Friday, January 20, 2006

Talk about the pot calling the kettle black 

The U.S. State Deparment has said a lot of crazy things over the years. Just off the top of my head - the accusation that Iraq had weapons of mass destruction could be an example I suppose. But today they made comments that have to rank right up their with the best in terms of stupidity:

State Department spokesman Sean McCormack told reporters at a briefing in Washington that the U.S. continues to analyze the proposed purchases, which require U.S. approval because they utilize American technology.

``We have had concerns about those sales,'' McCormack said, according to a transcript provided by the State Department. ``Those concerns center around a military -- what we would consider an outsized military build-up in Venezuela.''

Since March, Venezuela has purchased $2 billion worth of Spanish military aircraft and frigates, as well as $240 million in Russian arms, including helicopters and rifles.

``This buying spree is really outsized in the analysis, I believe, of many to Venezuela's defense needs,'' McCormack said.

Listening to this one would think it was Venezuelan that was spending $400 billion a year on its military and invading and bombing other countries with regularity.

Now it is certainly true that Venezuela has been spending money purchasing arms. While I am ambivalent at best regarding these purchases given all the other needs Venezuela has, I can understand the logic to it. It sensible to make defensive preparations when the worlds sole superpower makes no secret of the fact that it wants to depose your government by hook or crook. And make no mistake - these are defensive preparations:

Spain and Brazil insist that the equipment they want to sell Venezuela would not destabilize the region. "We do not believe Venezuela represents a threat to anyone," said Brazilian Foreign Minister Celso Amorim last week.

Some military analysts agree with the Spanish and Brazilian assessments. "What's being procured right now isn't offensive," said Tom Baranauskas, a Latin America analyst for Forecast International Inc., a defense market-research firm. The mix of ships and air transport would give Venezuelans only the capability to respond to border infiltration, a real problem especially along its 1,400-mile border with Colombia. The small, turboprop Brazilian Super Tucano aircraft is useful to counter internal insurgencies, Baranauskas said, but not to launch an attack against another nation.

Now, this taxpayer sure would be happy if someone would do something about the U.S. "outsized military buildup". Lets not forget, the U.S. has lots of competing needs. Getting a healthcare system befitting a "developed" country sure would be one.


Thursday, January 19, 2006

"Like an elephant trying to catch a mouse" 

Today the Washington Post had an article on an Iraqi oil town that is at once both interesting and hardly news worthy:

In Iraqi Oil City, a Formidable Foe
Airborne Soldiers Struggle to Break Grip of Insurgents

By Ann Scott Tyson
Washington Post Staff Writer
Thursday, January 19, 2006; A01

BAIJI, Iraq -- Pfc. Robyn Houston fires bursts of bullets into the air as his Humvee swerves around a pothole and lurches over a highway median. His convoy bears down on oncoming traffic, forcing Iraqi cars to swerve onto a dirt shoulder.

Roadside bombs "are really bad here!" the vehicle's commander, Staff Sgt. Sean Davis, 30, of Crestview, Fla., shouts over the gunfire and growl of the Humvee. "We're firing warning shots to get them off the road!"

It's a tactic Davis and his platoon resort to daily to avoid deadly explosions in Baiji, a Sunni Arab city long neglected by American forces and still firmly in the grip of insurgents, soldiers here say. In the first month after the U.S. Army's 101st Airborne Division took over security duties in northern Iraq in late fall, roadside bombs killed or wounded more than a quarter of the 34-man platoon.

Baiji has emerged as a critical priority for the U.S. military because of its importance to Iraq's oil industry, a fact underscored last month when insurgent threats forced officials to shut down the country's biggest oil refinery here, which handles 200,000 barrels a day.

But the city was virtually unknown territory when Davis's platoon -- part of Bulldog Company of the 1st Battalion, 187th Infantry Regiment -- and hundreds of other 101st Airborne soldiers were dispatched into the heart of Baiji for the first time last fall, Army officers here say. The knowledge deficit has proven to be deadly.

