Venezuela: Oil, Gold and Foreign Affairs

Venezuela was one of the founding members of the Organisation of Petroleum Exporting Countries (OPEC) and has proven oil reserves estimated to be around 76 billion barrels in 2005, representing 6.5% of known world reserves. Oil production in Venezuela commenced in 1878 but commercial production did not begin until 1914. Today, oil dominates the Venezuelan economy and oil production currently stands at around 3.3 million barrels a day or 3.7% of world production.

Current reserves are expected to last nearly 80 years. Venezuela has the ninth largest gas reserves in the world but gas infrastructure is undeveloped. Current reserves are estimated at 14 trillion square metres but the petroleum industry consumes 70% of domestic gas production. Venezuela also produces Orimulsion from the Orinoco belt which consists of an emulsion of water and oil. The name Orimulsion is trade mark protected.

The current Venezuelan administration is striving to achieve full national sovereignty over its natural energy reserves. PDVSA's own website states its intention to "put the oil resources to the service and well being of the country; to build a new economic and social model, ending inequalities that have been present in Venezuelan society over the last decades. PDVSA stimulates the endogenous development of communities, realising a fair distribution of the Nation’s oil wealth."

On January 1 2006 PDVSA took back 32 oil fields from private companies including Total, Eni, Chevron, Royal Dutch Shell and Repsol after declaring that previously signed operating agreements should have been set at a tax rate of 50% not 34%. British Petroleum (BP) was also handed a bill for back taxes for $61.4 million in March 2006.

Venezuela exported US$38,971 million in 2005 primarily to the USA, Europe and Latin America. In fact, Venezuela is one of the largest exporters of crude oil to the USA and supplies on average 15% of its requirements. Of this around 1.5 million barrels a day of oil and by products are exported under long term agreements. The current administration has attracted criticism and praise for using oil profits to fund social programmes both at home and abroad - Citgo (the retain and refining arm of PDVSA in the USA) has even started selling subsidised heating oil to deprived communities in the USA.

Venezuela has adhered strictly to its OPEC production quotas since the inauguration of Hugo Chavez. The war in Iraq had boosted oil prices and effectively transferred billions of US$ from oil importing countries such as the USA to exporting countries such as Venezuela. Oil prices increased by nearly $30 a day between 2002 and 2005 and the value of global exports doubled to nearly $800 billion in 2005. Whilst the current oil price rises are not as significant as those of the 1970s the extra profits generated for oil producing countries is already affecting domestic and global finances.

Venezuela's mineral deposits include iron, bauxite, coal, gold, phosphate, limestone and nickel. gold mining stated in Venezuela in the 19th century and the country holds 12% of known world gold reserves in 2004 gold production stood at 9690 kilograms. Gold is mined by private companies under concession and small scale artisan miners. The largest private gold producing company in Venezuela is Hecla Mining Company which operates the La Camorra mine in the state of Bolivar.

Gold mining is particularly controversial in Venezuela and in September 2005 social hundreds of small scale miners blocked roads and held demonstrations in protest against the government decision to grant gold mining concessions to Crystallex International Corporation, a Canadian mining company.

The state owned mining company is Minerven. Mining is banned in some areas in order to protect indigenous communities and the environment but illegal mining continues. The government has promised to monitor and review this situation.

Indigenous communities in states of Anzoategun, Monagas and Sucre have recently been granted some communal land rights to farm and fish but this does not include ownership of minerals in the ground. Any mining activities must be authorised by the government and minerals reserves, like hydrocarbons, belong to the state. Royalty payments and production taxes also apply.

Mercosur, the South American trading block, has agreed to admit Venezuela as a member. Other members include Brazil, Argentina, Paraguay and Uruguay. The aim of the block is to facilitate regional economic integration and cooperation, and requires commitment to democratic standards. However it will be some time before Venezuela can be a fully participating member because it is already a member of the Andean Community of Nations with a different tariff regime. Venezuela indicated its intention to withdraw from the Andean Community, which is more sympathetic to the US than Mercosur, in April 2006 as a result of trade deals between Peru, Columbia and the US.

The current government of Venezuela is attempting to integrate the Latin American energy markets, and ultimately the regional economy, through energy ventures and agreements with other countries. Chavez signed an agreement with the President of Cuba, Fidel Castro, in 2000 to export cheap oil to Cuba. Venezuela is also a signatory to the San Jose Accord with Mexico to supply oil to 11 countries in Central America and the Caribbean at preferential prices. In return Venezuela receives subsidised agriculture and industrial products, and medical services. Hugo Chavez has invested in other foreign energy ventures including a joint venture with Cuba to develop the Cienfuegos refinery in Cuba and energy infrastructure projects to construct new gas pipelines in South America.

Venezuela enjoys a large trade surplus as a result of its oil exports and its trade balance stood at US$31.5 million in 2005. The value of trade exports more than doubled between 1996 and 2005 as a consequence of oil price rises and a growth in other export goods. Venezuelan exports were worth US$55.5 million in 2005 and oil exports accounted for US$39 million of this. Venezuela's major trading partners are the US, Colombia, Brazil, Mexico, Germany, the Netherlands, Japan, Ecuador and China. The US was the destination country for 55% of Venezuelan exports whilst Venezuela imported 33% of its imports from the US.

Despite the importance of trade between Venezuela and the USA relations between the two countries are fraught. The Venezuelan government has claimed that the US Central Intelligence Agency (CIA) was involved in the 2002 coup. In February 2005 the foreign minister of Venezuela asked the Organisation of American States (OAS) to investigate an alleged attempt to assassinate the president, and cited a number of anti Chavez statements made by US officials. US officials have denied these allegations whilst Hugo Chavez has threatened to cut off oil exports. The US has supported Colombia during recent conflicts between Venezuela and Colombia.

Copyright: Rowena Slope (2006)