In what some are calling a betrayal of the late President Hugo Chavez’s dream for Venezuela, National Assembly President Juan Guaido has announced a plan to open oil investment to the international community. This plan, part of a broader agenda to repair Venezuela’s failing economy, would allow foreign interests to mine, refine, and sell oil independently from the country’s state-run Petroleos de Venezuela (PDVSA) company for the first time in almost two decades.
Oil is by far Venezuela’s most prominent export, according to Reuters, pulling in 90% of the country’s export revenue. However, according to graphs from CEIC, the industry began slumping dramatically in 2016. The crisis of leadership which began that year didn’t help. Now, the Brookings Institution claims, 4.6 million Venezuelans (about 16% of the country’s population) have fled the worsening economic conditions, creating a refugee crisis among the largest in modern history.
“We need to change the current framework,” Ricardo Hausmann said at an energy conference in Houston. Hausmann, Guaido’s delegate to the Inter-American Development Bank, claimed the PDVSA was operationally and financially weak and must be supplanted with a private investment if the economy is to recover. Carlos Vecchio, a representative for Mr. Guaido, told Bloomberg the assembly leader was planning to the court that private investment. But though the law’s preamble says that the current Socialist model is to blame for the oil industry’s failing health, many are unconvinced that Guaido’s capitalist agenda can revive that industry without losing control of it. “It would be a step backward,” Luis Rojas, an oil workers union head, told Reuters. “It would not live up to what Chavez left the workers, which is a company that’s free, a nationalized company.”
If Guaido is risking the independence of his nation’s economy, he at least appears to be doing it smartly. According to Reuters, the new law would restructure and modernize the PDVSA and create a new Hydrocarbon Regulation Agency before entering foreign companies in a lottery to decide who gets which reservoirs. The PDVSA would retain the first choice. All other companies would be subject to a royalty rate from 16.67-30%, depending on oil prices. There are also provisions in place to allow the government to renegotiate debts, suspend harmful contracts, and audit the PDVSA in an emergency. If these provisions make it into the final bill, they should prevent unscrupulous business partners from hijacking profits or colonizing the industry.
Opening the country to foreign investors is a big risk. Ideally, Venezuela would be able to solve its energy crisis independently, maybe even by developing renewable alternatives to fossil fuels. But Venezuelans don’t have time for that. According to Human Rights Watch reports, 80% of Venezuelan households were food insecure in 2018. Hospitals lack basic supplies like latex gloves, diapers, and syringes, and inflation is running rampant. In a crisis like this, stabilizing the economy is more important than clinging to financial tradition. While I’m not an economist, I feel secure in writing that Guaido’s proposal is a well-thought, logical plan that will save lives.
Unfortunately, it may take a while for the plan to go into effect. While 50 countries, including Canada, the United States, and the United Kingdom, have recognized Guaido as Venezuela’s rightful leader, President Nicolas Maduro retains control of the country’s oilfields. (I’ll give you three guesses as to which two major countries are backing him.) Until Maduro either steps down, loses his backing, or comes around to Guaido’s proposal, there’s nothing the National Assembly can do.
I understand Maduro’s frustration. He isn’t wrong in saying that the US would love to get its hands on Venezuelan refineries – John Bolton told Fox as much himself. And I don’t think his caution over losing control of the oil industry is out of place. But it is no longer acceptable to do nothing. People are dying. If Guaido thinks he can save them, it’s time to try.