The Venezuelan Curse (Part 2)
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Hi. Quick note before we start this week. While this episode is about Venezuela, a country that recently found itself the focus of our country's confusing ADHD-inspired imperial ambitions, Greenland has also landed in a similar spot. And very surprisingly, we happen to have reported an hour-long documentary about Greenland. I went to visit there a few years ago to a melting glacier on a trip with climate change activists and crypto people. Our Greenland story contains a lot about Greenland's history, just what the place is like. It's very strange. Even ideas about resource extraction there. The story is absolutely one of my favorite things I've ever gotten to work on. If you want to hear it, it's called The End.
We'll throw a link to it in our show notes. That is Greenland. This week, Venezuela. After this short break.
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Hello, Search Engine listeners. This is the final part, part two, of our very fascinating, in my opinion, history of Venezuela, told to us by the platonic ideal of a history professor, Alejandro Velasco. If you've not yet heard part one, please go listen. But if you have, we pick up our story where we last left it. The country's president, Hugo Chavez, star of the TV show, A lo Presidente, is in an extremely strong position. The year is 2005.
Now Chávez has control over the military, control over the national oil industry, international credibility, democratic credibility, and control over the Congress, just at the time when oil prices are hitting their peak. Just an immense amount of power. It's complete power, is what it is. It is total power, which eventually will be the Achilles heel and the reason why Chavismo fails.
So today we're gonna talk about that failure. We're gonna chart a series of really heartbreaking mistakes. Chavez will make many of them himself. The US will contribute at some crucial moments as well. And as we follow the story, we'll see a country gripped by the strange amnesia Alejandro Velasco described in episode one. A place that during the boom times seems to almost forget the bust, forget that everything that rises eventually falls. So to begin, chapter one, the socialist oil company.
Even before Chavez, Venezuela had been engaged in a multi-decade project of nationalizing its oil industry. PDVSA, the state oil company, had begun back in the 1970s. But before Chavez, it's a more complicated picture. You have other foreign oil companies freely operating in Venezuela, and PDVSA itself operates fairly autonomously from the whims of the president. Chavez will change both of those things. One big change he'll make is to tell multinational oil companies like ExxonMobil they have to give Venezuela a 60% stake in their Venezuelan operations in order to stay in the country. The companies that resist, he expropriates their assets. The ones that stay are made to understand that their relationship to Venezuela will be very different now.
Here's Alejandro.
So it was a much more contentious nationalization process, not only because of the finances, but because of the implication that now foreign oil companies are no longer partners in Venezuela's oil industry. Now, if anything, we are clients of Venezuela's oil industry and on their terms. And so the ones calling the shots are not just the oil industry executives. It is, in very important ways, the whims of one person, Hugo Chavez.
And so with them out of the picture largely, with the oil industry nationalized, how well does it run as a nationalized industry?
The major problem is that once you nationalize, you, of course, take complete ownership over the profits. But unlike in a process of privatization, cooperation with private partners or contracting, you now assume all of the risk and all of the investment costs as well, which also imply, of course, maintenance, upkeep, improvements, et cetera, et cetera, right? Now, again, in context of high oil prices, you can possibly do this, but because of the absence, number one, of accountability, right? No institutional accountability. And also, because of the stated project of, we're going to use literally the oil wealth and redistribute it as much as possible into the population, the intensives are set such that the primary focus of the oil industry is not reinvestment in itself, but reinvestment in the nation as a whole.
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