Nikki Marquez

Cristina Garza

EDGE, Spring 2003

June 6, 2003

Venezuela:

The Volatile Nature of Oil and its Affects on Political and Economic Stability

Though the rich valleys, quaint country-sides, stunning beaches, and exotic

rainforests on Venezuelan grounds are valuable commodities to the country, the oil resource that exists underground is essential to the economic prosperity of Venezuela and has profound affects on its politics as well. After much turbulence and instability in the oil market over the years and therefore a volatile economy, keeping the oil market as controlled and stable as possible has become a salient issue. Furthermore, the affects that such instability has revealed have been extensive to say the least. Fluctuations in oil activity affect the actions of the president, the reactions of Venezuelans, countries that depend on Venezuelan oil or are affiliated with it, and the well-being of internal as well as external politics and economics. In this paper, we examine the role oil has played through the historical, political, economic, and social context of Venezuela. Our findings show that oil in Venezuela has the power to promote great prosperity or lead to extreme unrest and chaos. By investigating major times of political, social and economic turbulence, we were able to see that many times oil was the crux of the issue. Not only having profound influences on the well-being of Venezuela, oil has also determined its importance through international response and involvement, as well as its ability to inflict instability on other international organizations and countries.

 This instability is not unknown in Latin America. South America has long been a continent of constant change and reform. Originally under the control of European countries as governments, Latin America has seen many uprisings, revolts and wars, all in the hope of establishing independence. The South American Wars of Independence occurred in the early 1800s, from 1806 to 1826. 24 During this time two countries had primary control, Portugal and Spain. Power of each country’s colonies was given only to European born rulers, assigning those born in the colonies and of mixed descent to a lower status.24 This unfair treatment and distant leadership mixed with a series of global events pushed the colonies to fight for their independence. The American Revolution, which ended in 1783, and the French Revolution, which ended in 1799, planted the idea of independence in South America. 24 In addition to this, the Napoleonic wars resulted in a weakening of Spain’s control over its colonies and forced the Portuguese government and royalty to flee to Brazil. This set the stage for what would be twenty years of violence and warfare resulting in the independence of Latin America. 
  Each region had its own struggle, and ultimately once independence was 
 
declared, problems began to emerge as new governments and countries were formed 
 
and borders established. In the East, Brazil gained autonomy without violence. 
 
When the monarchy returned to Portugal, the king’s son was left in charge, and later 
 
refused to give power back to Portugal. 24 The country finally agreed and Brazil became 
 
an independent nation. In the South, violence and warfare dominated the struggle, but 
 
autonomy was achieved especially since European countries were fighting each other for 
 
control. In the North the battle was much more fierce. Led by Simon Bolivar, 
 
independence was finally realized after much fighting.24 
 
 These wars were also followed by wars within Latin America between newly 
 
established countries. This included the Paraguayan Wars, the War of the Pacific, the 
 
Chaco War and the Peru-Ecuador Conflict. Most of these battles had to do with border 
 
disputes as well as regions ceding from these new countries with determination to found 
 
more independent countries. 24 In addition to continuing wars between various Latin 
 
American countries, there were wars with other countries as well. One example of this is
 
the Mexican - American War which began over a border dispute along the Rio Grande 
 
after Texas was annexed to the United States. 28 Ultimately Mexico lost about half of its 
 
land to the US. 28 These battles continued after South America shed itself of foreign 
 
rulers, and this constant state of struggle shaped and developed the countries in Latin 
 
America, based on individual experience. 
 

With all these wars, Mexico had struggled with its independence and at times had

difficulty maintaining a government that functioned properly. After the South American

Wars of 1810-1021, Mexico gained its independence, adopting a constitution and

establishing Guadalupe Victoria as Mexico’s first president. ¹⁷ But then in 1847 Mexico

had to cede half of its territory to the United States. In 1861, a Zapotec Indian from

Oaxaca, Benito Juarez, was elected president. ¹⁷ But he faced overwhelming debts owed

to France, Spain, and the United Kingdom. Unable to pay, he declared a two year

moratorium on the payment of foreign debt, which the French Emperor Napoleon III

responded to by sending an army to Veracruz to ensure his payment. ¹⁷ After this, for the

next thirty years there were civil wars and conflicts with European governments and the

United States. From 1876 to 1910 Porfirio D’az, a dictator, brought some stability back

to the Mexican Republic. But after this there were more revolutions and coups until 1917

when an egalitarian constitution was adopted. ¹⁷ This led to the rise of the Partido

