Foreign Policy In Focus

(Pictured: Venezuela's national oil company PDVSA.)

We're honored to have Michael Busch dissecting the latest WikiLeaks document dump for Focal Points. This is the thirty-eighth in the series.

A number of insights into the Venezuelan oil sector were revealed this week in a chain of embassy cables WikiLeaked by the Norwegian newspaper Aftenposten. 

The cables focus predominantly on the dealings of the Norwegian oil company Statoil, which possesses a considerable share of control over Venezuela’s oil in the famed Orinoco belt, considered by experts to be home to the largest crude reserves in the world. The first cable, dating from early 2007, details conversations between US embassy officials and Statoil Venezuela President Thore Kristiansen, colorfully described as “an urbane man who looks like he just stepped out of a Brooks Brother catalogue.” Kristiansen describes his early negotiations with the Venezuelan government in the lead-up to what would be a dramatic nationalization of Venezuela’s oil fields by Hugo Chavez.

Kristiansen  pooh-poohed American concerns that Chavez would seek as much as a 60 percent share in oil extraction projects in the country, noting that the Venezuelans would take care not to alienate private investment too dramatically in their take-back scheme. The oil executive “said he firmly believed that XXXXXXXXXXXXX realizes that [Venezuela] needs the private sector to run” the nation’s energy industry. Moreover,

although he did not specifically say it, he appeared to believe that the BRV [Venezuelan government] was willing to negotiate on the size of PDVSA’s [Venezuela’s national oil company] stake, based on discussions with [government] officials. Kristiansen later added that senior BRV and PDVSA officials do not really understand the oil and gas policies that they are supposed to be implementing.

The Americans shared the view that a mild chaos was rattling the internal workings of Venezuelan state decision-making, noting that

it is clear that at this point even senior officials within the MEP and PDVSA have no idea what the BRV’s policy is regarding the migration of the strategic associations to PDVSA controlled ventures.

Of course, Chavez did exactly as the Americans feared just months later, ordering that foreign firms hand over operational control of their holdings to PDVSA and accept a 60 percent share of revenue from any oil extraction on Venezuelan soil. 

But Statoil was hardly unnerved. In a meeting with US embassy officials a few months after Chavez’s nationalization push, a smug Kristiansen told the Americans that his company “had received a good deal under the circumstances,” and that contrary to Venezuelan claims that foreign firms had lost their equity in their partnerships, Statoil had been handsomely compensated for their losses. “Although he would not state the amount of the compensation, he implied that it was well above book value” and that the company had the option to accept payment in cash or crude. Not only that, but the Americans also learned that while Venezuela proudly announced that foreign companies would experience reduced zones of operation, Statoil’s actually increased following the nationalization. 

A cable early in 2008 returns to Staoil’s compensation following the nationalization. In a meeting that Febraury, Kristiansen again refused to disclose precise details of the agreement reached with the Chavez regime, but admitted that the monies received far exceeded the $130 million as had been reported in the Wall Street Journal. Interestingly, in view of recent revelations that Norway has exercised admirable business ethics in its foreign dealings, “Kristiansen also added the deal had caused some problems,” because although the company “had a policy of trying to be as transparent as possible with its shareholders…it did not believe that it could release details of it to the shareholders due to [Venezuelan government] sensitivities.”

Seeking to press its advantage further, Kristiansen boasted to American diplomats that Statoil’s operations in Venezuela looked as if they would expand still further in the near future. The Norwegians had recently won the right to expand their scouting missions in Venezuela’s Faja strip, an oil field that likely possesses upwards of a billion barrels of valuable crude, and secured the possibility of exploiting new finds following future negotiations. Kristiansen’s optimistic forecast was based on Venezuela’s seriousness “about raising oil production” and recognition that private actors were critical to this process. Kristiansen also highlighted a “final piece of evidence that justifies Statoil’s optimism”: the recent performance of Venezuelan oil executives at an industry conference.

Unlike other conferences, all of the scheduled PDVSA speakers showed up and gave presentations that actually contained details. Kristiansen stated it was clear that PDVSA’s senior management is clearly wrestling with the best way to develop the Faja. In addition, PDVSA speakers consistently stressed the need for private sector participation.

Still, Kristiansen did warn that his projections were not entirely secure against the volatility of Venezuelan politics—a system often rent by efforts at meeting the challenges of social revolution in an unforgiving reality. One such example was Chavez’s recent threat to apply windfall profit taxes to corporate earnings, a policy proposal Kristiansen labeled “ridiculous” but nevertheless troubling. “Since Chavez did not provide any specifics on his proposed tax, his comments raised the level of risk for companies operating in Venezuela.”

