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The United States and the 'Problem' of Venezuela
By George Friedman

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.

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