Revolucionario Institucional (PRI), who in turn created a one-party state and ruled nearly

unchallenged until the 1970s. During this time opposition parties started to grow and

increase in strength. The Mexican government participated in violent measures in order

to suppress the opposition. The PRI continued to control the government, but had

economic as well as political problems, especially when dealing with the fluctuations

associated with an increasingly oil-based economy. Then in 1994, in Chiapas, a poor

southern state, an armed insurrection started. This group of guerillas called themselves

Zapatistas, and they were working for land reform. ¹⁷ In 1994 Ernesto Zedillo Ponce de

Leon won the presidency and entered into an agreement with the Zapatistas, which was

never implemented. In addition there was a large currency crisis under his term. The

growing unhappiness with the PRI led to the election of Vincente Fox Quesada, a

member of the Partido Accion Nacional (PAN), a political group based in the center-

right.¹⁷ While Fox was trying to work with the Zapatistas he encountered much

opposition from the PRI and conservatives in the assembly.

Mexico has the Constitution of 1917 back in effect since 1997. Its government is

a federal republic, although the federal government dominates the governments of thirty-

one states and Federal District. ¹⁶ The president, elected to a single six-year term, has

authority over the central government. The bicameral legislature, with a 128 member

Senate and a 500 member Chamber of Deputies, is relatively week. ¹⁶ There is a Federal

Supreme Court of Justice, with state courts subordinate to it. Each state and the Federal

District has a governor and a unicameral legislature. In addition Mexico is currently a

member of the Organization of American States (OAS), the United Nations, Latin

American Alliance for Economic Development, Latin American Economic System, and

the North American Free Trade Agreement (NAFTA). ¹⁶

Along the same lines, Brazil’s history has been very tumultuous. It was occupied

and fought over by European countries. The Portuguese had control of the region and

actively fought off the French and Dutch. In 1807, during the Napoleonic wars, Portugal

was invaded by French forces, causing the Portuguese government and royal family to

flee to Brazil under the protection of the British. Once there they reconstructed the

instruments of modern government in Rio de Janeiro, which began the growth of modern

Brazil. ⁴ In 1824 when King Joao returned to Lisbon, his son, Dom Pedro was left in

charge as regent. Within one year he successfully led Brazil to independence with the

backing of Britain. Dom Pedro established an imperial system which lasted until 1889,

when a republic was put in its place. ⁴ Ever since the republic has been established there

has been a struggle for control between the central government and the powerful regions

of Sao Paolo, Minas Gerais, and Rio Grande do Sul. ⁴ During the tweentieth century a

sense of national identity started to develop along with along with economic growth.

This growth, caused by an industrial economy, created new social and political problems.

Getulio Vargas dominated politics from 1930 to 1954 as dictator twice and elected

President. ⁴ The 1950s and 1960s were a period of economic and social growth. In 1960

a left-wing Joao Goulart was elected, but with the help of the United States, the army

took full control of the government, overthrowing Goulart and establishing military rule

that would last for two decades. ⁴ After twenty years, the military ceded rule and in 1985

Tancredo Neves was elected president but died before he took office and was replaced

with Jose Sarney, who effectively helped Brazil through this transitional period. ⁴ In

1989 he was defeated by Fernando Collor de Mello, a conservative. But he resigned in

1992 to be replaced by Vice President Itamar Franco. In 1994 Fernando Enrique Cardoso

won, and again in 1998, both times against Luis Inacio da Silva, or ‘Lula’. Cardoso

represented the Partido da Social Democracia Brasileiro (PSDB) while Lula represented

the Partido dos Trabalhadores. ⁴ In 2002 Lula won the presidency and his party was the

largest in the new national assembly.

Currently Brazil is functioning under the constitution that came into effect

in 1985. It is a republic with 26 federated states and one Federal District. ⁵ The two main

powers are the president, who is elected every four years, and the legislative branch

called the National Congress. Most of the responsibility and funding from the national

government shifted into the hands of the state governments under this constitution.

These states gained a considerable amount of autonomy when dealing with their own

internal affairs. This government also established equality for all citizens and universal

suffrage. ⁵

Equally unstable is Panama, which gained independence in 1821, but since then

its history has substantial periods of foreign control and involvement in the region. When

Panama gained independence, it was part of Gran Colombia, which Simon Bolivar had

established. Gran Colombia included Colombia, Venezuela, Ecuador, Peru and

Colombia. But in 1830 it collapsed and Panama became allies with the United States. Of

strategic importance, Americans helped build a railway, and then in 1914 the completion

of the Panama Canal. The Panama Canal Zone was itself a protectorate of the United

States because of its military importance. Panama as a whole effectively remained under