By 2010, the sheen of confidence had been largely rubbed away in Statoil’s private conversations with American diplomats. A cable from nearly a year ago related embassy meetings with representative from both British Petroleum and Statoil concerning ongoing efforts to land rights to development projects in Faja. The Chavez regime had still not clarified details of its proposed windfall profits tax, uncertainty that dissuaded both companies from submitting bids on the projects. The two companies apparently had wagered that none of their rival competitors would submit proposals either, which it was hoped would force Bolivarian government to moderate its stance. But it wasn’t to be: Chevron and the Spanish Repsol corporation seized the initiative and placed bids to the displeasure of Statoil in particular. The Norwegian representative “was specifically upset with the Chevron bid…as he believed it appeared to provide a degree of credibility to the [Venezuelan government] that is not warranted.” As for Repsol, the representative couldn’t care less, arguing that he doubted “the Repsol-led consortium has the technical expertise and experience to execute” a successful project.

Beyond relating the whining of disgruntled Norwegians at a deal gone bad, the cable discusses in detail the struggling Venezuelan oil sector. Citing an unnamed source, the embassy reported on the poverty of Venezuela’s industrial infrastructure. 

XXXXXXXXXX provided several examples of the ongoing challenges confronted in the Venezuelan petroleum industry. He noted that PDVSA recently has removed gas compressor units from the PDVSA-BP mixed company-operated Boqueron oil field from use elsewhere in Eastern Venezuela, thus limiting the amount of natural gas that could be reinjected into the oil field. In October 2009, a BP proposal to install a 100MW electricity generating plant, a $150 million investment, to service Petromonagas Jose upgrader and its related oil fields was rejected by the PDVSA members of the Petromonagas board of directors. [Note: Venezuela is in the midst of an electricity crisis and many of its oil fields rely on the national electricity grid...] The PDVSA board members told BP that some oil fields would be shut-in as a result of the electricity crisis and thus, the timing of this proposal did not make sense.

The cable concludes that 

as the energy crisis develops, any reduction of production of crude petroleum will reduce government revenues…accounts of events such as the cannibalizing of gas compressors from installations from elsewhere and procurement problems all indicate PDVSA will find it difficult to maintain current production levels.

As it happens, the cable’s author offered prescient analysis. The country suffered major production slowdowns in 2010 which lead Caracas to demand at the end of the year that foreign oil companies draw up new plans to boost production. Apparently tired of waiting for levels to rise, the government rattled their cages again last week. Energy Minister Rafael Ramirez announced to reporters that foreign firms failing to raise output would face the immediate possibility of being tossed from the country. Said Ramirez, “If they don't comply with their plans, I would have good reason to review the rights they have.”

The government may be flexing its muscles after Chavez’s announcement last week that his country now possesses the largest proven oil reserves on earth, surpassing Saudi Arabia. But as Jorge Pinon at Florida International University points out, “You can be sitting on the world's largest oil reserves but if you do not have ... capital, technology, know-how, and most important, stewardship of the enterprise, they are worthless.”

(Pictured: New Republican chair of the House Committee on Foreign Affairs Rep. Ileana Ros-Lehtinen.)

For the past decade, American policy vis-à-vis Latin America has been relatively low-key, partly because of the wars in Iraq and Afghanistan, and partly because the region has seen an unprecedented growth in economic power and political independence. But, with Republicans taking over the House of Representatives, that is about to change, and, while the Southern Cone no longer stands to attention when Washington snaps its fingers, an aggressive and right-wing Congress is capable of causing considerable mischief.

Rep. Ileana Ros-Lehtinen (R-Fl), a long-time hawk on Cuba and leftist regimes in Venezuela and Bolivia, is the new chair of the powerful House Committee on Foreign Affairs, and the rightist Rep. Connie Mack (D-Fl) heads up the House subcommittee on Western Hemisphere affairs. Ros-Lethinen is already preparing hearings aimed at Venezuela and Bolivia, and Mack will try to put the former on the State Department’s list of countries sponsoring terrorism.

Ros-Lehtinen plans to target Venezuela’s supposed ties to Middle East terrorist groups and Iran’s nuclear weapons program, and to push for economic sanctions against Venezuela’s state-owned oil company and banks. “It will be good for congressional subcommittees to start talking about [President of Venezuela Hugo] Chavez, about [President of Bolivia Evo] Morales, about issues that have not been talked about,” she told the Miami Herald.

