Saturday, February 10, 2007

From the Pacto de Punto Fijo to the Coup of February 4th, 1992 

The Lubrio blog was kind enough to put up a copy of a very interesting show on Venezuelan state television giving some of the history of leading up to the coup attempt of February 4th, 1992 which is what gave Chavez his initial fame.

It is in Spanish and there is no way to translate it all. So apologies in advance to those who don't speak spanish. Hopefully, at some point some of these documentaries will be sub-titled at least in english and other languages.

Nevertheless, even if you can only understand parts of it this is really quite interesting. The rioting in 1989 that was put down with brutal force (shoot to kill orders were given to the military) is shown extensively. One very interesting scene is of then president Carlos Andres Perez stating that the rioting is proof of Venezuela being a democracy because in a dictatorship they all would have been shot dead!

The second video gives some of the video history of the 1992 coup attempt. It is particularly fun to watch, with a great sense of irony, officials from that time come out and condemn that coup as a breech of democratic norms only to have this documentary show them living it up in Miraflores during the 2002 coup against Chavez.


Part One

Part Two


Thursday, February 08, 2007

Pluses and minuses 

Although I gave my own take on the enabling law last week as is not uncommon I found someone who expressed my feelings on it better than even I could. The honor goes to Greg Wilpert of Venezuelanalysis who wrote this excellent article:

Venezuela’s Enabling Law Could Also Enable the Opposition

Venezuela’s opposition and critics of the Chavez government around the world finally feel vindicated (again). The Venezuelan dictatorship that they have been predicting for the past eight years has, according to them, finally come to pass – for the sixth or so time. Already when Chavez was first elected in 1998 critics predicted Chavez would bring about a dictatorship in Venezuela. They kept having to revise their estimates for when this dictatorship would set in, though, because following each prediction of impending dictatorship Chavez would do something that completely negated the announcement.

For example, following his election in 1998, the first thing he did was to call for a referendum on whether to have a new constitution and held a vote for a constitutional assembly. When the constitutional assembly took on more powers than the legislature, opponents were again screaming “dictatorship,” except that the assembly proposed a constitution that was more democratic than the previous one. Similarly, the 49 law-decrees of 2001 were another marker for the onset of the Chavez dictatorship, except that these laws democratized land ownership and access to credit in Venezuela, among other things. Then again, the April 2002 coup was justified with the story that Chavez was ordering supporters to shoot at opponents, except following the coup very few of the coup organizers were arrested. This pattern repeated itself again with the 2002-2003 oil industry shutdown and with the struggle around the 2004 recall referendum. Each time the opposition and international critics were forced to revise the start date of the Venezuelan dictatorship backwards, much like a religious cult that predicts the end of the world and keeps having to revise its doomsday date.

Now, with the latest series of Chavez’s moves, of asking for and getting a new enabling law, of not renewing the broadcast license of a TV station, of launching a united socialist party, and of proposing an indefinite number of reelections, Chavez’s opponents are at it again. This time, they say, Chavez is definitely stepping over the line. After all, what could be more dictatorial than “ruling by decree,” “closing” an independent TV station, forming a “single party,” and becoming “president for life”? If this were what is happening in Venezuela, it would be ominous indeed. However, these descriptions, taken from the opposition and the international media, are completely removed from what is actually happening in Venezuela. Let’s take a closer look at the “rule by decree” story, which poses risks, but not the ones that opposition analysts are hyperventilating about.[1]

“Rule by Decree”

Even a progressive media outlet such as the extremely popular radio program Democracy Now! adopted this terminology for the recently enabling law that Venezuela’s National Assembly passed.[2] After all, isn’t this the essence of what the enabling law means, that Chavez can “rule by decree”? The problem is that this term can cover a wide range of situations, but is often associated with the power of a dictator or monarch to issue any decree he or she pleases and that everyone must follow, no matter what. Classic examples of such power are the governing styles of an Augusto Pinochet or an Adolf Hitler.

In Venezuela, however, the enabling law is completely different from the above type of “rule by decree” in that it is limited in several ways. First, the President is bound by the constitution. He can only issue so-called “law-decrees” in the areas named by the National Assembly, in the time limit the Assembly imposes, and that are consistent with the constitution. In other words, he cannot arbitrarily order someone’s arrest or do away with basic civil rights, for example. Some of the laws even need to be submitted to the Supreme Court, which vets the law for its constitutionality.

Second, contrary to popular belief, even though Chavez supporters control all branches of the state, law-decrees can be reversed by the most important power of all: the citizens. That is, law-decrees can be rescinded by popular vote. According to Venezuela’s 1999 constitution all laws can be submitted to a referendum if at least 10% of registered voters request such a referendum. Law decrees have an even lower signature requirement, of only 5% of registered voters (800,000 out of 16 million registered voters).[3]

Third, the National Assembly may also modify or rescind law-decrees, at any time, should it feel the need to do so. This is quite unlike the enabling law in the U.S., known as the “Fast Track” law, where the president may sign international treaties that are automatically binding and not open to revision or rescinding by the population.

I highly recommend that you read the rest here.

I think he reallly drew up the balance sheet of the plusses and minuses of the enabling law quite well.

The only place where I might differ is in his estimation of some of the potential impact. I think that idea that the opposition as it is currently composed would ever take up arms as the "contras" did is off the mark. The opposition is solidly middle class and they won't fight - they'll move to Miami (and actually they won't even do that right now as they are making too much money). It is only if the working class and poor were to become disenchanted that there would be any risk of a guerilla type movement. And even then it is unlikely as there is no need for it - if Venezuelans want Chavez out they can simply vote him out.