American control until 1939. Politics were stable until a military coup in 1968 led by

General, and later Brigadier-General, Omar Torrijos Herrera. ²⁰ He held power, even

after he surrendered the presidency, until his death in a plane crash in 1981. After this

and for most of the 1980’s, Torrijos former intelligence chief, Manuel Norriega, ran the

country. ²⁰ He was also allegedly involved in drug trafficking, which created problems

with the United States. In 1989 elections were held and Guillermo Endara Galimany

won, but the election was almost immediately annulled. Later that year, after an

attempted coup with the supposed backing of the US, Endara was crushed by Noriega’s

forces, and Noriega was once again dictator. ²⁰ This time the United States intervened,

and in 1992 President Bush ordered an invasion into Panama. Endara was put back into

place, and Noriega was tried and sentenced to 40 years in prison.²⁰ In the early 1990s

there were a number of attempted coups, voicing the discount with Endara and his slow

action. In 1994 the center –left won with Ernesto Perez Balladares. Five years later, in

1999, the conservatives won with Mireya Elisa Rodriguez. Under Rodriguez’s rule

Panama regained control of the Panama Canal Zone which the US had promised in the

1980s. ²⁰ Since then the main development has been a restriction on the number of boats

that can pass through the canal due to a drought caused by El Nino.

The constitution currently in place was put into effect in 1979 and it established

the current form of government. There is a president and a unicameral legislature made

up of 72 members. ²⁰ Each member and the president are elected for a five year term.

The president has a cabinet of ministers which he directly appoints. ²⁰

Also important to note is Ecuador’s political history, the only other South

American OPEC member besides Venezuela. In 1822, with the help of Simon Bolivar,

the Spanish were finally overthrown from Ecuador, who was already a member of Gran

Colombia. Then in 1828 Ecuador declared war on Peru because its army had invaded

Gran Colombia. A peace treaty was signed, along with the establishment of Ecuador’s

boundaries during the next year, but relations with Peru have been tense ever since. ¹² In

1830 Ecuador seceded from Gran Colombia and declared independence. Instantaneously

a rivalry broke out between Quito and Guayaquil, and what may have been based on

religious interests, political interests, class differences soon became a conflict between

cities. In the 1920s the military took control, claiming to be the only ones that could

maintain national unity. ¹² Their land redistribution programs had limited success. When

they conceded their power, the period following from 1925 to 1948 was one of

Ecuador’s most tumultuous. There was political instability and as well as economic, with

the discovery of oil, and the benefits that were squandered leading the poor into revolts.

Then in 1988 Rodrigo Borja Cevallos of the Izquierda Democratica was elected to the

presidency, which broke the hold of the Liberals and the Conservatives. ¹² In 1992 Sixto

Duran of the right Republican Unity Party was elected, but a scandal in 1995 destroyed

his credability. In 1996 Bucaram Ortiz was elected, and then impeached in 1997 due to

his bizarre and irregular attitude. Jamil Mahuad, former mayor of Quito, was elected

in 1998. He settled a long-running border dispute with Peru, but was pushed out because

of his inability to help Ecuador’s economic situation. ¹² His deputy, Gustavo Noboa

Bejarano replaced him and concentrated on the economy, putting the US dollar in place

of the Sucre and getting international companies to support Ecuador’s finances.¹² In

2002 Noboa was defeated by Lucio Guitierrez. The elections were followed by the OAS

to ensure their legitimacy. Similar to Chavez in Venezuela, Gutierrez participated in a

former coup, was in the military, but is a populist leader with left - wing sympathies. ¹³

He claims that, unlike Chavez, he is against communism and is not a part of the leftist

anti-globalist trend in South America.13

The current constitution was approved in 1978 and came into effect in 1979. The

President is elected every four years. He holds executive power and is assisted by the

Vice President and a Cabinet. The Cabinet is made up of twelve Ministers and a

Secretary General. Ecuador has a unicameral legislature with the House of

Representatives. In the House there are 69 members, twelve are national representatives

and the remaining 57 represent various provinces. ¹³

The Latin American Wars of Independence form a broken timeline full of

violence and failures before resulting in a liberated Latin America, which is still

struggling with the need to govern itself. One of the greatest contributors to this cause

was Simon Bolivar, whom Chavez tried to liken himself to. Bolivar was born in Caracas,

Venezuela on July 24, 1783 to wealthy parents. ¹⁵ As a child he was tutored at his home

in Spain. He traveled throughout Europe and even married there. When he returned to

Venezuela his wife had died, and it was at that time that Bolivar became immersed in

political and military life. He played a large role in the liberation of not only his home,

