The political and economic effect of a sale of Citgo would be disastrous for Venezuela.
BY GUSTAVO CORONEL
There are two main reasons why Hugo Chavez wants to sell Citgo, the petroleum company based in Houston owned by the Venezuelan government.
First: a political, ideological reason.
Hugo Chavez feels the urgent need to get rid of Citgo, his most valuable asset in the United States. Citgo is the obvious Venezuelan property the U.S. government could try to grab, in case push comes to shove in the cold war between the two countries. Chavez’s increasingly hostile moves against U.S. companies, the legal conflicts with Exxon Mobil and ConocoPhillips and the more recent, abusive, takeovers of the Venezuelan subsidiaries of Helmerich & Payne and Owens Illinois, constitute initiatives that, so far, have had no U.S. government response other than expressions of “concern.” If a stronger response is ever needed, Chavez would be vulnerable by owning Citgo, a U.S. based company.
Chavez is driven by a deep hatred of the United States and he is determined to inflict damage to this country, even if it is at the expense of his own country and people. Selling Citgo would be a hostile move of the sufficient significance to satisfy Chavez’s hatred. During Chavez’s tenure Venezuelan oil imports into the U.S. have declined in some 300,000 barrels per day, as more Venezuelan oil is moving elsewhere and its oil production has declined.
The fact that the U.S. remains as its main commercial client seems to be of no importance to Chavez, who now feels secure receiving huge loans from China in exchange for committing to them a portion of Venezuelan oil production. About 200,000 barrels per day of Venezuelan crude oil and products will now go to China for the next 10 years, as payment for the $20 billion dollar loan received by Chavez from the Chinese government in 2009. In his hatred of the United States Chavez has decided to change commercial dependence on the United States with political dependence on China.
Second, a financial reason.
Hugo Chavez needs money now. His political and social commitments clearly exceed current oil income. Venezuelan national debt has already quadrupled under Chavez. One way to raise cash quickly is selling assets abroad. He recently sold PDVSA’s refining assets in Germany for a relatively meager $1.6 billion and some months ago sold the Borco oil terminal in the Bahamas. The Bonaire oil terminal is being let go without proper maintenance and it might be a matter of time before PDVSA sells it. Of course, this process of divestiture is weakening PDVSA and will influence its moneymaking capacity in the future, but Chavez is not thinking about the future. He is fighting for his political survival in the short term.
However, if he manages to sell Citgo he might be in for a surprise. He estimates he can realize up to $10 billion for this company but the current economic situation, the nature of the refineries that are geared to refine Venezuelan heavier oil and the fact that Citgo is a potential target of the U.S. government militate against the probability that a good price is obtained.
What if Venezuelan oil imports into the U.S. are cut-off in the short term?
If Chavez manages to sell Citgo, U.S. oil imports from Venezuela might be significantly reduced or, even, cut off altogether. Chavez seems to be heading towards such a move. However, the fact is that the U.S is no longer as dependent on Venezuela oil as it used to be ten years ago. Today less than 10 percent of total U.S. oil imports, less than one million barrels per day, are coming to the United States from Venezuela and a very small portion of this volume is gasoline. Today the world market has almost 4 million barrels per day of closed- in production, with almost 3 million barrels per day closed-in in Saudi Arabia alone. Any lack of Venezuelan oil can be rather easily and rapidly compensated by the United States.
DISASTER FOR VENEZUELA
On the other hand, the political and economic effect of such a cut-off on Venezuela would be disastrous since the United States is the only client paying Venezuela in hard cash and in an opportune manner. A cut-off of Venezuelan oil exports to the United States would most probably be an extreme, politically motivated move for Chavez but an unlikely move by the United States that seems to be playing a wait-and-see game with respect to Venezuela.
The United States would only seriously consider it if Chavez denies payment to U.S. companies for their expropriated assets.
This game of geopolitical chess being played by Chavez around Citgo is getting very close to a major move.
Gustavo Coronel, a 28-year oil industry veteran, was a member of the first board of directors of Petroleos de Venezuela (PDVSA) and is the author of several books.