China In Search of Energy Security – Chávez Lays Welcome Mat

President Hugo Chávez has long desired to minimize his country’s economic dependence on the United States, and since China’s huge and growing energy demands have resulted in expanded business with Venezuela, he may very well get his wish. Beijing and Caracas have a history of affable diplomatic ties, which in recent years have been strengthened by several multibillion-dollar oil-exploration deals that are providing China with a broadening spectrum of new sources of energy while helping to revive Venezuela’s wilting economy. With its petroleum consumption climbing 7.5 percent per year, China represents a significant and growing long-term source of income for Venezuela.

While Washington continues to fulfill the bulk of its energy requirements through long-established sources in the Middle East, China could be said to have jumped the fence into the U.S.’ ‘backyard’ in an attempt to capitalize on the impressive inventory of natural resources that the region has to offer. The state of Sino-Venezuelan petro-relations represents an evolving global order reflected by the waning influence of the U.S. in Latin America and the growing power of extra-hemispheric nations in the region.

A Wounded Oil Giant

As of July 2011, Venezuela boasts the largest oil reserves in the world. The oil sector represents the economic lifeblood of Venezuela; the industry’s revenue, earned primarily by means of the state-owned Petróleos de Venezuela S.A. (PDVSA), accounts for over ninety-two percent of the nation’s income, which is equivalent to one-third of its GDP. The legendary profitability of PDVSA has enabled the Chávez administration to make use of the company as a political device, while using its large-scale earnings to finance social programs that have been of distinct value to the government’s ideological desiderata. However, Venezuela’s oil sector, and PDVSA’s production in particular, are not as robust as they were in years past.

Beginning in 1999 when Chávez first assumed the presidency, yields from PDVSA-operated oil fields rapidly declined. This downturn was due in part to the normal effects of long-term extensive extraction, but was also partially attributed to excessive government meddling in the state corporation’s affairs, poor maintenance of extraction sites, company corruption, and the repercussions of using corporate profits to fund government-implemented programs. The Venezuelan economy’s deep dependence on the oil sector has made the country highly vulnerable to dips in the commodity’s value. The steep decline in oil prices during the latter half of the 1980s damaged the economy while revealing a greater degree of social inequality than was previously visible, as evidenced by the dramatic growth of Venezuela’s informal sector in compensation. In another blow to the economy, the price of oil again fell in 2008, causing PDVSA’s debt to climb forty-two percent the following year.

This analysis was prepared by COHA Research Associate Lauren Paverman.

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