Realism in Venezuela

The New York Times' Simon Romero reports that Venezuelan leader Hugo Chávez is doing a 180 on allowing investment from evil rapacious capitalist pig-dogs Western oil companies:

President Hugo Chávez, buffeted by falling oil prices that threaten to damage his efforts to establish a Socialist-inspired state, is quietly courting Western oil companies once again.

Until recently, Mr. Chávez had pushed foreign oil companies here into a corner by nationalizing their oil fields, raiding their offices with tax authorities and imposing a series of royalties increases.

But faced with the plunge in prices and a decline in domestic production, senior officials have begun soliciting bids from some of the largest Western oil companies in recent weeks — including Chevron, Royal Dutch/Shell and Total of France — promising them access to some of the world’s largest petroleum reserves, according to energy executives and industry consultants here.

Their willingness to even consider investing in Venezuela reflects the scarcity of projects open to foreign companies in other top oil nations, particularly in the Middle East.

Chávez's actions pleasantly surprise me, because retrenchment and realpolitik were not the only option.  One could have envisioned Chávez reacting by ratcheting up tensions with neighbors as a short-term solution.  Although I suspect most Americans would prefer to see the back of Hugo, this kind of behavior suggests that Venezuela is never going to rise to the problem level of, say, Iran. 

The willingness of the oil companies to re-enter the fray in Caracas is more intriguing.  In recent years there has been a lot of loose talk about how holders of capital also hold the levers in a bargaining situation with debtors, because the latter must do what they can to please the former. 

In fact, recent research suggests that when debtors violate their contracts, the price to be paid is often much less than anticipated.  Chávez certainly seems quite aware of this fact. 

What puzzles me is that Chávez's reputation does suggest that the moment oil prices go up again, he'll reverse course yet again and put the screws on his foreign investors.  In understand that exploration opportunities are scarce, but the willingness of these firms to go back is item #345 on Things I Do Not Understand About Energy Markets


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