Hugo Chavez: The man who raised oil prices


One man is responsible for the trebling the price of crude oil in the past 18 months.  Not only that, he is a leftist opponent of globalisation and a bosom friend of Fidel Castro (with whom he played baseball and sang a duet for the TV cameras recently).  As such, he deserves a place in the pantheon of demons alongside Saddam Hussein and Slobodan Molosevic.  But far from being demonised, his name is barely mentioned in the media here.


His name is Hugo Chavez and he is the President of Venezuela, the country with the largest oil reserves outside the Middle East.  He was elected President in late 1998, since when he has re-written Venezuela’s constitution, got it approved by popular referendum and got himself re-elected for a further six years.  Not even his worst enemies attempt to deny his popularity with the poor of Venezuela, of which there are many.  Only in his mid-forties, he could be around for a long time, if he can survive CIA-inspired bullets.


Oil is Venezuela’s main source of wealth.  Chavez had the simple notion of financing his ambitious plans for economic development and making the poor a little less poor by means of a hike in the price of oil paid for by the West.  And what’s wrong with that?  It’s overseas aid without having to listen to Clare Short tell you what’s good for you.  So, he set out to revitalise Organisation of Petroleum Exporting Countries (OPEC) and use it to drive up the price of oil by restricting supply.


OPEC conceived by Venezuela

Although we tend to think of OPEC as an Arab organisation, it was in fact conceived by Venezuela and created at a conference in Baghdad in 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.  The five founding members were later joined by eight others: Qatar, Indonesia, Libya, UAE, Algeria, Nigeria, Ecuador and Gabon.  The last two withdrew in the 1990s and OPEC now has 11 members, which supply about 40% of the world’s oil consumption and have over 77% of known oil reserves.  Most important of all, the OPEC countries have most of the world's excess oil production capacity, so if they restrict the supply of oil, the difference cannot readily be made up from elsewhere.  (Also, Mexico and Russia, two of the largest oil producing countries outside OPEC, seem to be co-operating with it at the moment in restricting supply).


When Chavez came to office in late 1998, the price of oil was less than $10 a barrel.  Production quotas set by OPEC were not being stuck to.  Earlier in the 1990s, Venezuela had been one of saboteurs in OPEC, ignoring the quotas set and bringing in foreign companies to increase production through the development of new fields.


OPEC re-invigorated by Venezuela

Chavez changed all that.  At an OPEC meeting in March 1999, his oil minister, Ali Rodriguez Araque, was instructed to announce that Venezuela would in future respect the cutbacks in production already agreed, and would support a further cutback of 4%.  Ali Rodriguez is now OPEC’s president, and the oil price has risen from $10 to over $30 a barrel.  Other factors, not least the continued expansion of the world economy, have contributed to this rise.  But a re-invigorated OPEC has been primarily responsible.  Chavez deserves to be named World Environmentalist of the Year.


In August, Chavez toured all 10 of Venezuela’s fellow OPEC members, including Iran and Iraq.  He was the first foreign head of state to visit Saddam Hussein since the end of the Gulf War.  The US government opposed the visit publicly but he went ahead anyway.  He also visited Libya and got on well with Gadaffi.  At the end of September, when protests over fuel prices were sweeping Europe, he hosted the first OPEC summit in 25 years in Caracas.  Thanks to Chavez, OPEC is a much more disciplined, and more effective, body than it was 18 months ago, with the relatively modest ambition of stabilising oil prices in the range $22 to $28 a barrel.


Chavez: The unknown villain

The Government has being trying hard to convince a sceptical public that recent increases in fuel pump prices are not due to tax but to a rise in the world price of crude oil.  So why doesn’t Chavez, as the person most responsible, figure as the villain in every story about fuel prices?  The only reasonable explanation is that the Government, and the US Government, has decided to keep quiet about the extraordinarily powerful position that Chavez, the President of a small, underdeveloped country of only 24 million people, has carved out for himself.  (And since journalism barely exists as a profession nowadays, his role has therefore not figured in newspaper headlines).


To get out of the present difficulty, the strategy of the UK, and the West in general, has been to plead with their traditional friends in the Arab world to increase oil production.  Saudi Arabia is the most important because it supplies around 30% of OPEC’s total output (followed by Iran with about 13% and Venezuela with 10%) and has more spare production capacity than any other state in the world.  But, although Saudi Arabia has made conciliatory noises, there is no sign of it breaking ranks.  OPEC is due to meet on 10 November to review and revise production targets.  In the meantime, the undeclared war in Palestine has applied upward pressure on oil prices, driven by the fear that the Arab world may apply the oil weapon to the West because of its support for Israel.


US dependent on OPEC (and Iraq)

The emergence of Chavez must be a source of considerable worry to the US.  Unlike his friend Castro, who has been a minor irritant for the past 40 years, he has got economic clout and through OPEC has a considerable influence on a massive amount of economic clout. 


The US economy is increasingly dependent on oil supplied by OPEC countries, including Iraq.  The US (with 5% of the world’s population) consumes 25% of the world’s oil production, 60% of which has to be imported.  That proportion is rising and will continue to rise because domestic oil production in the US is falling – in the 1990s US production fell by 15% while consumption rose by 11%.  It now consumes the bulk of the oil exported by Canada, Mexico and Venezuela and is increasingly dependent on imports from the Gulf, including Iraq, which is now producing nearly as much oil as Venezuela.  (Ironically, whereas US companies are free to purchase oil from Iraq, they are forbidden under US law from purchasing oil from Iran).  The US economy is now powered in part by OPEC oil, the availability and price of which is influenced by Chavez.


(And by Saddam Hussein.  Iraq though a member of OPEC is not subject to OPEC quotas, because its oil exports are governed by regular oil-for-food deals supervised by the UN, in which about half the oil revenue is confiscated as war reparations.  The current deal runs to 4 December.  If Iraq’s contribution to the world’s oil supply at nearly 3 million barrels a day were no longer available, it is difficult to see how it could be made up from another source in a hurry.  With OPEC restricting supply under the influence of Chavez, this is a very powerful weapon in Saddam’s hands.  Even a suggestion from Bagdad that Iraq was not going to supply the West with oil on the current terms might have a dramatic effect on Wall Street.  Sanctions against Iraq may end very suddenly.)


On the political front, Chavez has ambitions to expand his influence in Central and South America, which the US has long regarded as its fiefdom.  His hero is Simon Bolivar – he has renamed Venezuela the Bolivarian Republic of Venezuela – and he sees himself as the leader of a movement to liberate Latin America from US driven globalisation.  He had better mind his back.



Labour & Trade Union Review

November 2000