Also, I don't see the opposition elements like Petkoff becoming any more radicalized by this than they already are. Petkoff runs a daily "newspaper" which prints lie after lie, generally of the most hysterical form, and has no other purpose than to drive Chavez from power.

Yes, the danger of an opposition led coup or other violence is very real. But that has nothing to do with the enabling law. That results from their inability to win power through electoral means. Some of them are so desperate for power, and the money it brings, that they don't want to wait until the next round of elections - they want power and money and they want it now.

But aside from those small differences I think this puts the enabling law in perspective and contributes much to the RATIONAL and SANE discussion of it.


Wednesday, February 07, 2007

One who gets it. 

This is certainly an excellent op-ed article on Venezuela by a former correspondant who lived there:

Chavez as Castro? It's not that simple in Venezuela
U.S. critics overlook the all-important details

Alarm bells are sounding in Washington, on Wall Street and around the world over President Hugo Chavez's latest moves to consolidate his Bolivarian Revolution in oil-rich Venezuela. He is — we are told — shutting down a television station, creating a single-party state, nationalizing key industries including some major oil projects, threatening perpetual re-election and vowing to impose "21st century socialism."

On the surface, it seems to Chavez's critics that he is finally doing what they have long predicted — creating a totalitarian state in the image of his mentor, Fidel Castro. But the situation in Venezuela is a little more complex than what many in the media and the establishment make it out to be. Take, for example, Chavez's decision not to renew the license of RCTV television network when it expires in May.

At first blush, this would certainly seem to be reason for alarm — a government shutting down a television station because it doesn't like its editorial bent. But RCTV is not exactly your average television station. In April 2002, it promoted and participated in a coup against Chavez in which a democratically elected president was overthrown by military rebels and disappeared for two days until large street protests and a counter-coup returned him to power.

For two days prior to the coup, RCTV suspended all regular programming and commercials and ran blanket coverage of a general strike aimed at ousting Chavez. Then it ran nonstop ads encouraging people to attend a massive anti-Chavez march on April 11, 2002, and provided wall-to-wall coverage of the event itself with nary a pro-Chavez voice in sight.

When the protest ended in violence and military rebels overthrew the president, RCTV, along with other networks, imposed a news blackout banning all coverage of pro-Chavez demonstrators in the streets demanding his return. Andres Izarra, a news director at RCTV, was given the order by superiors: zero chavismo en pantalla, no Chavistas on the screen. He quit in disgust and later joined the Chavez government.

On April 13, 2002, after the coup-installed President Pedro Carmona eliminated the Supreme Court and the National Assembly and nullified the Constitution, media barons, including RCTV's main owner, Marcel Granier, met with Carmona in the presidential palace and, according to reports, pledged their support to his regime. While the streets of Caracas literally burned with rage over Chavez's ouster, the television networks ran Hollywood movies like Pretty Woman.

Venezuela's media, owned largely by the country's wealthy elites, are arguably the most rabidly antigovernment media in the world. In the past, opposition figures have appeared on television openly calling for a coup against Chavez, who says he is leading a revolution on behalf of Venezuela's majority poor.

Chavez's decision not to renew RCTV's license is not exactly akin to George W. Bush shutting down CBS or NBC because they ran a few stories critical of him. If RCTV were operating in the United States, it's doubtful its actions would last more than a few minutes with the FCC.

Likewise, Chavez is not creating a single-party state as widely reported but is melding together an amorphous array of parties that support him. He is not outlawing opposition parties. He has no need to, as he showed when he glided to a record landslide victory in the Dec. 5 presidential vote by a 63 percent to 37 percent margin in a free and fair election.

Chavez also is not nationalizing the entire economy without compensation to companies, as Castro did in the early days of the Cuban revolution, but rather is buying back a few key strategic utilities such as the CANTV telecommunications company or taking a majority government share in four heavy oil projects in the eastern Orinoco River basin.

While the government has generally compensated owners at fair market value when it has taken over properties or businesses in the past, Chavez said that with CANTV it would deduct debts to workers, pensions and other obligations including a "technological debt" to the state. In the case of the oil projects, Chavez said that by May 1 the government will take at least a 60 percent share in joint ventures with companies including Exxon Mobil Corp., Chevron Corp., ConocoPhillips Co., Total SA and Statoil ASA and compensate them fairly.

"What we want is to negotiate," he said. "We hope these companies cooperate" and agree to become minority partners. He insisted Venezuela does not plan to copy the Soviet or Cuban model of complete state dominance of the economy.

Of course, the jury is out over whether Venezuela's government can run nationalized or partly nationalized companies better than the private sector did. Chavez also has taken other steps that are cause for concern. His decision to seek the power to rule by decree on certain matters for the next 18 months raises a red flag, along with his expressed desire to eliminate term limits.

The world should remain vigilant to ensure a free press, a free political system and a mixed economy where property rights are respected remain in place in Venezuela. If Chavez infringes on any of these rights, it should be vigorously protested and condemned. But so far it hasn't happened.

Its amazing how clear things become when you actually know the facts of what is going on there. Are you listening Condi?


Tuesday, February 06, 2007

Playing it S.A.F.E. 

The other day I did a post on the illuminating Senate testimony of Robert Hormats. As he mentioned in that testimony he is a member of the Energy Leadership Council of Securing America's Energy Future (S.A.F.E.) which is a rather interesting group.