Like many small cities and towns in Iraq, Baiji, with a population of about 60,000, has long festered as an insurgent haven while U.S. commanders concentrated their limited forces in large cities such as Baghdad and Mosul. Previous American units stayed mostly outside the city, and intelligence was minimal, officers say.

As a result, even these battle-hardened troops from the 101st, many of them veterans of Iraq and Afghanistan, have fallen into the pattern of many Army units that suffer high casualties in their first six weeks in Iraq, as insurgents test them in unfamiliar terrain.

This month, Army commanders frustrated by fatalities from bombs, mines and, more recently, suicide car bombings began building up sand walls with bulldozers, digging ditches and setting up barricades to sharply restrict entry to the city. They completely sealed off a section of Baiji -- the village of Siniyah -- with a six-mile-long, eight-foot-high berm.

Meanwhile, Davis's platoon resorts to do-it-yourself tactics to try to stay safe. They scour their base for concrete, mixing it with water and pouring it into potholes where insurgents could hide improvised bombs. "I've been trying to find some Quikrete" concrete mix, said Sgt. 1st Class Danny Kidd, 36, of Fulton, N.Y., who like many in his unit is surprised by the intensity of attacks. Other soldiers have mounted shrieking police sirens on their Humvees to clear Iraqi traffic off the roads.

"It's definitely more dangerous this time around," agreed Spec. David Jones, 24, of New York, on his second tour in Iraq with the platoon. "I didn't expect to lose so many friends so soon."

Hostility on the Rise

Lying 120 miles north of Baghdad on the Tigris River, Baiji's huge industrial complex rises like a metallic jungle out of a scrub desert landscape. A town with a population that is 98 percent Sunni Muslim, Baiji prospered under Saddam Hussein, who paid favored tribes handsomely to run and protect the oil and electricity infrastructure.

After the U.S.-led invasion in 2003, those patronage jobs disappeared, generating hostility against American forces as well as recruits for the insurgency, Baiji residents say. Heavy-handed sweeps through Baiji by U.S. forces in 2003 and 2004 left many people angry, frightened and humiliated, residents say.

"Most of the people fighting the Americans tell me they do nothing for us but destroy the houses and capture people," Adil Faez Jeel, a director at the Baiji refinery, said of the U.S. forces. "There are no jobs, no water, no electricity."

Meanwhile, U.S. military convoys passing Baiji along the main north-south highway from Baghdad to Mosul have killed some residents in hit-and-run accidents, according to local leaders. "A lot of people from my tribe are dead, and I don't know what to say," said Ghaeb Nafoos Hamed Khalaf, leader of the Qaysi tribe, one of the largest in Baiji.

Insurgents have used Baiji as a base for staging attacks on Mosul and Baghdad while skimming funds from the oil trade, U.S. officers said. Together with criminal networks, they began profiting by cutting pipelines and trucking oil products to be sold on the black market. "No one makes money when oil flows. They make money when it's disrupted," said Lt. Col. Mike Getchell, an operations officer with the 101st in Tikrit.

In Baiji, the black market for gasoline bustles, with vendors often reappearing within days or hours of being detained by U.S. troops. "They're all over the place," Houston, 20, of Cincinnati, said on a recent patrol through town.

About 150 Iraqi soldiers oversee checkpoints around the city but have failed to stop the attacks. Inside Baiji, the police are ineffective -- they often sleep on night duty, U.S. officers said. The police and army "are fence-sitters -- they don't like the coalition or insurgents, and they're just trying to stay alive," said 1st Lt. Billy Bobbitt, 24, of Woodstown, N.J., an Army intelligence officer in Baiji. "We're already on our second police chief. The other one was going to be fired, but then he got blown up" by a roadside bomb.

U.S. troops have made some headway, recently tracking down a key weapons smuggler and a large cache of munitions. But residents say security in Baiji is far worse than it was under Hussein. Many residents, fearful of insurgent threats, refuse to tell U.S. soldiers who is planting the bombs in their neighborhoods. Insurgents target Iraqis who work for Americans; one man who cleaned toilets at the U.S. base was recently beheaded, Baiji residents and a U.S. officer said.

