Canadian International Council

Venezuelan Oil: Free Gift of Nature or Wealth of a Nation?Author(s): Daniel Hell ingerSource: International Tournal, Vol.62, No. 1, Natural Resources and Conflict (Winter,2006/2007), pp. 55-67Publ ished by: Canadian Internat ional Counci lStable URL: http:l/ivwrv jstor.org/stable/40?04245Accessed: 3l /Ol /2014 03:14

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Daniel Hel l inger

Venezuelan oilFree g1f. of noture or wealth of o nation?

Venezuelan oil diplomacy has long been a factor shaping the internation-al energy regime, and domestic political conflicts in Venezuela have alwaysinteracted synergistically with conflict over the global energy system. So itis the case with intense domestic conflicts that have swirled aroundPresident Hugo Chvez, the country's controversial populist leader. Partlyat stake is whether the rules of the global oil regime will correspond to aneoliberal framework permitting freer access to minerals and hydrocar-bons on the part of capital, or whether national sovereignty continues tolegitimate host countries' right to regulate access and demand compensa-tion for exploitation of natural resources. Are the resources in a sovereignnation s subsoil a free gift of nature that lie worthless without the applica-tion of labour and investment, or do they constitute exhaustible "naturalwealth" for which the nation is entitled to compensation? This questionrecurs in debates over the imposition of royalry participation in OPEC,management of state-owned enterprises, and foreign participation in dif-ferent phases of the industry.

Daniel C. Hellinger is professor in the department of history, politics, ond law, WebsterUnivenity, St. Louis, MO, and co-editor ofVenezuelan Politics in the Chvez Era: Class,Pofarization, and Conflict (Boulder, CO: Lynne Rienner, zooj).

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Venezuela ranks sixth in the $/orld in proven reserves of conventionalcrudes, with 78 billion barrels.'235 billion barrels of heavy oil (at an eightpercent recovery rate) in the Orinoco tar belt can be added to this total. At a30 percent rate of recovery the oil ministry estimates Venezuela's totalreserves at 7oo billion barrels, more than proven reserves in the entireMiddle East. Impractical today, such reserves might become attractive ifmost global oil fields have passed "peak" rates of recovery global demandcontinues to increase, and technological improvements in emulsifying heavyoils are made. In addition, Venezuela has the world's ninth largest reserveof natural gas, trailing only the US in the Western hemisphere. Venezuelaconsistently ranks in the top five exporters of oil to the US market.

Oil powers Venezuelan diplomacy. Deliveries of oil on credit helpedArgentine President Nestor Kirchner face down the International MonetaryFund in zooj-o4. Venezuela experts are advising other latin governments,including Colombia and Bolivia, on contracts with foreign investors. Oilmoney funds Telesur, a Venezuelan-initiated, hemispheric television net-work. Petrosur is Venezuela's effort to create a South American oil company;PetroCaribe provides discounted oil to countries in the Caribbean Basin. Oildiplomacy has helped Chvez obstruct the US initiative for a NAFTAJikefree trade area of the Americas and promote his "Bolivarian alternative forthe Americas," which prioritizes social objectives and regional integration.

VENEZUELA AND GLOBAL OIL REGIMESVenezuela's leadership in shaping third world oil policies arose in part fromthe consequences of the Mexican revolution. Mexico was the first thirdworld country to nationalize foreign oil companies (in 1938), but conse-quently the foreign maiors excluded PEMEX production from global mar-kets until the r97os, when Mexican oil was welcomed back as part of aneffort to counterbalance the Organization of Petroleum ExportingCountries (OPEC). ln 1943, because of political space opened by Mexicannationalization, the companies accepted a new oil law revising generousconcessions of the past and acknowledging that their profits are subject toVenezuela's sovereign powers of taxation. A few years later, the Venezuelangovernment and Standard Oil agreed to stabilize each side's share of prof-its at 50 percent. American companies promoted this "5o-5o" agreement

t Estimates vary. Unless otherwise noted, all data here compiled by the energy informationagency of the US Energy Administrat ion.