Venezuela, but also various other countries in Latin America. He is even called the

“George Washington of South America.” ¹⁵

The various wars occurred between 1810 and 1825, with a failed political phase

from 1810 to 1015, and successful military phase from 1815 to 1825. ²³ These changes

began to occur when Napoleon invaded Spain in 1808. The colonies in America had a

crisis over who was the legitimate king, the Spanish one or the newly installed French

monarch. This dilemma along with the isolation of the colonies, the commercial

restrictions placed on the colonies by the crown, and the exclusionary and inflexible

administrative bureaucracy, led to the rebellions of the colonies and a push for

independence. ²³ During the first phase there was a lot of idealism and patriotism, but

without experience most of these failed. In Venezuela the First and Second Republic

were overthrown, the Second had Bolivar as its head. ²³ But eventually, through military

strength and international support, Bolivar was able to lead and unify the people of Latin

America with an effective military victory over Spain. He organized the liberated

territories into the Greater Colombia, which includes Venezuela, Colombia and Ecuador.

Bolivar dreamt of an even greater state that would have included Chile, Bolivia, and

Peru. But the deep divisions between the Venezuelans and Colombians, and between the

centralists and federalists, does not allow this to happen. Instead he declared a

dictatorship in 1825, losing the prestige and glory that he had won. He died in 1830, a

virtual pariah in both Venezuela and Colombia. ¹⁵

Venezuela, like so many of its South American counterparts, has a history full of

political struggles and turmoils. After gaining independence, it was established as a

soveriegn state in 1830 because of Jose Paez. ³⁶ But then Juan Vicente Gomez took

control and became dictator from 1909 to 1935. Then in 1936 and 1937 elections for the

Presidency and the National Assembly were held, but this lasted only until 1945 when a

series of military dictatorships took control until 1961. In that year the current

constitution of Venezuela came into effect. From then until the 1990s elections

continued and politics were dominated by the struggle between the Partido Social

Cristiano or COPEI and the social democratic Accion Democratica (AD). ³⁶ Then in

1992 a military coup, led by Hugo Chavez, arose due to an unstable economy and the

unrest of the military which considered themselves ill-equipped and poorly paid. The

coup failed and Chavez was placed in prison. However, in 1997 he announced the

formation of hisown party, Movimiento Quinta Republica (MVR) and in 1998 he was

elected to the presidency and has been in the presidency ever since. ³⁶

As can be seen in each of these countries, the democratic governments in place

are very fragile and vulnerable to coups, dictatorships and military take-overs. The

volatile nature of South America’s development has made the governments in each

country highly accountable for the state of the country, with populations expecting and

demanding immediate changes. This creates a tumultuous atmosphere, especially when

the economy is unstable, resulting in a system of governments, effective in

theory, that have had a difficult time establishing themselves as well as stabilizing their

country due to the unsure nature of their economy. This is especially true in

Venezuela, as the country’s economy is almost primarily dependent upon constantly

fluctuating world oil prices.

Venezuela’s economy has and still does rely heavily on its exports, primarily

petroleum and mineral resources. Until the 1970s Venezuela was the largest producer of

petroleum in the world. Once it was surpassed it began to focus on other exports for

diversification and economic growth. Mineral deposits of iron ore, nickel, coal, and

bauxite have been utilized. Despite all this petroleum is still the dominate export,

accounting for approximately 80% of export earnings. ⁸ But the nonoil industries are not

strong enough to buffer fluctuations in world oil prices. Therefore Venezuela’s economy,

despite attempts of diversification, is still heavily reliant upon the oil industry.

The extraction and exportation of these products has resulted in an industrial

economy, but an unstable one, vulnerable to fluctuations in the world market. This can

be readily seen in recent history. In the 1980s the price for petroleum was high, giving

Venezuela the highest annual per capita income in South America.³⁷However, in the early

1990s a weak global oil market as well as political insecurity and a banking system

crisis, sparked a series of economic shocks followed. The Gross Domestic Product began

to fall, and was not helped by rising inflation rates. In response to government reduced

spending, the country improved tax collection and accelerated the privatization of state-

owned firms. These measures were taken in an attempt to lower inflation and the

national deficit. ⁹

Oil was first drilled in Venezuela in 1914, and from then on oil activities and the

economy began to grow. For the first few decades oil production was slow to progress

and somewhat minimal. Then in 1938 when Mexico nationalized its oil industry,

Venezuela became more important to the world as an oil producer. In 1939, World War

II began, and Venezuela supplied almost 60% of the allied demand, becoming a clear

factor in the defeat of Hitler, and becoming a key player in the world oil market. ⁹ With

the 1943 Hydrocarbons Law approved, existing oil concessions were renewed for another

40 years, pushing Venezuela into a period of economic growth. ⁸ Over the next thirty

years Venezuela was able to build and advance as a country with this economic growth.

