Venezuela has 18 percent of the world’s proven oil reserves, according to BP’s 2012 Statistical Review of World Energy, out this week. That’s more than Saudi Arabia (16 percent) and Canada (11 percent). So does this mean Venezuela is now the world’s biggest oil power?
Why the disparity? A closer look reveals key differences between the two countries. Saudi Arabia’s oil is the world’s cheapest to extract. Most of Venezuela’s reserves, by contrast, include heavy and extra-heavy oil in the Orinoco Belt, which is harder and more expensive to produce. (This is one reason why Venezuela tends to favor higher global prices at OPEC meetings.) Venezuela’s fields are also hobbled by weak investment: The state-owned firm, PDVSA, spends remarkably little on exploration and production, while some large multinationals, like ExxonMobil, are wary of working in a country with a history of nationalizing foreign assets.
What’s more, LeVine notes, Saudi Arabia remains the world’s dominant oil power because of its spare capacity — “it is the sole country able to add meaningful daily volumes to global production in a pinch.” Many analysts think that Saudi Arabia’s ability to influence the global markets has weakened in recent years. Still, this spring, when prices were soaring and the United States and European Union were coordinating a boycott of Iran’s oil, Saudi Arabia managed to ramp up production to its highest point in three decades in order to ease tight supplies. Venezuela can’t do anything like that.
In recent years, there have been a spate of articles written about how the Western Hemisphere — led by Venezuela and North America — is poised to become the new “center of gravity” for the world’s oil, thanks to a bunch of vast new discoveries. But as energy analyst Michael Levi has observed , the Middle East is likely to remain the world’s most important oil center for the foreseeable future:
The Middle East plays a special role in the world of energy in three basic ways. As the home to most of the cheap oil in the world, it plays the role of price setter, with broad economic consequences. As the home to most of the easy to develop oil in the world, it can play the role of price stabilizer, though it appears to be doing that less these days than in the past. And as home to perpetual geopolitical chaos, it has the potential to erupt suddenly in conflict, sending oil prices through the roof.
And that means, Levi notes, that the Middle East isn’t likely to lose its pivotal role in the global economy anytime soon.