Crude World (32 page)

Yet Chávez’s performance had the feel of what Fernando Coronil, a Venezuelan scholar, described as a state limited to “magic performances, not miracles.” I understood this more fully when I went to see Chávez in the flesh at Miraflores Palace, his office and residence.

The Miraflores ceremony was part of the great game of our times—the superpower search for steady supplies of energy. China, which didn’t import much petroleum until 2000 yet is now the third-largest importer after the United States and Japan, was doing whatever it could to win the friends and resources it needed. In the realm of oil supplies, long-term relationships and contracts are vital. Modest amounts of oil can be bought on the “spot market,” which is where countries and companies buy and sell crude for short-term delivery. For example, the cargo of a supertanker can change hands while on the
open seas. (In fact, it can change hands several times.) But the amounts of oil that can be purchased in this way are relatively minor. Most of the world’s oil is spoken for in long-term contracts that guarantee deliveries from a supplier for several years at least; values are linked to “spot prices,” which are market rates that prevail at the time of shipment.

Through its state-owned companies, Beijing hoped to negotiate long-term contracts for Venezuela’s crude (as well as Sudan’s, Saudi Arabia’s and Equatorial Guinea’s, among others’). This was a potential threat to America, which was Venezuela’s largest oil customer even under Chávez; despite the Bolivarian rhetoric, two-thirds of Venezuela’s exports went to America. Altering this balance was a delicate game. Chávez could shout and threaten as much as he wanted—he could even deride America’s president as the devil—but actually stopping oil shipments to his large neighbor up north could lead to serious consequences; addicts do not react calmly when separated from their fixes. China knew this and did not want to provoke America, yet everyone understood that some supplies could be acquired without causing World War III. To woo Caracas, China had even agreed to launch a communications satellite on favorable terms. At Miraflores, Chávez was getting ready to break this news to the world.

In a basement conference room the size of a high school theater, the front rows were reserved for Chinese officers and businessmen. On stage, several executives from the China Great Wall Industry Corporation waited for Chávez, who arrived a half hour late, clad in a blue suit, white shirt and red tie. He is built stoutly and has thick facial features that give him the look of a retired yet still-energetic boxer who would be glad to return to the ring. His skin is dark brown, reflecting his mestizo lineage. He fills a room like warm water poured into a cup. Dressed in a suit or uniform, smiling or scowling, he makes an impression.

After the Chinese and Venezuelan anthems were sung, Chávez, standing in front of a portrait of Bolívar, in whose honor the satellite was named, launched into a speech of the sort that was his trademark—presidential streams of consciousness. He congratulated the Chinese for being clever at math and saluted their women for being so beautiful. He thanked the Chinese government for training Venezuelans in
satellite technology, saying they were teaching Venezuela “how to fly.” As a visual aid, he flapped his arms like wings. He added that the Chinese had learned to fly under “the great Mao Tse-tung,” and because Chávez drew inspiration from Mao’s one-party, one-truth pedigree, he smiled broadly and exhorted, “Long live the Chinese revolution!”

The Chinese businessmen, as rigorously mercantilist these days as John Rockefeller was in his time, gazed at Chávez. They didn’t seem to know whether the desired response was sardonic smiles or clenched fists, but their expressions veered toward the safe harbor of nodding approval. One of them adjusted the volume on his headset—the speech was being translated into Chinese—as Chávez said, “We don’t want to earn money out of this. We’re not capitalists. This is about the survival of our country and the destruction of capitalism. Capitalists are generating death!”

Yet capitalists were still buying oil from Venezuela, and lots of it. The substance, like water from the glaciers, tends to flow according to a variety of gravitational forces. There is geography (American ports are far closer than China’s), technology (American refineries were equipped to process Venezuela’s heavier crudes) and, of course, political realities (a cutoff might put Washington into a regime-changing frame of mind).
A presidente
can flap his arms in Caracas and hold his nose at the United Nations and promise to remake his nation, but these are performances. The political or economic miracles that Chávez or any leader in his situation might wish for are, most likely, beyond reach, and have always been so.

A pop quiz:

What is the name of the Venezuelan president who described the backers of globalization at the World Bank as “genocide workers in the pay of economic totalitarianism”?

