Venezuela Is an Important Source of Oil:
Venezuela supplies 8% of U.S. oil imports
, the fourth largest foreign source of oil after Saudi Arabia, Canada and Mexico
. At the same time, Venezuela has the 7th largest oil reserves
in the world -- more than Russia, Libya or the U.S.
Venezuela’s economy is dependent on oil exports, which contributed 30% of GDP, and created 10% annual growth since 2004. Revenue from oil exports contribute 55% of the government's revenue. (Source: CIA World Factbook, 2010 Estimates)
Venezuela's President Chavez Has Been Popular:
Venezuela’s President, Hugo Chavez, got reelected because his social programs, financed with oil money, promised to improve people’s lives. His movement, called Bolivarism, has allies in other Latin American countries such as Ecuador, Bolivia, and Nicaragua. He has been aligned with other countries, such as Russia and Iran, that are using their oil and natural gas reserves to further political aims.
Venezuela Nationalized Its Oil:
In 2007, Venezuela nationalized its oil industry, forcing firms such as ExxonMobil, Chevron and BP to become minority partners in the state-run oil company, Petroleos de Venezuela SA (PDVSA). Chavez had nationalized PDVSA earlier. It became the source of half of the government’s revenues and 80% of export earnings.
Foreign companies have only a 40% ownership in projects they have built, operated and profited from for years. Many companies are hesitant to continue investing in Venezuelan oil ventures.
In the Orinoco oil fields, PDVSA increased its ownership from 39% to 70%. These fields were valued at $30 billion and produce 600,000 barrels of oil a day. These fields supplied 18% of Venezuela’s total oil production.
The foreign companies included France's Total, Norway's Statoil, the U.S. ChevronTexaco, Britain's BP and Italy's Eni. (See BusinessWeek, "Two Oil Giants Exit Venezuela," June 26, 2007)
Venezuela Also Nationalized Its Utilities:
In 2007, Venezuela also nationalized the country’s electricity and telecommunications companies, Electricidad de Caracas and C.A. Nacional Telefonos de Venezuela, as a way for the government to control these key public services. Both companies were majority owned by foreign companies.
If companies cannot safely invest in Venezuela, and expect a healthy return on their investments, then Foreign Direct Investment (FDI) will decline. The competition, innovation and capital provided by FDI is a key indicator for a healthy economy.
Venezuela Is a Proponent of "Bolivarism":
Taking advantage of Venezuela's importance as an oil producer, President Chavez has been strengthening his relationship with Russia and Iran, and has been prodding OPEC
to restrict production in an effort to keep oil prices
high. He campaigns for “Bolivarism”, or pan-South American unity. So far, only Nicaragua, Bolivia and Ecuador are solid members. Most South American countries prefer a good trade relationship with the U.S. They have shied away from Chavez' anti-U.S. stance.