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in the Middle East, helping them muscle their way into subsoil previ-ously the preserve of European companies. Illustrating how transitorysuch agreements can be, in r958 a Venezuelan government, facing a dif-ficult economic situation inherited from a recently deposed dictatorship,unilaterally raised taxes.

Venezuela's advantage as a low-cost producer was diminishing as thecountry began shakily in 1959 what would be its first extended period ofdemocratic rule. Middle Eastern oil was streaming on line, and a reces-sion in the US had depressed prices. The Eisenhower administrationrebuffed President Rmulo Betancourt's offer of preferential prices inexchange for guaranteed access to the US market. Pressured by domesticUS oil interests, President Eisenhower invoked his authority undernational security legislation to restrict further imports from outside ofNorth America.

In response, Betancourt dispatched his oil minister, fuan Pablo PrezAlfonzo, to the Middle East in 196o to propose coordination of oil policies.The enthusiastic reception of Saudis led to the founding of the OPEC.OPEC gradually accumulated more members and influence, evident evenbefore Arab exporters (not OPEC) cut offoil supplies to the west during theSix Day War in rg73. Hawng lost control of production levels, and subject-ed to reference prices, the companies had few incentives to fight national-ization. ln 1976, Venezuela reached a negotiated accord to nationalize theoil industry. A holding company, Petrleos de Venezuela (PDVSA), vas cre-ated to control subsidiaries corresponding to each of the foreign ownedcompanies, including the three majors (Shell, Gul[, and Standard). Finally,proclaimed the country's leaders, el petrleo es nuestro ("The oil is ours!").

THE NEOLIBERAL OIL OPENINGTwenty years later Venezuela seemed poised to retreat from oil nationalismand OPEC. The country had gained a reputation as a notorious violator ofOPEC quotas. Arturo Sosa Pietri, president of PDVSA (rggo-gzl, openlycampaigned for Venezuela to abandon OPEC and join the InternationalEnergy Agency, which was formed by consuming nations in response tothe OPEC price hikes. In 1995 PDVSA s president, Luis Giusti, and theoil minister, Edwin Arrieta, proclaimed an apertura petrolera (oil open-ing), intending to double production in ro years, busting through theOPEC quota. Oil executives argued that limiting production in defence ofprices was emblematic of a discredited rentier mentality that sustained an

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inefficient state, smothered the private sector, and fostered underdevelop-ment. New forward and backward linkages in the economy would morethan compensate for revenues lost to the government. When critics raisedthe spectre of an international oil price war, they answered it was better toproduce six million barrels per day at $ro than three million at $zo.

In 1999, no longer PDVSA president, Giusti revealed that the eperturawas a kind of privatization strategy.

The image of PDVSA as a national asset was, and still is, too strongto permit a conventional privatization scheme. Selling the compa-ny to private interests would be considered unacceptable, makingit political suicide for any public figure to advocate. Even placing aminor portion of PDVSA on the market...would require reformingthe exiting legal framework.'

PDVSA sought to athact large infusions of foreign capital through jointventures and operating agreements. Critics charged that the aperfiira effec-tively privatized activities that in past would have been regarded as conces-sions, and some of their concerns were later borne out. For example, undercover of operating agreements for reactivating marginal fields, foreign com-panies often drilled into more productive reserves farther below.Companies were not paid a straightforward fee for services, but were paidon a sliding scale pegged to the market price of oil, relieved of any obliga-tion to pay a royalty (which was shifted to PDVSA) and taxed at the lowerrate (34 percent instead of 67 percent). |oint.risk exploration contractsoffered access to two percent of Venezuela's total land area, but fees wereless than half of what was offered in concessions offered for merely 8.2 sq.kilometres by the military dictatorship in ry57. "Strategic associations" todevelop heavy oil in the Orinoco would pay royalties at only one percent,justified because ofthe high cost of production. Critics contend that the realpurpose of boosting production was to provoke a crisis with OPEC.Technically, "Orimulsiorf would not count against Venezuela's OPECquota, but as it would compete with lighter grade crudes on the market,inevitably OPEC would obiect.'

z Luis E. Giusti, "La epeftura: The opening of Venezuela's oil industry" Journal of lnternationalAffairs53 (fal l r999): rr7.3 Luis E. Lander, "Gobierno de chvez: (neuvos rumbos en la pol l t ica petrolera venezolana?" inLuis Lander, ed., Poder y petrleo en Venezuela (Caracas: FACES-UCV PDVSA, zoql,57-92.

