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The End of the Venezuelan “Revolution”

The Venezuelan opposition’s victory in Sunday’s election exceeded even their own hopes: they won more than two-thirds of the seats in the National Assembly. It may be the beginning of the end for the “Bolivarian revolution” launched by the late hero-leader Hugo Chavez seventeen years ago – but it will also plunge the country into a prolonged period of conflict and crisis.

Credit where credit is due: the election was conducted in an exemplary fashion although the government knew it was going to lose. And even when the scale of the opposition’s victory became clear, President Nicolas Maduro took the high road: “I call on all of our people to recognise these results peacefully, and to re-evaluate many political aspects of the revolution.”

However Maduro, who took over when Chavez died in March 2013, does not intend to preside over the funeral of Venezuelan socialism. When he said “our people”, he meant the Chavistas who still support the “revolution”, and the fact that they were now obviously a minority of the Venezuelan people went unmentioned. As did the fact that it was not actually a revolution at all: Chavez came to power legally and peacefully in the 1998 election.

The real question is whether Maduro and those around him will consent to leave power the same way. His vague rhetoric – “We have lost a battle today but now is when the fight for socialism begins” – is designed to leave that in some doubt. And it may be a real fight, perhaps including violence in the streets, because many Chavistas will feel duty-bound not to let this historic experiment fail.

Excuse the deliberate lapse into antique Marxist-speak, but that’s how they talk, and it illustrates how misleading the revolutionary rhetoric is. Because the Chavista era in Venezuelan history was not an historic experiment at all – not, at least, unless you think that building a welfare state with oil revenues is a revolutionary idea (in which case Saudi Arabia also has a revolutionary ideology).

True, the Chavistas are rather bigger on the notion of equality than the Saudi royal family, but what they were actually doing was not controversial in principle. They sought and won power through democratic means. Like left-wing politicians in early 20th-century European states, they then set about improving the income, health, housing and educational level of the bottom half of society, as they had promised they would.

The work of social uplift went a lot faster in Venezuela because of the oil money. (It has the world’s biggest oil reserves, and only 30 million people.) Chavez accomplished in a decade what took countries like Britain, France and Germany two generations. But by the end of that time the European countries had diversified industrial economies that could pay for a welfare state. All Chavez left his successors was oil.

So long as the oil income held up, Chavismo was invincible. Mismanagement and corruption grew, as they often do when money is plentiful. Arrogance grew too, as it usually does in governments long in power, and protests were increasingly met with physical or legal violence. Still Chavez and his successor Maduro won elections – until the oil price collapsed.

In the past eighteen months the world price for oil has fallen from $140 a barrel to only $40. Venezuela was already facing serious unemployment and very high inflation. Government-imposed price controls were already creating predictable shortages of staple goods like milk, rice, coffee, sugar, corn flour and cooking oil. But when the government’s income collapsed, all those problems went ballistic.

OF COURSE Maduro lost the election. In these circumstances, Chavez himself couldn’t have won it. Even Simon Bolivar couldn’t have won it. So now the challenge that both the Chavistas and the opposition face is how to manage an orderly transition that respects democracy, avoids violence, and preferably also preserves some of the social and educational gains of the past seventeen years.

The sheer scale of the opposition victory makes this tricky, since it has a “super-majority”: more than two-thirds of the seats in the National Assembly. In theory, that lets it do radical things like rewrite the constitution. In practice, however, the temptation to do that may not be very great. The opposition’s super-majority is vulnerable as it depends on a single seat (it holds 112 out of 167 seats).

The first order of business of the new National Assembly will be to pass an amnesty law freeing some seventy leading lights of the coalition’s various parties who were jailed on highly questionable grounds – but once freed they will try to reassert their leadership of those parties, which will probably undermine the fragile unity of the coalition.

Nothing the new opposition-dominated legislature does in the short term can change the dire economic situation. Maduro will still control the executive branch, with a presidential mandate that extends into 2019 – unless the opposition forces a recall referendum on his presidency, which it can legally do by next April. The “experiment” is over, but the crisis isn’t.
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To shorten to 725 words, omit paragraphs 7 and 11. (“The work…oil”; and “The sheer…seats”)

How Long Will the Oil Stay Cheap?

