Thursday, September 29, 2005

Look Up "Political Risk" in the Dictionary...

and this is what you'll see:










After months of demanding that foreign oil companies agree to cancel long-standing operating contracts and sign joint venture agreements (where Venezuela gets controlling equity stakes virtually for free), the Venezuelan government is now strong-arming its foreign oil company partners to comply by claiming they owe hundreds of millions of dollars in back taxes. Bloomberg is reporting that Venezuela, the fifth largest oil exporting nation, will oust foreign oil companies from the county if they don't pay the taxes that the tax authorities have just recently realized that these oil companies owe. Venezuelan dictator Hugo Chavez has been desperately spending his nation's oil wealth on keeping the lid on revolutionary, pro-democracy forces that are boiling over. The national oil company still hasn't recovered from the 2002-03 general strike against the Chavez regime, and the reduced production has meant less oil profits to buy support in the form of subsidized food and healthcare. So Chavez needs to expropriate the production and the revenues of foreign companies. Chavez is taking his cue from Vladimir Putin. Taking a cue but not learning a lesson. Prior to Putin's similar expropriation, via those back taxes, of Khodorkovsky's Yukos, foreign companies were tripping over themselves to invest in Russia and Russian oil exports were growing at 10%. Now, Russia is an investment pariah and exports are growing 1%.

Venezuela is fast becoming a pariah for investment capital and will soon feel the pinch even harder as the inevitable retreat of capital causes infrastructure to erode and supply to slow. The supply picture coming out of Venezuela can only add to the upward price pressure of gas in the US. Someone tell Bill O'Reilly.

UPDATE: More here. I'm afraid Chavez is going to gain in popularity, not necessarily in Venezuela, but worldwide. Soon Fidel will be gone and the world's naive utopians need an idol. Stupid college kids ten years hence may well be wearing Hugo t-shirts.

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