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Hand in glove with this strategy was a policy of "internationalization,"i.e., the acquisition of overseas refineries and distribution systems, staftingwith VEBA Oil (1983) in Germany and later Citgo (1986) in the UnitedStates. The goal, said PDVSA executives, was to secure markets and trans-form the company into a fully integrated, modern enterprise. However,VEBA never refined Venezuelan heavy oil; overall, PDVSA s subsidiariesprocess much more light than heavy crude. Under contractual terms with itspartners, PDVSA provides oil at substantial discounts offa "netback" systemof transfer pricing. The company incurred a significant opportunity cost inforegoing other markets. Profits were not repatriated to Venezuela, oftensheltered on the books of PDVSA service companies in third counffies.r

A handful of nationalist and leftist politicians criticized international-ization and the apeftun, but they gained little traction with the political eliteheading the two main political parties, Democratic Action (AD), founded byBetancourt, and COPEI, a Christian Democratic party founded by RafaelCaldera, who served as president during Giusti's tenure as CEO of PDVSA.Even presidents found it diflicult to curb the power that PDVSA had accu-mulated. How did this situation arisel

FROM NATIONALIZATION TO THE APERTURAHugo Chvez's first priority after the 1998 presidential election was not torevise oil policy but to call a constituent assembly to rewrite the natior{sconstitution, over the objections of the established political parties, whosehegemony would be threatened by an overhaul of the country's institutions.The erosion of the legitimacy of the extent constitutional order, however,was rooted in mass skepticism about the nature of Venezuelan democracyand its capacity to administer the benefits of oil wealth. The issue was notwhether some other type of system would be a better steward than a democ-racy, but whether this partr'cu1ar democracy was delivering on the promiseof "sowing the oil" in a project of national development that would includeall Venezuelans.

After 1935, when the dictator fuan Vicente Gmez died, conservativeelites in Venezuela claimed that democracy could be viable only after a peri-od of social modemization lifted the civic capacity of the majority poor.

4 Juan Carlos Bou, "El programa de internacionalizacin en PDVSA: ;Triumfo estratgico odesastre fiscal)" in Luis Lander, Poder y petrleo, t11-84.

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Advocates of mass, universal suffrage, and direct election insisted onimmediate democracy. Only such a state would demand from foreign com-panies a "iust share" of oil profits to the nation; only such a state would"sow the oi' in a developmental project to lift living standards and createa modern, inclusive society, one sustainable after the nations "naturalwealttf was exhausted. This latter vision, articulated by Betancourt andAD, prevailed and was institutionalized after the fall of the military dicta-torship in 1958 in the constitution of 196I. A series of elite pacts, espe-cially the power-sharing "pact of Punto Fijo'among non-Communist polit-ical parties, signed just before the first post-dictatorship elections ofDecember 1958, laid the basis for a populist system, known as puntofiiis-mo. However, the same system of pacts attenuated popular influence overelected officials. As long as oil fuelled economic growth and opportunitiesfor social mobiliry this mattered little.

Throughout the post-G mez era, as long as exploitation of oil remainedmostly in foreign hands, developmental failures could be attributed to theraking offof the country's "natural wealtH'by imperialismo petrolero.Wlthnationalizationin19T6, that populist discourse reached its limits. This newpolitical fact was obscured by the oil bonanza. Eight years 9974-8r) of spec-tacular growth seemed to reinforce the existing populist model. PresidentCarlos Andrs Prez $974-28ll, a protg of Betancourt, sought to convertVenezuela overnight into the Ruhr of South America, but his grandioseprojects produced uncompetitive heavy industries and unprecedented cor-ruption. Worse, Prez and his successors borrowed against future oil earn-ings to accelerate their plans. COPEI's President Luis Herrera CampinsFgZg-&ll promised better stewardship but then mismanaged the second oilprice hikes after the fall of the shah and Iran-lraq War. By r98r, oil priceswere sliding, but Herrera Campins sought to evade difficult economic deci-sions. Then, suddenly, on zr February ry83, he announced that the bollvarwould be allowed to float off its 4.3:r mooring to the dollar. "The party'sover," read one newspaper headline.