Just as Mr. Hormats alluded to in his testimony this group sees energy security (and by that they mean access to needed oil supplies) as a very important foreign policy and military matter. In fact, it bares noting that 8 out of their 16 directors come straight out of the Pentagon. That surely is no coincidence.

Their web-site contains a wealth of information regarding the world oil industry and world oil consumption in addition to studies on how the oil markets work.

For example this primer Fundamentals of the Oil Market gives a good explanation of the “Demand Inelasticity” (page 2). It is that “Demand Inelasticity” which means that small changes in supply can create large changes in price that allows the OPEC cartel to be successful by using small cutbacks in output to boost prices and OPEC income tremendously. Although the opposition always likes to belittle Chavez’s intelligence (given that they can’t win an election to save their lives I guess belittling others is all that is left to them) he has understood this from day one – whereas the vast majority of the opposition has never grasped that concept.

Another working paper is entitled: “Oil Dependence: A Threat to U.S.Economic & National Security”. It is worth quoting a couple lines from the executive summary:

America’s Oil Dependence
Oil is the lifeblood of the American economy, providing more than 40 percent of all energy consumed in the United States and 97 percent of the energy used for transportation.

Increasing Reliance on the Middle East
The world will increasingly depend on the Middle East OPEC nations to supply the oil needed to meet future demand – which is expected to grow to 110 million barrels per day (mbd) by 2025.

A National Imperative
Oil dependence endangers U.S. economic and national security. In addition to hundreds of billions of dollars each year in direct costs, oil dependence feeds the growth of Islamic terrorism; provides vast amounts of money to unstable, undemocratic governments; increases the likelihood of international conflict; puts American troops in harm’s way; and exposes Americans to the risk of severe economic dislocation.


Oil’s influence on U.S. foreign policy puts considerable leverage in the hands of hostile powers and undemocratic regimes and weakens our capacity to prevail in the war on terrorism.

Growing deman for oil could heighten geopolitical tensions and spark international conflict.

Transfers of national wealth to foreign oil producers account for approximately one-third of the U.S. current account deficit, which soared to $792 billion in 2005.

I particulary like the “puts American troops in harm’s way” part. They wouldn’t be implying that all the troops in “harms way” in Iraq are there for any reasons having to do with oil are they? Nahhh, must have been a typo. Regardless, this clearly shows how central oil is to U.S. foreign and military policy.

I recommend that people read this report for themselves (it is only 9 pages long). But for those who don’t here is one more gem:

Military Cost and Risk

The need to secure global oil supplies requires substantial defense expenditures and involves risks to American forces – none of which are factored into the market price of a barrel of oil.

- CENTCOM troops ensure “unfettered access” to oil supplies in the Middle East.
- SOUTHCOM troops defend Colombia’s Cano Limon pipeline.
- EUCOM soldiers are training locals to guard the Baku-Tbilisi-Ceyhan pipeline and working to curb corruption and improve the security of facilities in West Africa.
- PACOM ships and planes patrol tanker routes in the Indian Ocean, the South China Sea, and the Western Pacific.

Another almost must read report is the summary of the “Oil Shockwave” crisis simulation. In this exercise former high ranking government officials played the role of different government officials and tried to react to different events such as attacks on oil facilities and the loss of Nigerian oil. The take away finding of this report: “Even among individuals who have spent years contending with security and energy issues, it was surprising to learn the extent to which seemingly small disruptions in world oil supplies could inflict serious economic damage and alter the global security environment….[T]he economic and national security risks of our dependence on oil – and especially foreign oil-have reached unprecedented levels. The threat is real and urgent, requiring immediate and sustained attention at the highest levels of government."

One interesting little finding from this simulation is that a shortfall in the world oil supply of only 4 percent would lead to a 177% increase in the price of oil (from $58 to $161 per barrel)(page 7). If that doesn’t convince someone of the “inelastic demand” that oil has I don’t know what will.

And before you dismiss this as some little play game by a bunch of has-beens want to guess who played the part of National Security Advisor? Robert Gates. Name doesn’t ring a bell? Well, his new job is Secretary of Defense of the United States. What was his lesson learned from this simulation?

“The real lesson here is that it only requires a relatively small amount of oil to be taken out of the system to have huge economic and security implications."

Again, I encourage people to do a lot of reading with these documents. There is a wealth of information in them. And what should our take away lesson be from what is in these documents? Simple. For the U.S. the fight over oil is a fight for its ability to remian supreme. As much as things may be going against them from Iraq to Venezuela they aren’t about to give up. They know they have too much depending on the outcome of the oil wars.


Monday, February 05, 2007

The Venezuelan economy in a tail-spin 

Well, it looks like Chavez has finally done it. With his heated rhetoric and threats of expropriation he has taken the steam out of the recent boom in the Venezuelan economy. As has been widely reported the stock has practically imploded and with it the rest of the economy has... er, I guess I screwed up on the title of this post because it has continued to boom.

What, you say? How can the economy be doing well when the stock market does poorly? Quiet easily in fact. There is a famous saying in the United States that the stock market has predicted 9 out of the last 2 recessions - in other words the stock market going down has little to do with how the economy will actually perform.

Now, January has just finished and Vincent Leon of Datanalysis has already come out with some prelimary findings. He says consumption was up "at least" 11% in January.

Reading his article one learns that Venezuela this year didn't even see the traditional post-Christmas large dropoff in sales as people kept snapping up cars and other consumer items (and Christmas 2006 saw a 30% sales increase over Christmas 2005!). However, as much as the big ticket items get the headlines he points out that the consumption boom is also taking place among social classes D and E (remember these are the two lowest income groups that make up the large majority of the population, so this is really good).

