Venezuelan-Russian Energy Axis: Global Power Politics

As recently discussed by The Latin Business Chronicle, the emerging Venezuelan-Russian energy axis is a 21st-century throwback to the Cold War Soviet-Cuban alliance and may be emblematic of geopolitical forces rising to challenge U.S. leadership and influence.  As the article notes:

“…Chávez and the Russian duo want to redistribute global power as expediently as possible. In pursuit of this “world without the West,” the two governments are dumping the dollar in favor of the Euro during energy transactions, using energy as a geopolitical weapon, and calling for the creation of “new economic and financial institutions” to supplant the post–Bretton Woods order. They also are cooperating in launching a natural gas OPEC-style cartel, led by Russia.

For Russia, this new relationship is part of a larger effort to recover its great power status lost as the result of the Soviet Union’s precipitous collapse. Chávez, on the other hand, seeks to realize Simón Bolivar’s dream of a united Latin America capable of challenging the “Colossus to the North.” Such geopolitical ambitions reflect the buoyancy found in oil- and gas-rich nations riding the crest of $135 per barrel oil.

Russia and Venezuela, together with Iran, are among the trend-setters in the democracy roll-back taking place since the late 1990s, especially in petro-states. The rise of oil prices has accelerated this process and helped precipitate the rise of statism and the decline in democratic governance, while energy revenues provide the means to buy off political opponents and the media, build up internal security forces, and insulate regimes from any domestic and international criticism.

…Chávez and the Putin-Medvedev duumvirate both preside over sprawling and increasingly statist economies, gorged upon freshly nationalized industries and deeply dependent on resource nationalism. Russia has forced Western energy companies out of massive development projects in Siberia and the Far East, pressured British Petroleum to sell a major stake in a large Siberian gas field to Gazprom, and squeezed Royal Dutch Shell in the giant Sakhalin Island project. The current dispute between BP and Russian TNK—the only remaining major oil venture in Russia with 50 percent foreign ownership—is also consistent with Russia’s continuing commitment to de-privatization.

Yet Russian state control is not limited to natural resources. State control has also been mounting over metals, the arms sector, and the automotive industry. Moreover, despite resistance within the Kremlin, President Medvedev has just approved the transfer of the state’s assets in 426 companies to a single “national champion”—state-owned Rostekhnologii or Russian Technologies. As it so happens, Rostekhnologii is run by Sergey Chemezov, Putin’s intelligence community comrade. This transfer of assets and the ongoing dispute between British Petroleum and Russian TNK directly contradict Medvedev’s rhetoric of liberal economics and legal reform.

In the last 18 months, Chávez has also increased the tempo of nationalizations with several “my way or the highway” deals. By allowing for increased importation, skyrocketing oil prices mask—temporarily—economic mismanagement and the deeper shortcomings of anti-market economic policies. In modern-day Venezuela, crime, corruption, and inflation rise and while the quality of life of the average citizen declines or stagnates.

…The Kremlin is skilled at using energy as a foreign policy tool. It has cut off supplies to six countries over the last seven years and uses energy dependence as leverage to divide Europe on key issues. Most recently, after the signing of an agreement between Prague and Washington for an anti-missile defense radar station, a Russian company sharply reduced the flow of oil to the Czech Republic.

Mimicking the Russians, Caracas relishes using oil for geopolitical leverage and influence. In recent months, Chávez has bolstered oil subsidies and a financing facility known as Petrocaribe. Using the oil bonanza, Chávez has pledged assistance that eclipses U.S. aid in the Western Hemisphere. Even democratic Costa Rica cannot resist the seduction of relief at the pump.

At the working level, Russia’s energy giant Gazprom and Venezuela’ national petroleum company, PDVSA, are cementing an energy partnership in South America. As the chief of PDVSA recently reported, “We want to make [PDVSA] like Gazprom, but with a social role.” Chávez seeks to deepen cooperation with the Kremlin and its state-run enterprises. He has invited Russian firms to exploit the Orinoco River basin—potentially the world’s largest oil deposit, holding 1.2 trillion barrels of extra-heavy crude. Gazprom is also involved in a proposed Venezuelan initiative to construct an 8,000-kilometer trans–South American gas pipeline that will link Venezuela’s oil and gas fields to Argentina via Brazil, with potential spurs going to Bolivia, Paraguay, Uruguay and Argentina. According to Chávez, these Russian state-run firms are part of the vanguard of the Bolivarian revolution…”

This entry was posted on Friday, August 1st, 2008 at 11:41 am and is filed under Gazprom, Petróleos de Venezuela, Russia, Venezuela.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.

Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.