Chávez and the Saudis

Uneasy partners
Uneasy partners

One of the least explored aspects of Hugo Chávez’s foreign policy has been his relationship with Saudi Arabia.

The Saudis have long been advocates of moderation within OPEC, by virtue of their alliance with the United States and their large spare capacity. Economics suggests that countries with lots of spare capacity for producing oil would tend to prefer moderate prices, while countries with little spare capacity prefer high prices here and now.

Iran and other countries frequently argue for reducing production quotas to achieve ever higher prices, but the Saudis and other Gulf partners have been careful to use their spare capacity to (credibily) threaten their partners within OPEC with excessive zeal in driving prices higher … and plunging their customers into recessions.

It seems that Venezuela, by virtue of its close alliance with Iran and its nonexistent spare production capacity, has played a role in countering Saudi power within OPEC.

This would suggest Chávez has been seen by the Saudis as an antagonist. Yet we don’t have any proof of this. Other that Rafael Ramírez’s frequent statements before OPEC summits directly contradicting Saudi positions, there is little inside information on how the relationship has actually evolved.

The Saudi-Chávez relationship – just one of the many mysteries of the Bolivarian revolution.

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  1. Más allá de las evidentes alianzas intra OPEP (países pro-yankee / anti-yankee), creo que los gobiernos de Chávez han evitado su habitual política directa confrontacional con sus socios OPEP, ya que dichos enfrentamientos hubiesen podido provocar roces, quizá irreconciliables, y desfavorecer la política de defensa de los precios, con la cual, por cierto, Arabia Saudita, nunca ha estado de acuerdo.
    Una división marcada entre los principales miembros del Organismo, podría desatar una nueva guerra de producción total de barriles, lo cual derrumbaría el entendimiento mínimo que ha existido, y con ello, los precios. De suceder eso, esta “Revolución” no hubiese tenido el sustento económico-financiero con que ha contado.
    Creo que el pragmatismo revolucionario demostrado en el marco de la OPEP ha sido mayor que la propia relación con EEUU.

  2. Venezuela’s oil production has declined over a million barrels a day since Chavez came to power. Moreover, domestic consumption has increased using oil that could have been exported. Instances of Venezuela importing oil products are becoming common place. Venezuela has had less and less impact on oil prices over the last decade.

    The Saudi’s run the World’s oil market. They can increase production quickly and quietly. The Saudi’s will entertain Chavez but in reality they think Chavez is a clown.

  3. Venezuela is the sick man of OPEC. If a refinery isn’t exploding somewhere then its oil production is declining due to a lack of investment. When you use PDVSA as your limitless ‘chequera’ things like this tend to happen. Add the fracking boom in the US and Venezuela’s role in the global oil market becomes more marginal by the day.

    • Fracking will be a short boom, because flow rates fall quickly and all the best plays will be drilled first, and shuttered first.

      Venezuela, on the other hand, has the capacity to raise production in the long term, and will be one of the last producers to peak and enter decline.

      • Of course Venezuela has the capacity to raise production in the long term. Whether it will be able to do it is another question. PDVSA is the goose that lays the golden eggs but you can only make that goose lay so much before it drops dead of a heart attack. Point is long-term production is the direct result of serious investment decades prior to the actual drilling. Not much use having potentially good fields if the state oil company has no money to develop them.

  4. Venezuela, on the other hand, has the capacity to raise production in the long term, and will be one of the last producers to peak and enter decline.

    There are many reasons for production declines, lack of investment, corruption and stupidity come to mind. Vzla, several years ago. The Orinoco will not be exploited until such a time as Vzla has a stable rule of law, which is sadly to say, never.

  5. WHAT?? You need decades of serious investment in a country, before oil extraction can even begin? And the country has to be free of corruption and stupidity, besides having a stable rule of law??

    No one, not even Mark Weisbrot at CEPR or any one else at the socialist think tanks has ever mentioned this. They said Venezuela’s spiggots would keep the oil flowing for as long as demand existed, or practically so.

    Who can I believe?

    — confused PSF

    • Nope, disregard my previous post. All you need to find and extract oil is a good pair of overalls, a divining rod, a garden shovel and we’re good to go!

      Mark Weisbrot may be one of the worst ‘economists’ to ever hold that title. Whenever I see his work quoted in PSF articles I tend to cringe. These articles tend to resemble undergrad college essays in the sense that they have no idea how the world works and have a tenuous grasp of economics at best. That breed of people seems to think that oil=unlimited money and if you need cash you just pull up more oil.