I’m in Alberta, the province that produces most of Canada’s oil, and there’s only one question on everybody’s lips. How long will the oil price stay down? It has fallen by more than half in the past nine months – West Texas Intermediate is $48 per barrel today – and further falls are predicted for the coming weeks.

This hits jobs and government revenues hard in big oil-producing centres like Alberta, Texas and the British North Sea, but its effects reach farther than that. “Clean” energy producers are seeing demand for their solar panels and windmills drop as oil gets more competitive. Electric cars, which were expected to make a major market breakthrough this year, are losing out to traditional gas-guzzlers that are now cheap to run again.

Countries that have become too dependent on oil revenues are in deep trouble, like Russia (where the rouble has lost half its value in six months) and Venezuela. Countries like India, which imports most of its oil, are getting a big economic boost from the lower oil price. So how long this goes on matters to a great many people.

The answer may lie in two key numbers. Saudi Arabia has $900 billion in cash reserves, so it can afford to keep the oil price low for at least a couple of years. The “frackers” who have added 4 million barrels/day to US oil production in the past five years (and effectively flooded the market) already owe an estimated $160 billion to the banks.

They will have to borrow a lot more to stay in business while the oil price is low, because almost none of them can make a profit at the current price. Production costs in the oil world are deep, dark secrets, but nobody believes that oil produced by hydraulic fracturing (“fracking”) comes in at less than $60-$70 per barrel.

The real struggle is between the frackers and Saudi Arabia, because the latter is the “swing producer” in OPEC (the Organisation of Petroleum-Exporting Countries), the cartel that has dominated the global oil market for the past fifty years.

All oil exporters want to keep the price high, but Saudi Arabia was the one OPEC member that could and would cut its production sharply for a while when an over-supply of oil in the market was driving prices down. It could afford to do that because it has a relatively small population, very large savings – and a cost of production so low that it can make some profit on its oil at almost any price.

But even the Saudis cannot work miracles. They can aim for maximum production or maximum price; they cannot do both at the same time. Normally they would cut production temporarily to get the price back up. This time they refused to cut production and let the price collapse, despite the anguished pleas of some other OPEC members that need money NOW.

The Saudis are thinking strategically. OPEC only controls about 30 percent of world oil production, which is a very low share for a cartel that seeks to control the price. If fracking continues to expand in the United States, then OPEC’s market share will fall even further. So it has to drive the frackers out of business now.

At first glance the Saudis look like sure winners, because they can live with low prices a lot longer than the deeply indebted frackers can. The banks that have lent the frackers so much money already won’t get it back if the industry implodes in a wave of bankruptcies, but they don’t want to throw good money after bad.

The real wild card here is the US government, which wants the “energy independence” that only more domestic oil production through fracking can provide. Will it let the American fracking industry go under, or will it give it the loan guarantees and direct subsidies that would let it wait the Saudis out?

Stupid question. Of course it will do what is necessary to save the fracking industry. Ideology goes out the window in a case like this: you can get bipartisan support in Washington for protecting a key American industry from “unfair” foreign competition. That will certainly be enough to keep the frackers in the game for another two or three years.

Meanwhile, the OPEC members that depend on oil income to keep large populations well fed and at least marginally content (e.g. Iran, Nigeria and Venezuela) will be facing massive public protest, and possibly even the threat of revolution. Their governments will be putting huge pressure on Saudi Arabia to save them by cutting production and driving the price back up.

It’s impossible to say how this game will end, but it’s pretty easy to say when. Two years ought to do it. Once the outcome is clear, the price of oil will start going back up no matter which side wins, but it will go up relatively slowly. We are unlikely to see $100-a-barrel oil again before 2020 at the earliest.
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To shorten to 725 words, omit paragraphs 9 and 13. (“The Saudis…now”; and “Meanwhile…up”)

Oil: Blind-sided by Technology

“The price of oil will hit its floor and it will rise again,” President Nicolas Maduro assured Venezuelans, whose shaky economy depends critically on a high oil price. “Venezuela will continue with its social plans. Venezuela will move forward.”

No it won’t, and neither will Russia, Iran, or Nigeria. The only major oil exporters that are not in deep trouble are the Arab countries, whose governments have some room for manoeuvre because of low production costs, relatively small populations, and big foreign currency reserves.

