What goes around comes around... and Hugo Chavez, the Venezuelan "socialist" president who keeps promoting perpetual referendums to stay in power, has turned his recent attention back to those capitalist dogs he despises so much to bail him out of a tight jam.After nationalizing agriculture, mining, power and building materials companies over the past few years, which pushed capital flight, Venezuela was reliant on oil for about 93 percent of its export revenue in 2008, up from 69 percent in 1998 when Mr. Chávez was first elected, according to a story in the NY Times.
While the socialist (authoritarian) in him is unhappy as oil is now trading around $35 a barrel today, dealing a severe blow to his misguided notions of economics, the pragmatic side of the former military man is biting his tongue and reaching out to all the major international oil companies he chased off only a short while ago. He is asking them to return and invest to expand exploration, maintain and modernize current facilities and improve over all productivity.
The question is: On what basis would a foreign enterprise dedicate its financial and technical resources to an agreement with a partner that has already ignored previous agreements?
Exxon Mobil (NYSE: XOM) and CEMEX S. A. B. (NYSE: CX) are currently in litigation with the Chavez government. The Chinese and their nationally integrated oil companies have not done well either and remain apprehensive.
How can any deal get done? If it was being done on a smaller scale, you might use third party escrow accounts and ask for money to be set aside in advance, but Venezuela is cash strapped and would find this difficult to do.
One metaphor begets another, so from "what goes around comes around" I end with: Mr. Chavez, we would be happy to come back, but first we will have to see "cash on the barrel-head!"
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I own shares of CX but not XOM .
Reader Comments (Page 1 of 1)
1-15-2009 @ 3:03PM
Beltway Greg said...
Somebody better alert "Joe for Oil" that he's about to lose a BFFL. (Best friend for life for all you old people.)Soon he'll need us to help and get the rope from around his neck. Just like SKF, this isn't going to end to have a happy ending.
I wonder if Raoul Castro can run two countries at once? The revolution has consumed the revolutionary.
1-15-2009 @ 3:10PM
Danny L. McDaniel said...
When in history hasn't capitalist bailed out socialist despots. American capitalism has successful bailed out Cambodia, Vietnam, the miracle now known as China, Soviet Union ( a made up name for a made up country), North Korea, and US capitalism would have made the lives of the Castro Brothers in Cuba alot easier.
Without individual freedom and the ability to conduct business without complete government control there is no real economy. As one can see, the economies of socialist countries resemble the creative economies of prisons.
Danny L. McDaniel
Lafayette, Indiana
1-15-2009 @ 3:18PM
Alex Eucare said...
"Viva La (Capitalist) Revolution" !
How do you say F * * K You Hugo in Spanish?
1-15-2009 @ 3:26PM
Henry Blankett said...
I'm not clear on how American capitalism has "bailed out" the Soviet Union, North Korea, plus the other nations you mention. The last I checked, there are thousands of homeless children wandering the streets of Moscow and every other major Russian city. As for the "miracle" of China: you need to take a trip there and see the millions of people living in wage-slave poverty. By the way, there's not exactly much freedom in China, nor is there a lack of government-control of the economy.
And seeing how "free market" capitalism has sucked all the jobs out of the United States -- the only real wealth generator the country had -- we may be soon matching Venezuela at its economic level.
1-15-2009 @ 3:33PM
nick said...
I wounder how well the other members of OPEC will be able to fallow the 12% reduction in crude oil that has been proposed over the past 3 months, will they really stick to the reduced output when so much of their income is generated from oil?
http:/www.regular87.com
1-15-2009 @ 4:41PM
william lindblad said...
I predicted this months ago. You really can't compare Hugo the bulk of OPEC with the exception of Iran. They are next. In the case of our Southern neighbor, Hugo has been on a socialist binge for a while. It was all of these promises that got him elected and made him popular with the masses. All of this was ok as long as the price of oil remained at the 60 dollar level. When it went though the roof, Hugo went on a building spree. Now that the price has dropped he is sort of between a rock and a hard place. Stop the projects and lose face. Continue, and run out of money.
Hugo is going to have to sing a different tune. Should be interesting as he does not have a track record of trust. His biggest ally, the Chinese, now have much less need for oil and are going to be more concerned with domestic issues than relations with a somewhat dubious trading partner in a different part of the world.
This is hardly Lenin and Armand Hammer.
At the moment, and at least to June, economics world wide are going to be a mess.
Other than there will be a lot of turmoil and domestic unrest the outcome is unknown. The present cannot be compared to any past events. It's unique.
New, different and as yet, no world leader has presented a game plan that will solve it. My best guess is that the solution (if there is one) will come from a combined effort, perhaps the G7, as the problem is larger than any one country. Since the world in general agrees about as well as our Congress, don't look for major improvement any time soon.
1-16-2009 @ 5:01AM
Viktor said...
Sorry, I don't understand the article. What exactly is Chavez requesting now?
Does he want Cemex to invest again in Venezuela?