      • I have those items! And I knew it! There’s no need to study Petroleum Engineering. Which is pretty much what Mark Weisbrot told us, that anyone could do the job of those former (feh!) oligarchic PDVSA employees, and that the funds once destined for their salaries were now in the people’s hands. Well, ok, Chávez’ hands. Oops! Much good the money’s going to do him now.

        Why do you ridicule Mark Weisbrot? He has a Master’s in Economics, you know. And he’s one of the partners of CEPR, which impresses the hell of some journalists, even in the serious media. It impressed me for a long time, too. But now, I’m not so sure.

        — Author of a work in progress: Twelve Steps to PSF-lessness

  6. To produce oil and exploit it to best advantage its not enough to have the underground reservoirs you must also have a competent organization of skilled operators , thats what really makes the difference . Building such organization is difficult and takes years . The current Pdvsa is far from having such organization , The oil that we have is also extra heavy crude which production and processing poses its own special difficulties and obstacles , Many of the companies which Pdvsa hjas chosen as partners in its ventures are not really top knotch companies but second and third tier companies with limited organizational resources even if they come from -socialist countries.. People know little about how mismanaged Pdvsa is , despite the negative press headings what transpires about its problems is only the tip of a huge iceberg. Then there is the fact that producing the oil is not enough if its sold at cut rate prices or given away to cater to populist or narcicistic geopolitical whims . Fracting wasnt there before but a 100$ Bl of oil has made it so profitable that it may well deliver on its promise to take a big bite from conventionally produced oil consumption .

    • WHAT?? You need a competent organization of skilled operators? That’s not what the International Socialists told us. They said that any Tom, Dick, or Cuban could do the job of those feh! oligarchs with years of experience, as well as training in the Empire. That it was okay for Chávez to fire them all, in 2002, because … Well, how else would the revolution achieve its ends? How else would the revolution finance its needs, if it couldn’t get its hands on PDVSA’s petty cash?

      When you label revolutionary struggles of the proletariat as populist or narcissistic geopolitical whims, I get offended. Have I wasted all these years barking up the wrong tree?

      — Call me a really confused PSF in Peoria.

  7. I think the Venezuela-Saudi relationship is largely irrelevant post-2011. If anything, Venezuela had more to lose with Brazil becoming self-sufficient (in energy) and becoming an oil/gas powerhouse. This is why Venezuela’s entry into MercoSur was so important. They’re going to be, essentially, a mini-OPEC. But, if I remember correctly, Venezuela/Saudi tried to strengthen ties post-2008 financial crisis to stabilize oil prices and encourage investment.

    However, taking all of the Arab uprisings of the past couple of years into consideration, Saudi foreign policy will be at odds with Venezuela. Saudi seeks to have a tightly-knit relationship with the West. When oil production was disrupted in Libya, Saudi increased production to offset shortages and keep prices low. In return, the U.S. remained silent about Saudi-led repression in Bahrain. Plus, the Saudi-Iran rivalry is only going to intensify in the coming years. Shi’ah protests is starting to gain momentum in eastern Saudi and Iran will try to give that support however minimal that may be. In the case of conflict, Venezuela will support Iran. Hence, your conclusion of Venezuela (under Chavez) being seen as an antagonist by Saudi is very logical, especially when you factor the element of geopolitics. Has Saudi-Venezuela done anything significant post-2010? I don’t think so.

    • Do you really think Venezuela will keep making enemies in the middle east once Chavez is gone? What motive is there for Maduro or Cabello to thumb their noses at the Arab world and buddy up to Ahmadinejad? Chavez did it firstly because he viewed politics in a personal way, and Qaddafi was his friend. Iran is less and less relevant as an oil producer, and its joint enterprises are all dysfunctional or not functioning at all in Venezuela.

      The Iran-Venezuela alliance existed also because Chavez viewed the US as his eternal enemy, will Maduro think the same way? From what we hear coming out of the state department that is not the case at all, post Chavez Venezuela and the US are moving towards co-operation and detente.

  8. Saudi Arabia and the other OPEC members with spare capacity are more than glad to see Venezuela’s oil production decline, since they have covered the difference between what PDVSA produces and its OPEC-alloted quota. So i don’t think they will try to interfere with our domestic oil policy, since they are the ones reaping the rewards at this high-price period.

    Unluckily for us, we don’t know if oil prices are going to stay this high forever (there are many determinants of crude oil prices, and the rise of grand-scale gas extraction taking place in USA and Russia is going to generate a sharp substitution pattern in energy consumption worldwide, among many other causal factors). So there’s a possibility that we are going to end up pumping our extra-heavy loss leader with a much smaller profit… and even more probably, in much less favourable terms for the nation.


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