By the 1976 nationalization, the subsidiaries of foreign companieswere already being run by native Venezuelan executives. They were unen-thusiastic about nationalization to begin with; Herrera Campins gave themreason to resent state ownership. fust before the devaluation, the presidentforced PDVSA to repatriate its overseas reserve fund of $5.5 billion at theold rate. When the rate tripled, trvo thirds of PDVSA s accumulated reserveswere wiped out. "ln this first critical test of the relationship betrveen the

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state and its operating company," wrote Bernard Mommer, later a key poli-cfmaker in the Chvezera, "the government subjected PDVSA to treatmentthat a landlord might make of his coffee finca."s

The company now sought to avoid accumulating cash reserves, but ina tight international market, and limited by OPEC quotas, investment athome was not an option. The solution was internationalization, beginningwith the VEBA purchase in 1983. President faime Lusinchi (AD, 1984-88)halted the program, but only temporarily. later, when President CarlosAndrs Prez (1989-92), responding to critics in his own party, orderedPDVSA to sell Citgo, the company temporized, arguing that no buyer wouldpay Venezuela a fair price. The tactic worked. Prez, beset by political woes,was driven from office before he could insist on the sale.

To win the December 1988 election, Prez had campaigned as a pop-ulist. The good times enjoyed in his previous presidency would return.Certainly Prez knew better, but even he was shocked to learn the country'sdesperate financial condition. Only $3oo million remained in reserves; hewould need to negotiate a $+.5 billion bridge loan. In February t989, Prezannounced a structural adiustment package negotiated with theInternational Monetary Fund. On the day that domestic gasoline prices andpublic transportation fares were to be hiked, urban rioting broke out in zzcities, lasting several days. The repression of this rebellion reinforced andenlarged a conspiratorial military faction which, led by Chvez, launched anunsuccessful coup in rg9z. The previously obscure lieutenant colonelbecame a symbol of popular discontent. Mommer later described the situ-ation well: "The military dreamt about saving the country; PDVSA execu-tives dreamt about saving the company from the country."6

Prez was forced from office by congress, but the punto{iiista systemwas mortally wounded. In this context the oil company elite effectivelypressed for the apertura. Prez himself, seeking to deal with the financialcrisis, had turned to PDVSA executives for ways to boost oil revenues, pro-moting Sosa Pietri, Giusti, and others to company leadership. Aside from

5 Bernard Mommer, Venezuela, polftica y petrleo (Oxford: Oxford lnstitute for Energy Studies,r995),5.6 Bernard Mommer, "Subversive oil," in Steve Ellner and Daniel Hell inger, eds., VenezuelanPolitics in the Chvez Era: Class, Polarization, and Conflict (Boulder, CO: Lynne Rienner, eoo3),l3 l .

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the Citgo controversy, little debate ensued; oil policy, at the centre ofVenezuelan politics before nationalization, now seemed peripheral. Whatmatter frow PDVSA profited if all profits went to the statel The only oppo-sition to the aperturacame from a handful of leftist intellectuals and formerguerrillas, most importantly Ali Rodriguez , from his seat on the congress'soil oversight committee, and Mommer, a company dissident. These leftistshad had a relationship with Chvez's military circle since the r98os.

