Foreign Policy Blogs

The Health of Chávez, and of the Caribbean’s Oil Supply

petrocaribe.org

petrocaribe.org

Venezuelan President Hugo Chávez’ ill health is widely known, but what may be less recognized in my neck of the woods is how the president’s ailments have become front-page news across the Caribbean. This is due to PetroCaribe, the regional oil cooperative Venezuela created in 2005 to provide fuel for neighboring countries. PetroCaribe supplies 18 nations, including 14 out of 16 from the CARIFORUM (Caribbean Group of African, Caribbean and Pacific States). These countries encompass most of the island nations you can think of in the Caribbean, minus two holdouts – Trinidad and Barbados. PetroCaribe provides up to 120,000-140,000 barrels per day of crude oil at favorable financing terms: importing nations buy part of the oil up front, and then pay off the rest with 25-year, 1% interest rate loans. Though the percentages have fluctuated, most buyers generally pay for only 40-50% of the crude they get upfront. No wonder figures like Dominican Republic Energy Minister Temístocles Montas and Haitian Prime Minister Laurent Lamothe are shivering – they fear Chávez’ death could foster a new Venezuelan regime that is less keen on PetroCaribe. Lamothe even attended festivities to celebrate Chávez’ inauguration. The comandante himself was missing on a hospital bed in Cuba.

I summarized PetroCaribe in a commercial sense, but PetroCaribe is really a vehicle of Chávez’ anti-US, socialist ideology. On PetroCaribe’s website (petrocaribe.org), the initiative’s purpose is to provide regional energy security outside “Capitalist predatory guidelines.” The website section describing PetroCaribe’s founding contains a link to Violence and Culture Shock. The following language states that “The colonization of the lands of the Caribbean was a violent process” and that “besides the idea of rescuing the brotherly ties that bind us to our Caribbean brothers…PetroCaribe is the first energy agreement of a solitary nature, with a purpose of social development and justice signed by a group of States from all regions of the world.” I wonder what the other members of OPEC think about that.

President Chávez and his website promote PetroCaribe as a real-life initiative of ALBA (The Bolivarian Alternative for the Peoples of Our America), a political organization that aspires to be something like the Organization of American States, but with Venezuelan Socialism as its guiding principle. ALBA is supposedly an institution designed to fight the Free Trade Agreement of the Americas, first proposed in 1994. My eyes notice something when I look at the membership of ALBA and compare it to that of PetroCaribe. PetroCaribe has 18 members and 14 Cariforum nations, while ALBA has only 8 members and 4 Cariforum members. That’s not enough to make ALBA a counterweight to NATO, as Chávez would like, or to stimulate trade of ALBA’s common currency, the Sucre. While the Venezuelan government would like to say PetroCaribe is successful because of the spread and appeal of its political ideology, in reality it’s just that countries like to get oil now and pay for it later.

Now, I find it quite odd that governors such as Energy Minister Montas of the DR and Prime Minister Lamothe of Haiti would tie something as important as national energy policy to the health of one man. Is this responsible leadership? They probably understand a fundamental problem with PetroCaribe – while the Venezuelan government is helping Dominicans and Haitians, it is depriving Venezuelans. Venezuela today faces crumbling bridges, power outages, currency devaluation, inflation-driven shortages of goods, and last but not least, excess demand for gasoline. PetroCaribe’s oil could solve these problems by being sold cheaply within Venezuela, or being sold abroad at market prices to bring in hard currency. Henrique Capriles, the losing opposition candidate in last year’s presidential elections, recognized this. He planned to close down PetroCaribe, and claimed that this would allow the government to actually increase social programs for the poor – supposedly Chávez’s most valued constituents.

It looks as though access to quick and easy oil has led to poor public policy on both sides of PetroCaribe. The Venezuelan government uses a natural resource as a foreign policy bribe. Countries accepting PetroCaribe aid must refine the fuel at government-owned facilities, or facilities in the region owned by Venezuelan state company PDVSA. This means goodbye for local businesspeople affiliated with Shell and Exxon. Cuba receives 100,000 barrels per day, at $3-$4 billion in annual value, for no money at all – instead the Castros send physicians to Venezuela under the “oil for doctors program.”[1] But democratic governments in the Caribbean have an even bigger problem. Gas prices on their islands may be dictated by events in a hospital room in Cuba. And could Chávez require them to join ALBA? He will be in control of their debt, oil supply, and internal refinery structure.

Now, from a State Department standpoint, what can be done to aid the Caribbean states? I’m thinking first economic progress, and then pulling these countries away from Chavista influence. I spent considerable time in the Dominican Republic in 2011, when I worked on the acquisition of Cervecería Nacional Dominicana, the country’s largest brewery. Even then, economists I spoke with were concerned that the economy could tip over if PetroCaribe ever expired. However, as David Jessop, a consultant for businesses active in the Caribbean, points out, the US tacitly approves of the stability brought by PetroCaribe.[2] The inexpensive fuel helps keep regional economies going and governments comfortable. The US (and yours truly) can’t complain about the status quo without offering a better alternative. As the US sees growing production of oil and gas from its vast shale formations, American government and business may be in a better position to supply PetroCaribe nations in the future. The State Department can engage Cariforum countries at a political level, and Shell and ExxonMobil at a commercial level. By offering flexible payment terms to customers in Jamaica and St. Lucia, these companies can regain lost market share, and provide a valuable olive branch for the US Government to extend. Eventually PetroCaribe will end – a new Venezuelan government will want to stop losing money. The US needs to be ready to step in, link PetroCaribe’s nations into the private energy economy, and give them security that the US will supply them affordably.



[1] http://www.as-coa.org/articles/caribbean-ch%C3%A1vez-illness-stirs-unease-over-petrocaribe

 

Author

Hunt Kushner
Hunt Kushner

Hunt Kushner is a John C. Whitehead Fellow with the Foreign Policy Association. He currently works in Corporate Development with Ports America Group, the United States' leading port terminal company. Prior to this, he worked for 6 years at Deutsche Bank in the Corporate Finance and Mergers and Acquisitions for Latin America Group. In his 6 years at Deutsche Bank, Hunt worked on mergers and equity offerings for companies across Latin America in sectors such as energy, real estate, transportation, and banking. Hunt graduated from Yale University in 2006 with a BA in Political Science.

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