Finally, he points out that recently the government has been restricting the sale of dollars in order to reduce imports and promote consumption of local products. This is pushing up inflation and creating some shortages but it is creating more demand for Venezuelan products. Unorthodox as a method of promoting local production but given that industrial production is up 24% maybe it is having some effect.

Anyways, in spite of the bogus headlines, Venezuela's economy keeps moving ahead.


The significance of oil in U.S. foriegn policy 

Today I am going to reprint the testimony before the United States Senate of the Vice-Chairman of Golman Sachs with regard to the global oil situation and its potential impact on the United States. I found it quite illuminating, even if it only confirmed points already known rather than really revealing anything new. Nevertheless, given that those points often passed un-percieved or are even denied it is worth reading this testimony. I'll have more to say about it in follow up posts. Bolding in mine:

Testimony of Robert D. Hormats
Vice Chairman, Goldman Sachs (International)

The Global Oil Balance and its Implications for U.S. Economic and National Security Committee on Energy & Natural Resources United States Senate
January 10, 2007

Mr. Chairman and Members of the Committee:

Thank you for your kind invitation to testify on the critically important subject of the economic and national security implications of America’s oil dependence.

I speak to you today as a citizen concerned about our nation’s increasing dependence on potentially unstable supplies of foreign oil. This dependence creates profound economic, political and security vulnerabilities. Also, a portion of the large amounts of petro-dollars accumulated by a number of suppliers is used in ways that threaten American interests.

By way of background, I was economic advisor to Dr. Henry Kissinger on the National Security Council staff in the mid 1970s when this country experienced its first energy crisis after the 1973 Yom Kippur War, and participated in his Middle Eastern shuttle diplomacy during the period that followed. At that time, I had high hopes that the Arab oil embargo, the sharp increase in the price of oil, and the long-lines at gas stations would produce a bipartisan consensus on energy policy and jolt our nation into a bold and effective effort to reduce oil dependence and future vulnerability. Indeed, some progress was made. The Energy Policy Conservation Act of 1975, championed by our late President Gerald R. Ford, launched a number of bold initiatives to achieve this goal. And the country did accomplish significant improvements in the efficiency of oil use through compulsory mileage standards for automobiles and because U.S. industry and power plants shifted dramatically away from using oil as a fuel.

But when prices fell later in the decade, a sense of complacency set in. Then we were hit by another crisis that caused oil prices to spike at the end of the 1970s; that was triggered by the fall of the Shah of Iran and the Iranian Revolution. Complacency set in once again after that crisis receded and prices fell. Another oil crisis occurred in 1990 when Iraq invaded Kuwait, after which the sense of urgency about dramatic alterations in energy policy and use faded again. Decade after decade our dependence on foreign oil has risen. In the mid-1970s, 35% of this nation’s oil consumption was supplied by imports. Now, three decades later, it is 60%.

After 9/11, again at the beginning of the current Iraq War in 2003, and again during the large price run-up in and the summer of 2006 the country had excellent opportunities and powerful incentives to confront energy vulnerabilities with a bold policy response. The 2005 Energy Policy Act contained a number of positive features — but these measures were not commensurate with the seriousness or the urgency of the energy challenge this country faces.

American dependence on potentially vulnerable oil supplies continues to grow, with little prospect that it will change — despite the fact that we are engaged in a War on Terrorism in which oil imports by the U.S. and other nations provide funds to nations hostile to the U.S. and countries friendly to us. It is often said that “9/11 changed everything!” Sadly, in the area of energy policy it hasn't changed very much. American oil vulnerability continues unabated.

There are several national economic and security consequences of this situation:

— If the situation in Iraq continues to deteriorate and other oil producing nations become more involved, the risks increase to oil supplies not only from disruptions in Iraq but also from greater tensions between the Sunni nations on the western side of the Persian Gulf and the Shiites on the eastern side, with oil facilities and shipments becoming increasingly vulnerable. Moreover, added western pressures on Iran over its nuclear program could lead to oil disruptions or threats thereof;

— The American economy remains highly vulnerable to supply disruptions in oil exporting nations; these could result from acts or terrorism, political instability, efforts to use oil as leverage, or natural calamities;

— High oil prices resulting from strong demand from countries such as the U.S. and other major importers give countries such as Iran and Venezuela added resources to take actions inimical to American interests;

— Oil-dependent friends and allies feel more vulnerable to the pressures and potential use of oil leverage from supplying countries and therefore are reluctant to side with the U.S. on key issues affecting those suppliers;

— Oil-related tensions and competition are likely to intensify—as countries such as China seek to lock up scarce supplies or make political deals to solidify long-term supply relationships, or suppliers such as Russian and Iran use oil as leverage to extract political concessions from consumers.

My concerns about this untenable and dangerous situation led me— together with a group of other concerned citizens—to join the Energy Security Leadership Council in an effort to press for greater and more resolute national action on this matter—and for an end to the divisive, highly polarized debate that has stymied genuine progress on many fundamental issues. The Council, a project of Securing America’s Future Energy (SAFE), is a nonpartisan group of business executives and retired military leaders. It recently unveiled a report entitled “Recommendations to the Nation on Reducing U.S. Oil Dependence.” (I will discuss a few of these later in my testimony, along with a number of recommendations that I believe can also contribute to progress in this area.) The members of the Council believe that America’s energy security is in a perilous state. Along with my fellow Council members, I am convinced that America’s leaders must move quickly and steadfastly to confront our high level of oil dependence as a profound national security challenge.


