The obvious myriad of causes maybe many and varied, but, for all intents and purposes of this blog, the significant influencing factor for why the Venezuelan crisis is what it is at the moment is blamed indirectly, at least, to oil. Venezuelan economic fortunes has been determined almost entirely upon the buoyancy of the oil industry and its continual largesse redistributed throughout the nation.
Bolivarian Missions.(2)
Added to the one commodity economy of Venezuela is the lack of domestic macroeconomic, and microeconomic, wherewithal, in the maintaning and sustaining the augmented programs of the seemingly altruistic Chavezist Socialist Utopian program, as realised through the Bolivarian missions. The maintenance of the Chavez social reforms agenda had been dismissively as ideologically utopian with only a short term benefit at best. The Venezuelan masses, in which the programs were meant to invigorate social reforms and to elevate the masses from poverty, had relied almost entirely upon the re-distributional largesse from the oil profits by the State owned Petróleos de Venezuela, S.A (PDVSA),(3) or The Petroleum of Venezuela. With an estimated asset value of $231.1 Billion (2013) the PDVSA has become the piggy bank of the State in drawing on infrastructural socio-economic development for the Venezuelan nation. This largesse was considered more of a hand out, rather than a hand up, in terms of actual community development, of social-economic development, educational, health, housing and infrastructural improvements, culminating in business investment stimulation. The Bolivarian missions in the very short time they were initiated became a Socialist Utopian Overreach. The Superstructural ideal could not be articulated pragmatically within the operational and implementation stage at the grass roots, infrastructural and logistical, level of Venezuelan society. The overarching praxis problem with the implementation of such a grandiose vision was simply in the scope and reach, it was by far too complicated, and too sophisticated, of a program, to be implemented competently, and completely, within a very short period of time. One can not implement drastic social changes within one generation. The Bolivarian Missions with all its grand design would only succeed through a gradual process which requires time and a cultural immersion which is intergenerational and requires a solid funding from government. Government in turn had relied on a singular source, Oil, from PVDSA. Herein, lies the rub of the Venezuelan problem.
(Hugo Chavez) (wikipedia.com)In recent events, impacting Oil producers particularly from the Middle East region, has presented to the world the fragility of energy security which would impact directly upon National Security matters directly. Perhaps, the most significant impact upon National Security as far as the Western World attention is concerned would be impacted by the felling of the World Trade Centre by two hijacked commercial airplanes on September 11, 2001. The world realised how oil producing regions in exotic distant cultures whose cultural values differed remarkably from Western values would adversely affect cultural sensitivities. In this narrative, Islamic Jihadism had challenged the Occidental world directly for their purported negative impact upon their cultural values inadvertently through the purported exploitative impact of exploitative extraction of conventional oil reserves from their soils. A focus on energy security has become a primary focus for National Security for the world and oil was the primary commodity for certain nations and cultures were able to hold the world to ransom.
The oil price re-set since 2008.(4)
The price of oil had plummeted from its peak at $147 per barrel, back in July 11, 2008, to falling below $30, by February, 2016.
The futures market has determined the bear market influence upon the price of oil. In doing so, it has served a two fold purpose, firstly, to allow for the conventional oil producers such as OPEC member nations, to divest futures market speculators from investing in tight oil producers, like America. A timely divestment in American tight oil will, after an initial peak period of tight oil mass production, and with the global price of oil dramatically plummeting and would plateau in both domestic production and global export of tight oil, especially American tight oil production, within a decade or so. Also, as a psychological warfare political strategy by OPEC and in particular Middle Eastern Islamic cultures, is the desired adverse effects, and affects, of tight oil investment as an microeconomic White Elephant within the American socio-economic and political landscape at domestic level. Once again, as a National Security perspective, oil is the overarching weapon of choice by anti-Occidental elements.
Venezuela, is a member of the Organisation of Oil Exporting Countries (OPEC), 65% of Venezuelan oil is exported to the United States of America. Under the Hugo Chavez socialist government the re-nationalisation of the Venezuelan oil industry back in 1976, the PDVSA had reaped immediate short term benefit for the populist needs of the masses. The social welfare programs such as the Bolivarian missions would serve to realise the egalitarian social justice ideal of the Chavezism. The PDVSA was tapped into time and time again as the State's Piggy Bank in providing for these egalitarian programs.
