Guest Column

Venezuela: Oil-Flush Chávez Begins to Strut His Stuff

By Jessica Leight
February 15, 2005
• Recent arms sales could have an explosive impact on U.S.-Venezuela relations.

• Recalling Czech small arms sales to the leftist Guatemalan government in 1954, which led to a CIA-supported coup, the same could happen in

• Colombia and Venezuela resolve recent conflict despite no positive U.S. assistance.

• Washington’s irrelevance represents a massive diplomatic defeat, marking yet another setback to Roger Noriega’s pathetic mishandling of U.S. relations with Latin America.

• Brazil’s weapons sales to Caracas throws a protective shield around Venezuela.

Venezuelan President Hugo Chávez is not known for his discretion, caution, nor political reserve. Yet the in-your-face leader travels with lady luck as he revels in the nation's ever-increasing oil wealth and the virtually unprecedented political and economic prominence that skyrocketing petrol prices have brought to Caracas. The Venezuelan strongman shows every sign of being prepared to strike out even more aggressively this year against any foe he perceives as threatening his "Bolivarian revolution," namely his plans for land reform, social justice, and the redistribution of wealth. Certain to seek reelection to a six-year term in next year's presidential race, Chávez is bolstering his domestic base through the aggressive expansion of the recent social programs that have won him the fierce loyalty of the nation's long-neglected lower-classes.

Russia and Brazil Arms Sales could prove Explosive
At the same time, Chávez is aggressively raising his international profile as he seeks to position himself as a major spokesman for the burgeoning center-left South American informal group of nations and as a statesman of hemispheric stature, fully capable of creating a counterforce to Washington's still powerful, if fading, influence in the region. It is an ambitious and perhaps risky two-tier game that Chávez plays. But as long as he holds the trump card—the nation’s huge oil reserves--Chávez may yet prove capable of winning at least this round in his confrontation with Washington. If reelected, he can rightfully claim overtaking one of the most stunning political trajectories seen in the hemisphere in recent decades: from his own failed coup attempt in 1992 followed by his being a victim of a near-successful military coup in 2002, to decisively winning the 2004 referendum, to his being a major progenitor of the grand design of Venezuela's (perhaps even Latin America's) political and economic future. If Chávez is to be looked back upon as a lion, there is little question who the goat will be. A major loser in the approaching U.S.-Venezuela confrontation is likely to be State Department Assistant Secretary Roger Noriega. The inept ideologue’s myopic analysis that Chávez’s close ties with Castro requires him to be either marginalized or eliminated has had a catastrophic impact on Washington’s ties to the rest of Latin America and has brought such relations to their lowest point in years.

Among the most audacious, and perhaps the most ominous, moves made by Chávez in recent days has been his substantial and widely-publicized purchases of arms both from Russia, which has sold Caracas 40 helicopters and 100,000 Kalashnikovs, and from Brazil, whose President Luiz Inácio Lula da Silva added a surprise twist to the long-awaited summit with Chavez by agreeing to sell Venezuela approximately two dozen Super Tucano light attack aircraft. Lula’s move is particularly notable in light of the harsh criticisms, including a formal diplomatic demarche presented to the Russian embassy in Washington, that the Bush administration had leveled at Russia--one of its staunchest allies in the "war on terror"--after the earlier sales were announced. For Lula to ignore these obvious warning signals and press ahead with the sale of aircraft to Venezuela, sealed at a highly visible regional summit during a period of increased tension, is perhaps the clearest signal in recent months that Brazil is ready and eager to openly challenge the United States’ hegemonic power in Latin America.

New Problems for
In retrospect, the sale will no doubt represent a turning point in the regional standing of both Chávez and Lula: the latter aggressively standing up to Washington, while the former strengthens his bid to make Venezuela into an independent regional power. This is the case because Washington would not dare to directly scold Brazil, with important FTAA negotiations pending, since few issues are higher on the Bush Latin America agenda than obtaining a free trade agreement with Latin America, whose total population approaches that of the EU. The move also holds substantial, and perhaps dangerous, implications for Andean regional relations, potentially sparking an arms race between Venezuela and Colombia, the latter a long-time beneficiary of munificent arms provisions from
Washington. The Bush administration, increasingly irked by Chávez's adventurism, will no doubt use the recent arms purchases as an excuse to funnel still more armaments to Bogotá, increasing tension and the possibility of regional instability.