Calls for “energy independence” offer a false promise to the American people. They also suggest a sort of xenophobia that implies that the U.S. can or should attempt to solve its energy problems with little regard for those of other nations. In fact, oil is a fungible global commodity, which means that events affecting supply or demand anywhere will affect oil consumers everywhere. A country’s exposure to world oil prices or oil price shocks is a function of the amount and types of oil it consumes; the ratio of “domestic” to “imported” oil is only a portion of the problem. Even if the U.S. could substitute domestic energy for all foreign oil—a goal the Council believes to be impossible—American economic prosperity would still be linked to the health of a global economy dependent on international oil flows. So as we work to enhance our own energy security we should also be strengthening international cooperation with oil producers and consumers to improve global energy security, efficiency, and environmentally responsible production and usage.

It is also important to make a distinction between dependence and vulnerability. There are numerous suppliers of oil that are very reliable and that use the funds earned in a constructive fashion. There are others whose facilities are vulnerable to disruption and that use funds in ways inimical to U.S. interests. But a large portion of the world’s oil comes from this in the second category, posing a series of economic, political and security risks.


The Council recommends a goal of cutting U.S. oil intensity — the amount of oil it takes to produce a given amount of GDP—in half by 2030. There is a favorable precedent for this objective. Since the mid-1970s, the U.S. has managed to trim oil intensity by 50%, chiefly by raising the fuel efficiency of passenger cars, virtually eliminating oil as a fuel for electric power generation, and expanding less energy-demanding sectors of the economy, particularly in the area of services. As a consequence, the U.S. now uses half the amount of oil to produce a dollar of GDP, in real terms, as it did just thirty years ago. Unfortunately, however, progress in this area has slowed in the last ten years.

One key goal must be to make America’s prosperity less dependent on a commodity the production level of which responds only very slowly to changes in price. Combine this price inelastic supply with 1) the vulnerability of oil supplies to various types of disruption, 2) the fact that some countries see oil as a political as well as an economic commodity, and 3) the fact that much of the world’s production is in the hands of state owned oil companies, many of which use oil revenue for political or social ends rather than reinvest it in new production capacity, and you have the recipe for severe energy-related economic disorder.

As a result of the halving of U.S. oil intensity since the mid-1970s, the high oil prices experienced in the summer of 2006 represented a smaller relative cost to the economy than in the past. Further reductions in oil intensity would provide a measure of insurance against some of the effects of sudden future oil price shocks or sustained high oil prices. In addition, by boosting the production of alternative sources of energy to displace oil, we can create more production capacity at home, keep more of our money in this country, create a great number of new, high quality jobs in industries that manufacture and utilize new environmentally responsible energy production and conservation technologies, and develop new export products that can be sold to an energy hungry and environmentally conscious world.

The Global Energy Challenge

The global economy is in the midst of a period of extraordinary growth that promises to transform the lives of billions of people, bringing comforts and luxuries to regions where humankind has long struggled for subsistence. Creativity and the drive for a better life are the engines of this tremendous surge in output, living standards and productivity — but like all engines they require energy to function.

By 2020, world energy demand is forecast to jump by 50% over 2000 levels, with most of the increase coming in developing countries. The safe and affordable delivery of all this energy is by no means assured. Even if resources turn out to be sufficient in the aggregate, their distribution will not map closely to the topography of demand. The resultant uncertainty of supply and upward pricing pressure will exacerbate international tensions stemming from non-energy issues.

Oil provides only 40% of global energy, but, as the premier transportation fuel, it has emerged as the touchstone of the world’s energy outlook. On both economic and psychological grounds, oil price spikes threaten the prosperity of many nations, including many of the poorest on this planet. They also sow the seeds of tension between exporting and importing nations, among consuming nations, and among different groups within countries. Indeed, since so much oil is used for personal transportation, oil prices have an enormous impact on the pocketbooks of virtually every American family. Correspondingly, policy efforts that impact oil’s cost and availability must take into account the interests of the average American family and quickly become major political issues.

America’s Clear and Present Dangers

For much of the last century, surplus domestic oil production reduced U.S. vulnerability to oil disruptions elsewhere in the world. But America’s oil production is now dwarfed by current consumption. Thus, while the U.S. remains the third largest oil producer in the world, domestic production can satisfy barely 40% of its requirements.

The U.S. generates 28% of the world’s goods and services while consuming roughly a quarter of its oil production. This may seem like a balanced, even favorable energy equation, but closer inspection reveals a different story. Despite considerable progress toward more efficient energy use, America requires substantially more oil to create a dollar of Gross Domestic Product (GDP) than is the case in most other developed countries. Some of this differential in “oil intensity” can be attributed to our nation’s vast size, the dispersion of our population, and less reliance on public transportation. Global military obligations, which are inextricably linked to our commitment to secure the flow of oil for the benefit of all nations, further increase American consumption. But even with these extenuating factors, there can be little doubt that the U.S. can and must use energy far more efficiently.

America’s long-term supply and demand balance is no more encouraging. U.S. oil demand is expected to grow 24% over the next two decades, and even if new discoveries raise its current 3% share of global oil reserves, our nation will almost certainly still require substantial amounts of petroleum imports. Import dependence will also define energy security for our key allies and most of the world’s manufacturing nations. Unfortunately, the developed nations that consume most of the world’s oil are not in a good position to produce the fuels they need.