The new chairs of the House Intelligence Committee and Judiciary Committee have also signaled they intend to weigh in on establishing a more hawkish line on Latin America.

Unfortunately, it is the Obama administration that created an opening for the Republicans. While the White House came in pledging to improve relations with Latin America, Washington has ended up supporting a coup in Honduras, strengthening the U.S. military’s presence in the region, and ignoring growing criticism of its failed war on drugs.

Recent disclosures by Wikileaks reveal the Obama administration was well aware that the June 2009 Honduran coup against President Manuel Zelaya was illegal; nonetheless, it intervened to help keep the coup forces in power. Other cables demonstrate an on-going American hostility to the Morales regime in Bolivia and Washington’s sympathy with secessionist forces in that country’s rich eastern provinces.

Many Latin Americans initially had high hopes the Obama administration would bring a new approach to its relations with the region, but some say they have seen little difference from the Bush Administration. “The truth is that nothing has changed and I view that with sadness,” says former Brazilian president Luiz Lula da Silva. But things may go from bad to worse if the White House is passive in the face of a sharp rightward turn by Congress.

The Latin America of 2011 is not the same place it was a generation ago. Economic growth has outstripped the U.S. and Europe, progressive and left governments have lifted 38 million people out of poverty, cut extreme poverty by 70 percent, and increased literacy. The region has also increased its south-south relations with countries like China, South Africa and India. China is now Brazil’s number one trading partner. An economic alliance—Mercosur—has knitted the region together economically, and the U.S.-dominated Organization of American States (OAS) finds itself eclipsed by the newly formed Union of South American Nations. 

But many countries in Latin America are still riven by wealth disparities, ethnic divides, and powerful ties between local oligarchies and the region’s curse: powerful and undemocratic police and militaries. One such military pulled off the Honduran coup, and police came within a whisker of overthrowing Ecuador’s progressive president, Rafael Correa, in 2010.

One 2007 Wikileaks cable titled “A Southern Cone perspective on countering Chavez and reasserting U.S. leadership,” pointed out “Southern Cone militaries remain key institutions in their respective countries and important allies for the U.S.” The author of the cable, then ambassador to Chile, Craig Kelly, is currently principal Deputy Assistant Secretary of State. Kelly strongly recommended increasing aid to Latin American militaries to help them “modernize.”

In many cases, rightists in Latin America share an agenda with right-wing forces in the U.S. For instance, Republicans played a key role in supporting the Honduran coup and continue to strengthen those ties. In a recent trip to Honduras, Rep. Dana Rohrabacher (R-Ca)—a senior member of the House Foreign Affairs Committee—brought together U.S. business leaders and Honduran officials to discuss American investment. Honduras was suspended from the OAS, and only a handful of Latin American governments recognize the new president, Porfirio Lobo.

It was the Obama Administration, however, who recognized the government established by the coup, and remains silent in the face of what Amnesty International and Human Rights Watch calls widespread human rights violations by the Lobos regime, including the unsolved murder of at least 18 opponents. U.S. Secretary of State Hillary Clinton is lobbying hard to have Honduras re-admitted to the OAS. 

A quick survey of Republican targets suggests troubled waters ahead. 

Chavez has won two elections and is enormously popular. He has cut poverty, tripled social spending, doubled university enrollment, and extended health care to most of the poor. A U.S. engineered coup seems unlikely. But a “supporter of terrorism” designation would cause considerable difficulties with international financing and foreign investment. Sanctions on oil and banking would also disrupt the Venezuelan economy,  in the long run creating conditions favorable to a possible coup.

While it is hard to imagine what else the U.S. could do to Cuba, Congress may try to choke off investment in Cuba’s growing oil and gas industries. Companies are already jumping through hoops to avoid getting around the current embargo. The Spanish oil company Repsol and Italy’s Eni SpA recently built an offshore oil rig in China to dodge the blockade. 

“It is ridiculous that Repsol, a Spanish oil company, is paying an Italian firm to build an oil rig in China that will be used next year to explore for oil 50 miles from Florida,” Sarah Stephens, director of the Center for Democracy in the Americas told the Financial Times. If the Republicans have their way, sanctions will be applied to those oil companies.

Ecuador’s Correa beat back a recent right-wing coup, largely because of his 67 percent approval rating. He has doubled spending on health care, increased social spending, and stiffed an illegitimate $3.2 billion foreign debt. But he has a tense relationship with indigenous movements, which accuse him of trying to marginalize them. While those groups did not support the coup, neither did they rally to the government’s support. Those divisions could be easily exploited to destabilize the government.

