[matilda] An odd couple - Venezuela and the US

[Chris Malins]

Personally I would question the failure to mention the colombia/FARC 
aspect, but otherwise makes for good reading (credit for analysis to 
StratFor)...

Venezuela has become an ongoing problem for the Bush administration,
but no one seems able to define quite what the issue is. President
Hugo Chavez is carrying out the Bolivarian revolution in Venezuela and
feuding with the United States. He has close ties with Cuba and has
influenced many Latin American countries. The issue that needs to be
analyzed, however, is whether any of this matters -- and if it does,
why it is significant.

Chavez came to power in 1999 through a democratic election. He
unseated a constellation of parties that had dominated Venezuela for
years. Chavez, an army officer, had led a failed coup attempt in 1992
and spent time in prison for that. He sought the presidency without
any clear ideology other than hostility to the existing regime. There
was a vague belief at the time of his election that Chavez would be
simply another passing event in Latin America. Put a little more
bluntly, there was an assumption that Chavez rapidly would be
corrupted by the opportunities opened to him as president, and that he
would proceed to enrich himself while allowing business to go on as
usual.

The business of Venezuela, however, is oil. Not only is the country a
major exporter, but the state-owned oil company, Petroleos de
Venezuela SA (PDVSA), also owns the American refiner and retailer
Citgo Petroleum Corp. Venezuela has tried to diversify its economy
many times, but oil has remained its mainstay. In other words, the
Venezuelan state is indistinguishable from the Venezuelan oil
industry. Chavez, therefore, has faced two core issues: The first was
how income from the oil would be used, and the second was the degree
to which foreign oil companies could be allowed to influence that
industry.

Chavez was able to win the presidency because he promised the
Venezuelan masses a bigger cut of the oil revenues than they had seen
before. More precisely, he promised a series of social benefits, which
could be financed only through the diversion of oil revenues. From
Chavez's point of view, the problem was that the Venezuelan upper
class and the foreign oil companies were pocketing the oil money that
could be used to pay for the social services upon which his government
rested and his political future depended. From his fairly simple
populist position, then, he proceeded to move against the technical
apparatus of PDVSA and against the foreign oil companies, most of
which opposed him and threatened to undermine his plans.

But there was yet a further dilemma. In order to support his political
base, Chavez had to have oil revenues. In order to generate oil
revenues, he had to have investment into the oil sector. But diverting
revenues and building up the oil sector were competing goals. Given
the political climate, foreign oil companies were not inclined to make
major investments in Venezuela, and PDVSA -- minus its technical
experts -- was not capable of maintaining operations and existing
output levels. There was, then, a terrific problem embedded in
Chavez's political strategy. In the long term, something would have to
give.

Two things saved him from his dilemma. The first was a short-lived
coup by his opposition in April 2002. This coup was truly something to
behold. Having captured Chavez and sent him to an island, the
coupsters fell into squabbling with each other over who would hold
what office and sort of forgot about Chavez. Chavez flew back to
Caracas, went to the Miraflores presidential palace, and took over,
less than 48 hours after it all began. The coupsters headed out of
town.

The coup gave Chavez a new, credible platform: anti-Americanism. He
was never pro-American, but the brief coup allowed him to claim that
the United States was trying to topple him. It would be a huge
surprise to us if it turned out that the CIA was utterly unaware of
the coup plans, but we would also be moderately surprised if the CIA
planned events as Chavez charged. Even on its worst day, the CIA
couldn't be that incompetent. But Chavez's claim was not implausible.
It certainly was believed by his followers, and it expanded his
support base to include Venezuelan patriots who disliked American
interference in their affairs. What the coup did was flesh out
Chavez's ideology a bit. He was for the poor and against the United
States.

Chavez got lucky in a second way: rising oil prices. The appetite of
his government for cash was enormous. Someone once referred to Citgo
as "Chavez's ATM." With Venezuela's oil production declining, Chavez's
government likely would have collapsed under social pressure if world
oil prices had remained low. But oil prices didn't remain low -- they
soared. Venezuela still had substantial economic problems and its oil
industry was suffering from lack of expertise, investment and
exploration, but at $60 a barrel, Chavez had room for maneuver.

All of this led him into an alliance with Cuba. When you're anti-U.S.
in Latin America, Havana welcomes you with open arms. Cuba needed
Venezuela as well: After the fall of the Soviet Union, the Cubans were
cut off from subsidized oil supplies, and their ability to pay world
prices wasn't there. Chavez could afford to provide Castro with oil to
sustain the Cuban economy. It could be argued that without Chavez, the
Castro regime might have collapsed once faced with soaring oil prices.

In return for this support, Chavez benefited from Cuba's greatest
asset: a highly professional security and intelligence apparatus.
Arguing, not irrationally, that the United States was not yet through
with Venezuela, Chavez used Cuban expertise to build a security system
designed to protect his regime. His government -- though not nearly as
repressive as Cuba's is at the popular level -- nevertheless came
under the protection not only of Cuban professionals, but of cadres of
Venezuelan personnel trained by the Cubans. The relationship with the
Cubans certainly predated the coup in Caracas, but it kicked into high
gear afterwards. Both sides benefited.

