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Venezuela: The cost of separation

By Veneconomy

10.02.05 | The consolidation of the revolutionary process started by Hugo Chávez is becoming increasingly evident. Now that he has complete control over all branches of government, he is training his batteries on another objective, that of extending his political project throughout the entire region. These pretensions involve first separating the country militarily and commercially from the United States and forming closer military and energy alliances with governments with which he has greater affinity such as China, Russia, Iran, and, of course, his usual ally, Cuba.

The signals he has been sending out are quite clear. On the military front, he started by suspending the joint programs with the U.S. Department of Defense, which had been functioning since 1951. He topped this off with the eviction of the U.S. military advisory mission from Fuerte Tiuna, where it had been based since the seventies. Now he has announced that Venezuela is getting ready for an asymmetric war with the United States, obviously referring to the creation of a people’s army in the best Mao Tse-tung style, the signing of technical-military agreements with Russia and China, and the acquisition of weapons and military equipment from Russia, while even closer ties are forged with Fidel Castro’s regime.

On the trade front, he is using oil as a political weapon. He is looking for alternative clients to the United States in the Far East and South America, even at the cost of exchanging stable, predictable, and reliable markets for markets that are volatile and less reliable.

The possible sale of Citgo is part of this strategy of putting distance between the United States and Venezuela, ratified by his statement in Buenos Aires that one of the reasons for selling Citgo was to “not continue subsidizing President George Bush.” And the mere announcement that there are plans to sell this company before the end of 2007 confirms that he is implementing a long-term strategy to free Venezuela from U.S. influence. There is no room in this revolutionary mindset for any consideration having to do with economics or the market.

He has paid no heed, for example, to the fact that Citgo has a captive market that will be difficult to replace or that, as a result of its sale, PDVSA will be left with crude that is difficult to place. Nor has any importance been given to the fact that it makes no sense economically to insist on a market substitution policy when the freight that will have to be paid to gain access to the new markets is a factor that will considerably reduce the profitability of the business.

Moreover, no thought appears to have been given to who the potential buyers of Citgo might be. The fact that its refineries are designed specially for processing Venezuela’s heavy crude will make selling them difficult.

Finding a buyer for Citgo will not be easy and it could become a tremendous headache for the government. At the end of the day, even though Citgo is “the jewel in PDVSA’s crown,” Chávez will probably end up selling it at a bargain basement price.

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