Chavez's Not-So-Radical Oil Move

Venezuelan President Hugo Chavez has a garish knack for making the world think he's the most radical of radicals. So when the left-wing, anti-U.S. leader ascended a raucous stage in front of a petrochemical plant in eastern Venezuela today — May Day, the leftiest day of the year — and announced his government's takeover of the nation's lucrative heavy oil industry, it sent the usual panic through Washington and the international media. "It's national power!" shouted Chavez, who controls the hemisphere's largest crude reserves. "We can't have socialism if the state doesn't have control over its resources!"

But the truth — one that both Chavez and his archfoe, the Bush Administration, would prefer you not know — is that when it comes to oil nationalization, Hugo is hardly the most radical of his global peers. In fact, even after today's petro-theatrics, Chavez is just catching up with the rest of the pack.

From Mexico to China, more than 75% of the world's oil reserves are controlled by national oil companies today. Of the world's top 20 oil-producing firms, 14 are state-run. And even though Chavez has now stripped foreign oil companies like Exxon Mobil of any majority stakes they had in Venezuelan oil production projects — mandating that his state-run company, Petroleos de Venezuela (PDVSA), have at least 60% ownership from here on out — he's at least allowing those private multinationals to continue taking part in the drilling. Not so, for example, in Mexico or the world's largest oil producer, Saudi Arabia. Washington touts those two countries as model energy allies, despite the fact that for more than half a century their national oil companies have barred U.S. and other foreign oil businesses from production ventures.

Apart from his fiery rhetoric, what makes Chavez's move seem more jarring is the fact that, until he came to power in 1999, Venezuela had been a trend-bucking oasis for Big Oil. Venezuela did nationalize its oil industry in 1976, but in the 1990s it had steadily reopened its fields to foreign investment — in some cases handing the multinationals deals that even conservative Venezuelans considered too sweet. Chavez has just as steadily, and stridently, reversed that policy, paring down the multinationals' ownership while ratcheting up their taxes and royalties. And because Venezuela is America's fourth-largest foreign crude supplier — providing the U.S. with almost 15% of its oil imports — each turn of his nationalization screw tends to provoke outsized alarm.

That, perhaps, is the real cause for concern — how deeply the nationalization trend affects the quantity of oil that not only Venezuela but other countries can export, and hence the price we pay for it. The lack of new investment in Mexico's oil fields, for example, has led to some of that nation's steepest production drops ever. The drilling ventures Chavez expropriated today involve tar-like heavy crude in Venezuela's Orinoco belt — perhaps enough to add some 300 billion barrels to the country's reserves, which would move it ahead of Saudi Arabia. But to make that heavy oil refinable requires billions of dollars, capital that Chavez's critics fear he may now have alienated — especially if, as the multinationals fret, he ends up giving the companies inadequate compensation for the expropriation.

Chavez, who is determined to reduce Venezuela's dependence on the U.S. market, is betting that high oil prices as well as deep-pocketed ideological allies like China and Iran will help make up for any investment shortfall. It's a risky gamble — but not much riskier than U.S. energy policy. Between 2001 and 2006, U.S. gasoline consumption decreased by a laughably small 1%, according to a recent study by the University of California at Davis. Americans could blunt the effects of policies like Chavez's by lessening their dependence on foreign oil. But that, it seems, would be too radical.