In the case of Bolivia, the Wikileak-released cables, according to Latin American journalist and author Benjamin Dangl, lay bare “an embassy that is biased against Evo Morales’ government, underestimates the sophistication of the governing party’s grassroots base, and is out of touch with the political reality of the country.”

The cables indicate the U.S. is relying on information from extreme right-wing and violent secessionist groups in Eastern Bolivia, groups that receive financing and training from the National Endowment for Democracy and USAID. Both groups have close ties to American intelligence organizations. Given Brazil’s strong opposition to any attempt to break up Bolivia, it is not clear a succession movement would succeed. But would Brazil—or Argentina, Uruguay or Paraguay—actually intervene?

Paraguay is also a country deeply divided between left and right, with a progressive president who warned last year that a coup by the country’s powerful military was a possibility.

The Obama administration’s acceptance of the Honduran coup sent a chill throughout Latin America, and certainly emboldened those who see tanks and caudillos as an answer to the region’s surge of progressive politics and independent foreign policy. The recent effort by Turkey and Brazil to broker a compromise with Iran over its nuclear program did not go down well in Washington. Neither have efforts to chart an independent course on the Middle East by nations in the region. Several countries have formally recognized a Palestinian state, and Peru will host an Arab-Latin America summit Feb. 16.

Latin America is no longer an appendage to the colossus of the north, but its growing independence is fragile, as the coups in Honduras and Ecuador suggest. The chasm between rich and poor is being closed, but it is still substantial. The economies in the region are growing at a respectable 6 percent, but, because they are relatively small, they can be more easily derailed by internal and external crises. Even as its power wanes, the U.S. is still the world’s largest economy with the world’s largest military. This, plus anti-democratic forces in Latin America, is fertile ground for mischief, particularly if there is not strong resistance on the U.S. home front.

More of Conn Hallinan's work can be found at Dispatches from the Edge.

We're honored to have Michael Busch dissecting the latest WikiLeaks document dump for Focal Points. This is the twentieth in the series.

Of all the wacky things being revealed in this week's WikiLeaks document drop, a couple of the weirdest have come from the US embassy in Caracas. The first was a cable (which now seems to have disappeared from the Wiki archives) describing Hugo Chavez's adventures in the kitchen, fighting American imperialism with food. 

According to the January 19, 2010 cable, with a headline that promises top secret information on "Socialism's Tangible—and Tasty—Benefits"

President Chavez opened the "Arepera Socialista" with much fanfare on December 22, advertising its low price and high quality as symbolic of the benefits of his socialist revolution. (Note: "Arepas" are a Venezualan-style thick cornmeal tortilla usually used for a type of sandwich. End Note.) The restaurant, located in a lower middle class neighborhood of Caracas, serves "arepas" for about a fourth of their regular price. It is currently only open during weekday mornings, although there are plans to extend its hours, add coffee and fresh juice to its menu, and open two new locations in working class neighborhoods.

On a January 8 visit, EmbOffs witnessed a long line of people waiting to get into the restaurant but surprisingly rapid service. Inside, one wall was dominated by a quote in large red lettering from Simon Bolivar: "The best system of government is that which produces the greatest happiness." An employee managing the line said the restaurant served 1,200 customers per day. One man in line said he worked in the neighborhood and came every day since the food was excellent and cheap.

Apparently, in the new state sponsored "Arepera Socialista," "Money is Secondary in Socialist Restaurants."

According to Minister of Commerce Eduardo Saman, people can count on low prices at the "arepera socialista" because the ingredients come from government-owned companies and other products, such as boxed juices, come from government-owned companies. Saman claimed the prices were sufficient to cover the store's operating costs. He also announced on December 23 that a chain of "Arepera Socialista" restaurants would be opened throughout Venezuela as part of the Socialist Market Cooperatives run by the Ministry of Commerce. Saman himself worked at the restaurant on December 24; other Ministry of Commerce employees were "volunteering" at the restaurant on the day of the Emboffs' visit. About 30 people work at the restaurant.

Besides the price, Saman highlighted another key difference between socialist and capitalist "arepera": customers pay only after eating, while "in fast food chains . . . they only think about money." In the "Arepera Socialista," the cash register is in a corner of the room and customers pay only after eating, self-reporting how many of the "arepas" they ate.

Imagine that: the state providing low-cost, healthy foods to the poor! But that’s nothing compared with another development related in an earlier cable. 

The cable dates from 2008, when on  

The evening of September 30, American Airlines Country Manager Omar Nottaro (strictly protect throughout) called Econoff to report that the captain and crew of American Airlines flight 903 were being held at the airport. He explained that upon landing a crew member said "Welcome to Venezuela. Local Chavez time is" X.