A large portion of the world’s oil reserves are owned by state-owned or controlled oil companies in non-O.E.C.D. countries. It is worth underscoring this point — especially because when oil prices were rising last summer there were many accusations, misguided in my view, that this was a conspiracy among the big oil majors, when in fact the six largest state oil companies have ten times the reserves of the top six privately owned companies. Some of these state companies are highly efficient and well run, but others are highly politicized and are not able to utilize their profits to increase production or modernize capacity. Because of the large state company role in the world’s oil markets, there is not a “free market” for oil. As a result, a substantial portion of production is politically influenced and production decisions and practices are frequently economically suboptimal. [ this is really funny - suboptimal for whom? - OW]

With each passing year, the global oil trends now at work—rising consumption, reduced spare production capacity, politicized spending decisions, and potentially high levels of instability in key exporting countries—all increase the likelihood of an energy crisis. The odds in favor of a crisis are further heightened by the rise of terrorist movements bent on targeting critical elements of the world’s vulnerable oil production, processing, and delivery infrastructure.

Given today’s precarious balance between oil supply and demand, taking even a small amount of oil off the market could cause prices to rise dramatically. In Oil Shockwave, a cabinet-level oil crisis simulation conducted in 2005 by SAFE and the National Commission on Energy Policy (NCEP), a 4% global shortfall in daily oil supply—only 3.5 million barrels in a 84 million barrel daily market—resulted in a 177% increase in the price of oil, to over $150 per barrel. The simulation was played out by men and women who have served in the highest ranks of the U.S. government; Robert M. Gates, our current Secretary of Defense, for example, filled the role of National Security Advisor. The hypothetical scenarios put before the participants were designed to simulate a decline in world oil production due to regional instability and to terrorism. The incidents were completely plausible, and some, such as unrest in Nigeria, have subsequently come to pass. But there was little these skilled officials could do to stop a gut-wrenching increase in the price of oil. Indeed, one of the major lessons of the simulation was that the Strategic Petroleum Reserve (SPR), the emergency supply of federally owned crude oil, offers only very limited protection against a major supply disruption. Emergency reserves cannot sustain the United States through a prolonged crisis, and it will be extremely difficult to reach political consensus on when it is appropriate to begin using them.

Even under normal conditions, oil dependence has severe economic consequences. In 2005, direct outlays for imported oil accounted for a third of the country’s $800 billion current account deficit. In 2006 prices, these outlays have gone still higher. By diverting funds away from domestic consumption and investment, oil imports put a drag on U.S. economic growth and undercut the nation’s long-term competitive position. Oil dependence also adds billions to our defense expenditures by making overseas protection of oil supplies a high strategic priority.

Before I turn to a discussion of recommendations, I want to touch upon the rise of China and how that impacts U.S. energy security. Some observers have insisted that clashes between the U.S. and China over energy are inevitable. Chinese companies are buying oil properties and concluding long-term supply contracts around the world. A few of China’s deals are in countries such as Venezuela, Iran and Sudan, with which the U.S. has strained or no relations. Also, China’s surge in oil demand was seen, incorrectly, by some as a reason for higher prices last summer. And China’s increased coal production concerns U.S. environmentalists.

But the fact is that the U.S. and China have many common interests in the energy area and thus many reasons to cooperate. Consider these facts:

- The U.S. is the world’s biggest oil importer. China is the world’s fastest growing oil importer. High prices and supply instability harm both nations. Price increases in the summer of 2006 primarily reflected the lingering affects of sluggish world investment in production and refining in the previous decade, and market perception of high political risk that could disrupt oil deliveries, which both nations have an interest in correcting.

- Chinese, like Americans, are concerned about their environment. China faces colossal and urgent environmental problems, as anyone who has visited Beijing during the winter has experienced first hand. U.S. companies have great expertise in clean energy technology that could help.

- The U.S. and China have a similar interest in open sea lanes for oil.

- Both nations also desire a secure business and legal environment for their energy investments in emerging economies as well as stable and growing supplies from world exporters.

When I look at China and the U.S., I see two nations that have an enormous interest in cooperation in pursuit of energy security. Several areas are ripe for a common effort.

- A Joint Business-Government Commission on Clean Coal Technology; this could help China develop and utilize its massive amounts of coal in an environmentally responsible way and boost U.S. exports of technology and equipment in this area.

- Joint research on alternative fuels, which should also include experts from Japan, would draw on the best talent in these three countries. This could lead to breakthroughs in, or broader dissemination of, non-carbon based production and use technologies.

- Strengthen U.S.-China cooperation in the context of the International Energy Agency.

- Consultation with one another, and with other regional nations, to maintain open sea lanes; that could reassure China that the U.S. will not use its naval power to leverage China on oil.

- Strengthen established regional groups that include China, the U.S., and other Pacific nations to address environmental and energy supply issues.

Helping China to increase domestic energy output using state-of-the-art, environmentally responsible, technologies would slow the growth of its oil import dependence, reduce imbalances in global markets, dampen global price pressures, and contain the process of global warming. And cooperation on these broad energy issues can strengthen broader U.S.–China ties. The alternative—frequent energy confrontations—benefits neither country.

There Are No Silver-Bullet Solutions

Success in improving the nation’s energy security posture will demand significant public and private investment—supported by meaningful tax and other non-tax incentives like loan guarantees—over a sustained period. Because of the volatility of markets and the strategic role of oil, a considerable amount of government support is needed to provide the necessary incentives through a supportive and reliable regulatory, and tax environment if we are able i) to reduce America’s oil vulnerability; ii) strengthen this nation’s capacity to produce oil and alternative sources of energy; and iii) utilize energy more efficiently and in an environmentally responsible way. The U.S. is capable of major breakthroughs if all elements of our society work together.

