Revolution at 45%, and dropping


concur with Setty: this talk by experts Daniel Kerner of Eurasia Group, Chevron’s Ali Moshiri, and our friend Francisco Monaldi of Harvard is well worth your time. It talks about the politics and the geology of oil in Argentina and Venezuela.

The key part is Francisco’s estimate that the revolution needs the price of a barrel of oil at $200 to make ends meet. In other words, with Venezuelan oil trading at $90, we are at 45% of where we should be – and the trend is not good. Something’s gotta give, right? Sorry, but that something is your wallet.

Here’s the video:

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  1. I’m pretty sure that if they dont find 90$/barrel enough, 300$/barrel would not be enough either. this goverment is just too incompetent, wasteful and corrupt to run anything properly. It would just take them a few more years to spoil the wealth, if not by wasting the money, then by destroying pdvsa as they are doing.

    • You naive boy

      Government is not wasteful neither inept. Thing is: their objectives are far different than ours. We tend to think they are there to put these millions to serve an useful purpose. Chavistas digress, oil money is only there to get rich and perpetuate in power.

      That vision of the government simply “failing” is fundamentally flawed and can be in part blamed for contributing with oppo ineptitude. People like Chapriles or Falcon still fly the “government should be more efficient” flag real high, for us to see. They insist we should pressure the govmnt to “perform” while the real deal here is that they’re excelling at their performance, that of being thugs.

      • This should be the most important learning point from the last 15 years but it isn’t. If I have to guess the reason behind the naiveté, I’ll pick that Venezuelan New Age obsession that assumes that everyone has good intentions and that everything will turn out well at the end when the inept yet innocent rulers will realize their mistakes and hire better managers to help them run the country into the prosperity we all want.

      • you may call me naive but I disagree with you, if you put people in key positions that have no idea of how to run a goverment, inneficiency and incompetence is inevitable, wich is pretty much what is going on right now, even if you put corrupted people in power that have some idea of how to run the business things would be a lot better than they are, the problem is that nearly everyone they put on key positions at all level of governance is either a malandro, an unqualified person or both. Btw I did included the word “corruption” that accounts for your argument anyway.

  2. A regime-brewed plan to sink all of Venezuela’s population into extreme poverty in order to control them?
    No vale, yo no creo…

  3. “The key part is Francisco’s estimate that the revolution needs the price of a barrel of oil at $200”

    Is there any science behind this figure ($200)? Or is it just a very gross estimate he came up with?
    Is there any article about how did he find this number?

    Thank you.

  4. The bit that jumped out at me was the $25 bn. – the revenue the government *would’ve* received if it hadn’t messed with the Faja contracts back in 2005-06, but didn’t, because everybody stopped investing.

    Add to that the other $25 bn. dollar price tag estimated for the ICSID settlements and you get the measure of what really happened in 2005 and 2006: a 50 billion dollar tantrum masquerading as resource nationalism.

    • Quico the $25 bn is foregone revenues per year since production is at least a million barrels below what it would have been

        • What a wasted opportunity these last fifteen years have been.

          Caveat: That assumes, by the way, that Venezuela is a price taker in the international oil markets. Is it? Nobody knows for sure.

          • ‘wasted opportunity’?

            someone hasn’t yet gotten his daily shot of patria today… *whistles La Vaca Mariposa*

          • Yes. But you know it is just getting back to the production we had in 1998 and all other Opec producers increased their supply in this period (Libia and Iran recently declined for political reasons). It is just 500 tbd what we produced 6 years ago. So yes we do not know but we know that everybody else did it and took our market plus the growth in demand.

  5. It is a crude estimate, very simply the deficit of the Venezuelan public sector has been around 20% GDP. In order to get oil fiscal revenues of that order you need a price close to $200 at the current level of paid oil exports and exchange rates. With a devaluation of course that number significantly diminishes.

    • With big enough devaluation (50 Bs/$?) public sector will have primary surplus. So, saying “the revolution needs the price of a barrel of oil at $200 to make ends”, is essentially a rethorical figure. More interesting, have you estimated exchange rate needed for balanced public accounts, ceteris paribus?

      • Yeah, and kind of surprising that Nagel, a professor of economics, give room to this kind of thing here. If I asked my grandmother a value, and she replied “$500”, it would be as valid as this “$200” figure. And CC is known for using hyperlinks to base what they are saying, mind you.

      • True, that is why I mentioned it, but still relevant. The fiscal deficits in almost all oil exporting countries could be whiped out by devaluing, and elsewhere by printing money or raising taxes. Can you do that and remain in power? Not so sure

  6. That was truly an interesting discussion. I particularly found the analysis from Chevron a new perspective. From now on, when I go to Venezuela, I will take a big breath before I get off the plane and think: there is a “human resources capacity issue” in this country, and maybe things will go more smoothly.

    • I thought that was surprising too. I don’t think people would have talked about a human resources issue in Venezuela twenty years ago. All our talent is in other places – Alberta, Dubai, Scotland. What a waste!

      • Well, the human resources problem of Venezuela is the boon for everyone else!

        I just thought it was funny that in coming up with a euphemism for what is essentially a political problem, the speaker, in maintaining that Chevron was disinterested vis a vis the politics of the places it operated, would characterize the issue that way, as a human resources issue. Security was part of that human resources issue. I’d never thought of the problem of violence in Venezuela from that perspective. It is no doubt true of course, but it is a little like saying, the problem with operating a private news outlet in Venezuela is lack of access to raw material, or something like that. I guess when you deal with whacko governments for a living, you come up with these ways of looking at things.

        The other phrase that stuck in my head was something he said to the effect that Venezuela did not have a strong union movement, but it had a strong entitlement mindset. It struck me as quite interesting and insightful that he drew that distinction.


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