Monday, February 27, 2006

No Problem

The United States and the 'Problem' of Venezuela

By George Friedman

Venezuela has become an ongoing problem for the Bush administration, but no one seems able to define quite what the issue is. President Hugo Chavez is carrying out the Bolivarian revolution in Venezuela and feuding with the United States. He has close ties with Cuba and has influenced many Latin American countries. The issue that needs to be analyzed, however, is whether any of this matters -- and if it does, why it is significant.

Chavez came to power in 1999 through a democratic election. He unseated a constellation of parties that had dominated Venezuela for years. Chavez, an army officer, had led a failed coup attempt in 1992 and spent time in prison for that. He sought the presidency without any clear ideology other than hostility to the existing regime. There was a vague belief at the time of his election that Chavez would be simply another passing event in Latin America. Put a little more bluntly, there was an assumption that Chavez rapidly would be corrupted by the opportunities opened to him as president, and that he would proceed to enrich himself while allowing business to go on as usual.

The business of Venezuela, however, is oil. Not only is the country a major exporter, but the state-owned oil company, Petroleos de Venezuela SA (PDVSA), also owns the American refiner and retailer Citgo Petroleum Corp. Venezuela has tried to diversify its economy many times, but oil has remained its mainstay. In other words, the Venezuelan state is indistinguishable from the Venezuelan oil industry. Chavez, therefore, has faced two core issues: The first was how income from the oil would be used, and the second was the degree to which foreign oil companies could be allowed to influence that industry.

Chavez was able to win the presidency because he promised the Venezuelan masses a bigger cut of the oil revenues than they had seen before. More precisely, he promised a series of social benefits, which could be financed only through the diversion of oil revenues. From Chavez's point of view, the problem was that the Venezuelan upper class and the foreign oil companies were pocketing the oil money that could be used to pay for the social services upon which his government rested and his political future depended. From his fairly simple populist position, then, he proceeded to move against the technical apparatus of PDVSA and against the foreign oil companies, most of which opposed him and threatened to undermine his plans.

But there was yet a further dilemma. In order to support his political base, Chavez had to have oil revenues. In order to generate oil revenues, he had to have investment into the oil sector. But diverting revenues and building up the oil sector were competing goals. Given the political climate, foreign oil companies were not inclined to make major investments in Venezuela, and PDVSA -- minus its technical experts -- was not capable of maintaining operations and existing output levels. There was, then, a terrific problem embedded in Chavez's political strategy. In the long term, something would have to give.

Two things saved him from his dilemma. The first was a short-lived coup by his opposition in April 2002. This coup was truly something to behold. Having captured Chavez and sent him to an island, the coupsters fell into squabbling with each other over who would hold what office and sort of forgot about Chavez. Chavez flew back to Caracas, went to the Miraflores presidential palace, and took over, less than 48 hours after it all began. The coupsters headed out of town.

The coup gave Chavez a new, credible platform: anti-Americanism. He was never pro-American, but the brief coup allowed him to claim that the United States was trying to topple him. It would be a huge surprise to us if it turned out that the CIA was utterly unaware of the coup plans, but we would also be moderately surprised if the CIA planned events as Chavez charged. Even on its worst day, the CIA couldn't be that incompetent. But Chavez's claim was not implausible. It certainly was believed by his followers, and it expanded his support base to include Venezuelan patriots who disliked American interference in their affairs. What the coup did was flesh out Chavez's ideology a bit. He was for the poor and against the United States.

Chavez got lucky in a second way: rising oil prices. The appetite of his government for cash was enormous. Someone once referred to Citgo as "Chavez's ATM." With Venezuela's oil production declining, Chavez's government likely would have collapsed under social pressure if world oil prices had remained low. But oil prices didn't remain low -- they soared. Venezuela still had substantial economic problems and its oil industry was suffering from lack of expertise, investment and exploration, but at $60 a barrel, Chavez had room for maneuver.

All of this led him into an alliance with Cuba. When you're anti-U.S. in Latin America, Havana welcomes you with open arms. Cuba needed Venezuela as well: After the fall of the Soviet Union, the Cubans were cut off from subsidized oil supplies, and their ability to pay world prices wasn't there. Chavez could afford to provide Castro with oil to sustain the Cuban economy. It could be argued that without Chavez, the Castro regime might have collapsed once faced with soaring oil prices.

In return for this support, Chavez benefited from Cuba's greatest asset: a highly professional security and intelligence apparatus. Arguing, not irrationally, that the United States was not yet through with Venezuela, Chavez used Cuban expertise to build a security system designed to protect his regime. His government -- though not nearly as repressive as Cuba's is at the popular level -- nevertheless came under the protection not only of Cuban professionals, but of cadres of Venezuelan personnel trained by the Cubans. The relationship with the Cubans certainly predated the coup in Caracas, but it kicked into high gear afterwards. Both sides benefited.