"When Saddam was in power, we used to go to Mosul, to Tikrit, to Baghdad. . . . It was safer all over," said Salah Aub Ramadan Obaydi, 65, a retired teacher, serving tea and pastries to visiting American soldiers in the curtained sitting room of his east Baiji home. Now "people get shot every day and no one cares."

Outside, on a wall along a trash-strewn street, graffiti declare: "Long live the resistance" and "We're the Baiji heroes, we still resist."

The soldiers go door to door, seeking to identify and photograph all military-age males as part of a tedious effort to figure out who's who. Iraqis oblige, sometimes grudgingly. No one offers information on attackers.

"They have the place locked down," Kidd said of the insurgents. "We have almost no support from the local people. We talk to 1,000 people and one will come forward."

First Sgt. Robert Goudy, of Bulldog Company, summed up the soldiers' frustration in fighting an elusive enemy: "It's like an elephant trying to catch a mouse."

A Deadly Ruse

At the home of Ghaeb, the Qaysi tribal leader, Capt. Matt Bartlett leans forward and directs a piercing gaze at the sheik, who is dressed in a gold tasseled robe and red-checked headdress.

"You may know, down past that bridge four of my soldiers were killed," says Bartlett, the 29-year-old company commander, of Montville, N.J., his voice low and tense.

Ghaeb bursts into rapid-fire Arabic. "From the bridge to the island is not my area!" he says, gesturing toward the Tigris flowing just beyond his courtyard.

Bartlett wasn't impressed. "They are scared of us and of being seen with us," he explained later. "They go along with the status quo."

A few weeks before, Bartlett and others recalled, the captain and one of his platoon leaders, 1st Lt. Dennis W. Zilinski, of Freehold, N.J., had visited the neighborhood to try to gain information from Ghaeb about a cell of bomb-makers. Zilinski, an amiable young officer and captain of his West Point swim team, brought toys for Ghaeb's children and traded high-fives with them.

The sheik was holding a large gathering and was unavailable, they were told. The American convoy tried to turn around, but Iraqi cars blocked the way and people waved the soldiers down an alternative, dirt route along the Tigris nicknamed "Smugglers' Road."

"It was weird," Bartlett recalled thinking. A few hundred yards down the road, bordered by fields, the convoy was hit by a massive explosion.

Behind the blast, Goudy jumped out of his Humvee and ran forward toward the huge cloud of smoke and debris. As it cleared, he was confused by what he found.

"I saw this big piece of flesh and thought it was a goat or cow. I thought, 'Wow, these guys put an IED in a dead animal,' " he recalled. He went on, hoping to find his men sitting in the truck. But as he got closer, he recalled, "I didn't see the truck. I started seeing limbs and body parts." Goudy tripped over what was left of one soldier. Then he found the only survivor of the five soldiers in the Humvee, blinded and screaming.

"It was horrible," Bartlett said. "We had to pick up body parts 200 meters away." The Humvee was "ripped in half and shredded," he said, by a monster bomb later found to contain 1,000 pounds of explosives and two antitank mines, with a 155mm artillery round on top.

The attack left the platoon outraged.

"I felt so angry and violated," said Goudy, of Clarksville, Tenn. "We all wanted to go out and tear up the city, kick down the doors, shoot the civilians, blow up the mosque." Goudy and others were convinced Iraqis living nearby knew about the bomb but did nothing to warn them.

Sitting at a wooden table outside his crowded bunk, Sgt. John Coleman, of Greenwood, S.C., dismantled a machine gun for cleaning and recalled his lost mates.

There was Zilinski with his upbeat charisma, and the husky, 5-foot-3 Spec. Dominic J. Hinton, 24, of Jacksonville, Tex., who beamed with pride over his two young children and called home every few days. Staff Sgt. Edward Karolasz, 25, of Powder Springs, N.J., was a rare squad leader who cultivated friendships with the men under him. But it was Cpl. Jonathan F. Blair, of Fort Wayne, Ind., the tattooed and tough-looking machine-gunner, who galvanized the men with a note he left behind:

"Don't blame anyone for my death, as much as you may want to. It was my decision, my life and my choice. . . . To all the boys still fighting -- keep going, stay strong, and remember you'll all be home soon."

