Chavez Nationalizes Venezuela's Oil - And Impoverishes His People

The Associated Press reports that Hugo Chavez has announced that the state oil company of Venezuela, PDVSA, will take control of 4 heavy oil projects in the Orinoco River region at gunpoint. He actually is sending the army to ensure that the transnational oil giants who have invested $17 billion in the projects will hand over control quietly.

The problem with Chavez's continued nationalization of Venezuela's oil industry is that political considerations have translated into a real inability to access Venezuela's oil resources at all. At many of the facilities that have been controlled by the government production has actually been falling. The proximate cause of this inability to pump oil is a general lack of preventative maintenance.

Chavez has used his political control over the PDVSA to change the way it conducts business. As recently as just a few years ago, the company was managed like any other oil company and simply paid out its profits directly into government coffers. But Chavez has tried to leverage popular support by using company funds directly for philanthropy. In short, money that might have gone for maintaining machinery has been spent on public handouts.

Venezuela is an oil powerhouse. If you count heavy oil, instead of just the lighter sweeter oil preferred by oil companies for its easier processing, Venezuela has more oil than Saudi Arabia. Venezuela isn't going to become as poor as its Latin American neighbors anytime soon. But this represents a real tragedy in terms of missed opportunities.

Oil wealth doesn't have to be the developmental curse that it has been in Africa and Venezuela, but it does require careful management. Hugo Chavez hasn't been up to the job and unfortunately for the Venezuelan people this means many more men, women, and children will live and die in needless poverty.