Venezuelan President Hugo Chavez was to have been sworn in to his latest term in office on Thursday. Instead, the dictator who has led his country for 14 years lay in a hospital bed in Cuba, recovering from his fourth cancer surgery and battling respiratory complications.
A postponement of the ceremony was blessed on Wednesday by the South American country's highest court, which decided that Chavez needn't appear before the National Assembly to begin his latest six-year term. The ruling, which was controversial, to say the least, means that Vice President Nicolas Maduro, Chavez's hand-picked successor, will remain in charge of the country. It also set off a brouhaha, with the opposition party, known by the Spanish acronym MUD, calling the decision unlawful and demanding intervention from the Organization of American States.
Leadership void and economic decline
The key question for the country becomes whether its president can be declared legally incapable of returning to office. Venezuelan law specifies that an election be held within 30 days if the president dies or is incapacitated. Such a faceoff would be likely to pit Maduro against Henrique Capriles, Chavez's opponent in the latest election in October.
The other difficulty that is going unmet during Chavez's absence is Venezuela's teetering economy. The country is faced by a widening fiscal deficit and the subsequently declining value of its currency, the strong bolivar, which is tied to the dollar at an official rate of 4.3 per dollar. In the black market, however, the currency is traded at up to 17 to the dollar. Amid Chavez's precarious health and the possibility of new elections this year, remedial actions, such as a devaluation of the strong bolivar, are likely to be delayed.
A font of energy shenanigans ...
Of course, it's impossible to speak of Venezuela without focusing on the country's immense oil and gas cache. Since a predecessor company of Royal Dutch Shell discovered its first significant oilfield nearly a full century ago, Venezuela has been immensely important to the worldwide oil scene. Today, according to Oil and Gas Journal, the country sits atop a whopping 211 billion barrels of proven oil reserves. That figure represents a massive increase from just two years ago, when the figure was pegged at just under 100 billion barrels. The country now ranks second only to Saudi Arabia among the world's oil-rich nations.
The lion's share of Venezuela's crude is heavy and sour by international standards, much like the bitumen that is mined in Canada's tar sands. Billions of barrels of extra-heavy crude are found in the Orinoco Belt in the central part of the country. It was there that in 2007 Chavez nationalized production operations that ConocoPhillips (NYSE:COP), ExxonMobil (NYSE:XOM), and France's Total (NYSE:TOT), had led with the likes of Chevron and Norway's Statoil (NYSE:EQNR) holding lesser stakes.
Following the action, Venezuela's state oil company, PdVSA, began directing operations in the region. And while a majority of the big Western companies chose to accept Chavez's nationalization terms and to remain active in the country, ConocoPhillips and ExxonMobil bid Chavez adios.
But Chavez wasn't done. In 2009, his government seized control of the assets of some oilfield-services companies operating in the country. Big entities such as Schlumberger (NYSE:SLB) were left alone and continued to be paid for their services. But Tulsa-based land driller Helmerich & Payne stated at the time that it expected to forfeit the $116 million that PdVSA then owed it.
...and resulting destruction
All this has resulted in the decline of the Venezuelan oil industry. Despite the vast growth in its proven reserves, the country's overall production levels of slightly more than 2.4 million barrels a day have fallen by about a quarter in the past decade. Further, its petroleum exports have plummeted by half in the past decade and a half. Much of that decline has been precipitated by a nearly 40% increase in domestic consumption during approximately the same period.
As you know, Chavez has long been a thorn in the side of the United States. His confidants have tended to be such stellar world leaders as Iranian President Mahmoud Ahmadinejad and Russia's Vladimir Putin. Indeed, at the time of his October re-election, he received a note from Ahmadinejad saying, "This great victory is another endorsement of your successful leadership during your term in office, on the path of justice ... humanitarian values, progress, and the prosperity of the country."
The Foolish takeaway
For now, Chavez's longevity and ultimate successor are key questions relative to world energy alliances in general and the changing role of OPEC in particular. (Recall that at the cartel's meeting in Geneva last month, Iraq, with Iran's support, mounted a challenge to Saudi Arabia for leadership of the group. At least as long as Chavez survives, the Iraq-Iran faction can clearly count on support from Venezuela.)
And so, while the muddled Middle East continues to draw the attention of most investors with a yen for geopolitics and energy, the current volatility of Venezuela absolutely should not be ignored.