Coleman paused from wiping down the gun. "If we leave and this place falls apart, they will have died in vain," he said.

The same day as the attack, the platoon headed off base for another mission. Two days later, they received a bit of good news: An intelligence report recounted insurgents as saying that the recently arrived American troops "aren't scared of anything."

So lets see, things are definitely worse this time around, the city in question has no water, electricity, or jobs, U.S. troops apparently just run over Iraqis crossing the street and then they are surprised that "we have almost no support from the local people"? Clearly this is a picture that isn't going to get prettier, its going to get uglier. I wonder how many people like PFC Bliar that don't mind throwing away their lives the U.S. military has? They are going to need lots of them.


Monkey business getting out of control 

A week ago I complained about the Venezuelan opposition always charactering Chavez and his supporters as monkeys. Now it appears their Peruvian equivalents are getting in on the act. At first when I saw the cover of the main Peruvian news magazine, Caretas, I couldn't believe it was real. I thought it was some sort of joke. But its real. This really is the cover:

Wondering who the man at the bottom is? Its Ollanta Humala, a pro-Chavez type candidate favored to win Peru's upcoming presidential elections.

Oh and take a guess at what the reaction of the Venezuelan opposition types is over at N.D. I'm sure you can imagine. Keep it up guys. You are going to help Chavez get his 10 million votes yet!


Wednesday, January 18, 2006

What is endogenous development? 

The recent post on oil revenues actually seemed to provoke more discussion on what economic model is best to promote Venezuela's development. That makes this a good place to introduce "Endogenous Development" which has been touted as the basis of Bolivarian economic theory. I won't myself explain what it is. Rather, I will show a post that tells us what endogenous growth is and isn't. That can then serve as the basis for further discussion.

Here is what it says:

What is endogenous growth and what isn't it?

Its a productive model that:

Is based on our capabilities and using our resources.

Uses the centers of Endogenous Economic Development

Motivates the participation of the community in the planning of the economy through new types of organizations and social groupings

Stimulates the democratization of the national wealth

Is organized from the bottom up in relation to the culture of each group of people

Reduces social exclusion guarenteeing the quality of live for everyone

Promotes the adoption of new styles of live and comsumption based on the values of cooperation and solidarity

Rewards productives work before profits

Development of all branches of the economy and the complementary relatio between them, generating productive networks

Its power for the people

Its not:

Its not a model of import substitution

Its not an employment plan

Its not a plan for more production without considering what should be produced

Its not a plan which looks to increase profits for big companies

Its not a government jobs program

Its not exploiting natural resources irrationally

Its not the uncontrolled and inadequate use of technology

Its not production guided by the "invisible hand of the market"

Its not the development of one sector of the economy to the detriment of others

Its not based on the values of competition and egoism

Its not power for the elites


Another good thing to come out of the 02/03 oil strike 

As the saying goes there generally isn't anything bad from which at least a few good things don't come. The oppositoin led oil strike of 02/03 is a prime example. It definitely did devestate the Venezuelan economy, cause billions of dollars of damage, and impose great hardships. But it also got a lot of dead wood and reactionaries out of the state oil company PDVSA which has facilitated turning PDVSA into a better run and more provitable company.

And today I leared, thanks to Bugs Blog, of yet another good thing to come out of that strike - the Venezuelan move to open source software. Here is the article referenced by Bugs that comes from Salon.com:

Free software, Big Oil and Venezuelan politics
This month, a new law goes into effect in Venezuela mandating that all government agencies migrate their information technology infrastructure to free, or open-source, software. While it has not been uncommon in recent years for nations in the developing world to cast a leery eye on the licensing fees and technological dependency associated with relying on proprietary software made by Western corporations, Venezuela's determination to move everything to free software may be the most extreme example yet of the emerging global politics of open source.

And why not? Under the leadership of President Hugo Chavez, Venezuela, a country that vehemently rejects the status quo historically imposed on South American nations by the United States, has become a critical flash point for North-South stresses. Venezuela isn't the only South American nation resisting the "Washington Consensus"-style globalization advocated by institutions like the World Bank and the IMF, with their demands for privatization, deregulation and trade liberalization, but it is certainly the most controversial.

