Don't let it get away!
Keep track of the stocks that matter to you.
Help yourself with the Fool's FREE and easy new watchlist service today.
Hugo Chevez died from cancer last night after 14 years as President of Venezuela. In the short term, Chavez's death means little for the oil markets, which shrugged off the news. The question now is will things get worse for Venezuela with more turmoil, or will things get better, allowing Venezuela to regain its status as a top five exporter of oil.
Chavez's Rule
Chavez's presidency was strongly influenced by the rising price of oil. In 1998, oil was selling for peanuts, leading to unrest in the country, because the Venezuelan economy depends heavily on oil. Chavez took power, and was lucky that the price of oil rose steadily.
Chavez was a socialist whose time in office was marked with subsidies to the poor, the nationalization of thousands of companies, currency controls, and price controls, all funded by the country's growing revenue from selling oil. While these policies were popular with the poor, they inevitably led to shortages, 20+% inflation, currency devaluations, and a widespread black market.
Oil Production in Venezuela
Oil production remained in a steady range of 3 million to 3.6 million barrels of oil equivalent per day until 2002, when the workers of Venezuela's state-owned oil company PVDSA went on strike for two months. The country never fully recovered from the strike, and oil production declined steadily thereafter.
The production decline picked up speed in 2007, when Chavez nationalized the oil deposits of the country and demanded companies cede a 60% stake in all oil projects in Venezuela to state-owned oil company PDVSA.
Rather than cede control, ExxonMobil (NYSE: XOM ) and ConocoPhillips (NYSE: COP ) walked away from their investments in Venezuela, and are seeking $40 billion in damages from the Venezuelan government. At the same time, Chevron (NYSE: CVX ) , BP (NYSE: BP ) , Total (NYSE: TOT ) , and Statoil (NYSE: STO ) agreed to the demands of the government. The nationalizations continued in 2009 with the government seizing control of some oil services companies, and refusing to pay others.
The Future
It remains to be seen what will happen with Venezuela. During Chavez's reign, oil production declined from 3.5 million barrels of oil equivalent to 2.5 million a day. At the same time, exports declined from 2.2 million barrels of oil a day to 1.6 million barrels of oil a day, bringing down the country's revenue from oil, and taking the country from the fifth largest exporter of oil to the eighth largest exporter of oil. These declines stemmed from an underinvestment in the oil sector, as Chavez took money from it to support his socialist programs.
It's remarkable and sad that, in a time of high commodity prices, Chavez's reign ended with Venezuela worse off than when he first took over. If a pro-business regime comes into power, it will be a few years before the Venezuelan economy can turn itself around. Venezuela has massive oil assets that are currently underutilized and, with more investment in the oil industry, Venezuela could regain its status as a top five exporter, bringing in much needed money into the economy. This change in leadership could be great news for big oil, as well. With conventional oil reserves becoming more difficult to acquire, the international oil companies that were strong-armed by the Chavez regime could use their record capital expenditure budgets on securing proven reserves instead of risky exploration projects in hard-to-access locales.
On the other hand, if the country falls into turmoil, and exports drop off, the economy would be devastated, oil prices would rise, and it could take years for the country to recover from the damage, if ever.
Foolish Bottom Line
While we can't know the future for sure, it's good to follow the Boy Scout motto of "be prepared."
There are many different ways to play the energy sector, and The Motley Fool's analysts have uncovered an under-the-radar company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations, and poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free reporr, "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.
RSS Headlines
Fool UK
Comments from our Foolish Readers
Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the
Report this Comment icon found on every comment.
Report this Comment On March 07, 2013, at 1:12 AM, lau56806 wrote:
In 2000, Venezuela upgraded its oil production from 2.5 to 3.5 million barrels a day at a cost of $50B. It is sad to see Chavez to adopt a socialist program with intention to subsidize the poor but led to shortages, high inflation and currency devaluation. Do we see we have the same problem in this country when our president is anti-business ??? The only way to help the poor is to have a strong economy when jobs are plenty.
Report this Comment On March 07, 2013, at 1:23 AM, quizmasterchris wrote:
I can't believe anyone would claim the US is "anti-business," in this country where massive corporations pay NEGATIVE taxes.
None of you are against socialism, you're just against socialism for the poor people who do actual work. Socialism for the rich, subsidies for the rich - fine by you.
Venezuela's debt by any measure is lower than that of the US, including and especially as a % of GDP. In the last 14 years Venezuelans have gained more food, job, housing, income, pension,health care, and energy security with cheaper education. In the same period Americans have less food, job, housing, income, pension,health care, and energy security with more expensive education.
Idiots in the US reflexively hate Chavez because he delivered the goods to his people and is loved for it. Idiots in the US hate Chavez because he's been successful and the lives of Venezuelans have improved. Heck, he even provided low income heating assistance to America's poor, which is more than Americans would do.
Many of you hate Chavez because he did the right things in a world where you lie to yourselves that the wrong things are noble. Venezuelans have tasted a better life and there's not going to be any suppressing them again. Chavez won. Deal with it.
