The Sucking Sound of Bolivar-nism

As we watch the price of a barrel of oil plummet to Neolithic levels, what does that do, other than having us breathe a sigh of relief for having purchased a Ford F-350 last spring? The destabilization of three nearby countries comes to mind, all intimately tied together: Venezuela, Bolivia and Cuba. And it means more than a little something to us other than the potential spectacle of 3 more countries becoming governmentally dysfunctional.

Hugo Chavez is in a desperate race to get unlimited presidential terms approved before the national economy tanks in February. The oil contracts at old high prices run out in January and snap to market price in February. It is speculation as to how fast his popularity would come unglued when the treasury money reserves run out, this month, but not if it will. It’s a stone lock. If he hasn’t set himself up as president for life in a February 1 plebiscite, he better have a good exile planned out. And his mini-socialist empire will probably follow him out of Dodge. The Economist has superb writing on this and on the rapidly deteriorating relationship between Venezuela and Brazil. If this place does come apart, it will be sadly interesting to see what happens with all the new Russian weaponry that he just acquired. In any case, the seemingly limitless money that he was using to push his hate mongering agenda is going to evaporate within days.

Cuba takes it in the shorts because Hugo has taken the place of the Soviets in cash flow, propping up the rotting structure of the Cuban planned economy through his billions of dollars a month in remittances. Raul had to admit that the Cuban welfare state accounts ‘didn’t square up’ with their pension commitment and such. What happens when the Hugo’s allowance disappears, pensioners are penniless and the nation runs out of money to import food (estimated at 90% of need)? Their only major export now is ore, which has drastically dropped in value along with all other commodities. Does the government of paradise finally get really ugly with its own population when they are running on the memory of fumes? I believe this may be a positive geopolitical moment for the U.S.

Bolivia: This place is the geography/geopolitical answer to ‘name someplace we don’t have any interest in, the letter B’. The government nationalized their petroleum assets, under the tutelage of Mr. Chavez. And, surprise, this really ticked off the Brazilians, who owned a lot of that infrastructure. Counter-intuitively, perhaps, to our picture of this bloc, they are very unhappy with Hugo and his band. What started out as a love fest has turned into a ‘ditch the geek’ mentality.

So, to the earlier post comment on Chile and Brazil being our centers of interest in this part of the world: We can prosper from a new relationship with Cuba, shut down Guantanamo and save ourselves a pile of money as well as uplifting the Cuban people with nary a round being expended. While not fun to watch two other countries disintegrate, we can finally relieve ourselves of being the geopolitical ‘big daddy’ in that part of the globe by letting the emerging natural leaders begin to direct traffic on this continent and let their protectionism deal with the Chinese. It might be aggravating as the more egotistic leaders flaunt this as our weakness but the outcome nevertheless suits our national interest. I hope the President Elect and Ms. Clinton see this the same way and we can close out a somewhat tawdry chapter of pseudo imperialism with our neighbors.

Michael Chevalier

Comments

[Lysander]

I wish I knew more about South America and its economy to comment. I'll just ask a few questions of no one in particular.

1) At what oil price does it really begin to hurt? Oil seems just under 50$ per barrel now and Venezuela survived at that price or less up till 2005 or so. If oil stablizes at 50, is that enough for Chavez to survive? How about 40? or 60? Oil was above a hundred for only 4 months, after all.

2) Will he be able to point to the world wide economic catastrophe unfolding and say we're not alone?

3) Opening up to Cuba is a great idea. It has been a great idea for a long time, and yet...What obstacles would prevent it?

Off Topic but, say what you will about Chavez otherwise, but expelling the Israeli ambassador today was a class move.

Double off topic, How's Russia going to manage if oil hits 25$?

[Ormolov]

My friend from Colombia told me a couple years ago:

"Everyone in Caracas and Bogota knows Chavez is there for a reason... If he wasn't somehow serving the ruling class and American interests he would have been killed off long ago."