Chavez's rise to power also intersected with another process under way
in Latin America: the anti-globalization movement. From about 1990
onward, Latin America was dominated by an ideology that argued that
free-market reforms, including uncontrolled foreign investment and
trade, would in the long run lift the region out of its chronic
misery. The long run turned out to be too long, however, because the
pain caused in the short run began forcing advocates of liberalization
out of office. In Brazil, Argentina and Bolivia, economic problems
created political reversals.

The old Latin American "left," which had been deeply Marxist and
always anti-American, had gone quiet during the 1990s. It recently has
surged back into action -- no longer in its dogmatic Marxist style,
but in a more populist mode. Its key tenets now are state-managed
economies and, of course, anti-Americanism. For the leftists, Chavez
was a hero. The more he baited the United States, the more of a hero
he became. And the more heroic he was in Latin America, the more
popular in Venezuela. He spoke of the Bolivarian revolution, and he
started to look like Simon Bolivar to some people.

In reality, Chavez's ability to challenge the United States is
severely limited. The occasional threat to cut off oil exports to the
United States is fairly meaningless, in spite of conversations with
the Chinese and others about creating alternative markets. The United
States is the nearest major market for Venezuela. The Venezuelans
could absorb the transportation costs involved in selling to China or
Europe, but the producers currently supplying those countries then
could be expected to shift their own exports to fill the void in the
United States. Under any circumstances, Venezuela could not survive
very long without exporting oil. Symbolizing the entire reality is the
fact that Chavez's government still controls Citgo and isn't selling
it, and the U.S. government isn't trying to slam controls onto Citgo.

Washington ultimately doesn't care what Chavez does so long as he
continues to ship oil to the United States. From the American point of
view, Chavez -- like Castro -- is simply a nuisance, not a serious
threat. Latin American countries in general are of interest to
Washington, in a strategic sense, only when they are being used by a
major outside power that threatens the United States or its interests.
The entire Monroe Doctrine was built around that principle.

There was a fear at one point that Nazi U-boats would have access to
Cuba. And when Castro took power in Cuba, it mattered, because it gave
the Soviets a base of operations there. What happened in Nicaragua or
Chile mattered to the United States because it might create
opportunities the Soviets could exploit. Nazis in Argentina prior to
1945 mattered to the United States; Nazis in Argentina after 1945 did
not. Cuba before 1991 mattered; after 1991, it did not. And apart from
oil, Venezuela does not matter now to the United States.

The Bush administration unleashes periodic growls at the Venezuelans
as a matter of course, and Washington would be quite pleased to see
Chavez out of office. Should al Qaeda operatives be found in
Venezuela, of course, then the United States would take an obsessive
interest there. But apart from the occasional Arab -- and some
phantoms generated by opposition groups, knowing that that is the only
way to get the United States into the game -- there are no signs that
Islamist terrorists would be able to use Venezuela in a significant
way. Chavez would be crazy to take that risk -- and Castro, who
depends on Chavez's cheap oil, is not about to let Chavez take crazy
risks, even if he were so inclined.

>From the American point of view, an intervention that would overthrow
Chavez would achieve nothing, even if it could be carried out. Chavez
is shipping oil; therefore, the United States has no major outstanding
issues. A coup in Venezuela, even if not engineered by the United
States, would still be blamed on the United States. It would increase
anti-American sentiment in Latin America, which in itself would not be
all that significant. But it also would increase hostility toward the
United States in Europe, where the Allende coup is still recalled
bitterly by the left. The United States has enough problems with the
Europeans without Venezuela adding to them.

Taken in isolation, Venezuela can't really hurt the United States. If
all of South America were swept by a Bolivarian revolution, it
wouldn't hurt the United States. Absent a significant global power to
challenge the United States, Latin America and its ideology are of
interest to Latin Americans but not to Washington. The only real
threat that Venezuela poses to the United States would be if its oil
production becomes so degraded that the United States has to seek out
new suppliers and world prices rise. That would matter to Washington,
and indeed it may eventually occur -- Venezuelan output has dropped
about 1 million bpd below pre-Chavez highs -- but it would matter a
thousand times more to Venezuela.

This explains the strange standoff between Venezuela and the United
States, and Washington's basic indifference to events in Latin
America. Venezuela is locked into its oil relationship with the United
States. Latin America poses no threat on its own. The chief
geopolitical challenge to the United States -- radical Islam --
intersects Latin America only marginally. Certainly, there are radical
Islamists in Latin America; Hezbollah in particular has assets there.
But for them to mount an attack against the United States from Latin
America would be no more efficient than mounting it from Europe. The
risk is a concern, not an obsession.

For the United States, its border with Mexico matters. For the
Venezuelans, high oil prices that subsidize their social programs and
buy regional allies matter. Both want Venezuelan oil to keep pumping.
Aside from the one issue that they agree on, the United States can
live and is living with Chavez, and Chavez not only lives well with
the United States but needs it -- both as a source of cash, through
Citgo, and as a whipping boy.

Sometimes, there really isn't a problem.

Send questions or comments on this article to analysis at stratfor.com.

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