As travelers to Venezuela in recent years know, Chavez ordered the creation of the country's own time zone to allow the public more daylight in which to be productive. At the time of the decision, Chavez confidently defied his critics by noting that "I don't care if they call me crazy, the new time will go ahead."

Funny that he should have that. As it turns out, one of the flight’s passengers, a

friend of Venezuelan National Assemblyman Carlos Echezuria Rodriguez, thought the crew member had said "loco Chavez time."

He wasn't the only one. The cable discusses a Venezuelan Immigration report on the incident obtained by Interpol, which shows that officially the captain's remarks had been logged as "the hour of the crazy Chavez and his women." You can't make this stuff up, folks. 

Whatever was said, the reports of the incident almost immediately made their way to the highest levels of the Venezuelan state, and provoked a momentary crisis.

The passenger, Nestor Maldonado Lanza, told Deputy Rodriguez who was waiting for him outside, that the pilot had called President Chavez crazy. The Deputy called Venezuelan Vice President Carrizales to report the incident. The Vice President called civil aviation authority (INAC) President Martinez who went to the airport. The Directorate for Venezuelan Domestic Intelligence and Prevention, DISIP, opened an investigation. However, because ONIDEX had not allowed the crew to go through customs, DISIP backed out of investigation and turned it over to ONIDEX which had jurisdiction as the crew had not officially entered Venezuela. The crew then waited inside the airport for the results of a meeting between airport, ONIDEX, INAC and American Airlines staff.

The situation was defused when AA's Nottaro promised

to put the crew back on the empty airplane as soon as it was refueled and get the captain and crew out of the country immediately. Nottaro also apologized in person to INAC President Martinez and committed to writing several letters of apology on October 1. Venezuelan authorities accepted Nottaro's offer and the crew left Venezuela at 11:30 pm. American made the decision to turn the plane around even though it meant canceling AA flight 902 out of Caracas the morning of October 1, at considerable cost to the airline.

The cable notes that this was the second incident involving Venezuelan authorities and American flight crews that month, but does not discuss the matter further, other than to relate that it involved Delta Airlines. As the cable concludes, the AA incident demonstrates just how soured relations between Washington and Caracas had become by the end of George W. Bush's presidency "when a chance remark escalates within minutes to the level of the Venezuelan Vice Presidency."

"Venezuelan President Hugo Chávez admitted last week that his government is 'carrying out the first studies' of a nuclear program [but his] suggestion that he is merely studying the idea . . . is misleading," according to a Foreign Policy article by Roger Noriega. (Let the buyer beware: a one-time diplomat, the author is now a fellow at the American Enterprise Institute.) He continues.

Chávez has been developing the program for two years with the collaboration of Iran, a nuclear rogue state. In addition to showing the two states' cooperation on nuclear research . . . sensitive material obtained from sources within the Venezuelan regime [suggests] that Venezuela is helping Iran obtain uranium and evade international sanctions [in apparent violation of] U.N. Security Council resolutions. . . . All countries have the right to a peaceful nuclear energy program under the Nuclear Non-Proliferation Treaty, of which Venezuela is a signatory. However, Chávez's decision to rely on one of the world's worst proliferators [sic] to help develop his country's capabilities in this sensitive technology sets alarm bells ringing.

Indeed, the evidence is alarming. 

Deep suspicions . . . were raised in December 2008 when Turkish customs authorities intercepted a shipment sent from Iran to [a] "tractor factory" in Venezuela. According to media reports, 22 cargo containers and crates labeled "tractor parts" were found to contain barrels of nitrate and sulfite chemicals -- bomb-making material -- as well as components of what Turkish experts described as an "explosives lab."

Noriega concludes: 

If the United States and the United Nations are serious about nonproliferation, they must challenge Venezuela and Iran to come clean and, if necessary, take steps to hold both regimes accountable.  

We all know that the United States is "serious about nonproliferation." Would that it felt the same way about disarmament. Conservatives and some centrists maintain that states aspiring to nuclear weapons may actually be immune to disarmament on the part of the United States. But, should the United States enact substantive disarmament measures -- aside from the new START, which is leavened with eye-popping funding for the nuclear-weapons industry -- at least we'd have more of a leg to stand on when calling on other states to refrain from proliferating.

Common sense -- not to mention courtesy, a crucial component of negotiations -- dictates that, without disarmament, nonproliferation is a non-starter. Disarmament might also might decrease the chances that the steps we take "to hold both regimes accountable" are military in nature.