washingtonpost.com
Chavez Pushes Petro-Diplomacy
High Oil Profit Leads to Venezuela's Plan to Subsidize Heating in United States

By Justin Blum
Washington Post Staff Writer
Tuesday, November 22, 2005

The plea came in a letter from a group of U.S. senators to nine big oil companies: With huge increases in winter heating bills expected, the letter read, we want you to donate some of your record profits to help low-income people cover those costs.

But the lawmakers received only one response. It came from Citgo Petroleum Corp., a company controlled by the Venezuelan government of President Hugo Chavez, a nettlesome adversary of the United States who has accused the Bush administration of plotting to assassinate him and invade his oil-rich country.

The chief executive of Citgo wrote to the senators that the company is "studying potential plans for ongoing, sustained assistance programs in the United States with the goal of lifting our neighbors in need to an improved quality of life." Citgo is planning to announce today that it will provide discounted heating oil this winter to many low-income residents of Massachusetts, Venezuelan officials said, adding that the plan was in the works before the senators sought help. The company also plans to offer similar aid in New York.

Citgo's plan is the latest example of how Chavez is using a windfall created by soaring oil prices as a diplomatic tool, analysts said. Chavez has used oil in an effort to win friends and allies across Latin America and the Caribbean but has had limited success. In recent months Chavez has aimed his petro-diplomacy directly at the United States, partly in hopes of embarrassing the Bush administration, analysts said.

The populist South American president would relish being able to show that Venezuela, far less wealthy than the United States, had come to the rescue of low-income people here, analysts said.

"An attempt to ruffle feathers in the White House" is how Patrick Esteruelas, Latin America analyst at the Eurasia Group, a New York consulting firm, described Chavez's energy-assistance plan. "He is hoping to essentially stoke the flames, particularly among the more marginalized communities in the U.S."

This is the second time in recent months that Chavez has used oil to tweak the United States, analysts said. In September, Venezuela made a very public announcement about diverting shipments of gasoline to the United States to help prevent shortages after hurricanes Katrina and Rita knocked out refineries along the Gulf Coast.

The assistance might be viewed as altruistic by the United States, if not for the history of tension between the Bush administration and Chavez.

In a September appearance at the United Nations, Chavez attacked the Bush administration for not doing more for the poor residents of New Orleans who were caught in the flooding after Hurricane Katrina. He also said the United States was abetting "international terrorism" because it failed to arrest the Rev. Pat Robertson for saying that the United States should consider assassinating Chavez.

Charles S. Shapiro, the State Department's principal deputy assistant secretary for Western hemisphere affairs, said Chavez is providing oil for low-income people "for political gain."

"It's an attempt to reach out directly to people to influence their perception of Venezuela," Shapiro said. "This would be somewhat akin to the government of Cuba offering scholarships to medical school in Cuba to disadvantaged American youth."

Chavez, who has cast himself as Latin America's leading critic of American-style capitalism, concerns U.S. officials because he has repeatedly threatened to cut off oil shipments. Venezuela is one of the largest suppliers to the United States, providing about 1.5 million barrels a day of oil and oil products. Chavez has been seeking new markets for his oil, including energy-hungry China. The country also is investing in a refinery in Brazil that could process Venezuelan oil.

Chavez also has angered U.S. officials by visiting Fidel Castro in Cuba, going to Libya to collect an award from Moammar Gaddafi and criticizing the United States while appearing on the al-Jazeera television network.

Chavez has complete control over Venezuela's oil production, analysts said. After a strike by oil workers in 2002, Chavez replaced top officials at the state-owned company, Petroleos de Venezuela SA, and some executives at Citgo.

Some publicly traded oil companies also operate in Venezuela, and they have been at odds with the government over efforts to increase taxes and other charges.

Big jumps in oil prices have filled government accounts and given Chavez diplomatic power. When oil prices were lower in 2003, the Venezuelan oil company reported a profit of about $3.28 billion. This year, the company has a goal of $6.5 billion in profit.

Chavez told the Argentine newspaper Clarin last month that Venezuela has "a strong oil card to play on the geopolitical stage" He said, "It is a card that we are going to play with toughness against the toughest country in the world, the United States."

He created programs that have provided subsidized oil to a number of countries in the Caribbean and Latin America, including Cuba.

Chavez recently struck a deal with left-wing opposition leaders in Nicaragua to sell subsidized oil to that country. Analysts said Chavez is trying to boost the Sandinista party and its leader, Daniel Ortega, a fierce critic of the United States who is expected to run for president.

The Venezuelan government said the oil-related initiatives -- including the post-hurricane shipments to the United States and offers for financial assistance to the poor -- are for humanitarian purposes and regional unity.

"Venezuela is committed to go ahead with regional integration," said Fadi Kabboul, minister-counselor for petroleum affairs in the Venezuelan Embassy. "Venezuela never used oil as a political weapon. Venezuela is not going to use oil against the U.S. as a political weapon for anything."

Eleven Senate Democrats turned to oil companies after Congress did not add funding for a low-income energy assistance program, which is expected to be stretched thin this winter.

Until now, Chavez has not used Citgo to advance his political objectives, analysts said. The company, which Venezuela gained control of in 1990, operates several refineries in the United States. About 14,000 independently owned gas stations carry the company's name.

Venezuela controls nearly 7 percent of refining capacity in the United States and its territories through Citgo and other Venezuelan-owned operations.

So far, analysts said, Chavez has had little success using oil to unite Latin America against the United States. His biggest petroleum-influenced victory, they said, was in gaining support from Caribbean countries for Jose Miguel Insulza of Chile, who this year was selected as secretary general of the Organization of American States. The U.S.-backed candidate did not attract widespread support.

"His petro-diplomacy has been providential for Venezuela," said Laurence R. Birns, director of the Council on Hemispheric Affairs, a Washington-based think tank. "The oil premium has been a bonanza for Chavez."

Venezuelan officials have said the country plans to expand production well beyond its estimated 2.6 million barrels a day, which will allow more oil to be sent to China or other new customers. But analysts said Chavez has not been spending enough money to maintain oil fields, let alone expand them.

It's unclear how much longer Chavez will be able to afford to use oil to his advantage. If the price recedes, the windfall will be gone. That also would create domestic problems for Chavez because the president has been using oil revenue to fund popular social programs in Venezuela.

"Oil prices and revenue are currently high enough to permit the Venezuelan government to finance social commitments at home and abroad," said Esteruelas, the Eurasia Group analyst. "At the current rate of fiscal spending, should there be a small decline in prices, there will be a need for adjustment."

View all comments that have been posted about this article.

© 2005 The Washington Post Company