Chavez's rise to power also intersected with another process under way in Latin America: the anti-globalization movement. From about 1990 onward, Latin America was dominated by an ideology that argued that free-market reforms, including uncontrolled foreign investment and trade, would in the long run lift the region out of its chronic misery. The long run turned out to be too long, however, because the pain caused in the short run began forcing advocates of liberalization out of office. In Brazil, Argentina and Bolivia, economic problems created political reversals.

The old Latin American "left," which had been deeply Marxist and always anti-American, had gone quiet during the 1990s. It recently has surged back into action -- no longer in its dogmatic Marxist style, but in a more populist mode. Its key tenets now are state-managed economies and, of course, anti-Americanism. For the leftists, Chavez was a hero. The more he baited the United States, the more of a hero he became. And the more heroic he was in Latin America, the more popular in Venezuela. He spoke of the Bolivarian revolution, and he started to look like Simon Bolivar to some people.

In reality, Chavez's ability to challenge the United States is severely limited. The occasional threat to cut off oil exports to the United States is fairly meaningless, in spite of conversations with the Chinese and others about creating alternative markets. The United States is the nearest major market for Venezuela. The Venezuelans could absorb the transportation costs involved in selling to China or Europe, but the producers currently supplying those countries then could be expected to shift their own exports to fill the void in the United States. Under any circumstances, Venezuela could not survive very long without exporting oil. Symbolizing the entire reality is the fact that Chavez's government still controls Citgo and isn't selling it, and the U.S. government isn't trying to slam controls onto Citgo.

Washington ultimately doesn't care what Chavez does so long as he continues to ship oil to the United States. From the American point of view, Chavez -- like Castro -- is simply a nuisance, not a serious threat. Latin American countries in general are of interest to Washington, in a strategic sense, only when they are being used by a major outside power that threatens the United States or its interests. The entire Monroe Doctrine was built around that principle.

There was a fear at one point that Nazi U-boats would have access to Cuba. And when Castro took power in Cuba, it mattered, because it gave the Soviets a base of operations there. What happened in Nicaragua or Chile mattered to the United States because it might create opportunities the Soviets could exploit. Nazis in Argentina prior to 1945 mattered to the United States; Nazis in Argentina after 1945 did not. Cuba before 1991 mattered; after 1991, it did not. And apart from oil, Venezuela does not matter now to the United States.

The Bush administration unleashes periodic growls at the Venezuelans as a matter of course, and Washington would be quite pleased to see Chavez out of office. Should al Qaeda operatives be found in Venezuela, of course, then the United States would take an obsessive interest there. But apart from the occasional Arab -- and some phantoms generated by opposition groups, knowing that that is the only way to get the United States into the game -- there are no signs that Islamist terrorists would be able to use Venezuela in a significant way. Chavez would be crazy to take that risk -- and Castro, who depends on Chavez's cheap oil, is not about to let Chavez take crazy risks, even if he were so inclined.

From the American point of view, an intervention that would overthrow Chavez would achieve nothing, even if it could be carried out. Chavez is shipping oil; therefore, the United States has no major outstanding issues. A coup in Venezuela, even if not engineered by the United States, would still be blamed on the United States. It would increase anti-American sentiment in Latin America, which in itself would not be all that significant. But it also would increase hostility toward the United States in Europe, where the Allende coup is still recalled bitterly by the left. The United States has enough problems with the Europeans without Venezuela adding to them.

Taken in isolation, Venezuela can't really hurt the United States. If all of South America were swept by a Bolivarian revolution, it wouldn't hurt the United States. Absent a significant global power to challenge the United States, Latin America and its ideology are of interest to Latin Americans but not to Washington. The only real threat that Venezuela poses to the United States would be if its oil production becomes so degraded that the United States has to seek out new suppliers and world prices rise. That would matter to Washington, and indeed it may eventually occur -- Venezuelan output has dropped about 1 million bpd below pre-Chavez highs -- but it would matter a thousand times more to Venezuela.

This explains the strange standoff between Venezuela and the United States, and Washington's basic indifference to events in Latin America. Venezuela is locked into its oil relationship with the United States. Latin America poses no threat on its own. The chief geopolitical challenge to the United States -- radical Islam -- intersects Latin America only marginally. Certainly, there are radical Islamists in Latin America; Hezbollah in particular has assets there. But for them to mount an attack against the United States from Latin America would be no more efficient than mounting it from Europe. The risk is a concern, not an obsession.

For the United States, its border with Mexico matters. For the Venezuelans, high oil prices that subsidize their social programs and buy regional allies matter. Both want Venezuelan oil to keep pumping. Aside from the one issue that they agree on, the United States can live and is living with Chavez, and Chavez not only lives well with the United States but needs it -- both as a source of cash, through Citgo, and as a whipping boy.

Sometimes, there really isn't a problem.

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