Since June the cost of a barrel of Brent crude, the benchmark for world oil prices, has fallen by almost a quarter, from around $110 a barrel (where it was stuck for the past four years) to just above $80 a barrel. Last month, for the first time in decades, Nigeria exported no oil at all to the United States. Even at a big discount, Americans just don’t need it. And the main reason for all that is fracking.

American production has almost doubled in the past five years thanks to the new drilling technologies, and the United States overtook Russia last year to become the world’s largest producer of oil and gas combined. (Saudi Arabia comes a distant third.) With production soaring and world demand for oil stalling due to slow economic growth, a collapse in prices was inevitable. The question is how far they will collapse, and for how long.

The answer is probably not much further, for the moment – but they could easily stay down in the $75-$85 range for a couple of years. The reason for that is that the “swing” producers (mostly Arab), who could theoretically push prices back up by cutting their own production, have clearly decided not to do so.

Their concern is for the long-term power of the OPEC cartel, which used to be strong enough to set the price of oil. That never will be true again unless they can drive the (mainly American) frackers who are causing the over-supply of oil out of business.

Saudi Arabia and its allies are hoping that a prolonged period when the price of a barrel of oil is lower than the cost of getting that barrel out of the ground by fracking will ruin this new industry and bring back the Good Old Days. Dream on.

The Saudi strategy won’t work because some 98 percent of US crude oil and condensates has a break-even price of below $80 per barrel. Indeed, 82 percent of American production would still be turning a profit at $60 per barrel.

Even with its massive foreign currency reserves, Saudi Arabia probably cannot afford to keep the oil price low enough for long enough to break the American frackers. (Its own break-even price for conventional oil is $93 per barrel.) And the Iranians, Nigerians, Venezuelans and Russians, who depend on oil revenues for at least half of their national budgets, will be screaming for higher prices before they face riots in the streets.

So this is not a transient event; it’s a revolution. The Organisation of Petroleum-Exporting Countries (OPEC) came into its own when the United States ceased to be the dominant global producer in the early 1970s. With the re-emergence of the United States as the biggest producer, OPEC’s clout is bound to shrink – so oil prices will probably stay well below $100 a barrel for the foreseeable future.

This will be a great boon for countries that depend heavily on imported oil, like India and China. It may eventually liberate the United States from its compulsion to intervene repeatedly in Middle Eastern disputes that are really none of its business. And it may be a disaster for repressive and/or corrupt regimes in countries like Russia (break-even price $105 per barrel), Nigeria ($119), Venezuela ($121) and Iran ($140).

It also means that worries about “peak oil”, and the underlying calculation that the world had only about forty years’ worth of proven oil reserves left, can be set aside for a while. We are already up to 53 years of reserves, and we are finding new oil faster than we are using existing reserves.

Of course, a broader view of our situation would find little reason for rejoicing in all this. Our global civilisation depends on fossil fuels for 85 percent of its energy, and our annual emissions of carbon dioxide and other greenhouse gases are still rising.

Just another twenty-five years of that will deliver us to the “point of no return”: 450 parts per million of CO2 equivalent in the atmosphere. That would raise the average global temperature by 2 degrees C, and trigger natural sources of warming that it will be impossible for us to turn off again. Runaway warming is not a happy prospect, so it is unseemly to celebrate the news that we have even more oil to burn – and cheaper oil, at that.

On the other hand, it would be entirely appropriate to celebrate the news that other new technologies may open up a better escape route from fossil fuels. Solar power, wind power, nuclear fission, and hydro power all have a role to play in that task, but the Holy Grail for half a century has been fusion power. It may be much closer than we thought.
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To shorten to 725 words, omit paragraphs 11, 12 and 15. (“This will…reserves”; and “On the other…thought”)

Gwynne Dyer is an independent journalist whose articles are published in 45 countries.

THIS ARTICLE MAY ALSO BE USED AS THE FIRST OF A TWO-PART PIECE CALLED “GLOBAL ENERGY: BLIND-SIDED BY TECHNOLOGY”. In that case, this part would be sub-titled “FRACKING”, and the second part “NUCLEAR FUSION”. If you wish to use it that way, but still want the shorter length, THEN OMIT PARAGRAPHS 6, 11 AND 12 from this article..  (“Their…concern”, and “This will…reserves”

Venezuela After Chavez

5 March 2013

Venezuela After Chavez

By Gwynne Dyer

“The graveyards are full of indispensable men,” said Georges Clemenceau, prime minster of France during the First World War, and promptly died to prove his point. He was duly replaced, and France was just fine without him. Same goes for Hugo Chavez and Venezuela.

