Chavez Takes Control of Oil Production

Venezualan dictator Hugo Chavez has increased his control of the nations oil supply by taking operational control from the oil companies for the Orinoco Belt crude projects.

The Orinoco Belt has four projects that are estimated to be worth $30 billion and can convert 600,000 barrels of crude into synthetic oil in a single day. The companies impacted are ConocoPhillips, Exxon Mobil, BP, Statoil (Norway) and Total (France).

Chavez has been nationalizing power utilities, the country’s biggest telephone company and politicizing the military and judiciary.

Venezuela has also pulled out of the IMF and World Bank as well. This is mostly for show since Venezuela has paid off all of its obligations to the World Bank and the IMF closed its offices in Venezuela.

My guess is that this will end pretty badly for Venezuela. Lynne Kiesling noted back in February this story on shortages that Chavez’s prices controls have brought about.

Such shortages have sporadically appeared with items from milk to coffee since early 2003, when Chávez began regulating prices for 400 basic products as a way to counter inflation and protect the poor.
Yet inflation has soared to an accumulated 78 percent in the last four years in an economy awash in petrodollars, and food prices have increased particularly swiftly, creating a widening discrepancy between official prices and the true cost of getting goods to market in Venezuela.

”Shortages have increased significantly as well as violations of price controls,” Central Bank director Domingo Maza Zavala told Unión Radio on Thursday. “The difference between real market prices and controlled prices is very high.”

Authorities on Wednesday raided a warehouse in Caracas and seized seven tons of sugar hoarded by vendors unwilling to market the inventory at the official price.

Major private supermarkets suspended sales of beef earlier this week after one chain was shut down for 48 hours for pricing meat above government-set levels, but an agreement reached with the government on Wednesday night promises to return meat to empty refrigerator shelves.

Ironically all of this was supposed to help the poor…the vey people Chavez claims to care about the most. Apparently Chavez thinks that going hungry because there is no food is okay whereas going hungry because one can’t afford food is horrendous. I see both as bad outcomes; just call me a capitalist pig-dog.

This blog post from FreedomWorks has an interesting snippet from the New York Times.

Faced with an accelerating inflation rate and shortages of basic foods like beef, chicken and milk, President Hugo Chávez has threatened to jail grocery store owners and nationalize their businesses if they violate the country’s expanding price controls.

Food producers and economists say the measures announced late Thursday night, which include removing three zeroes from the denomination of Venezuela’s currency, are likely to backfire and generate even more acute shortages and higher prices for consumers. Inflation climbed to an annual rate of 18.4 percent a year in January, the highest in Latin America and far above the official target of 10 to 12 percent.

Mr. Chávez, whose leftist populism remains highly popular among Venezuela’s poor and working classes, seemed unfazed by criticism of his policies. Appearing live on national television, he called for the creation of “committees of social control,” essentially groups of his political supporters whose purpose would be to report on farmers, ranchers, supermarket owners and street vendors who circumvent the state’s effort to control food prices.

Reminds me of the Cultural Revolution in China…and we all know how well that worked. Go on, spy on those evil farmers who want to grow their crops, provide for their family, pay their farmhands and meet other obligations for charging what you think is too much. These same measures also apply to hospitals as well. See also this article in the Economist on how an oil rich country can have such a problem feeding its people.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Christopher says:

    Funny no libs have spoken up. They and their party have been the ones supporting Chavez. Probably still do.

    Hey legion and all you others! Speak up!