Report this Comment On March 07, 2013, at 8:06 PM, Kerroj wrote:
Kudos to quizmasterchris' comments. Chavez cared about the welfare of the less-well-to-do people in his country and tried to lift them up and did by his policies. He was loved by many and it showed by the throngs of people who wept in the streets by his passing. It's no wonder that many of the uber-selfish pundits in the "pro-business" community liked to bash him and label him "anti-american" since he didn't fall in line with their plutocratic ideologies running so rampant in this country.
Report this Comment On March 07, 2013, at 8:36 PM, JohnBrown11 wrote:
Thank you quizmasterchris, for not being blinded by the avarice of others.
Report this Comment On March 07, 2013, at 11:39 PM, showme wrote:
When a government becomes to scared or to intimidated to prosecute companies for wrong doing and illegal activities it has failed its people. Chavez saw this and started nationalizing companies that threatened the stability of his country. Our Attorney General says he can’t investigate and prosecute big banks because it might destabilize the economy. I think Chavez would know what to do.
Report this Comment On March 08, 2013, at 7:04 PM, ksarp1975 wrote:
Oh boy...this has turned into something else. I bet the anti Chavez writer didn't see this coming..lol
Report this Comment On March 08, 2013, at 9:19 PM, damilkman wrote:
I did not know that fool.com had turned into Pravda or we hate all buisness. What do you invest in or do you want nationalized what you invest in :)
I think it is reasonable to make a point that income disparity was a problem in Venezuela. However, the method that Chavez went about income equalization was an utter failure and is unsustainable. There are moderate and sustainable ways to take care of income disparity other then arbitrary confiscation. Chavez was ultimately a 3rd world 60ties throwback to a system that always failed. The only thing he had going was high oil prices and an asset that could be drained of all of its worth. Who is going to pay for all the social programs when the oil revenue drys up and there is no money for reinvestment? Even the Chinese will stop loaning money when it is clear there is no benefit. Who will invest in the infrastructure needed to expand oil production if the money is already spent? The tired concept of the centralized national plan will fail again and no one will load billions without a reasonable promise of return. We see the wreckage of nationalization, arbitrary confiscation, and populismm in the countries that insist on its continuation like Zimbabwe.
My biggest issue with Chavez is the same with anyone who sets up a cult of personality is that they insist they are the revolution. He insisted on being in control for life because he had no trust that whatever he built was sustainable. One of the greatest things George Washington did was walk away. He set the precedent that the United States regardless of the high competence of the individual in question would never dominate. Washington also realized that what was built was greater then any one man and that there was was buy in by the country to sustain what he helped build.
How anyone can applaud a cult of personality is beyond me. We know from history that once the dynasty ends the house of cards falls apart. I agree that crony capitalism is also not sustainable. However raiding national assets and having nothing to show for it be it Chavez using the National Oil Company as his own personel piggy bank or Kwame Kilpatrick raiding the Water Department ultimately brings a day of reckoning. In Venezuela's case the country is fortunate that the demagogue passed away before the harm is terminal. Unfortunately for countries there is no such thing as an emergency manager. You crash & burn.
Report this Comment On March 08, 2013, at 10:33 PM, J6R wrote:
When Chavez came to power 50% of the population was below the poverty level. In 14 years of Socialism 32% of the people are below the poverty line. After this long in a Socialist State, Venezuela has run out of OPM (other peoples money) Currency(the Bolivar) has a 20% inflation.Crime is rampant. The homocide rate is 2nd in the Americas. The country has to sell bonds to continue buying votes from the poor. Hugo died owing Exxon and Chevron 40 billion. A charismatic servant to the poor can leave a big mess in a country. The USA has been warned;maybe, we can open our eyes.
Report this Comment On March 08, 2013, at 11:52 PM, MTNest12 wrote:
I read that Chavez was worth 2 Billion when he died. Obviously, not all of that oil money was reaching the people! Being a dictator must pay very well. The people may have "loved" him, but he only gave them crumbs compared to the wealth he stole for himself.
Report this Comment On March 09, 2013, at 9:56 AM, damilkman wrote:
What is ironic is there really is not anything unique about Chavez. Is he much different from the Big City mayors and their patronage system or a crime lord who gives out crums to give himself a good name?
In both cases the premise for building power was there was a group that felt disenfranchised. In the case of the big city majors masses of new immigrants and in the case of the mafia dons poor people who felt left out. In those cases we know that the real agenda of the Mayors and Crime lords was to perpetuate their power. Actually helping people was a zero sum game. I will give you a little if you support me.
I do not know if Chavez died a wealthy man. I will take it as a fact that he really did die with assets in the billions. If that is the case we can reasonably assume he is a fake. All programs implemented were not to help the poor but to perpetuate his stay in power.
Report this Comment On March 09, 2013, at 10:16 PM, devoish wrote:
If "big oil" is better off, I can pretty much assure you that Venezuelans will not be.
Ask the Nigerians if you are not sure.
You're funny,
Steven
Add your comment.