She's among the intellectual elite. If this is scatter-shot paranoia on her part then it's probably very widely felt in both countries. Whose interests is Chavez ultimately serving?

...like anyone could actually tell us and claim complete knowledge of every hare-brained CIA plot in South America over the last 20 years.

[Fred]

President for life? Just how long is his life expectancy when the economic projects you made come to pass?

[J]

Chavez is not serving American interests, he's serving British Empire ones.

[Dave of Maryland]

This post doesn't meet the usual quality of this blog. I was disappointed.

[João Carlosj]

Nice...

You forgot other country of Latin America.

Mexico. Soon to be a failed state. At USA border...

[Watcher]

Something important IRT to Chavez's survival and the price of oil. Even if oil does proceed back to $70 a barrel (probably the new price envelope based on Saudi statements) Chavez will still be in the hurt box due to the type of oil he has. The majority of the world pumps lite sweet crude which is far easier to "crack" into it's derivatives, cheaper and more desirable by consuming nations. Venezuala pumps heavy crude, less desireable, more expensive and really only the US has the technology to crack heavy crude at acceptable levels so Chavez will be Tail End Charlie (Chavez?) as oil creeps back up. Expect only the Chinese will the serious buyers of his stuff and what are the implications of the Chinese courting the Cubans to build refineries to process Venezualan heavy crude. All the more reason to make sure I can spend my July leave (legally) on the beach with a mojito in one hand and a habano in the other.

M

[curious]

don't be so sure... oil is at $50 territory again.

I think oil price will be attached to situation in Palestine. obviously there are a lot of cash floating around still.

http://www.marketwatch.com/news/story/oil-ends-lower-economic-concerns/story.aspx?guid=4A9F9C79-366B-412D-BDE0-B077F9CAFF3E&dist=SecEditorsPicks

NEW YORK (MarketWatch) -- Crude-oil futures closed lower Tuesday for the first session in four after earlier rallying above $50 a barrel, as demand concerns rekindled by downbeat economic data outweighed signals that the OPEC cartel will move forward with production cuts.

[Lysander]

Thanx, watcher, that explains a lot. Except I prefer a margarita and a seniorita over a mojito and habano :-)

An sustained oil crash wil hurt a lot of players world wide, but since its due to near depression like conditions in the west, it may not be easy for the U.S. to take advantage of the situation. And if its a mere recession we are facing, the oil will likely climb back up to higher levels.

Call me crazy, but I still believe peak oil is the real deal.

[b]

Hmm - bad analysis, written in hate mongering speech.

Just two issues:

Cuba exports about as much food-stuff (fruits, tobacco) as it imports. The highest number I can find is that it imports 50% of the staples it needs (30% of that from the U.S.) and a lot of high grade food for the tourists, not 90% as asserted above.

Why is Chavez democratically asking to put away term-limits a bad thing? The Canadian Prime Minister and the German chancellor do not have term limits. That does not put them in their job for life.

[shepherd]

I agree with Dave from Maryland.

[Will]

i was under the impression that Venezuala's petro business (Citgo) was vertical. I read in deBorchgrave's column that "gigantic Amuay refinery ... produces one-eighth of all the gasoline used on U.S. roads." They have also financed a refinery in Cuba. Apparently,they understand the limitationsof their heavy crude. I have seen a statement by Chavez that $50/per barrel is his break-even point.

$20 crude is the price at which the Saudis broke the back of the Soviets and retaliated for the invasion of Afghanistan.

[isl]

I assume spending in these countries increased since 2005, how they are ratcheted down (or not) to those levels will be key.

I see more opportunity for China here - the US is cash strapped (trillion plus deficits for years now predicted), China is cash rich. Also, note, China still has a command economy in place that can be revived to minimize economic displacement. If the Bolivarians get squeezed, look for loans tied to long term access to oil and other resources in a manner that eliminates US access. If the US has to beg china for cash, then I see this as a given.

Also, expansion of the Afghan theater suggests continued US neglect of this hemisphere.