It's the oil, stupid
Despite Chávez's charisma and political shrewdness, the president owes much of his recent success to the good fortune of presiding over the fifth-largest oil exporter in the world. This is at a time when soaring prices, instability in the Middle East, and nationalizations in Russia have made major oil-consuming industrialized nations, above all the United States, ever more anxious to guarantee secure supplies of the precious fuel. Chávez, not surprisingly, has sought to maximize this advantage, repeatedly making it clear that he intends to use the threat of cutting off oil exports to the U.S. as a defensive weapon against any bellicose posturing by Washington. The Bush administration has long despised the Venezuelan president as a dangerous revolutionary and has vociferously condemned his close relationship with Fidel Castro of Cuba, his nationalist economic policies, and his opposition to Washington's attempts to construct its version of a Free Trade Area of the

The White House’s reflexive hostility toward Chávez was most recently on display at the Senate hearings held to confirm Condoleezza Rice as Secretary of State. There, the former national security adviser stated that she had "nothing good to say" about Chávez and portrayed him as a "democratically-elected leader governing in an illiberal way." Not surprisingly, she offered no reflections on whether the United States' endorsement of the anti-Chávez coup in April 2002 or the role of the congressionally-funded National Endowment for Democracy and International Republican Institute in financing Venezuela’s so-called "civil society" organizations intimately tied to the golpistas, constituted "illiberal" behavior on Washington's part.

Chávez vs. Bush
The ever-pugnacious Chávez counterattacked with his usual zing, calling the then-national security adviser "illiterate," publicly challenging President Bush to wage a one-dollar bet that he would remain in Caracas’ Miraflores palace longer than the U.S. chief executive would occupy the White House. In response to Rice's accusation that he represented a negative force in Latin America, Chávez proclaimed himself to be such a force against U.S. imperialism in the region.

Even more telling, Chávez deftly turned up the pressure on Washington by intensifying his efforts to seek new markets for Venezuelan oil through diversifying its exports, with the implicit suggestion being that his new commercial strategy could entail a curtailment of shipments to the United States. Currently, this flow accounts for anywhere from 11 to 15 percent of U.S. consumption, thus making Venezuela the fourth most important supplier of crude petroleum to the United States, behind only Saudi Arabia, Canada, and Mexico. On January 30, the Venezuelan president signed an accord with China's vice president Zeng Qinghong, facilitating the China National Petroleum Corporation to invest in the development of Venezuelan oil and gas reserves. The country also has begun to sell fuel and crude oil to China at discounted prices to offset the high shipping costs to east Asia and thus affirming the economic attractiveness of the deal to Beijing. Meanwhile, the Chávez government is in talks with the government of Panama regarding the possibility of shipping oil via the Panama Canal to the Pacific and thus to the ever-growing Asian market.

A Perfect Storm?
Adding insult to injury, Caracas has entered into a widely publicized agreement for a team of sales representatives from the Venezuelan state oil company PDVSA (Petroleos de Venezuela) to be trained by Iranian advisers on strategies for penetrating the Asian market. While Iran has long been one of Venezuela's closest allies in OPEC, Chávez has decided to tighten economic links with Tehran precisely as the Bush administration attempts to ratchet up the pressure on Iran to abandon its nuclear ambitions and intensifies its rhetoric regarding that country’s violations of human rights and democratic principles. This must be seen as a brash and potentially dangerous challenge to Washington. For the United States, it is a challenge that mostly will, in some form or other, be met: Venezuela conspiring with one of President Bush's self-declared archenemies--and a charter member of the "Axis of Evil"--in order to more effectively sell oil to the world's rising economic power, China, is no small matter. Moreover, oil destined for China will likely be diverted from the U.S. market just when high fuel costs threaten to swell this country's current account deficit even further beyond the point of sustainability, likely driving the now vulnerable `economy into a renewed recession.

While Chávez still faces several formidable hurdles before this ambitious strategy can be fully implemented, he appears to be well on his way to beginning the reorientation of Venezuela's oil exports away from the north, where they have always been directed, to the east, as apprehension in Washington mounts. The possible economic impact of a disruption of oil imports from Venezuela was prominently highlighted during Secretary of State Rice's confirmation hearings before Foreign Relations chairman Senator Richard Lugar (R-IN), when he urged the administration to more carefully examine the potential consequences of its Venezuela policies on the energy markets. More recently, the Government Accountability Office, a nonpartisan congressional investigative agency, has begun a study of the risks associated with the consequences of any interruption in the Venezuelan oil supply. Therefore, it could be that the pesky South American populist whom the Bush administration has repeatedly tried to swat away, has nevertheless survived to haunt it. It is against this backdrop that Brazil’s massive arms sales, just announced during a meeting with Brazil’s President Lula, can be understood.

A Rising Regional Power
Chávez's feisty petard diplomacy and his increased sparring with Washington has been coupled with an expansion of his campaign to build close relationships with the fellow members of the informal anti-U.S. "axis of power" coalition, which stretches from Havana through Caracas to the center-left governments of Presidents Lula in Brazil, Tabaré Vasquez of Uruguay and Nestor Kirchner in Argentina, as well as an embattled President Mesa in Bolivia. Declaring that "our strategy has to be to break the U.S. axis and forge South American unity" at a meeting with Lula February 13, Chávez has sought to take advantage of his current political strength at home to project his profile as a regional statesman. On that occasion, the presidential colleagues reaffirmed the importance of the "strategic alliance" between their two countries and signed new agreements for development in transportation, oil, gas and coal. Analysts have speculated that however uncomfortable Chávez's rhetoric may make the Brazilian president feel, and no matter how un-amused Lula must be over the Venezuelan leader’s ties to the left wing of his own Brazilian Worker’s Party, which has been critical of the conservative approach exhibited by Lula’s economic planners, the two leaders need each other. It is within this context that maintaining a close relationship, with Chávez--a hero to the left across Latin American--is nonetheless essential for Lula in order to shore up his own fading revolutionary credentials with his more radical domestic critics. Whatever the substantive differences between the two men, Chávez can thus continue to bask in the prestige of his close relationship with one of the few hemispheric leaders with a legitimate claim to international stature.

