Venezuela’s Energy Policy is its own Opposite

Pity foreign analysts trying to make heads or tails of Venezuela’s energy policy. Or, well, trying to make sense of the mental illness that currently occupies the space where our energy policy should be, a place where different spokespeople make radically incompatible statements and present them all as official policy at the same time.

Last week, Hermann Escarrá made headlines around the energy world by endorsing a lunatic scheme to use the Constituyente to kick out all private capital from Venezuela’s oil industry. The Russians, the Chinese, the Indians, the Gringos, the Italians, the Spaniards, even the bolichicos who’ve wormed their way into the industry via Mixed Enterprises. Everyone.

Echoing calls made by some of the fringiest of the fringy marxist academics at such august institutions of higher learning as the Universidad Bolivariana de Venezuela, Escarrá wants to amend article 303 of the Constitution to cut off any space at all for players other than PDVSA.

Pretty much the only way fresh investment makes its way into the Venezuelan oil industry these days is via these foreign partners, because nobody is insane enough to lend money to PDVSA on its own.

This is deeply, deeply bonkers. For all the talk about Petroleum Sovereignty, the Venezuelan industry is more dependent on foreign capital today than it has been at any time since 1976.

Known as Mixed Enterprises, PDVSA’s joint ventures with outside companies from Rosneft and Chevron to the Chinese National Petroleum Company and Statoil are responsible for almost half of Venezuela’s oil output, and for absolutely all of its output growth.

As production declines quickly at PDVSA wholly-run operations, the only thing cushioning the blow has been the presence of foreign partners with the capital and know how to boost production even among crazy-adverse circumstances. Without them, Venezuela’s oil production would’ve collapsed calamitously these last few years.

It’s easy to dismiss Escarrá’s plan as some lunatic diversion, but it’s not so simple.

In fact, pretty much the only way fresh investment makes its way into the Venezuelan oil industry these days is via these foreign partners, because nobody is insane enough to lend money to PDVSA on its own. Vowing to expropriate them all amounts to vowing to end investment in oil production in Venezuela: an extinction level threat to PDVSA itself.

So fucking crazy is it to think PDVSA can do without foreign partners that the company is, bizarrely, vowing to increase foreign partners share of some Mixed Enterprises at the same time Escarrá vows to expropriate them. Indeed, PDVSA is so desperate for money it’s proposing a heretofore taboo arrangement where it would cede more than 40% of an oil field to a foreign company, pledging 49% of the San Cristóbal field to an Indian company.

Now, it’s easy to dismiss Escarrá’s plan as some lunatic diversion, and indeed PDVSA’s outgoing president, Eulogio del Pino, soon flew into damage control mode, denying there’s any plan to exclude private partners to Bloomberg. But it’s not so simple. Oil Minister and probable next PDVSA chief Nelson Martínez was actually at the event where Escarrá made his lunatic threat and seemed to endorse it, even while the chairman of the company whose sole shareholder he is vows to do exactly the opposite.

Look, for PDVSA to approve the plan Hermann Escarrá has proposed would be an act of such blatant self-harm, you’d think not even this bunch would go for it. Remember this isn’t like 2005, when they were expropriating such imperialist bugbears as ExxonMobil and ConocoPhillips. This time around, they’d be expropriating companies from key allies: Russia, India, China, countries whose diplomatic support Venezuela needs.

But just imagine the dynamics when you have 545 pro-Cuban Frente Francisco de Miranda crazies crowding around a legislative chamber. A zoo like that has its own dynamics, and chances are technocratic explanations about financing flows to the industry aren’t going to hold their attention very long.

And the really worrying thing is that we’re talking about the wholesale destruction of the Venezuelan oil industry, and that still probably isn’t in the top 10 of most dangerous things a Constituyente might do.

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