Falling oil prices bedevil Chavez

What goes up must come down. That's the reality of oil prices, which in the past decade have fluctuated from $9 to $178 a barrel in global markets. But that reality's been disregarded in Venezuela, where $800 billion in oil earnings in the past decade provided the engine of Hugo Chavez's socialist rule. Premising his government spending on perpetual rises in oil prices, he's now facing an economy with 40 per cent inflation and not enough foreign reserves to cover imports. It's a classic recipe for trouble, says Investor's Business Daily (IBD).

Consider:

After posting a surplus of 12.5 per cent of gross domestic product this year, and spending at least 4.5 per cent of gross domestic product (GDP) on a stimulus package of soup kitchen offerings, Chavez is now down to his last $87 billion in reserves, having created nothing of permanent value.

Next year, S&P estimates a wild swing into deficit by Venezuela, forcing devaluation.

Venezuelan oil prices are now $34 a barrel, producing 2.3 million barrels a day, down 16 per cent from 2005, and now consuming 795,000 barrels of that, Chavez doesn't even have enough earnings to finance imports.

He's given away about 424,000 barrels of oil output, and must make do on sales of about 1 million barrels.

With oil down, Chavez has entered the worst phase of the oil cycle, says IBD.

The cash he used to buy elections in 2004 and 2006 is no more, and his hasty call for a new measure to end term limits – and enable him to be president for life – is pretty much a desperate effort to end any calls for accountability in the wake of the bust. With oil prices falling, the devil is coming for his due, says IBD.

Source: Editorial, Chavez Steps Into 'Devil's Excrement,' Investor's Business Daily, December 11, 2008.

For text: http://www.ibdeditorials.com/IBDArticles.aspx?id=313804515539863

For more on Energy Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=22

FMF Policy Bulletin/ 16 December 2008