January 21, 2005

Commentary

Will Washington Tolerate a Chinese-Venezuelan Petro Pact?

By Seth R. DeLong, Ph.D.
Senior Research Fellow
Council on Hemispheric Affairs

• Venezuela is quickly emerging as a major player in the global energy game due to China’s skyrocketing energy demands and the escalating instability of oil sources in the Middle East and West Africa.

The U.S.-Venezuela Oil Split approaches a Boiling Point

Although Venezuela has long been one of the U.S.’s top four foreign suppliers of crude, relations between the two countries have grown quite acrimonious since the Bush admin-istration’s tacit support of the failed coup against populist president Hugo Chavez in April of 2002. How the Bush administration has been dealing with Caracas repeats a well-known cycle to any student of U.S./Latin American relations: support of overt or covert coups against democratically-elected regimes eventually ignites a backlash of popular support for the embattled government against the “imperialist gringos.” This is likely to motivate Washington to even more aggressively back its favored opposition, generating an even stronger wave of popular backlash.

The crucial difference between the recent U.S. support of the middle-class opposition in Venezuela – mainly through the National Endowment for Democracy (NED) and the U.S. Agency for International Aid (USAID) – versus its earlier backing of the Somoza, Batista, Duvalier and Pinochet dictatorships, is that Washington can ill afford to antagonize the populist government from which it receives anywhere between 11% and 15% of its imported petroleum. This is one situation where Washington simply cannot risk an oil crisis for the sake of indulging the administration’s numerous nostalgic cold warriors, like Assistant Secretary of State Roger Noriega and Undersecre-tary of State John Bolton. But despite the Bush administration’s tacit support of the 2002 coup and the substantial funds that the NED poured into the failed recall referendum last August, Chavez has, so far, not given any indication that he intends to cut petroleum exports to the U.S. He did, however, tell Washington to not “even think about trying something similar in Venezuela,” referring to what he claims was Washington’s orchestrated coup against former Haitian President Jean-Bertrand Aristide in February, 2004. Should the U.S. follow this course, he optimistically observed that Venezuela “has enough allies on this continent to start a 100-year war,” and that “U.S. citizens could forget about ever getting Venezuelan oil.”

Enter the Dragon

In December 2004, President Chavez met with his Chinese counterpart, Hu Jintao, in Beijing to discuss a new bilateral agreement regarding access to Venezuela’s energy market. Under the agreement, which Chavez pushed because, in his words, “this is what is needed in the world in order to break with unilateralism.” As a result, Caracas will help Beijing with additions to the latter’s strategic oil reserves in exchange for Chinese investment in Venezuela’s agricultural sector and the development of fifteen currently shut down oil fields. This meeting was preceded by Chavez’s renewed calls for the creation of PetroSur, a Latin American version of OPEC.

This dimension cannot simply be chalked up to the Chavistas’ heady nationalistic rhetoric or to Chavez’s frequent cheeky barbs against Washington. Rather, Chavez likely sees such a block as a defensive bulwark against any conceivable future U.S. intervention against him as well as a means of gaining the kind of steely international leverage that has been famously found in OPEC.

Chavez’s Brinkmanship

None of this can be welcome news to Washington policymakers who are having increasing difficulty finding, or even maintaining, stable sources of oil. With al-Qaeda attacks in Saudi Arabia, the insurgents’ continuing sabotage of Iraqi and Colombian pipelines, and civil unrest in Nigeria, U.S. oil managers can only get more desperate in their search for reliable petro exports. With the largest proven oil reserves in the Western Hemisphere (77.8 billion barrels), bilateral deals with China, and an attractive six-day transport time to U.S. ports – as opposed to five weeks from the Middle East – Chavez is forcing Washington to take a more protracted look south. Whether the volatile Venezuelan leader is playing a reckless game with Washington that could get him swatted, or is adroitly acting in his country’s best interests, is a question that could be explosively answered in a relatively short period.

Evocations of the Monroe Doctrine

In 2003, China surpassed Japan as the world’s second largest oil consumer. Given that by 2025 China’s net oil imports are projected to be 9.4 million barrels per day (bbl/d), the U.S. Energy Information Agency predicts that by 2030 China will be importing as much oil as the U.S. is currently (11.8 million bbl/d). With its energy consumption expected to double in the next decade, China is looking into markets that traditionally have supplied most of their crude to the U.S. Though Beijing has no choice but to attempt to sate its country’s skyrocketing petro demands, the China problem, from Wash-ington’s view, is that any increase in Beijing’s dependence on Caracas invariably cuts into one of its few remaining, relatively stable sources of crude. Ironically, then, Washington must either throw many carrots at Caracas, or use a very big stick against it.