Which Venezuelan leader, nationalizing the operations of Exxon and other foreign companies, described their corporate activities as “economic oppression”?

Which populist
presidente
poured billions of dollars into social programs,
vowing that the wave of oil money washing into the country would be used to create a “Great Venezuela”?

If you answered “Hugo Chávez,” you are wrong. The correct answer is Carlos Andrés Pérez, who was president from 1974 to 1979 and dominated Venezuela so thoroughly that he was known by just his initials, CAP. Pérez came to power as Venezuela began gorging on petrodollars in the wake of the 1973 OPEC embargo. For a hallucinatory period, Venezuela had the per capita income of West Germany, the supersonic Concorde flew to Caracas three times a week and in Miami’s luxury stores Venezuelans were known as
dame dos
, for “give me two” in Spanish. Pérez was not as virulently anti-American as Chávez but was every bit the populist. He boasted of walking across the entire country during his presidential campaign, visiting every village on foot. Because he assumed the postembargo windfall would be permanent and ever-growing, he authorized billions of dollars in foreign loans to plow ever more money into his Gran Venezuela programs.

This was the economic equivalent of a binge destined to end with the money running out or the bloated corpus of Venezuela being ruined by the windfall. As things turned out, both happened. One of the few people who foresaw this was Juan Pablo Pérez Alfonzo, the former oil minister credited with coming up with the idea of a cartel of producing nations in the 1960s. (Pérez Alfonzo is known as the father of OPEC.) In semiretirement, Pérez Alfonzo told a visiting academic researcher, when Venezuela was afloat on its first oil bonanza, “Don’t study OPEC. Study what oil is doing to Venezuela. Ten years from now, twenty years from now, you will see, oil will bring us ruin. … It’s the devil’s excrement.”

To understand where Chávez was taking Venezuela, I looked not to the future but to the past. When oil prices collapsed in the 1980s, Venezuela came undone as public debt and national poverty soared. There was no economic safety net, because the influx of oil money had decimated the agricultural and industrial sectors by inflating their costs. They had lost the competitive edge they’d had before the oil boom. As in Saudi Arabia and other oil-exporting countries, more people
looked to the government for their sustenance rather than to their own brawn or brains. Yet the government, at times of low oil prices, had little to offer. The country went into a free fall.

Because oil can instigate any absurdity, CAP was brought out of retirement and reelected president in 1988, with a desperate nation hoping he could resummon the prosperity that had existed in his previous reign. Yet he had no more magic tricks or even performances. He bowed to global economic winds and imposed an austerity program that had the short-term effect of making the poor even poorer. Widespread rioting broke out, and as many as three thousand people were killed in the Caracazo, as the 1989 disturbances were called. Among the country’s impoverished—and this was now most of the country—the perceived cause of their misery was not oil or debt but the capitalist order. Army officers staged two coups against CAP, and though these uprisings were quashed, the leader of the first one, a charismatic lieutenant colonel, became a national hero for defending the interests of the poor. After more than two years in jail, Lieutenant Colonel Hugo Chávez was set free.

There is a saying that Venezuela does not have good or bad presidents, just presidents who serve at times of high or low oil prices. Chávez, running for president in 1998 as the main political parties all but collapsed from decrepitude, had the great luck of being elected when oil sold for just $12 a barrel. As his presidency got under way, prices began climbing, and six years later, a barrel fetched more than $65, on its way to more than $140. Under his caffeinated direction, Venezuela began a radical spending spree that was similar to the Gran Venezuela effort of a generation earlier, and for economists like José Toro-Hardy, it was akin to watching a car speed toward a wall that it had smacked into not so long ago.

If you don’t mind surveillance cameras and ten-foot walls topped with shards of glass, or barking German shepherds and private security guards who glare at all newcomers, the neighborhood of El Country Club is delightful. It is one of the capital’s enclaves of wealth and is noted for its namesake, a two-hundred-acre club built in the early
twentieth century for the benefit of American oilmen and their good friends, the local oligarchy. El Country Club has horse stables, tennis courts and an eighteen-hole golf course, and is such an untouchable institution that when the mayor of Caracas proposed confiscating its land to build low-income housing, Chávez’s federal government advised that this would be an excessive act of Bolivarism.

