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    Hugo Chavez Victory and the Impact on the Oil Markets

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    Chavez Victory, 6 more years.
    Hugo Chavez will get 6 more years of power, as many Latin Americans see this result as a black eye on the whole region, and a growing number see this as a victory.

    A polarizing figure, at least in his own country, Chavez is popular with the Venezuelan poor for his oil-funded health and education programs but blamed his competition for rising crime rates, corruption and inflation.

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    The oil market did not to react this morning to another six year’s Chavez rule. If anything, Chavez is a better for oil market stability, at least over the short term, than his opponent, Henrique Capriles would have been.

    Winning 1.3 million votes for 54.4%, Chavez has maintained his lead with a simple strategy of spending Venezuela’s oil money on social programs, but Chavez has failed to bridge the ever growing gap between the countries’s rich and poor.

    Critics say Chavez has crippled Venezuela’s state oil company (PDVSA) with the burdens of his government’s extensive financial social funding demands and has neglected to invest enough in the oil business.

    The countries oil industry brings in more than 95 percent of the OPEC nation’s currency revenue. PDVSA produces approximately 3 million barrels per day and claims the biggest crude reserves in the world.

    Venezuela’s crude production fell in 2010 to its lowest level in many months, but following Chavez’s election win, he will look to put forward plans for a joint ventures with foreign partners for Orinoco extra-heavy crude oil belt – one of the world’s largest untouched oil reserves. Greater international investment is needed to get the Orinoco belt operational, but experts believe the region that could increase Venezuelan production by up to 2 million barrels per day.

    China has become a major funding source for Chavez, providing Venezuela with capital of more than $30 billion in the last few years, with Chavez shipping approximately 430,000 bpd of crude to China in re-payment.

    In 2005, Petrocaribe was formed as an oil alliance between Caribbean states and Venezuela to purchase oil with preferential payment terms. Members currently include: Antigua, Barbuda, Bahamas, Belize, Cuba, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, St Lucia, St Kitts and Nevis, Saint Vincent and the Grenadines, Suriname, Haití, Nicaragua, Costa Rica and Guatemala.

    In 2008 Costa Rica sent a delegation headed by the Energy and Environment Ministry and RECOPE executives to analyze possible alternatives to Costa Rica’s oil import bill at the time which was almost $3 billion and in July 2008, Costa Rican President Oscar Arias, sent his official request on July 16 to join the organization.

    Chavez’s win could have serious repercussions across Latin America as countries see his brand of resource control and political power retention as an effective strategy.

    Rafael Correa of Ecuador has been working to control larger stakes in natural resources, Chile and Uruguay already have control of their respective oil sectors, and of course Bolivia, long time worshipers of Chavez and even Colombia have been discussing joint ventures with Venezuela.

    Chavez’s victory could have a serious impact on long term statist shift across central and South America, not necessarily because this style of politics can win elections, but because so many of these countries have new oil and gas resources to manipulate.

    The Costa Rica News (TCRN)
    San Jose Costa Rica

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