The good news is that we Americans have it within our power and our technological and financial capacity to take meaningful steps to reduce oil dependence and increase energy security using both proven methods and technologies and our ingenuity and entrepreneurial capacity to develop new breakthroughs.

- Improving efficiency: In the view of the Council, the most important thing the U.S. can do to lessen its oil dependence in the near and medium-term is to utilize oil considerably more efficiently. With the goal of once again halving oil intensity — as in the 1980s and 1990s — in the space of two decades, Americans can do much to protect the economy against the effects of oil shocks that can be unleashed by forces beyond our control. Improved vehicle fuel efficiency is the single most important avenue for further cutting the nation’s oil intensity.

- We must face the hard fact that in the U.S. oil is primarily a transportation fuel; unless we can dramatically curb the use of oil in our cars and trucks, we will be unable to reduce our oil dependence. Currently the direction is not positive; through 2030 oil usage by SUVs and light duty trucks is expected to surge by roughly 77%. The transportation sector accounts for nearly 70% of all the oil the country uses; and oil fuels almost 97% of all transportation. With most of the vehicles on the nation’s roads operating at efficiency levels far below what is achievable with currently available technologies, there is a clear opportunity to realize sizable fuel economy gains without overall loss of safety or functional utility. We propose empowering the National Highway Traffic Safety Administration (NHTSA) to mandate annual fuel efficiency increases of 4% while allowing for these increases to be postponed or constrained if economic, technical, or safety impediments are demonstrated.

- Increasing stable supply. As a second means of improving America’s oil risk profile, the Council recommends efforts to increase the production of oil in stable regions of the world, including in the U.S., Canada, and Mexico. We must move beyond the drill/don’t drill debate for this simple reason: by facilitating the discovery and recovery of conventional oil resources, in conjunction with stricter environmental standards, American investment and the capabilities of this nation’s formidable oil experts and oil service companies can ease the tight supply conditions that unsettle oil prices and lessen the probability that even modest supply shortfalls will trigger an international oil crisis. By the same token, a robust nuclear power program also makes great sense.

- Supplies abroad. Just as significantly, by working to ensure the rule of law, sanctity of contracts, and stable investment climates abroad, America can help to lower the likelihood of future disruptions. There a great many potential projects that can enable the world to diversify the sourcing of oil away from its present growing concentration on the Middle East. By utilizing groups such as the International Energy Forum — a ministerial dialogue among major energy producers and consumers established in 2003 — the conditions for increased investment in such projects can be enhanced.

- Developing alternatives. Third, America can lead the way in expanding the availability of alternatives to petroleum-based fuels. Diversifying our transportation fuel supply must be a key part of any comprehensive effort to improve U.S. energy security. Without an expanded supply of alternatives, conventional petroleum will continue to power nearly all of our motor transport. Such reliance on a single non-substitutable input creates profound economic dangers. To date, through the help of federal policies such as the Renewable Fuels Standard, the phase-out of MBTE as an additive, and tax incentives, corn-based ethanol has developed as one of the most successful domestic alternative transportation fuels. Production in the United States rose from 1.4 billion gallons a year in 1995 to about 4 billion in 2005.

Although this growth rate is impressive, it is merely a drop in the bucket when compared to this nation’s annual gasoline consumption of 140 billion gallons; it is equivalent in terms of energy content to only 2% of our gasoline demand. At a maximum, corn-based ethanol may be able to displace 10% of our gasoline use before corn demand outstrips supply. Consequently if we want to have a significant impact on reducing our consumption of petroleum-based fuels, the federal government must encourage the development and commercialization not only of dedicated energy producing crops such as corn and sugar, but also of other potentially large-volume bio-fuels like cellulosic ethanol (which are low cost, do not compete with the food chain, and provide another revenue stream for farmers) that is generated from forest residue and agricultural waste such as wheat straw , switch grass, and corn stover. Technologies like cellulosic ethanol are poised to dramatically raise bio-fuels production by shifting acreage-to output ratios.

However, to transform this promise into reality, existing federal policies, like the federal loan guarantee program for innovative technologies must be fully funded and implemented; and new policies, which encourage and support investment in commercial facilities and related transportation infrastructure must be readily adopted.

There are two specific policy changes that I believe would enhance the development and commercialization of renewable energy.

The first is for Congress and the Administration to take a longer term perspective in the way tax incentives are structured. For example, with respect to the production tax credit (PTC) for renewable energy sources like wind and geothermal, the credit is available to projects that are placed in service before January 1, 2009. Historically this credit has been renewed only for short periods of time and often after great uncertainty and delay. This on-again, off-again process has added significant uncertainty to such projects and increased their costs. Therefore a longer-term extension of the PTC, say for five years would help to avoid such problems.

The second is to alter the structure of tax incentives to encourage investment from additional categories of investors, including small investors, by enabling them to benefit from tax incentives —thereby increasing the availability and lowering the cost of capital for these projects. For example, the way the law is now written retail investors and taxpayers paying the alternative minimum tax cannot use the production tax credit for investment in wind projects; allowing the use of master limited partnerships for these types of projects would broaden the group of investors who could help to finance them.