However, the intricacies on international economic foreign trade, and oil is a primary commodity understood by all nations, is one commodity in which an autarky Socialist government can not hope to survive in without interacting with the free market system. The export of oil, as a commodity, for the economic development, wealth generation, maintenance, sustainability and the survival of a nation. The problem then with Chavezism was the singularly over reliance upon oil for everything for wealth generation and the re-distribution of that wealth altruistically without reinvesting into augmented economic stimuli or at least, to assuage a Occidental world of the egalitarianism of Chavezism. A formula, in which Chavez and his successor, Nicolas Madura would inherit. A Socialist Chavez Autarky would suffer the isolationism from even the cooperation from Venezuelan customers for PDVSA supplied oil. PDVSA was unable to afford to even clean up their own vessels in basic operational systemic failures. To add further angst, PDVSA was unable to hasten demurrage port charges in order for the customer to receive their Venezuelan supplied oil, simply because the Venzuelan government could not afford immediate payments. It was a catch 22 situation, much to the chagrine of a very unpopular Madura government.
(US Energy Information Administration) (5)Therefore, at present, the depreciation of the global oil price, is considered a preemptive measure by the OPEC member futures investors, sourced no doubt by OPEC member nations, in anticipation for futures market divestment in tight oil. The formulae seemed to be a simple equation, an average cost of conventional oil production is relatively half that of the cost of tight oil production (Shale Oil).
Whilst Saudi Arabia may have welcomed the immediate bear market impact upon the oil market, as a counter measure to American tight oil production. The rippling effect and affect with the short term downturn would undermine the fledgling tight oil producers, primarily the Americans within the oil market. (6)
The psychological warfare of energy security would be fought out in the stock market and in particular within the futures market with oil price speculation led to the reset of the oil price in which, simply put, would simply fall well below the production cost for a barrel of tight oil.
In prolonging this suppression of oil price, it would eventually lead to a breaking point for the producers of tight oil, and, in particular, to adversely impact upon the United States of America, which, at present, has been confirmed as having the world's largest reserves of tight oil (Shale oil) in the world.
The real impact of the psychological warfare on energy security, and, inadvertently, upon the National Security strategies of nations?
The tight oil phenomena, despite the dismissive gestures from OPEC members, has a rippling influence upon oil dependent economies. Venezuela, obviously, has revealed its true economic fragility with having to rely almost completely upon oil and subsequently upon the speculative trends of the futures market.
(wikipedia.com)In conclusion.
Oil has become a significant raison d'état for wanting to ensure Energy security for nations. Venezuela is a highly valued oil supplier for the Americans and a Socialist government whilst it may serve an egalitarian ideological agenda for a just society, may, in turn, create economic and political ideological rifts. A government which lacks the wherewithal with not only with the provision of egalitarian social justice reforms for the entire population, but, to be able to have an efficacious rapport with your trading partners as well. Such a significant lesson of not biting the hand that feeds you may bode well for the Venezuelan Socialist government when dealing with their purported Capitalist customers. The oil PVDSA owned and leased oil cargo tankers, for example, have been prevented from docking and offloading their precious cargo in ports throughout America and Europe, which have to do with strict environmental impact quarantine procedures. The crude oil leaks and environmental health and safety impact failures have delayed cargo ships from docking and offloading. The delays, in docking, in turn, have resulted in demurrage penalties which the PDVSA and the Venezuelan government can not afford to pay.(7) The precious cargo is stranded offshore and the PDVSA are left broke and bankrupt unable to pay for their vessels to port. The ripple effect is obvious. The depreciation in the price of oil, the inability to export oil to customers, and the country in economic crisis has adversely affected the Chavez legacy which has been bequeathed to the Madura administration, in 2017.
The culmination of these contingent causal effects have brought us to the present crisis in Venezuela.
Tim Tufuga
1. Nicolas Madura elections, CBC.Ca, http://www.cbc.ca/news/world/venezuela-elections-suspended-1.4036425
2. Bolivarian Missions, wikipedia.com, https://en.wikipedia.org/wiki/Bolivarian_missions
3. The PDVSA, wikipedia.com, https://en.wikipedia.org/wiki/PDVSA
4. The price of oil, wikipedia.com, https://en.wikipedia.org/wiki/Price_of_oil
5. American tight oil, Energy Information Administration, https://www.eia.gov/todayinenergy/detail.php?id=29932#
6. American shale oil versus conventional oil, investopedia.com, http://www.investopedia.com/articles/active-trading/051215/cost-shale-oil-versus-conventional-oil.asp
7. Banned at Sea , Parraga, M and Guanipa M, http://www.businessinsider.com/r-banned-at-sea-venezuelas-crude-stained-oil-tankers-2017-4/?r=AU&IR=T, April 18, 2017.
