Ted Bezat writes to comment on John’s post “Hasta La Vista, Socialism!” celebrating the election results in Venezuela earlier this week:
I just finished reading your post and thought you might be interested in the documentation from 10 years ago when they really started to cripple their own oil industry. The primary reason that Venezuela’s “economy” has disintegrated is the drop-off in petroleum revenues. I’ve been tracking this ever since the Chavistas nationalized the multinationals’ oil fields via PdVSA. In the first couple of years not much happened, but eventually they accused the petroleum engineers of taking advantage (they were actually getting paid), and the vast majority of them simply left the country.
It’s very difficult to retain highly-trained personnel when you simultaneously demonize them, and thousands of engineers and technicians left the country to go to other oil patches, including the Canadian tar sands. With their expertise in secondary and tertiary recovery methods (the Venezuelan oil fields are getting very old, having first been heavily exploited in the ’50s’) they had no trouble finding employment around the world.
In 2005 PdVSA and the oil ministry literally forced all of the multinational oil companies to hand over their oil fields, forcing them into “joint ventures.” BP, Petrobras, and Chevron all caved in; Exxon and Repsol initially refused (WSJ, 12/20/2005). Then Chavez raised the tax rate on heavy oil by a factor of 16x (WSJ, 12/22/2005) essentially killing any profit on those fields. After the first of the year they simply confiscated them (WSJ, 1/6/2006). In February Exxon was removed from a petrochemical project (WSJ, 2/8/2006). By April the country simply stole everybody’s oil projects (WSJ, 4/4/2006). “Oil minister Rafael Ramirez said Venezuela has no plans to compensate Total and ENI for the lost fields” (WSJ, 4/24/2006).
In a shocking, unexpected development [sarcasm] the fall-off in oil production started very shortly thereafter. When their decreased volume of production met the drop in oil prices due to fracking technology from the US, their total petroleum-based revenue fell like a rock. That oil money could no longer prop up the fake socialist “economy” of giving people something for nothing, and the bottom fell out. The concept of “running out of other people’s money” also applies to running your own country’s available natural resource back into the ground.
I thought readers might be interested in the color and context that Mr. Bezat adds to John’s comments.