Public health care improved greatly, along with their roads and school system. Their

Gross Domestic Products has one of the highest growth rates worldwide. All of these

gains and achievements were accomplished due to the success of the oil industry.

Then in 1938 Venezuela’s oil policy began to change. It was believed that oil

reserves were at approximately seventeen billion barrels, which would only last sixteen

years at the current rate of production. Because of this, concessions were not to be

renewed after they expired and acreage awarded during the dictatorship in Venezuela

would have to be rescinded. The country and government was trying to maximize the

profits that could be obtained from the reserves. Realizing this, oil companies began to

produce low-value products because the nationalization of the oil industry seemed

inevitable at this point. Companies tried to produce as much oil as possible, a goal shared

by the government because of the rent that could be obtained from each barrel. With this

rent the government began ambitious social programs as well as an industrialization plan

based on imports substitution. ⁹ While this allowed the rate of growth to be maintained, it

negatively affected the oil industry’s productivity.

It was not until 1973, when the Yom Kippur war broke out and an Arab oil

embargo went into effect that Venezuela nationalized its oil industry. During this

embargo the price of a barrel of oil went up from two dollars to twelve dollars. Then in

1976, PDVSA took control of oil production and immediately implemented an ambitious

growth program. They made investments to modernize old refineries, modify the

refining patterns, and begin an exploration plan to increase proven hydrocarbon reserves,

as well as an exploration of the Orinoco Belt. ²⁷

Venezuela is a member of OPEC, the Organization of Petroleum Exporting Countries. Eleven countries comprise this group, including Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, The United Arab Emirates, and Venezuela. Every country relies on oil exports as their revenue. One of OPEC’s main concerns is keeping oil prices stable and fair for both consumers and producers. The Oil and Energy Ministers of each country meet twice a year, unless more often is necessary, and determines the level of output based on the supply and demand of the market. Any country is free to join OPEC as long as its shares the ideals of the organization and possesses oil as a chief component of economy. ²⁷ Venezuela’s affiliation with an organization such as this is another example of its relationships with other countries and membership in something that requires cooperation, participation and teamwork. Decisions that the Oil and Energy Ministers make when they meet affect Venezuela in that the country is expected to follow the premises outlined by the group and cooperate in a group effort to keep the economics of oil stable around the world. As a member of OPEC, Venezuela is dependent on the production and collaboration of fellow member countries, while other countries are dependant on Venezuela’s functionality and stability as well. Furthermore, during times of crises, like Venezuela’s oil strike, OPEC helps to strategize and restore the equilibrium of the oil market by imposing quotas and other such tactics to push the problem in a stabilizing direction.

Elected president by a wide margin in 1998 and then again in 2000, Hugo Chavez’s Venezuelan presidency has been both notable with success and tainted with turmoil. Chavez was born on July 28, 1954, in Sabaneta, State of Barinas. He graduated from Military Academy with an engineering degree in 1975. Chavez first began to distinguish when he and a group of military officers started a secret association named after Simon Bolivar. In 1992, the members of the Revolutionary Bolivarian Movement attempted to overthrow the Perez administration for economic reasons, killing 18 people and injuring 60 in the process. Being held captive in a military jail after that endeavor still didn’t stop Chavez, as he tried to gain power again nine months later, but failed for a second time. Chavez served two years in prison, and reignited his party upon his release, calling it the Movement of the Fifth Republic. It was at this point in his life that he started to become a politician.

In 1998, Chavez entered the political life with endeavors to reform Venezuela. Upon his election to presidency, Chavez, a leftist leader, swore to make “revolutionary” changes regarding social policies. While he attempted to target the poor and promise them well-being through his reforms, no significant changes seemed to happen in the life of the ordinary citizen. Poverty and high unemployment rates that sometimes reached 15%, were important issues on the reform agenda, however issues that never received the dedication required for improvement, as citizens still lived on streets among extremely wealthy businessmen. The extreme economic discrepancy between Venezuelans greatly angered those on the lower end, who contributed to a 50% decline in Chavez’s popularity rating as well as the first major street protest.

