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Venezuela: Using oil as a club

By John Sweeney

Miami – October 25 - Venezuela will “adjust” its economic relations with any Andean countries that sign a free trade agreement (FTA) with the United States, according to Venezuelan Minister for Integration and Foreign Trade Gustavo Marquez. Venezuela would “have to make adjustments and discuss many things” with Andean neighbors that sign FTA’s with the U.S., he said in an interview Oct. 25 with Venezuelan state television channel VTV-8. Colombia, Ecuador and Peru currently are in FTA negotiations with the U.S. Trade officials in Bogota and Quito report that the talks are very advanced.

Marquez declined to explain what issues would have to be discussed and what adjustments would be necessary. However, President Hugo Chavez is bitterly opposed to U.S. free trade negotiations with any country in the region. He frequently takes credit for paralyzing negotiations to launch a Free Trade Area of the Americas (FTAA), although it is Brazil’s government that is mainly responsible for derailing the FTAA negotiations since long before Luiz Inacio “Lula” da Silva was elected president of Brazil in October 2002. The Brazilians want to make Mercosur the linchpin of regional integration centered on Brazil’s economy and its international political leadership.

Chavez said recently that Venezuela would become a full member of Mercosur before the end of 2005. The governments of Uruguay and Argentina are backing Venezuela’s membership bid to the hilt. However, some Brazilians likely have serious misgivings about letting Chavez into Mercosur as an equal member with full voting rights.

Mercosur doesn’t fit Chavez’s long-term model of Latin American integration for several reasons. Mercosur is a Brazil-centric customs union. Mercosur was largely created by Brazil and it is driven by Brazilian strategic interests. It is also fundamentally a capitalist entity modeled in many respects on the European Community economic model. None of these characteristics fit Chavez’s revolutionary socialist Bolivarian model.

Chavez doesn’t share the world stage with anyone. Even his good friend and mentor, Cuban leader Fidel Castro, tends to stay out of the limelight when Chavez is traveling the world preaching socialist revolution and hatred of the United States. If Venezuela joins Mercosur it’s certain that Chavez won’t take a second seat to Brazil’s strategic interests.

Chavez and Castro are promoting an alternative to both the FTAA and Mercosur, and the Brazilians know it. It’s called the Bolivarian Alternative of the Americas (ALBA is the Spanish acronym, and it also means “dawn.” Bolivian indigenous leader Evo Morales and Nicaraguan Marxist leader Daniel Ortega back ALBA, but only Chavez and Castro were at the initiative’s official launch in Havana earlier this year. President da Silva stayed in Brasilia to greet U.S. Secretary of State Condoleezza Rice. No other Latin American heads of state were in Havana for ALBA’s launch either.

President Hugo Chavez has been using Venezuela’s oil resources and export revenues throughout 2005 to expand his influence across the region. Through regional preferential oil supply initiatives like PetroCaribe and PetroAndina, which are offshoots of his larger hemispheric PetroAmerica initiative, Chavez is trying to align the region with the long-term foreign policy goals of his Bolivarian Revolution. These oil supply arrangements are good deals for beneficiary countries at a time when oil prices are well above $50 a barrel. The beneficiary countries can finance up to 50% of the purchase price over periods ranging from 15-25 years, not including two years grace up front. Also, they can pay part of the debt in cash, and part can be paid in goods and services of equal value as the debt. Venezuela is already selling about 200,000 barrels a day in the region under preferential deals, and this likely could double to 400,000 b/d or more in the next two or three years.

Chavez is reorienting Venezuela’s oil marketing relationships increasingly towards Latin America and away from the U.S. He has announced plans to invest about $6 billion to build a new 200,000 b/d refinery in northeast Brazil, and upgrade refineries in Cuba, Jamaica and Uruguay. PDVSA also is seeking to develop joint ventures with state companies in Argentina, Brazil, Ecuador, Uruguay and Paraguay. This year Venezuela’s treasury has purchased $500 million of Argentine government debt, and Chavez said at the Ibero-American Summit in Salamanca recently that Venezuela would soon buy another $500 million of Argentine debt. Chavez also said weeks ago that Venezuela would buy $300 million of Ecuadorian debt, although this probably won’t happen if Ecuador’s government signs an FTA deal with the Bush administration.