Chavez's avowed socialism is one obvious reason, but the more important factor is the reality that Venezuela sits on top of a whole lot of oil. And one intriguing aspect to Venezuela's law mandating the use of open source is the role Venezuela's oil industry played in demonstrating how valuable free software can be.

The great drama of the Chavez presidency has been Chavez's effort to assert control over PDVSA, the state oil company in Venezuela. The struggle reached its high point in December 2002, when anti-Chavez PDVSA bureaucrats staged a labor action and attempted to shut down the company. According to sources friendly to the Chavez government, its attempts to get the company operating again were frustrated by information technology "sabotage."

The IT operations of PDVSA had been outsourced to a joint venture called INTESA, which was run by the American company SAIC, Science Applications International Corp. SAIC, whose board is populated by former Defense Department and intelligence agency officials, is a conglomerate that epitomizes the concept "military industrial complex." As one might assume, its executives operate on the opposite end of the ideological spectrum from Chavez.

According to one account, "INTESA was part of the strike. When the government, with the cooperation of some of the workers, started to get oil production going again, everything had to be done manually."

"The result was that PDVSA could not transfer its data processing to new systems, nor could it process its orders and bills for oil shipments ... PDVSA ended up having to process such things manually, since passwords and the general computing infrastructure were unavailable, causing the strike to be much more damaging to the company than it would have been, if the data processing had been in PDVSA's hands."

The software at issue: Microsoft Windows. The moral of the story: When you have to hack your way into proprietary software to keep the mainstay of your economy running, maybe it's time to find a better way.

Last month, Jeff Zucker, a free software advocate who has visited Venezuela several times, published an article about Venezuela's move to open source software. (For some insight into the political passions incited by anything to do with Venezuela, check out the comments appended to Zucker's story.)

I asked Zucker if there was any truth to an assertion I had seen in several places that the SAIC "sabotage" had motivated the Chavez government to push for open source. Zucker just so happens to be writing an article on this very topic. Here's what he told me:

"Yes SAIC and/or INTESA blocked the passwords during the walkout and did a number of other kinds of IT sabotage. Yes, PDVSA was using Windows at the time. Yes the events of the walkout were indirectly related to the eventual adoption of the open-source software law. But I wouldn't put it as simply as saying that because proprietary software was involved in the sabotage that therefore Venezuela moved to open source. Certainly the events made many in Venezuela think about the issues of computer security and that is one of the motivations of the law. But the reasons behind the open-source law are also related to the wider social and economic policies of the Chavez government -- developing a national software industry as a counter to neoliberal policies of privatization and globalization; developing computer mechanisms to support greater citizen-participation in governance and greater transparency of public agencies; broadening the base of local software developers to avoid the kind of one-source-of-IT-expertise situation that allowed the PDVSA sabotage; building bridges between the oil industry and the rest of Venezuelan society."

In the ongoing debate over the pros and cons of globalization, the Internet has been rightly viewed as a facilitator of the outsourcing and offshoring that is having such a clear impact on worker wages and job opportunities in the developed world. But the Internet is also the distribution vehicle for both free software and the free software ideology, which holds that sharing information can be both morally good and economically and technologically productive. Whatever one thinks of Hugo Chavez's politics, it's hard not to be fascinated by the emergence of open-source software, itself a technological artifact, as a political response to globalization, a force that is also in large part driven by technological change.

UPDATE: On Friday, Jeff Zucker contacted me with a clarification of his comments:

"There was extensive software sabotage carried out against the PDVSA IT systems including the blocking of passwords and remote control of PDVSA computers. SAIC/INTESA refused to help in recovering from the damage and many in Venezuela believe that they were directly responsible for the sabotage. Given their broad involvement in PDVSA's IT management and the extent of the sabotage (impacting many systems in many locations), this conclusion seems inescapable."

