William Fisher: Oil On Troubled Waters

Amid the ever-escalating rhetoric between the United States and Venezuela, the president of the oil-rich Latin American country, Hugo Chavez, has been busily scoring points with low-income American consumers.

Under a program sometimes dubbed petro-diplomacy, Citgo, Venezuela's wholly-owned gas and oil subsidiary, has been providing discounts of up to 60 per cent on heating oil to poor communities in the U.S.

The program is currently operating in Maine, Massachusetts, Pennsylvania, Delaware, Pennsylvania, Vermont, Connecticut, and Rhode Island. Most local politicians, desperate for ways to reduce energy costs for their constituents, have welcomed it with open arms.

Citgo says the program has benefited more than 180,000 households - and is now attracting some big-name supporters. In New York, the powerful Harlem Congressman Charles Rangel facilitated expansion of the program into upper Manhattan, and a new permutation has been enthusiastically embraced by former Massachusetts Representative Joe Kennedy.

Typical of the way the program works is the deal Citgo struck with three nonprofit organizations in the Bronx to deliver five million gallons of heating oil at 45 percent below the market price. Citgo says the deal will amount to a savings of $4 million for the 8,000 low-income households slated to benefit from the plan.

Citgo says it initiated the heating oil program late last year in an effort to help low-income families in the U.S. to cope with the cold winter and high oil costs. The Venezuelan government says the program costs Citgo relatively little because the oil is being supplied directly, without middlemen, who usually make substantial profits.

But Venezuela's "oil for the poor" program has not all been smooth sailing. In Chicago last October, Citgo proposed to substitute diesel fuel for home heating oil, which is used only by a small number of Windy City residents. Instead, it offered a 40 percent discount on 7.2 million gallons of diesel to be used for Chicago's public buses. Though the deal could have saved the city approximately $15 million, the offer was rejected by Chicago's transit authority over the objections of other elected officials and labor groups.

Undeterred, Chavez is now proposing a second phase of the program. He told a delegation of beneficiaries of the program that in addition to the 40% discount, only 30% would go towards Citgo's expenses and the remaining 30% would be set aside for a special local development fund, to help unemployed in the communities to set up cooperatives. The products of such cooperatives could then be sold to Venezuela, Chavez suggested. The idea was endorsed by Mr. Kennedy, a member of the U.S. delegation to Caracas and a key figure in facilitating the heating oil program in Boston via his not-for-profit Citizens Energy Corporation.

"This concept allows families to work out of poverty; it helps them by giving them the tools such as money to build a roof over their head, instead of just a one-shot benefit," said Kennedy.

Chavez also announced that the program will be doubled next year from its current level of 40 million gallons. "No one should believe that this is just a momentary interest," Chavez told the group. "Leave at ease and tell your neighbors of the communities you represent that the program will continue; it has just begun," he said.

Chavez insisted that the program was not designed to buy support in the U.S., as many critics claimed, but is rather an example of corporate responsibility because Citgo, which is now making large profits in the U.S., is now giving back to communities in which it does business. "Citgo has done good business in the U.S. We believe companies, along with making a profit need to have social responsibilities for the people they sell to," said Chavez.

Chavez pointed out that in the 20 years Venezuela has owned Citgo, the company never paid dividends to the Venezuelan state. Only in 2004 and 2005 has it begun to repatriate some of its profits to Venezuela, he said.

He also cited the program as "an example of his government's efforts to move towards socialism, in which countries relate to each other on the basis of cooperation, solidarity, and complementarity." Venezuela also provides discounted fuel to other countries in Latin America.

Meanwhile, despite a State Department spokesman's comment that the U.S. has "no objections" to Citgo's offers, the Bush Administration continues to ramp up its war of words - and equipment - on Chavez and his allies, principally Cuba, Bolivia and, more recently, Iran.

The fiery Chavez has provided the administration of President George W. Bush a lot to respond to. He proposed a new free trade pact between Venezuela, Cuba, and Bolivia. He pledged to help Bolivia's new President, Evo Morales, with $1.5 billion in energy investments. He also made it clear his country would remain a reliable oil-supplier to his role model, Cuban President Fidel Castro.

Bolivia has the second-largest natural gas reserves in South America after Venezuela. Venezuela's state-owned oil company, PDVSA, and Bolivia's state-owned YPFB, are expected to produce natural gas in a joint venture.

Chavez has also widened his estrangement from the Bush Administration by saying he does not believe that Iran 's nuclear program is a front for secret efforts to produce an atomic bomb. "I don't believe that the United States or anyone else has the right ... to prohibit that a country has nuclear energy," Chavez said at a news conference in London. He repeated a warning that any military strike against Iran would send the price of crude oil soaring above US $100 a barrel and trigger an enormous military escalation in the Middle East. He also called President Bush a "terrorist."

The Bush Administration's retaliation has been swift, though of arguable value. The U.S. recently announced it would cease selling American-made military hardware to Venezuela, citing what it claims is a lack of support by Chavez for counter-terrorism efforts, according to a State Department official.

Venezuela lost no time in countering that it would buy from the Russians and sell off its fleet of American-made fighter planes - which are little more than a pile of scrap metal, since the U.S. has been withholding spare parts for the planes for some time.

Unwilling to be left out of what has all the appearances of a genuine "mouse that roared" international incident, Congress has weighed in with calls for an investigation.

Rep. Joe Barton, the powerful Texas Republican who is chairman of the House Energy and Commerce Committee, announced he would launch an investigation into possible antitrust violations by Citgo. Barton is the recipient of some $2 million in campaign contributions from the U.S. energy industry.

As reported in the New York Daily News, in a letter to the Houston-based Citgo, Barton demanded that company officials produce all records, minutes, logs,
e-mails and even desk calendars related to Citgo's novel program of supplying discounted heating oil to low-income communities in the United States.

"The bellicose Venezuelan decided to meddle in American energy policy, and we think it might prove instructive to know how," Larry Neal, deputy staff director for Barton's committee, told the Daily News.

But Rep. Ed Markey, a Massachusetts Democrat, said he was flabbergasted by Barton's investigation. "The Republicans are on another planet when it comes to energy policy," Markey said.

Instead of doing something about skyrocketing oil prices, Markey said, the Republicans are probing "a charitable donation of heating oil to relieve the suffering of a few thousand American families."

U.S. Energy Secretary Samuel Bodman seemed to agree. He told CNN that the U.S. government has no problems with Venezuela's "oil for the poor" offer. "We view it, as corporate philanthropy," he said, prompting some media outlets to comment that Mr. Bodman must have left his Administration talking points in his other suit.

While Mr. Chavez has become the most recent poster child for Latin American populism, the phenomenon has a long history south of the border. Latin American policy experts are encouraging both the Bush Administration and Mr. Chavez to lower the volume of the current over-the-top rhetoric and tit-for-tat diplomacy that they say can only further separate America from its troubled backyard.

Their fear is that the U.S. will succeed in elevating populists to heroes by backing Big Oil and acting as though every rhetorical extravagance by Chavez is another Cuban Missile Crisis - while Latin America's urgent needs go unaddressed.

They worry that the road the U.S. is traveling looks very much like the one that resulted in what it calls America's self-destructive Cuba policy.

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