Giusti and many of his circle in the company began their careers in thepre-nationalization era working for the Shell subsidiary (Maraven); theybecame known as the generacin de Shell; Their first steps were to widena loophole in the nationalization law which otherwise reserved the oilindustry to the state. Article 5 allows for "associations" between PDVSA andprivate entities in "special cases and when it suits the public interest,"requiring that the state company retain control over such associations. Inaddition, the ry43law required that congress and the president review andapprove such contracts. In rggo, the company (not the ministry) obtaineda supreme court ruling that not only cleared away that requirement butalso all pre-nationalization legislation that might conflict with the apertu-ra under article 5. This removed legal bases for critics to challenge reduc-tions of royalry international arbitration of contract disputes, sliding ratesof taxation, etc. PDVSA executives then "satisfied" the legal obligation forstate control with ineffectual joint committees of control instead of major-ity ownership of shares. To further cement tlte apertura, PDVSAs con-tracts for services and partnership made the company legally responsibleto absorb any additional costs imposed as a result of new government reg-ulation or changes in the tax and royalty regime. Effectively, the companyhad abrogated the ministry function of managing relations between thenation and foreign capital, and to consolidate its role it made itself hostageto its partners.

In ry93 Rafael C-aldera was elected to his second presidential term(1994-98; the first was 1964-68). His hopes to implement a more hetero-dox economic policy were shattered by the near collapse of the banking sys-tem and his failure to hold bankers responsible. Giusti and the generacinde Shell moved to widen the apertura. Then came Chvez.

7 Jos Enrique Arriola, Clientes Negros: Petrleos de Venezuela bajo la generacin de Shell(Caracas: Los Libros de El Nacional rSS8).

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OIL POLICY UNDER CHVEZChvez's campaign in 1998 was abetted by the collapse of world oil pricesin the aftermath of the 1997 Asian economic crisis. By some estimates,eamings fell from $r3.7 billion in ry97 to $4.3 billion in 1998.8 The aper-fura sought to minimize fiscal retums (royalties as low as one percent, slid-ing tax scales, reduced ministry capacity to audit costs) per barrel to attractnew foreign investment and increase volumes of production. This conceptwas not well understood by most chavlsfas, and probably not by the presi'dent himselt who saw the "meritocracy," as the genemacin de Shellproudly referred to itself, as merely the leading edge of a corruPt oligarchy.Only Chvez's determination to return Venezuela to leadership of OPECclashed with the objectives of the oil executives. The Bolivarian constitutionof 1999 prohibited privatization of PDVSA, not privatization of sub'sidiaries. The apertura was stalled but not closed. The turning point camewith a new hydrocarbons law decreed {under authority of the nationalassembly) in November 2oor.

The Chvez regime's policies since then can be summarized as follows:Private capital. Far from ultra-nationalist, the new oil regime continues

to allow joint ventures, shared risk partnerships, and service and operatingagreements. But these must be consistent with article 5 of the nationaliza-tion law of rg75, the new (rgqg) Bolivarian constitution, and the zoordecree law, which insists upon majority ownership of shares in f oint enter-prises, all objectionable to the meritocracy.

Fiscal regime. foint ventures and operating agreements are once againsubject to substantial royalties, and taxes were raised, replacing arrange'ments that had reduced royalties to as little as one percent (exploitation ofheavy crude in the Orinoco tar belt). Despite protests, all zz companies withoperating agreements migrated to the new law by zG fanuary zoo6. Withhigh oil prices, and the government threatening both to exdude resistersfrom new ventures and to take over existing operations (regardless oflegalconsequences), the companies decided to comply. However, renegotiationof heavy crude contracts was still pending in early zoo7.

Intemationalization. Contrary to early indications, the government hasnot proceeded to sell off Citgo or VEBA, settling for greater accountabilityand repatriation of profits. Debt obligations, conffactual obligations to pro-

8 See "Oil wars," oi lwars.blogspot.com; "Myth busting: How much money does Venezuela real-ly get from oi l l" Venezuelanalysis.com, r5 January zoo6.

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vide discounted crude, and disinterest on the part of buyers made a saleunattractive.

OPEC. Venezuela returned to strict adherence to OPEC quotas, evenagreeing to include heavy oil, significantly reducing its eamings. In zooo,Venezuela successfully advocated the implementation of a "price band" sys-tem to trigger increases and decreases in overall production. PresidentChvez convened an OPEC summit in Caracas, only the second in the orga-nizatiorfs history.