[Michael Chevalier]

http://edis.ifas.ufl.edu/FE482

This link will perhaps provide clarification of the food situation in Cuba. The 90% figure is most likely transitory but is real based on the destruction of crops after two hurricane strikes. There are serious efforts underway to reverese the ruinous trajectory of collectivized agriculture.

Michael

[b]

The paper http://edis.ifas.ufl.edu/FE482 is from 2004.

It is about the food rationing system and says nothing about import percentages.

[Michael Chevalier]

http://www.economist.com/displaystory.cfm?story_id=12851246

I will attempt to find the earlier link that had the % of imported food at 90%. That was closer to the actual storms in generation. This will hopefully give insight to the loss of crop and, as this post has it, an 80% import level.

The other link shows the fragility of the food supply system, with most staples heavily rationed and the extreme percentage of personal income required to provide minimum sustanence. Couple with the apparently imminent reduction in Venuzuela's remittances, cutting cash to buy imported food and the issues of a potential pension default, there looks to be a very explosive mix in the brew.

Michael

[Charles I]

It may be that "a positive geopolitical moment for the U.S." may be at hand, but I remain confident in America's ability to squander each and every one, barring another Enlightenment, while hoping I am wrong.

In any event,the many Cubans I have discussed the issue with, as I legally lolled on an beautiful beach were universally adamant on one point. Cuba's future included many socialist elements in a free democratic state and would be decided by CUBANS IN CUBA, and not by Cubans in America. Given Florida's state and federal political contexts - remember the hysteria over that little boy - rationality and perspective will remain in short supply.

[Michael Chevalier]

RE: Paranoia

It was a common belief of Brazlian intelligentsias, cira 2000, that the U.S. had a strong desire and plans to accquire the Amazon area. This apparently was the intuited interpretation of all the U.S. acitivism on climate, ecology and the loss of indiginous lands and culture.

I was astounded when I read that and more so when I verfied it with my Brazilian contacts.

Michael

[William R. Cumming]

Interesting post! Clearly just getting through 2009 without Central or Latin America in headlines is going to be difficult. Putin's ploy in even engaging that arena will look totally ridiculous by May.

[Trent]

Good stuff and thanks. The penultimate paragraph is hilarious. Here's to our President elect not missing this belt-high fastball with Cuba.

[Watcher]

Lysander

I'm maried so I have to limit my vices :(

[Hannah K. O'Luthon]

It's self-promotional propaganda, of course, but the statistical procedures and "refereeing" of the data give this data
http://www.venezuelanalysis.com/news/4064

on social progress in Venezuela under Chavez would seem to give a measure of credibility.

[R Whitman]

MCC

Your article is typical of those people who have not spent much time on the ground in SA. Anyone who has will tell you the following:
1. Cuba has a rotten govt. It has always had a poor govt going back to Columbus in the 1500's. Even if they get rid of the communists it will still have a rotten govt.History rules.
2. The important countries in SA are Brazil, Venezuela and Argentina(Screwed up for the last century but potentially the richest country on a p/c basis in SA). Chile is not a player(16 million population and good wine are the only assets.No real world influence). 3.Chavez is a buffoon who is not long for political power, the important thing is who replaces him. If the old power structure returns, we will have considerable social unrest and maybe an old fashioned coup or two.

[Michael Chevalier]

R Whitman:

Work for a Brazilian company.

You have a good point about Cuban governmental history. If you've never seen good government, how would you recognize it if it drops in your lap?

I would completely agree that Argentina and Venezuela have the resources the other nations don't. But, my point is that you have to have someone else to talk to. You are probably familiar with the Argentine proverb (paraprhasing): God created a paradise called Argentina and filled it wiht every kind of natural treasure the world had to offer. And then, when he wasn't looking, someone populated it with Argentinians and ruined everything.

MCC

[R Whitman]

MCC

The current view from Argentina published in the Houston Chronicle

http://www.chron.com/disp/story.mpl/editorial/outlook/6203762.html