Now, I don't know much about software but this sure sounds good to me. And here is another interesting twist that the author of this article probably didn't know. Back in the 1990s when Venezuela had its HUGE banking scandal the bank executives who fled abroad were able for weeks to log into the banks computers and steal more money and destroy important files. Just goes to show, the old vendepatria PDVSA management and the corrupt bank managers had quite a bit in common.


Sunday, January 15, 2006

Myth busting – how much money does Venezuela really get from oil? 

It is a very frequent assertion by the Venezuelan opposition and a significant number of casual observers that Venezuela has received spectacular amounts of oil revenues under the Chavez administration (see here for an example). Generally these assertions are the lead up to the statement “how can Venezuela still have any problems or unmet needs when it is swimming in petrodollars. With all the money they have the country should be rich”. So goes the argument.

But how much money does Venezuela really get from oil? Lets take a look at the numbers. Let me start out by saying how NOT to try to answer this question. You most definitely cannot simply take how much oil Venezuela produces, multiply it by the oil prices that you read in the newspaper and think you then know how much money the Venezuelan government gets from oil. Just to show how far off that is I will actually do the calculation. The average price in 2001 was $20.18 and assuming a daily production of 3.3 million barrels you get a daily amount of $66.5 million per day. Multiplying that by 365 days gives an annual income of 24.3 billion dollars. So the Venezuelan government had $24 billion of oil money to spend in 2001? No, not quite. The actual government income from oil was $11.5 billion. A pretty big difference.

Before going into why actual income is so much less than what one might think let me first give what the actual Venezuelan government oil income has been and where I am getting these figures. Here are the actual revenue numbers (note: these numbers are a slight underestimate which will be explained later):

1997 $13.657 billion

1998 $ 4.343 billion

Chavez takes office

1999 $ 8.347 billion

2000 $17.950 billion

2001 $11.519 billion

2002 $8.487 billion

2003 $10.510 billion

These numbers have been compiled from PDVSA’s audited financial statement by former PDVSA finance manager named Oliver Campbell and can be found here and here. The reader who is accustomed to hearing that the Chavez administration has had hundreds of billions of dollars at its disposal will probably be surprised by these numbers. While not insignificant, the total amount from 1999 through 2003 was a little over $56 billion or about $11 billion per year, these are certainly not huge sums of money for a country of 25 million people. Out of this money and general tax revenues a vast government bureaucracy has to be maintained, hospitals run, children educated, roads paved, social programs financed, etc, etc. When that is taken account of clearly the sums listed above just are not going to go that far. Just to illustrate, on the best year, 2000, per capita oil income would have come to $718 for every man, woman and child in Venezuela. And in less stellar years such as 1999 and 2002 it would have been around $350 per person – not even a dollar a day.

Now lets turn to why actual government revenue from oil is so much less than one might think. The first thing that needs to be taken account of is price. People following the news might hear a number quoted for oil and assume that is what Venezuela gets paid for its oil. They would be wrong. There are many different types of oil and they command different prices based on their quality and the ease with which they can be refined. The most commonly quoted prices are Brent and WTI (West Texas Intermediate). But these are high quality types of oil that command about $10 per barrel more than the lower quality oil that Venezuela sells. In fact looking back at this listing of prices we can see that last week Brent and WTI sold for $62 and $64 respectively while Venezuelan oil sold for $52.47. So the simple equation is just knock ten dollars off what you read in the paper and you’ll get what Venezuelan oil is selling for.

Yet there are even bigger factors than price that need to be taken account of to understand why the Venezuelan government doesn’t get a huge oil windfall. First, out of an average daily production of 3.2 million barrels not all of it is sold at international prices or even controlled by the Venezuelan government. For example, approximately 400,000 barrels of daily production are used for internal consumption – i.e. they are used to make everything from gasoline to cooking gas that is then sold at sharply reduced prices inside Venezuela. Considering the cost in producing, refining, and transporting those products Venezuela is actually losing money on that part of its production.

