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Economy

Saddam, Putin, Maduro: How Dictators See Their Oil Differently

The West is paying the price for buying oil from one tyrant in Russia, and must think carefully before rushing to Venezuela to do the same with another dictatorship. Business is not always business.

photo of a highway with a billboard and smoke in the distance

'We will become a global superpower in petrochemicals. Don't doubt it!'' is written on a billboard of late Venezeulan President Hugo Chavez and his successor, Nicolas Maduro.

DPA via ZUMA
Julio Borges

-Analysis-

CARACAS — The geopolitical conflicts that have erupted in the world since 1988 have had a direct impact on oil prices. The Iran-Iraq war, Saddam Hussein's invasion of Kuwait, the West's massive operations in Iraq, and now Russia's barbaric invasion of Ukraine confirm this. Prices began to rise as soon as President Vladimir Putin began bombing the Ukrainians, going from $83 a barrel to over $100 and considerably further at points of maximum global commotion.

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In this new energy context, as Russia faces sanctions and with sharply rising crude prices, Venezuela has recovered a measure of public relevance as some argue it could become a reliable hydrocarbons supplier able to compensate for the energy shortfall resulting from the war. It is a reasonable idea considering Venezuela has the world's largest crude reserves.


The destruction of Venezuela's oil industry

Nevertheless, Venezuela is far from being able to influence the state of oil supplies in the global market. The destruction of our oil industry under the dictatorial regime of Nicolás Maduro is unprecedented in its scope. The country's oil production has dropped 70% in the past 20 years, which means going from producing three million barrels of crude a day to barely 700,000. The deterioration is so significant we are effectively producing the same amount of crude as 80 years ago.

Venezuela cannot become a reliable oil supplier before there is a transition to democracy there.

The Maduro regime tries to confuse the world by confounding the origins of this shocking breakdown. It has brazenly unleashed a propaganda offensive to blame international sanctions for this exceptional decline when it is commonly known that the oil industry was already severely stressed before sanctions were imposed. It was rather the expropriations, the industry's politicization, absence of a stable legal setting, corruption, the flight of trained managers and declining investments that brought down the country's veteran oil sector.

Years of political decisions have deprived Venezuela of its most important resource and brought alongside it an incalculable economic collapse and humanitarian crisis that have turned six million Venezuelans into refugees.

Another tool of political dominance

So it is unlikely the country could raise its crude production in the midst of this period of high prices. The most optimistic analysts say it could at most add 100,000-200,000 barrels a day to its production over six months, which is barely a fraction of the shortfall from Russia.

To revert the decline and restore production to the levels of past years, the sector is believed to require investments of around U.S. $100 billion over 10 years. And that money will not come in without changes to restore the rule of law if only as a basis for the juridical guarantees the investments will need.

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In other words, Venezuela cannot become a reliable oil supplier before there is a transition to democracy there. While Maduro remains in power, the only thing that will grow is the corruption that feeds the gang sitting on Venezuelans' dreams of freedom.

Today, the free world is paying the price of its energy dependence on Russia. The idea of disconnecting energy purchases from a tyrant's geopolitical projects proved deadly, and that is precisely what the world's leading countries must bear in mind now.

Dictatorships do not do business. They merely use commercial ties as one more tool of political dominance.

*Julio Borges is a former Venezuelan legislator and former foreign affairs spokesman for the opposition.

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Economy

Europe's Winter Energy Crisis Has Already Begun

in the face of Russia's stranglehold over supplies, the European Commission has proposed support packages and price caps. But across Europe, fears about the cost of living are spreading – and with it, doubts about support for Ukraine.

Protesters on Thursday in the German state of Thuringia carried Russian flags and signs: 'First our country! Life must be affordable.'

Martin Schutt/dpa via ZUMA
Stefanie Bolzen, Philipp Fritz, Virginia Kirst, Martina Meister, Mandoline Rutkowski, Stefan Schocher, Claus, Christian Malzahn and Nikolaus Doll

-Analysis-

In her State of the Union address on September 14, European Commission chief Ursula von der Leyen, issued an urgent appeal for solidarity between EU member states in tackling the energy crisis, and towards Ukraine. Von der Leyen need only look out her window to see that tensions are growing in capital cities across Europe due to the sharp rise in energy prices.

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In the Czech Republic, people are already taking to the streets, while opposition politicians elsewhere are looking to score points — and some countries' support for Ukraine may start to buckle.

With winter approaching, Europe is facing a true test of both its mettle, and imagination.

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