Meanwhile, Caracas has not neglected to maintain close ties with another, even more laurelled hemispheric revolutionary: Fidel Castro. Over the last two years, Venezuela has provided substantial shipments of subsidized oil to Cuba to ease the energy and transport shortages in the perennially ailing Cuban economy; in return, Cuba has steadily increased its flow of medical and other social service personnel to Venezuela. Such Cuban professionals now in Venezuela include 14,000 doctors, 3,000 dentists, 1,500 eye specialists and 7,000 sports trainers. In a break with usual practice when Cuba engages in sending its medical personnel to developing countries desperately in need of such services, Caracas committed itself in a December agreement with Havana to make separate payments for the Cuban aid, to be valued at a price set by the World Health Organization’s schedule for such services. While the inflow of cash is no doubt vital to Castro, Chávez also stands to benefit considerably from the arrangement. He now has the necessary personnel to implement his "barrio adentro" (inside the neighborhood) program of social services, with its ambitious plans to construct 1,800 laboratories and medical clinics. It was precisely the inauguration of a long-delayed expansion of basic medical and social services, within the poorest Venezuelan slums that appears to have been decisive with the president's referendum victory last August, and no doubt represents one of Chávez's principal political assets for a reelection victory next year. Despite the symbolic and rhetorical value of the links that Caracas assiduously has cultivated with its ideological brothers-in-arms across the hemisphere, however, the president has not neglected the more pragmatic side of Venezuela's foreign policy.

Chávez's talent at realpolitik was evident most recently in his successful patching-up of the diplomatic fracas that erupted with the conservative pro-Washington government of Álvaro Uribe in neighboring Colombia. Rodrigo Granda, a leader of the leftist Colombian rebel FARC (Fuerzas Armadas Revolucionarias de Colombia) who was quietly living in Caracas, was captured by Venezuelan bounty hunters in broad daylight last December and was subsequently handed over to Colombian police on the other side of the border by the well paid renegades. Accusing the United States of provoking the crisis, Chávez withdrew his ambassador from Bogotá and halted bilateral trade between the two countries, which normally amounts to almost two billion dollars annually.

Having sent an unmistakable signal to the Bush administration that further interference in South American regional relations, such as the clumsy intrusion of the U.S. ambassador to Colombia, William Wood, in strong support of Uribe against Chávez, will not be tolerated--Chávez agreed to meet with the Colombian president in order to discreetly end the standoff before any damaging economic repercussions could set in. While he aggressively confronted Bogotá--viewed throughout Latin America, along with El Salvador and Chile, as one of Washington's most faithful bootlickers--demonstrated that the Venezuelan leader is capable of responsibly managing what has to be considered his most important bilateral relationship. It also showed that ultimately Uribe was not prepared to sacrifice his all important bilateral ties with his neighbors just to be used as a stalking horse against Venezuela. Ultimately, Chávez may attempt to position himself as a bridge between Uribe, who remains relatively isolated in South America despite (or perhaps because of ) his close relationship with the Bush administration, and the center-left Mercosur governments, thus further broadening a South American coalition that Chávez envisages as part of his hemispheric legacy.

Chavez's First Term: The Finale, or Merely the Prelude?
Having cut a memorable swath across Venezuela and Latin America during his first term, President Hugo Chávez shows every sign of being well-poised to win a mandate for six more years in Miraflores palace, a period of time that would allow him ample opportunity to expand his strategy of aggressive oil diplomacy, regional institutionalization and relentless attempts to thwart Washington's economic and political aspirations in the hemisphere. With his power immeasurably enhanced by rising oil prices and the key strategic importance of Venezuela's petroleum reserves, Chávez may just be able to stand up to the Bush administration--which is increasingly apprehensive that frayed bilateral relations could lead to disruptions in oil exports from Venezuela, precisely when those imports are most crucial--while at the same time playing a pivotal role in the emergence of a South American "axis of power."

There are few Latin American leaders today who can even begin to articulate such grand regional ambitions. But buoyed by the tide of oil prices that has steadily enhanced Venezuela's economic and political strength, Chávez's domestic popularity and his international stature can only grow. The pugnacious president may yet win a second term, and thus be able to watch his ideological archrival, President Bush, exit the White House in 2008.

This analysis was prepared by Jessica Leight, COHA Research Fellow.

February 15, 2005

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