or tar, as it had previously been priced.

Some accuse the US and multinationals of trying to influence the presidential campaign. “Transnationals want control of the oil here. They want the submission of Latin America to supply the market needs of the US,” said Nicmer Evans, a political science professor at the Central University of Venezuela.

But the outside influence cuts both ways. Since 2007, the government has received $42.5bn in loans from the China Development Bank, with the biggest tranche coming in the year ahead of an election in which Chávez has increased public spending, the minimum wage and pensions. This is repaid largely through shipments of 430,000 barrels of crude a day to China in repayment.

Russian president Vladimir Putin showed his support with the gift of a puppy to Chávez this month.

h/t: The Raw Story