Then there is the 600,000 barrels of synthetic oil produced by foreign oil companies in Venezuela. Up until late 2004 Venezuela was only charging 1% royalties on this oil and charged reduced taxes on it so that its income from this part of Venezuela’s daily production was very minimal. On top of that there was the 500,000 barrels of daily production carried out by the infamous foreign partnerships. These companies had extremely inflated production costs of more than $18 per barrel and the major part of any remaining profits accrued to the foreign companies so that again Venezuela received very little income from this oil [as a side note PDVSA’s previous management which gave these companies sweat heart deals often guaranteed them a certain profit level so that in more than a few cases Venezuela not only didn’t get any money from the oil these companies were producing it actually had to PAY THEM money so they got their guaranteed profit.]

So we see that if Venezuela is producing 3.3 million barrels daily it has been getting either no, or very minimal, revenue from 1.5 million barrels. That is Venezuela is only really making money on a little more than half of its oil production!! This may seem stunning, and it is, but it is also very true and a very overlooked fact. And it is this fact that largely accounts for why the actual government oil revenues are so much less than one might think.

Yet even for oil fully controlled by Venezuela it needs to be noted that it costs money to get oil out of the ground. The operational expenses of actually pumping and transporting the oil come to about $4 per barrel. Additionally, the oil fields are rapidly depleted so billions of dollars more have to be spent annually to locate and drill for new oil. Taking all of these factors into account it shouldn’t be difficult to understand why the Chavez government was only averaging $11.5 in oil revenues over its first five years rather than the 30 or so billion that the opposition would like one to believe.

In this discussion of oil revenues I have only gone up to 2003. The reason being that is the last year for which complete financial statements have been filed which allow us to know exactly how much oil revenue Venezuela has had. However, it would be interesting to have at least an estimate of what Venezuela has earned in the last two years and I think we can make an educated guess. First lets look at prices. Up until 2003 Venezuelan oil was selling in the mid 20s per barrel or less. Then in 2004 it had an average price of $32.61 and in 2005 it had a price of $41.39 (I think I have seen somewhat higher figures for 2004 elsewhere but for consistencies sake I will continue with the PetroleumWorld figures). These certainly are a significant jump in price.

To see how they may affect revenues lets take a look at how price and revenue were related in a prior year. In 2001 (I keep choosing 2001 for my comparisons because there were not strike related production disruptions that year) the price of oil was $20.18 per barrel and government revenues from oil were $11.5 billion. Now, to make an estimate of how much the government take would be in 2004 let me assume that the price differential between the $32.61 per barrel in 2004 and $20.18 per barrel in 2001, which is $12.43 per barrel, is complete profit that goes to the Venezuelan government. That is probably a reasonable assumption because most of the costs of oil production would be fixed costs so that all incremental revenue could go to the government. Then taking account of the fact that Venezuela is only really getting this revenue on 1.8 million barrels of production, not the 3.3 million of barrels for the reasons previously enumerated, we can calculate the additional revenue:

It would be 1.8 million barrels x $12.43 per barrel x 365 days = $8.2 billion.

Adding that to the 11.5 billion which the government earned in 2001 and which I am taking as the base figure for this estimate gives Venezuelan government oil income of just shy of $20 billion for 2004. This is something of an underestimate because in reality the government did get more money from the extra heavy crudes and its operating partnerships as it did things like raise the royalties and taxes charged to them. Still it is likely to be fairly accurate and not off by more than a couple billion dollars.

Doing the exact same calculation for 2005 gives additional revenue of almost $14 billion which means total estimated government revenue of $25.5 billion. Again this may be low but I think it is a reasonable approximation.

Now, if we add these estimated number for 2004 and 2005 to the $56 billion earned through 2003 by the government we see that total oil revenues for the Chavez administration have been $101.5 billion dollars for an average annual oil income over 7 years of $14.5 billion. On a per capita basis this is $580 per person per year – less than two dollars per person per day!!! This should clearly dispel the notion that Venezuela is awash in petro-dollars. What is more, that Venezuela has, with such limited resources, managed to create a rapidly growing economy, significantly reduce poverty, cure social ills such as illiteracy, undertaken needed infrastructure projects and even provide aid to other countries shows how well indeed the Chavez administration has utilized Venezuela’s resources.


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