Welcome to the Revolution: Neo-coms are Renationalizing Resources
by J. Christoph Amberger
“Investors are going to the dollar as a safe haven.”
That’s not a sentence you hear these days, when everyone and his grandmother is predicting doom and gloom for the greenback. But according to Enrique Alvarez, a Latin America economist at the research firm Ideaglobal in New York, this is exactly what is going on in Venezuela, now that Exxon Mobil Corp. and ConocoPhillips have abandoned operations in the country.
The withdrawal of the oil multis from Venezuela occurred as a consequence of Hugo Chavez's neo-communist nationalization campaign of the country’s oil assets.
While Chavez now controls Venezuela's oil fields, it would appear that he is falling short of the markets’ confidence that the departure of the big guns with the deep pockets and the expertise will have no effect on the country’s ability to pump oil efficiently and profitably… at least in the short term.
These concerns can't be dismissed lightly. Sure, Venezuela is currently making a mint on crude oil exports. But oil revenues alone do not guarantee stability, growth... or even a positive trade balance. Look at Iran, which just, with two hours’ notice, limited private drivers to 26 gallons of fuel a month.
(That’s because, despite large oil reserves, Iran lacks refining capacity and has to import 40% of its gasoline -- which needs to be subsidized to such a degree it retails at about a fifth of cost. Which has resulted in a huge budget deficit largely caused by fuel subsidies. The Iranian inflation rate is currently estimated at 20-30% -- and Venezuela is catching up as the bolivar is plummeting.)
Under the radar, neo-com Bolivia, too, has renationalized two oil refineries owned by Brazilian Petrobras. At just $112 million, the “buyback” was certainly a steal. The refineries process about 40,000 barrels of crude oil per day.
Given the proven lack of effectiveness of state-run oil companies to maintain investment and technology levels in the exploration and expansion of new and existing pumping capacities, I believe it is safe to assume that doubts about production capacities in Venezuela may soon rival supply fears due to strikes in Nigeria. At the same time, look for exponential growth in inflation pressures on the Venezuelan and Bolivian currencies.
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