Drawing a bead on the largest Western Hemispheric reserves would certainly represent a dicey move on Beijing’s part. Moreover, China’s recent initiative towards Venezuela comes at a time when Beijing has just recently indicated that it has similar designs on Canadian oil markets that today are dominated by the U.S. In other words, not only is Beijing poking its nose in ‘our backyard,’ but Washington’s front yard as well. The New York Times reported on December 23, 2004 that, according to Murray Smith, a former Alberta energy minister, “The China outlet would change our dynamic. Our main link would still be with the U.S., but this would give us multiple markets and competition for a prized resource.” How will Washington view Beijing’s initiative towards the US’s largest source of oil imports? The same Times story cited Calgary’s The National Post, which pithily editorialized, “Watch the Americans have a hissy fit if a Chinese incursion materializes... So far, the Americans have taken Canada’s energy for granted.”

Thus, the immediate short-term problem facing Washington from the Caracas/Beijing axis is two-fold; on the one hand, it cannot allow China to get too cozy with one of its closest suppliers, which may provoke Washington to exhume the Monroe Doctrine. On the other hand, Washington’s current policy of siding with the anti-Chavez opposition risks the very outcome Washington seeks to avoid; pushing Caracas into Beijing’s arms or precipitating an anti-Washington embargo.

Kissinger Redux?

Though Secretary of Defense Donald Rumsfeld has most likely managed to exhaust the offensive capacity of the US military for the foreseeable future, it would behoove the increasingly feisty Chavez to review the recently declassified British intelligence document of December 13, 1973 entitled “Middle East – Possible Use of Force by the United States.” The Foreign Office memo cited a warning by former Secretary of Defense James R. Schlesinger to the British ambassador in Washington, Lord Cromer, that the administration would not tolerate threats from “under-developed, under-populated” countries. Given that the U.S. annually imports as much or more oil from Venezuela as from Riyadh, Chavez should be well advised that any talk of an embargo could trigger a U.S. military intervention. He may risk setting the stage for this possibility if he is perceived by Washington as being too nettlesome in setting up a new OPEC, or if he gets too close to Beijing for Washington’s comfort.

Some analysts are already predicting a global clash between the U.S. and China over oil reserves that could trigger a veritable casus belli. As stated by Gal Luft, executive director of the Institute for the Analysis of Global Security, in a recent editorial in The Los Angeles Times, “Without a comprehensive strategy designed to prevent China from becoming an oil consumer on par with the U.S., a superpower collision is in the cards.”

So far, neither Chinese nor U.S. authorities have, at least publicly, anticipated anything like a global clash over energy sources. Reported by Stephanie Ho of AXcess News, Chinese Embassy spokesman Sun Weide said, “Of course, as our two economies continue to grow, we both need reliable and, I think, affordable energy supplies... So, there is very good basis for cooperation between the two countries.” But such optimism belies the fact that Washington is facing an almost certain intrusion into its oil markets by the world’s second largest petro importer. Though Beijing will somehow have to satisfy its energy demand, which grows annually at 7.5%, Washington will not look kindly on any such incursion into its traditional oil suppliers. As observed by Luft in The New York Times, “China’s gone after the low-hanging fruit so far. Now they’re entering another level of ambition, in places such as Venezuela, Saudi Arabia and Canada that are well within the American sphere.”

Washington could begin repairing its frayed relationship with Caracas by supporting what is bound to be a growing oil-based alliance between Caracas and Beijing. Given the near inevitability of this new alliance, Washington would be foolish to obstruct China’s economic growth by trying to dictate to Chavez where he can and cannot sell his country’s oil. Furthermore, just as many U.S. public figures are demanding that their government reduce its imports of Middle East oil, so too are Venezuelans urging Chavez to reduce his country’s traditional reliance on the U.S.’s oil consumption. Now that China is offering Chavez just that opportunity, the question is, will Washington tolerate a Sino-Venezuelan petro pact or begin dusting off the Monroe Doctrine?

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. Web site: www.coha.org; email coha@coha.org.

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