It is worth noting that many of the new technologies being developed involve high technical risk, significant costs, and regulatory uncertainties — and that costs of demonstration projects to show that these technologies can be deployed on a commercial scale as well as those associated with their commercial development are significantly greater than the initial R&D costs. Therefore, maximizing the range of investors supplying capital, providing reliable incentives, and creating and funding policies that reduce the significant financial risks associated with these projects are critical to advancing the process of proving and commercializing innovative energy alternatives.

- Managing risks: In the Council’s view, we must manage risk within the interdependent global oil economy. In our dangerous world, threats are one commodity not in short supply. America contributes far more than any other nation to protecting this global infrastructure, and the time has come for other nations to expand their own efforts. All nations have an interest in the stability of the global oil infrastructure, and a variety of international efforts could help to ensure the smooth flow of oil. New multilateral accords should play a role, but there are also opportunities for expanded reliance on existing organizations such as the Gulf Coordination Council, NATO, or ASEAN. A common interest in “oil security maintenance” in partnership with producing nations offers real potential to improve regional security in areas of rising geopolitical competition by creating frameworks for pragmatic international cooperation. Where appropriate, the U.S. should provide exporting countries with diplomatic support as well as with counter-terrorism training and other military aid.

I urge you to review the Council’s detailed recommendations, which are contained in our published report. We will be glad to provide any further clarifications you may require.

The Capabilities of the American People

Last week, the nation mourned the passing of our 38th President, Gerald R. Ford — for whom I had the great privilege of working. President Ford left a legacy of honesty, integrity and decisiveness. These aspects of his leadership were particularly evident in his handling of energy security. In his 1975 State of the Union address, President Ford recognized the energy dangers threatening the country. He expressed a “very deep belief in America’s capabilities,” — its innovative capacity and technological skills—to overcome its growing dependence on imported oil. He also rallied support for fuel efficiency standards. I share President Ford’s optimism in the capacity of Americans to respond to the challenge of growing energy dependence, and his belief that Americans will rally around tougher energy measures, if they are given strong leadership.

America has a long history of pulling together in the face of national security challenges. I am currently completing a book entitled The Price of Liberty: How America Pays for its Wars. In all the major national security challenges of the twentieth century, Americans demonstrated a remarkable willingness to make patriotic wartime sacrifices. During World War I and World War II, American’s not only paid dramatically higher taxes but also participated in massive bond drives to mobilize billions of dollars to support out troops. Roosevelt’s Secretary of the Treasury Henry Morgenthau, when asked about the significance of such drives, said that they were launched not only to raise massive amounts of funds, but also to respond to people who asked “What can I do to help.” Today, the answer to this question lies not in buying more bonds but in buying less gasoline.

Since 9/11 there have been no major bond drives as in past wars —and only limited steps to reduce our dependence on oil. The time has come to recognize that energy security is central to the national security challenges of twenty-first century, and to present the American people with the unvarnished truth regarding how oil affects the struggle in which we are engaged. We must meet the threats we face in the same spirit as our parents and grandparents during past wars—with far-sighted patriotism and willingness to compromise narrow partisan, ideological, philosophical and economic positions in the long-tern national interest.

There are enormous dangers in facing the challenges of a post-9/11 world with a pre-9/11 approach to energy that relies so heavily on oil from some of the most vulnerable areas of the world and sustains price levels that benefit countries such as Iran and Venezuela that seek to undermine our interests and threaten our friends. American leaders and the American people have rallied the country in past wars; the challenge is to do so again,

I thank you again for this opportunity to testify.


Sunday, February 04, 2007

No experience required? 

I wonder how many of the fired PDVSA workers have gotten involved with this?

BTW, isn't there some saying about what happens to empires when they go deeply into debt and start using mercenaries to fight there wars?

And this isn't even touching the topic of is the U.S. military as a whole made up of mercenaries.


Breaking News: Venezuela Run By Spanish Speaking Brown Man 

As you may have noticed there is a new kid on the block. It is BoRev.net and it does an excellent job of uncovering and debunking all the distorted media coverage on Venezuela (talk about shoveling sand against the sea!). It is both well written and informative and you'll notice to the right that I have added it to my links. I read it every day and urge others to do so as well.

Just to give you a taste, here is yesterday's excellent post:

Breaking News: Venezuela Run By Spanish Speaking Brown Man

We’ve long been a fan of right-wing columnist Georgie Anne Geyer. She doesn’t wrap up her distaste for Leftists In Our Backyard in bogus concerns for “democracy” or “the economic well-being of the people.” Unlike other neocons with ink (we’re talking to you, Jackson Diehl), Geyer has the ovaries to write what she believes, however loco in the coco she may be.

Back in the 90s, she famously gushed about Peruvian Dictator Alberto Fujimori. As hundreds of Peruvians were disappearing without a trace, and after el chino dissolved the Peruvian Congress and Supreme Court, Geyer wrote a whack-tastic column explaining that “Authoritarian democracy works for Peru." You go, crazy lady!

Anyway, you can imagine we were delighted to see that Geyer is focusing today on Chavez, whom she describes as “hawk nosed.” True to form, she doesn’t get all fake-misty-eyed about the Venezuelan people. Instead, she explains, this is about power. She simply laments the “defection of Hugo Chavez and his buddies from American hegemony,” because it means the end of U.S. reign as the “dominant power” in the hemisphere.

And then there’s this:

After years of American neglect of the hemisphere and four unpopular years of American adventuring in Iraq, there is little left of the historic Monroe Doctrine of 1823, which was designed to keep foreign powers out of "our" hemisphere.

So that’s what this is about. Venezuela is run by foreigners. Hawk-nosed foreigners.


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