The ‘Egypt Effect’
February 15, 2011
One can dream that the current waves of protests for better governance, throughout North Africa and the Middle East, would spread across the ocean to South America and in particular to the people of Venezuela. Perhaps they too will develop the courage and power to rise up against their dictatorial leader. However, the only thing that is on the rise in Venezuela, as a result of the Egyptian protests, is the price of oil. Whilst this will provide Chavez with a small amount of respite from his dwindling support, thankfully, it is unlikely to truly benefit him or buy him a free pass in the next elections.
Oil exports represent about a third of GDP in Venezuela and since Chavez came to power in 1999, the economy has remained squarely focused on oil production and exportation. In line with his Bolivarian revolution, oil production was nationalised, ensuring that the government profited directly from Venezuela’s large oil reserves. Record oil prices allowed Chavez to buy him loyalties both at home and abroad. In particular, Chavez provides a sizeable amount of crude oil to countries in the Caribbean and in Central America, at reduced market costs with favourable financing agreements. Unsurprisingly, he has a special deal with his friends in Cuba.
The unrest in Egypt, whilst it has not yet disrupted trade and production of oil, has had the effect of raising world oil prices, due to speculation about potential disruptions to the Suez Canal. The price of Venezuelan oil has risen to $87.60 per barrel, with the Venezuelan oil minister claiming it could rise to $200 per barrel if the Suez Canal closes. Such figures may suggest that what has been dubbed the ‘the Egypt effect’ will give Chavez a significant financial boost.
However, whilst the current rise in world oil prices may financially boost Chavez in the short term, in the long term barriers to oil production in Venezuela and rising foreign debts will hinder his ability to buy votes, as he has done in the past. There is no doubt that he will try his best to spin the situation in his favour, exaggerating the potential benefits to the Venezuelan economy. He is already twisting the truth by claiming that Venezuela is the largest oil producer in the world. According to Chavez and his government ministers, Venezuela is producing 3 million barrels of crude oil per day. Yet, data has shown that they are in fact producing a significantly less amount of 2.3 million barrels a day. Chavez’s overstated claim is yet another lame attempt to raise both his political profile at home and his influence in the international arena.
The truth is, however, that lack of investment and exploration in Venezuela has driven down oil production in recent years. Chavez can boast that he may be sitting on the world’s largest oil reserves, but it is meaningless if he lacks the ability to extract it. What he fails to understand is that no-one is deceived by his vacuous claims, which merely add to his repertoire of corruption. It is a shame that the protests in Egypt have not spilled over to Venezuela, but at least Chavez is unlikely to significantly benefit from the ‘Egypt effect.’