“Comandante Presidente” Chavez’s death on Tuesday came as no surprise. He was clearly coming home to die when he returned from his last bout of surgery in Cuba in December, and since then everybody in politics in Venezuela has been pondering their post-Chavez strategies. But none of them really knows what will happen in the election that will be held by the end of April, let alone what happens afterwards.

Venezuela never stopped being a democracy despite 14 years of Chavez’s rule. He didn’t seize power. He didn’t even rig elections, though he used the government’s money and privileged access to the media to good effect. He was elected president four times, the first three with increasing majorities — but the last time, in 2012, he fell back sharply, only defeating his rival by 54 percent-44 percent.

That is certainly not a wide enough margin to guarantee that his appointed successor, Nicolas Maduro, will win the next election. Maduro will doubtless benefit from a certain sympathy vote, but that effect may be outweighed by the fact that Chavez is no longer there in person to work his electoral magic. If his United Socialist Party of Venezuela (PSUV) were to lose that election, it would not be a tragedy.

Chavez was an unnecessarily combative and polarising politician and a truly awful administrator, but he has actually achieved what he went into politics for. Twenty years ago Venezuelan politics was a corrupt game fought out between two factions of a narrow elite. Now the task of using the country’s oil wealth to improve the lives of the poor majority is central to all political debate in the country.

In last year’s election, the Venezuelan opposition parties managed to unite behind a single presidential candidate, Enrique Capriles, whose political platform was basically “Chavismo” without the demagoguery. In previous elections, the opposition had railed against Chavez’s “socialism” and Marxism, and lost by a wide margin. Capriles, by contrast, promised to retain most of Chavez’s social welfare policies, and lost very narrowly.

Over the past dozen years Chavez’s governments have poured almost $300 billion into improving literacy, extending high school education, creating a modern, universally accessible health-care system, build housing for the homeless, and subsidising household purchases from groceries to appliances. What made that possible was not “socialism”, but Venezuela’s huge oil revenues.

Capriles had to promise to maintain these policies because the poor – and most Venezuelans are still poor – won’t vote for a candidate who would end all that. He just said that he would spend that money more effectively, with less corruption, and a lot of people believed him. It would not be hard to be more efficient than Chavez’s slapdash administration.

Venezuela today has the fairest distribution of wealth in the Americas, with the obvious exception of Canada. Venezuela’s “Gini coefficient”, which measures the wealth gap between the rich and the poor, is 0.39, whereas the United States is 0.45 and Brazil, even after ten years of reforming left-wing governments, is still 0.52. (A lower score means less inequality of income.)

For all of Chavez’s ranting about class struggle and his admiration for Fidel Castro, this was not achieved in Venezuela by taking money from the rich and giving it to the poor. It was accomplished by spending the oil revenue differently. He changed the political psychology of the country, and it now has the potential to be a Saudi Arabia with democracy.

That is not a bad thing to be, and the Venezuelan opposition has finally grasped that fact. It remains for Chavez’s own party to understand that it has actually won the war, and to stop re-fighting the old battles. A spell in opposition might help it to come to terms with its proper role in the new Venezuelan political consensus: no longer an embattled “revolutionary” movement, but the more radical alternative in a more or less egalitarian democracy.

This will be hard for the PSUV to do, because the people around Chavez are still addicted to the rhetoric and the mindset of “struggle”against the forces of evil that they see on every side. Nicolas Maduro, for example, could not resist claiming that Chavez’s cancer had been induced by foul play by Venezuela’s enemies when he announced the leader’s death.

One day, Maduro promised, a “scientific commission” would investigate whether Chavez’s illness was brought about by what he called an enemy attack, presumably by the United States. Ridiculous, paranoid stuff, and it shows just how far the PSUV has to travel to take its proper place in a modern, democratic Venezuela. But the journey has begun, and it will probably get there in the end.

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To shorten to 725 words, omit paragraphs 7 and 8. (“Over…administration”)