It’s a complicated question but in light of everyone speculating on Venezuela’s future these days, I figure I could toss in my contribution. These are just a few thoughts about what will happen to Venezuela’s oil industry if President Hugo Chávez has to leave office for any reason, including illness or death — both of which seem freshly possible with his difficult cancer operation this week. But here’s the spoiler: I don’t think anything’s going to change.
Big investments need stability. It doesn’t matter much to Big Oil whether Venezuela is a dictatorship, democracy, or something in between. What matters is stability. Nobody wants to build on shifting sands. So until things are stable, one way or another, expect investment to remain minimal.
Government-government agreements unlikely to fade. President Hugo Chávez has been a proponent of direct talks with governments, with the resulting agreements playing out in the commercial sphere. Tom O’Donnell has written a lot about how Chávez has gone along with China in a quest to escape the US-led project of a “single global barrel.” The problem with the system promoted by Chávez and the Chinese is that once you abandon market logic, and accept either receiving less than top dollar or paying more than market price for something, there are about 7 billion people who want to take advantage of the situation with a little commission here or there. Today, commission-seeking is a way of life in Venezuela, China and Russia, among other countries. Those benefiting from the system aren’t going to allow a reversion to strict market rules any time soon.
Labor inertia not going anywhere. Speaking of vested interests, there are over 120,000 people on the state oil company payroll — about 1% of the country’s employed persons. They aren’t going to accept layoffs and they will be slow to accept anything that appears neoliberal, such as much higher gasoline prices. Any successor to President Chávez is going to face a lot of public distrust, and a layoff or even an insistence on productivity could easily be condemned as a betrayal of the Chávez legacy.
Gasoline prices not changing. Same principle as the prior one. Fuel price increases are widely seen as neoliberal. I think anyone could start a nice project of teaching the public about the real price of fuel, and over time could make some real changes. But that’s a process of several years. The only person who could quickly raise fuel prices without being called “counterrevolutionary” is Hugo Chávez
In other words, don’t expect changes with a regime change. Slightly longer-term — two to ten years, maybe? Things could change in any direction. But it will take a lot of work in reducing the profitability of corruption, buying off workers, and stabilizing the political system. The only way we could see quick changes in the oil industry is if Chávez himself comes back with a different approach. Which I don’t see as likely.
PS: I think if there’s one thing that could change, it’s the windfall oil tax where all the $$ goes to Fonden. I doubt many Venezuelans know or care about the details of tax policy, and that tax has been the great enemy of the foreign investors. So, since I love to contradict myself, I guess there is one item that could change without much drama, and which would have a major impact over the next few years, starting maybe 2 years after the change was made.