The recent precipitous decline in oil prices (relative to their highs in July) will surely require Hugo Chavez to scale back his spending in (and out of!) Venezuela. But how serious will the effect be? From the WaPo,
The price of a barrel of oil has fallen from $147 in July to less than $70, and analysts say the drop is a blow to Chávez's free-spending administration, which depends on oil for 50 percent of government revenue and 95 percent of its export earnings. ...
Venezuela could be particularly exposed if the worldwide financial meltdown continues. That would slow economic growth, reduce the need for petroleum products and further drive down oil prices.
Venezuela exports about 1.4 million barrels daily to the United States, about 10 percent of U.S. oil imports. The dire predictions come as the inflation rate in Venezuela has surpassed 36 percent and the black market rate for dollars has shot well beyond the fixed government rate. ...
PFC Energy said in a report that oil must be at least $94 a barrel to ensure Venezuela's macroeconomic stability this year and generate enough money to pay for imports. ....
Nigeria needs the barrel to be at least $68 to cover its imports, while two Persian Gulf states -- Saudi Arabia and Iran -- need the price to remain above $55. ...
"Venezuelan fiscal profligacy and its huge off-budget populist programs has left it very little room for error," the PFC report said.
My prediction: if the price of oil stays under $75/barrel for long, look for even more price controls and other gubmnt restrictions in Venezuela. Further, the price controls, etc., will be enforced more strenuously (perhaps even more ferociously). And anticipating popular unrest, Chavez will tighten his reins on the police and military. Things will not be nice for the Venezuelan version of Joe, the plumber.
Maybe it will be good for most of us in the rest of the world if Chavez is eventually deposed, but the process will not be pretty, I fear.
More: The Emirates Economist has much more on the effect of declining oil prices on oil-producing economies.
I'm wondering how this will affect Russia, as well, since they've been coveting control of the BTC pipeline across Georgia. Probably about equally to the impact on Venezuela.
I still say "drill, baby, drill!" when I see pics of all those idle rigs off California's shore and all that "virgin wilderness" of mosquito-infested bogs beginning their icy stage up in ANWR. The less power those sorts like Pooty-poot and Ooogo have over the rest of the world, the better.
Posted by: Rebekah K | October 19, 2008 at 05:24 PM