THE VENEZUELAN OIL WAR OF zoor-o3President Chvez's oil policies were at the centre of a fierce struggle forpolitical survival. For most of three years, the chavistas concentrated onpolitical reforms. The oil ministry was entrusted to apertura critics, butPDVSA executives remained ensconced in their suites. Chvez appointedloyalists to the presidency of PDVSA, but they were chosen for their per-sonal relationship to the president, not oil expertise. While executives com-plained about politicizing the company, these early chief executives wereeasily caphrred by the meritocracy. For example, the president of PDVSApublicly criticized the ministry's intention to raise royalties in the draft oillaw of zooo.

Then, in November 2oor, President Chvez issued his controversial 49decree laws, including urban and rural land reform, limits on industrialfishing, and, most crucially, a ne\ry hydrocarbons law. PDVSA executivesreacted furiously and threw their lot in with the opposition frrlly. A relative-ly successful one-day civil strike in December convinced opponents theycould bring down the president. Aside from oil executives (Gente dePetrleol, opposition organizations included FEDECAMAS, the nationalbusiness association; labour bosses associated with the traditional politicalparties; opposition parties and middle class civic organizations, somefinanced in part with US taxpayer money; and the country's most presti-gious newspapers and private broadcast networks. In February 2oo2,Chvez replaced PDVSA s president with an apertura critic, Gastn Parra,and named new directors (actually, a committee acting in his name,chaired by the oil minister). On rr April zooz, the opposition joined forceswith dissident sectors of the military to oust Chvez briefly, installingPedro armona, head of FEDECAMARAS, as president. AmongCarmona's first actions was to oust Parra from PDVSA, even before he hadappointed a cabinet.

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The coup was triggered when a massive demonstration marched on thepresidential palace, where it clashed with Chvez supporters and violencebroke out. The opposition demonstration, called to support a faltering civicstrike, was supposed to terminate in front of PDVSA headquarters in theeastem, more afluent sector of Caracas. At the last moment organizerscalled on the huge crowd to march on the presidential palace and "throwout the president." The media attributed responsibility directly to govern-ment supporters firing on unarrned demonstrators. Subsequent investiga-tions, while leaving unclear what actually happened, showed that the TVreports were manipulated and unsubstantiated. The US denied any involve-ment, but its intelligence agencies were aware in advance of plans to over-throw Chvez. Some evidence suggests that Washington encouraged therevolt. Oficially, the US lamented the coup but blamed Chvez for havingallegedly provoked his own demise.e

"Pedro the Brief," as he came to be known, decreed the suspension ofthe national assembly and repealed the November decree laws, includingthe oil statute. However, 48 hours later, on r3 April, a combination of mas-sive, spontaneous popular protest and loyal military garrisons broughtChvez back to power. Following the coup, Chvez appointed Rodriguez,who had served as oil minister and then secretary general of OPEC, to headPDVSA. Rodriguez tried to reconcile the meritocracy to the new chavistahegemony, but in December zooz oil executives joined a neu/ civil strike,taking with them oil workers from the union headed by an AD union boss.The work stoppage and sabotage--e.g., captains of tankers grounding theirvessels, computer technicians erasing hard disks-reduced output from2.9 million barrels a day (2.5 million for export) to just 25,ooo. After repeat-ed warnings, Rodriguez discharged the executives and r8,ooo illegallystriking employees. Technicians from other OPEC countries, loyal workers,and retirees staffed vital workplaces. The government survived; by Aprilproduction largely had recovered, though there remains disagreementabout whether full productive capacity was restored.

In August zoo4, Chvez confirmed his legitimacy and the hegemonyof his movement, winning nearly 59 percent of votes in defeating an oppo-sition attempt to recall him. In late zoo4, Rodriguez became foreign min-ister, leaving the company and the ministry in the hands of Rafael Ramirez,

9 Eva Colinger, El cdigo Chvez: descifrando la intervencin de los EE.UU. en Venezuela(Caracas: Editorial Questi6n, zoo5).