Chavez was reelected in 2000 after a Constitutional reform, displaying that though he did have fervent opposition, he must have had a significant amount of trusting supporters. A major item on Chavez’s agenda was to introduce a “Bolivarian revolution” which would bring about substantial social, political and economic change. Alterations in the 1999 constitution included extending the presidential period to six years, allowing the possibility for reelection, introducing a participative democracy, and move toward a single-chamber National Assembly. As far as fiscal policies were concerned, Chavez wanted to implement change regarding income and capital gains tax, value-added tax, personal security, and the State budget. He also aimed to make improvements to the hydrocarbon industry and agricultural sector.²⁶ Chavez’s push for major reform through these Constitutional amendments and unique policies has divided most Venezuelan’s into either a group of supporters or opponents. Those who opposed Chavez stood strong in their opinions, as four noteworthy strikes had taken place in the city streets by the beginning of 2003. Conversely, Chavez’s followers, mostly Venezuelan poor, stand by him and all the improvement he had promised them.

Under the Chavez administration, the statistics for 1999 stress the importance of petroleum to Venezuela’s well-being, while also explaining how such a reliance on one resource maintains the gap between the rich and the poor. The real growth rate of GDP in 1999 was 7.2%, with the per capita GDP at $8,000. The agricultural sector made up 4% of the GDP, while services were at 33% and industry was at 63%. Despite this, 67%of the population remained below the poverty line, while the lowest 10% had only 1.5% consumption per percentage share, and the highest 10% with 35.6%. Its exports totaled $20.9 billion, with the United States as the largest recipient. Imports, mainly raw materials and equipment, totaled $11.8 billion, with the United States as the largest supplier. ⁹ There was an extreme increase in oil profits in 2001, which led to Chavez’s decision to expand the budget and increase spending by 42% in order to stabilize a healthy economy after a damaging recession in 1998-1999. This expanded the economy by 3.2% in 2000.

Just before 2001, inflation had decreased by 14% and unemployment declined as well to 15.8%. During this time Venezuela also managed to lower the debt. Though the economy was strengthening, the global oil market is so unpredictable that it was important and challenging for Chavez to maintain growth during times of instability. For example, in 2002, GDP decreased by 8.9% according to the Venezuelan Central Bank. A reduction in oil production was highly accountable for this overall depreciation, as it was down 12.6%, exemplifying the power that oil has in helping or hurting the Venezuelan economy. ³²

In mid April 2002, violent anti-government protests invaded Venezuela’s streets, resulting in 17 deaths and 48 hours of Chavez being overthrown and replaced. The man who replaced Chavez for two days during this failed military coup was a Venezuelan businessman named Pedro Carmona. Big business and union bearcats joined for a collective demonstration, increasing in volume as it approached the palace. It is estimated that about 50,000 protestors joined the rally. At the same time, as anti-government protestors expanded in population, pro-Chavez citizens joined in attempt to prevent them from reaching the palace. Pushed over the top by Chavez’s decision to appoint five of his friends to the board of the oil company and therefore replacing five existing employees, Carmona told those who were fired by Chavez to return to their work and dismiss those who were newly selected for management. Chavez’s opponents felt that it wasn’t fair to remove undeserving, qualified and experienced personnel from their jobs. Carmona also “dismissed Venezuela’s national legislature and the Supreme Court, and abolished the Constitution”. ¹ The opposition and protestors held their ground for two days before Chavez overpowered and regained his seat as president. Carmona was granted asylum by the Colombian Government.

The United States, growing tired of Chavez’s fashion of governing, in a way called for the overthrow of Chavez. The Bush administration, not being favorable of Chavez’s regime, did little to intervene in the chaos or denounce the attempted overthrow. According to the New York Times, the main concerns of the US were “…uninterrupted cheap oil to the US petroleum corporations” Also, “To the extent that Chavez’s policies threatened the US grip on Venezuelan oil and his minimal reforms infringed on the privileges of the economic elite, his overthrow, as far as the Times is concerned, was justified”. ⁴⁰ This substantial but failed coup, along with the strong reaction of the United States, is all traced back to Chavez and how he dealt with Venezuela’s oil. This coup and international reactions to it exemplify the profound affect oil has on Venezuela. Oil and its economic power are at the source of all of this political distress.

In an attempt to appeal to the “common man”, Chavez accused and denounced international economic organizations as well as United States imperialism on the grounds that they take advantage of Latin America out of self-interest with only profit in mind. While Chavez kept the poor of his country in mind, he included in the constitutional amendments more minority opportunity, as well as additional government dollars to be dedicated to health care, education, housing and micro-credit loans. ³⁸ These reforms were intended to appeal to the Venezuelan poor, who are significant in number, and win their support and trust. These underprivileged citizens are also the ones who maintain his position as president by protesting in the streets for his administration while trying to neutralize Chavez opponents who are publicly demonstrating and ardently protesting his rule.