For the fortunate Venezuelans who reside along the area’s spotless and quiet streets—a universe apart from the chaos in the rest of Caracas—these were wealth-enhancing times. Although Chávez was despised by the upper class, some of whom had already decamped to luxury condos in Miami, the flood of oil money did not bypass them. When I visited in 2005, the monthly rent on a three or four bedroom apartment near El Country Club was running at about $7,000. The providers of luxury goods and services, from late-model BMWs to plastic surgery, were doing a booming business in precincts around the club.

This was where José Toro-Hardy lived, and after I was buzzed through a locked gate along his street, a maid opened the front door and walked me through an open-air atrium. The quiet and the greenery and the chirping of birds imparted an eco-resort vibe, but Toro-Hardy, unlike his home, was not at peace. A former director of PDVSA who was ousted after Chávez came to power, Toro-Hardy had become a fierce critic of the president’s economic policies. His critique rose above the entitled whinings heard on the shady verandas around El Country, because Toro-Hardy was the author of scholarly books on oil economics and considered himself a nationalist whose nation was yet again being ruined by oil.

His demeanor was nervous, with his eyes darting and his voice wavering, as if he were a fugitive from the illusion of reality Venezuela was embracing. His warnings were issued in the manner of a man imparting what he believed to be a vital yet ignored truth; his pulse and blood pressure made him a candidate for immediate bed rest. Venezuela, with the world’s highest proportion of beauty queens, was a nation of obsessives, and Toro-Hardy was obsessed about oil. He led me into his office and asked me to peruse economic charts as he searched the Internet for up-to-the-second oil data. One chart told a
notable story. From 1920 to 1980, Venezuela had the strongest growth of any country in South America. For much of that time, oil was not a curse, largely because it was not a dominant force—with oil prices quite low, Venezuela also maintained vigorous farming and industrial sectors. Another chart showed how the petrodollar flood that began in 1973 had upset the country’s balance. This is a paradox of windfalls like the one inundating Chávez-era Venezuela; they can distort rather than strengthen national institutions. We’ve seen this before: as the oil sector grows, farming and manufacturing may contract, unemployment may expand, inflation may rise due to the influx of revenues from oil sales, and the gap between rich and poor may widen. This began in the 1970s, and the latest boom was only papering over the structural problems—it was the euphoria of the bubble.

“This is not something that can be sustained,” Toro-Hardy said. “The whole economy depends on government expenditure, but that depends on one factor: oil prices. The laws of economy cannot be violated any more than the laws of gravity. Sooner or later we will have a serious economic crisis.”

It was hard to imagine prices returning to the $12-a-barrel lows that had prevailed when Chávez came to power, but even high prices were not a guarantee of high revenues. Like almost every oil exporter, Venezuela struggled to maintain its output. After the mass firing in 2002, PDVSA’s output plunged by nearly 50 percent, and not all of the lost ground had been regained. Geology was not helping matters, because Venezuela was running short of the light crude that is easiest to refine. The country has vast deposits of tar sands near the Orinoco River, but converting them into conventional oil is a complex process that involves costly technologies, large volumes of water and natural gas—and it causes severe environmental damage. To get the job done, PDVSA needed the help of foreign firms that were now reluctant to get involved because they had been forced to cede control of oil projects they’d operated before Chávez came to power. Orinoco’s heavy oil seemed unlikely to fund the Bolivarian revolution.

Toro-Hardy saw a landscape of problems that centered on dogmatic economic programs implemented not by a government ministry
but by an oil company that was having a hard time just pumping oil. He was ready to acknowledge that PDVSA, when Chávez came to power, had needed to be reformed because it had indeed grown aloof from the country. But Chávez’s method, firing half the workforce, was akin to destroying a village in order to save it. Extracting oil requires immense amounts of expertise, in the form of engineers who understand the geological profiles of the reservoirs they are drilling into. These experts cannot be replaced like waiters in a restaurant. When large numbers of oil experts left Iran after the 1979 Islamic revolution, production plummeted; Iran’s production has inched back, after three decades of war and instability, to just 4 million barrels a day, which is a third less than its prerevolution rate. A similar decline was taking place in Venezuela, where the output was no more than 2.5 million barrels a day when I visited—or a third less than its peak. PDVSA, shorn of its best and brightest, could not do its job as well as it used to, and now it had an additional task to perform.