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Less Venezuela Oil for USA?

Can the United States achieve independence from Venezuelan oil? Three experts share their predictions.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

While US Presidential candidates Sen. John McCain (R-AZ) and Sen. Barack Obama (D-IL) sparred over energy policy in the Americas during their final debate (...), both agreed that the US should eliminate dependence on oil from Venezuela and Iran within the next decade. How likely is it that the next administration will achieve that goal? What would it mean for Venezuela and other countries in the region?

Gustavo Coronel:, a former member of the Board of Directors of Petroleos de Venezuela (1976–79) and served as the Venezuelan representative to Transparency International (1996–2000): First of all, ten years will not be enough time to eliminate the US dependency on oil imports although it will be enough time to significantly reduce this dependency, provided that a clear and systematic US energy policy, cutting across political party lines, can be put into place with the same vigor that accompanied, for example, the sending of a manned spacecraft to the moon in the last century. A progressive reduction in dependence can be attained by accelerating the development, in parallel, of several alternatives to oil: domestic natural gas, coal, nuclear, wind, solar, biofuels of diverse origin. The acceleration of this process might require government subsidies and/or tax incentives. Of the two countries that you mention, Iran and Venezuela, the first one, Iran, is almost a non-issue. Iran does not export oil to the US In the last few years Iranian oil exports have actually declined significantly, to some 2.3 million barrels per day, due to declining production and increasing domestic consumption. In fact, Iran is now importing about 500,000 barrels per day of gasoline. Its oil industry is weak due to lack of investments and some experts believe that Iran might not be exporting oil at all within the next ten years. The other country, Venezuela, is still an important oil exporter to the US, although this importance has been declining rapidly, from some 1.4 million barrels of oil per day five years ago to barely over one million barrels per day currently. This is due to serious politicization and mismanagement in the Venezuelan state-owned oil company, the growth of its domestic consumption and the use by Hugo Chavez of increasing volumes of oil as a political tool, in his attempts to create an anti-US alliance in Latin America. This means that, even if the US did nothing to change the current relationship, Venezuela could become ever less important as a source of oil supplies to this country within the next ten years. Since the dependence of Venezuela on oil exports to the US is now much more significant than the US dependence on Venezuelan oil imports, any major political confrontation between the US and Venezuela would probably represent the end of Chavez's regime. A main reason for the rather urgent need of the US to become less dependent on foreign oil imports is the overall geopolitical panorama: the social and political volatility in the Middle East, the weakening oil exporting capacity of Mexico due to its ultranationalistic energy policies and the increasingly complicated political environment in the Caspian Sea area. The combination of these geopolitical factors with the failure by the US to maintain appropriate levels of domestic oil production and refining has led the country to its current critical situation. Now there is no time to lose. The next US administration will have to assign top priority to this issue and stay on it, resisting the temptations to abandon the efforts whenever world oil prices decline.

Paul Isbell, Director of the Energy Program at the Elcano Royal Institute for International and Strategic Studies in Madrid and a Visiting Senior Fellow at the Inter-American Dialogue: The US will not free itself of Venezuelan oil by the end of the next administration, nor is it clear that this particular objective is all that relevant. First, a renewed campaign to open up exploratory drilling in the US offshore could add one million barrels per day, at most, to available crude supplies, but only six or seven years into the future. Nor is it at all certain that such additional crude would replace Venezuelan imports. Second, even a significant push of renewable energy during the next administration would only contribute to a reorientation of the electricity mix—with little, if any, impact on petroleum consumption—at least until the country's vehicle fleet has been electrified. Third, the financial crisis has already brought oil prices crashing down from their summer peak ($147 a barrel) to less than half that level now, undermining much of the short-term incentive to deploy renewables, ramp up efficiency, invest in the offshore or even to worry too much about imagined hostile plans of producers given that their oil revenues will weaken as long as prices slump. The recession looks increasingly set to be long, placing a huge question mark on the future price of crude—at least for some years to come—to say nothing of the US' fiscal capacity to help jump start a transition to a post-hydrocarbon economy. Fourth, so long as the US needs to consume oil, Venezuelan imports will remain attractive—to both sides—given the short distance they need to travel and considering that the particular refining capacity needed to process Venezuelan heavy crude is already in place in the US. Finally, given that the market for oil is both global and relatively unified, any Venezuelan threats to punish the US by embargoing its exports or diverting them elsewhere are not only wrong-headed (given Venezuela's excessive dependence on oil revenues) but also doomed to fail to hit their designated target. A reduction of Venezuelan oil flows to the US would merely send up prices everywhere—hardly an effective measure against the US—or provoke a readjustment of world flows to fill the US gap. There may be valid reasons for attempting to reduce the US dependence on oil, but the idea that a reduction in imports from Venezuela or Iran would somehow enhance US national security is suspect, at best, and should not be the driving motive. A rapid transformation of the energy economy is clearly justified, but by the threat of climate change, not by a perceived vulnerability to supply cuts from producers seemingly hostile to our interests or simply unstable. However, if national security is the only argument capable of garnering sufficient domestic support for the country to propel itself beyond oil—well, that is a different question altogether.

Jonathan C. Hamilton, a Partner with White & Case LLP in Washington, DC.: After the election, campaign talk about energy independence will need to turn to policy considerations about a framework for energy interdependence in the Americas. The existing framework in the Americas includes hundreds of investment treaties that aim to promote cross-border investment in various sectors including energy. McCain is a particularly strong proponent. But that framework has reached somewhat of a saturation point, and it is under stress; the Washington Consensus has withered. At home, the Colombia and Panama FTAs are stalled, and some Democrats want to revisit labor and environmental provisions in some treaties. Abroad, reflecting fault lines in the region, Bolivia, Ecuador and Venezuela have terminated or constrained the protections of investment treaties. Is there potential for a new framework focused on energy? Obama calls for a new Energy Partnership for the Americas. A consensus will be required. There was such a consensus in Europe after the demise of communism, and more than 50 countries signed an Energy Charter Treaty. There is no consensus at present in the Americas. In this context, a dozen South America countries have forged ahead with a new Unasur Treaty that aims to promote energy integration, sovereignty over natural resources, and the establishment of a new venue for investment disputes. New frameworks for energy in the Americas may already be emerging—with or without the US. How we engage will make all the difference.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.

 

 

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