On the other hand, those citizens who challenge Chavez’s presidency deem him an autocratic and tyrannical ruler. This group points out selfish reasons for his rewriting of the Constitution. For example, they feel that Chavez’s proposition to extend the presidential period to six years was just to lengthen his own term in office. Also, Chavez also began a law that gave him “supra-congressional authority”, in other words the power to pass some laws without Congress approval. A significant number of Chavez’s opposition consists of businessmen who disagree with his policies to limit foreign company access to Venezuelan oil supplies, which “they believe are harmful to the financial stability and democratic structure of the country”. ³⁸ Chavez has also discouraged the support of the wealthier portion of the country by accusing them of wasting oil wealth and blaming them for a mostly poverty stricken population. In the opinion of his opposition, Chavez also exploited his power by appointing many of his friends to take over sects of the oil industry. On top of that, whenever any negative information about him or his administration appeared in the press, Chavez threatened to close down these firms even if they were privately owned. Driving his adversaries into states of uncontrollable anger, a protest of such magnitude exploded on the streets of Venezuela that several countries suffered the impact.

Chavez had nominated a new board of directors, his own allies, to the PDVSA (state petroleum company), which greatly infuriated the preceding managers to the point of protest and strike. These strikers felt that the new directors, Chavez’s friends, were not qualified for such positions in the advanced and vital oil industry. A merit-based promotion system exists in Venezuela to determine a candidate’s competence for a job, and none of these new appointees earned their job through this well-established procedure. Citizens were especially wary of this new staff because there had been previous suspense about involvement in scandals with friends of Chavez, and in this case some people believed that they were trying to muster money they didn’t deserve from the from PDVSA.

Chavez’s stated reasons for replacing the company’s management with his own men was his accusation that as it was, the organization was inefficient and needed to contribute more to the nation and Chavez’s Bolivarian revolution for the poor. Chavez had already taken a step toward this by moving PDVSA toward increased state control and away from the privatization it was inching in the direction of. The profound disagreement over the control and management of Venezuela’s oil ignited a strike that ended up costing the country about $70 million per day. Furthermore, citizens had to wait in hour long lines for gas and many grocery stores, banks, and schools even in wealthier neighborhoods closed down. Strikers demanded that Chavez partake in a “nonbinding referendum on his presidency in February” ²⁵ Chavez claimed that such a demand was a violation of the constitution and said that citizens could request a binding vote half way through his term, in August. The strike continued in all its fury, and at its worst point, oil production was down to 200,000 barrels a day in comparison with its usual 3.2 million barrels a day. This cut government income in half and lowered export revenue by 80%. This extreme decrease also imposed a dramatic strain on the countries that were significantly dependent on Venezuelan oil, such as Europe and the United States, as well as markets that were already burdened by Israeli and Palestinian fighting. This, in turn, caused a sharp hike in gas prices in these reliant countries.

In attempt to pick up the lagging pace of oil production, Chavez replaced striking workers with foreign oil crews. Out of 35,000 PVDSA employees, Chavez had fired 15,000 of them. After a strike that dragged out much longer than both sides had expected, the fierce anger began to succumb to the ailing and suffering state of the economy. Lula, the president of Brazil, also aided the resolution to the strike by sending oil workers to get the oil rigs back up and running. Oil production began to slowly pick up and schools started reopening. Within the next few days, Venezuela was expected to increase output to 2.8 million barrels, a quota set by OPEC. These expectations were not quite met, however, due to a “slowdown in exports and build up in storage tanks” . ³⁵ OPEC’s quota system was suspended due to internal Venezuelan difficulties as well as the war in Iraq.

Some analysts feared that Venezuelan oil production would not reach prior levels until next year at the earliest. Certain pumps and refineries that were shut down were not supposed to be shut down in risk of not being able to function again. Indeed, some of the wells will have to be deserted while others will have to be re-drilled entirely. An estimated 400,000 barrels per day were sacrificed because of the strike. Additionally, many of the skilled, experienced, specialized scientists and economists that were fired were replaced with people ill-prepared for the complicated job of repairing the immense damage done. The money to completely restore this chaos does not exist either, according to economists who say that the bad credit rating makes borrowing extremely expensive. Some feared that one of the only ways to efficiently and effectively restore the damaged oil industry might be to move towards privatization from already existing oil companies in the country.