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who oversaw the "migration' of foreign investors to the new oil law. Thechavistas further consolidated the new oil regime in Venezuela by havingPDVSA directly administer funds supporting popular'missions" in educa-tion and health, as well as in financing of cooperatives and subsidized mar-kets. Opponents charge that these funds are rife with comrption and saythey should be administered by the state. Privately, some cftansfa leadersagree. There can be little doubt, however, that by directly involving PDVSAin these activities the regime has built public identity with the state compa-ny and posed a formidable obstacle to any future attempts to privatize thecompany.

Chvez's physical appearance and style of speech resembles those ofthe masses, whom he calls el soberano (sovereign ones). He uses hisextraordinary social communication skills to confiast his use of oil earningswith the squandering of oil revenues before 1998. Actually, despite highprices, because of obligations and contracts inherited from the old regime,total revenues at Chvez's disposal through 2ooJ were not much differentfrom those available to his predecessors.'o His high approval ratings (still 65percent in February zoo6) represent the masses' belief that he guaranteestheir inclusion in the benefits of oil. On the opposition side, fear thatChvez will isolate Venezuela from the circuits of global capital generatesintense opposition from the middle class. Alarmed residents of the moreaffluent eastern neighbourhoods of Caracas left their condominiums to par-ticipate in huge, sometimes violent street protests, including the one thatresulted in the tragic events of April 2oo2.

CONCLUS IONRecent conflicts over oil in Venezuela suggest that there remains a signifi-cant potential for conflict between the Westphalian norm of territorial sov-ereignty and a neoliberal governance framework for the global energyregime. A liberal regime classically views subsoil resources as a free gift ofthe spontaneous hand of nature awaiting exploitation. Ideally, these "gifts"are collectively owned-but only until they are discovered and concededto capital as "property." Hence, sovereign ownership of the subsoil shouldeliminate obstacles to exploration and extraction, but royalty and stateregulation of production are counterproductive, in this Ricardian view.

ro See "Oil wars" and "Myth busting."

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As a founding member of OPEC, Venezuela led the postcolonial offen-sive by the third world to assert territorial sovereignty of host countries overthe "rights" of extractive industries. Less an association of "oil-producinglnations, OPEC coordinates the policies of landlord states dealing in a three-playea global energy game with consuming nations and oil companies."From the host country perspective, the subsoil constitutes a repository ofexhaustible "wealth meriting compensation-ground rent in classicalpolitical economy-to the nation.

From the perspective of capital, minerals in the ground are worthlessuntil capital and labour are expended to extract them so that their exchangevalue can be realized in the markelace. Consumers, whether using ener-gy in other industries or in homes and cars, resent high prices, no matterwhether oil companies or exporting states are responsible. Hence, in iden-tifytng more with the IEA than with OPEC, the PDVSA meritocracy aligneditself with interests at odds with nationalism and the landlord state.

Under the concession system, the distinction between landed sover-eign property and capital was clear: the oil ministry articulated the interestof the landlord state; the foreign companies that of capital. After national-ization, conflict between these two entities seemed little more than bureau-cratic infighting among state actors. The institutional memory accumulat-ed by Venezuela in 50 years of dealing with foreign capital under the oldconcession system was almost wiped out. The apertura treated subsoilresources as a "free gift of nature" to capital. This approach is replicated inmodel legislation for minerals industry drafted by the World Bank.'" If theslogan of the French Revolution, aimed at landlords, was "land to the tiller,"the slogan of the meritocracy might have been "oil to the driller."

Neither sovereign owner nor driller is likely to prevail entirely. The les-son of the Venezuelan experience is that states must balance their interestsas rent seekers with their interest in promoting domestic economic devel-opment and rational exploitation of their "natural wealth."

rr See Bernard Mommer, Global Oil and the Nation State (Oxford: Oxford Institute for EnergyStudies, zooz).tz In research not yet published, I f ind similar tendencies in the case ofcopper in post-PinochetChile. Also see, 'A mining strategy for Latin America and the Caribbean," World Bank, technicalpaper, t996,345.

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