Fwd: Venezuela

Macdonald Stainsby mstainsby at SPAMhotmail.com
Tue Aug 31 02:48:01 MDT 1999

>China Attempts Social Control With Economic Tools
>Moscow Shifts Toward Belarus
>Timing of U.S. Congressional Staffer Visit Interesting
>Global Intelligence Update
>Weekly GIU August 31, 1999
>Venezuela's Chavez Takes the Lead In OPEC
>Venezuela's nationalist president, Hugo Chavez, has not just taken
>on the Congress and judiciary, but also the state-owned oil
>company, the world's second largest.  The nationalist president is
>also trying to grab a lead role in OPEC.  If he succeeds on both
>fronts, he may restore the feeble cartel to some of its previous
>glory, when it could dictate much of the world's oil production and
>Roberto Mandini resigned August 30 from his position as head of
>Venezuela's state-owned oil company, Petroleos de Venezuela, SA
>(PDVSA).  Mandini reportedly said he stepped down so as not to
>interfere with the Venezuelan government's oil policy, but the El
>Observador newspaper cited unofficial sources that claimed the
>Chavez administration asked for Mandini's resignation on August 29.
>But an apparent conflict was brewing between the company and the
>government.  Last week, Mandini spoke out against the government's
>use of PDVSA to finance infrastructure and development projects.
>PDVSA has already committed 12 billion barrels to financing more
>than half of the 216 projects included in the president's Plan
>Bolivar 2000 social agenda, according to Venezuela Online News.
>Mandini's likely replacement is the vice president of strategic
>planning, Hector Ciavaldini, reportedly a close friend of Chavez,
>according to El Universal.
>PDVSA's cash flow into state treasury is critical to the
>president's populist agenda and he is leaving no doubt as to who is
>in charge.  Chavez ran for office on promises to cleanse the
>government of the gross corruption that squandered the country's
>oil wealth.  He promised to rewrite the constitution, reform the
>judiciary and purge the Congress.  He is dramatically carrying out
>those promises. The constituent assembly he convened to rewrite the
>constitution is stripping the Congress and judiciary of most of
>their powers, recently sparking clashes in the streets between
>legislators, Chavez loyalists and the national guard.
>Chavez is also taking firm and very public -- control of oil
>policy.  The days when PDVSA told the state what it would and would
>not do are over.  Venezuelan state oil policy will be the state oil
>policy and the state oil company will be the state oil company.
>Chavez is not waging street battles with government officials who
>enriched themselves on oil revenues just so PDVSA executives can
>spend them as they see fit.  The president fully intends to
>redirect the resources to fund his social platform.
>But if free market economics suffer under routine graft and
>corruption, they will last much less under full-scale, populist
>state intervention.  Chavez not only needs to have firm control
>over PDVSA and Venezuela's oil policy; he needs to have a degree of
>control over the larger oil market.
>For that, he needs OPEC, and he has set out to prove to his cartel
>members that he is not merely a team player -- he is the team
>leader.  At the conclusion of a recent meeting in Caracas, the
>Venezuelan, Mexican, and Saudi oil ministers affirmed their
>commitment to maintaining existing production cuts through March,
>In a joint statement on August 29, the three ministers noted that
>if they are strictly observed, cuts in production can boost prices.
>OPEC has cut production by 1.7 million barrels per day (bpd).
>Accompanied by a 400,000 bpd cut by non-OPEC Mexico, Russia, Oman,
>and Norway, the initiative has more than doubled crude oil prices.
>The ministers also insisted that it is too early to lift production
>ceilings, with stockpiles not yet at normal levels and demand still
>down because of sluggish economies in Asia.
>Largely unnoticed, Chavez has been instrumental in drawing
>Venezuela, Mexico and Saudi Arabia into closer cooperation in
>keeping production down.  Early in the year, all three competed
>aggressively for U.S. market share and cheated, producing more oil
>than they pledged.  But on March 1, the new Venezuelan oil
>minister, Ali Rodriguez, announced that his country would no longer
>compete for the U.S. market share it had lost to Saudi Arabia in
>1998 [ http://www.stratfor.com/services/giu/030499.asp ].  With that
>announcement, and an upturn in Asian demand, prices began to
>recover.  Crude oil was priced between US$18 and slightly more than
>US$21 on world markets August 30.
>Venezuela is quickly trying to seize a leading role in OPEC.  At
>the weekend meeting, Venezuela proposed that production quotas be
>guided by a price band.  If oil prices drop below a lower limit,
>the cartel would automatically scale back production.  If prices
>rise above an upper limit, encouraging non-OPEC members to boost
>production, cartel members would raise their output.  This plan and
>others aimed at maintaining oil prices will reportedly be discussed
>at the upcoming OPEC meeting, scheduled for September 22.
>Venezuela is urging another item for the September meeting: Iraq.
>Iraq is rapidly nearing its UN-mandated production cap of 3 million
>barrels per day and could drive prices down.  Rodriguez told El
>Universal that the organization should address Iraq's increasing
>oil production.
>Chavez is also planning to host a summit in March, 2000, for the
>heads of state of oil-producing countries, including all OPEC
>members and producers such as Mexico, Russia and Oman.  The
>Financial Times cited Ali Rodriguez as reporting that all the heads
>of state have agreed to attend.  The only previous full summit of
>OPEC leaders occurred in Algeria in 1975 and the participation of
>non-OPEC leaders is unprecedented.
>OPEC is not what it used to be, controlling only about 35 percent
>of world production, and the participation of non-OPEC nations is
>vital to controlling production and price.  Chavez and other OPEC
>members are seeking to strengthen and perhaps formalize cooperation
>with these countries to make cartelism work.
>His international strategy is closely tied to his nationalist
>domestic strategy.  He needs increased oil revenues to pay for his
>domestic agenda; for that he must firmly control state oil policy
>and the state oil company.  But none of this is of any value unless
>OPEC and other producing nations can enforce greater discipline on
>production and on price.
>Chavez must act quickly, though.  Oil prices are leading off of
>expectations of renewed growth in Asia.  But there are indications
>that growth in that region is just a temporary uptick, not a
>prolonged upswing.  And Iraq is poised to increase supply.

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