Chavez, as well as the president of PDVSA, were more optimistic regarding the recovery of the industry, believed that oil production could be fully restored by March. The president stated that full restoration of the 2.8 million barrels daily would come in March, therefore meeting OPEC quotas. In order to help prevent further conflict, PDVSA has been divided in half, one for eastern and the other for western Venezuela. By the time April came, oil production had made a dramatic and radical turnaround, as it was back up to original levels. To complete the re-establishment of order in the country, businesses had reopened their doors and daily life had returned to normal.

The next important factor concerning Venezuelan stability is its foreign

relations, especially foreign endowment. Increased finances from other countries would

allow Venezuela to grow and develop other industries thus working to stabilize its

economy. The problem with foreign investment is that the financial cooperation of the

country that is supplying money becomes completely absorbed with self-interest. The

countries that are becoming involved with Venezuela financially are also committing

themselves politically in order to ensure their profits. A major advantage for Venezuela is the country’s prominence in the oil industry. Since so many countries depend on Venezuelan oil, strong and good relations help to ensure smooth interactions and prevent problems with oil supplies and prices.

One of the main countries that actively and directly takes interest in Venezuela is China. During his second visit to China in 2001, the two countries signed many agreements of cooperation relating to politics, economic and trade. Additional areas of discussion included future possible projects revolving around science and technology, which ensured that there would be more to follow along with fulfilling confidence in a strong relationship. In addition, bilateral trade with China reached 351 million US dollars in 2000, which was an 86 percent increase from the previous year. This bilateral economic cooperation will continue to expand, and Venezuela has become the biggest target country of Chinese investment in Latin America. This places much importance on economic and trade relations with Venezuela, and the Chinese government is willing to conduct multi-channel cooperation in varying forms. China and Venezuela are both developing countries who are benefiting from good relations with one another to help the development of each country. ²¹

President Lula of Brazil and Chavez of Venezuela have established a new friendship and alliance. Soon after his inauguration, Lula, Chavez, and the president of Cuba met and discussed the formation of an alliance called “the axis of good”. The union of these three leaders with their leftist government regimes meets pessimism from the United States, who deems them three nations too different to substantially come together. However, during the oil crisis, Chavez asked Lula to send some of Brazil’s technical support into Venezuela to help boost the industry back on track and replace the many he had fired from the business. Lula accepted, and such a helpful gesture definitely instigated the forging of a support network between the two countries. Again, oil played into this relationship, and the future of relations between the Brazil and Venezuela is yet to be determined as the friendship is so newly established.

Another country that is involved with and trying to better relations with

Venezuela is Russia. While there are no actual agreements that have been signed or

foreign investments made, Russia and Venezuela agree on key issues such as the

importance of solving international problems on the basis of respect for international law.

And despite no endowments being received currently by the Venezuelan government

from Russia or any agreements signed regarding trade, Russia is interested in the

enhancement of economic cooperation with Venezuela.

Cuba is also a country deeply involved with Venezuela, one of the main reasons

for this being the friendship between Cuban leader, Fidel Castro, and Chavez. In 2000

Castro visited Venezuela to sign an oil deal in which Venezuela would help finance

Cuba’s annual oil import bill. In addition, both leaders share leftist ideals and strongly

condemn colonialism, in both the past and the present, and both leaders are opposed to

uni-polar economic order in which the United States is dominate.

And it is those leftist ideals and OPEC membership that keep the European

community, as well as the United States, at close watch. Throughout the entire oil crisis,

the European Union has supported the Organization of American States role . This organization emphasize the need for democratic and peaceful resolutions through open dialogue. Meanwhile the European Commission is ready to actively assist the OAS in its efforts at implementing possible agreements in the future of negotiations, in which the agenda includes free and fair elections, the disarmament of the population, and the investigation of the April 2002 failed coup.

To examine the magnitude of the affects of oil on Venezuela’s political and

economic stability, an analysis of the oil crisis as a main case study as well as political

and economic history are important to consider. Looking at the relationships and the

investments of surrounding and foreign countries with Venezuela, the country’s market

and support system can be viewed. With this information an assessment of the profound

affect that oil and its unpredictable nature can be seen through the variation in the

political and economic stability of the country that it causes. But from here the future of

Venezuela remains uncertain, with its dependency on an unreliable export and its

political vulnerability to coups and dictatorships. Because of Chavez’s own leftist

tendencies and foreign involvement with other communist countries, China and Cuba in

particular, a feeling of uneasiness is created for the European community and especially

for the United States. This will ensure their involvement in the political and economic

realm in order to guarantee a stable, democratic government and thwart any possibility of

a communist and/or dictorial regime. Venezuela’s future remains uncertain, but it will

not be the only country involved with determining its future.