If Ecuador signs an FTA with the U.S. it’s very possible that the Chavez government will not include Ecuador in PetroAndina, and investments that Chavez has said PDVSA would study in Ecuador likely would be canceled. Chavez probably would consider any country that signs an FTA agreement with the U.S. a traitor, particularly if that country has a preferential oil supply agreement with Venezuela. Chavez thinks that Venezuela has more to offer the region than the U.S. thanks to oil. Chavez claims that Venezuela has over 325 billion (with a b) barrels of crude oil to support Latin America’s economic development. He also has offered that oil to support China’s economic development. In fact, Venezuela’s gross national product at the end of 2004 was just under $110 billion, while the U.S. economy’s size totaled over $11.75 trillion (with a t).

Governments are driven by national self-interest. Chavez has lots of apparent friends in the region right now because he is so generous with Venezuela’s oil wealth. However, these are very fair weather friendships. When Chavez becomes less generous with Venezuela’s oil, his new friends in the region will become less friendly towards Venezuela. Of course, Chavez also has a covert ace in the hole that he is playing to the hilt. If oil is the spearhead of his overt foreign policy initiatives in the region, it is also the fuel driving covert efforts to destabilize other countries.

Out assertion that Chavez and his brother-in-revolution Castro are working to destabilize other countries is NOT based on the claims of senior U.S. government officials like Defense Secretary Donald Rumsfeld or former Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega. Government and military intelligence sources in Argentina, Bolivia, Brazil, Colombia, Ecuador, El Salvador, Nicaragua, Paraguay and Peru have detected the footprints of Chavez’s Bolivarian revolution in their countries. In some cases – like Argentina, Brazil and El Salvador – the Bolivarian revolution is engaged directly, or through the Bolivarian Congress of Peoples, with radical political activists groups like the Landless Peasants Movement or the Plaza de Mayo Mothers. In other cases like Bolivia and Ecuador, however, the Chavez government (with Cuban political support) has been more directly involved in backing destabilization activities by local radical groups.

Countries receiving oil from Venezuela under preferential financing terms risk losing that oil if they displease the Chavez government. The Dominican Republic’s government can attest to this. Chavez also has the option in some countries of covertly backing radical groups that seek to create instability. The armed forces of Bolivia and Ecuador – and Colombia – can confirm this despite the Chavez government’s vehement denials that these allegations are part of a vast Imperialist rightwing conspiracy headed by “Mr. Danger” in Washington, D.C.

Colombia will sign an FTA with the U.S. Its ruling elites are seeking tighter investment and trade alignments with the U.S. both to give more depth and sustainability to a bilateral relationship which currently is based almost entirely on security. Also, the Colombian Constitutional Court’s recent decision that President Alvaro Uribe Velez can seek re-election in first semester 2006 assures continuity of policy in Bogota. It’s less certain that governments in Ecuador and Peru will wrap up FTA’s with the U.S. However, if all sides reach agreement on an FTA, nothing Chavez offers or threatens will keep those FTA’s from being signed and ratified by the respective Andean countries.

The U.S. government has been criticized across the region for pursuing its strategic hemispheric security goals ahead of other critically important issues like expanding free trade and providing more support for economic development. U.S. government officials insist that President George W. Bush is very committed to hemispheric trade expansion and the FTAA. It FTA’s are signed with Colombia, Ecuador and Peru the U.S. government’s credibility in the region would improve significantly. Other countries would also be encouraged to pursue FTA talks bilaterally with the U.S. Chavez is determined to block this possibility. However, veiled threats like the ones contained implicitly in Minister Marquez’s remarks are definitely the wrong approach.

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