How Bad Off Is Oil-Rich Venezuela? It’s Buying U.S. Oil
nytimes.com
nytimes.com
Currency controls: there's a 1:10 exchange rate, dollars to bolivars, for essential imports, like food, medicine, etc. The black market exchange rate is about 1:1010.
To get the good rate, you need connections. But hey, it's a pain in the ass to actually contact suppliers and get goods through customs, and you're capped at what price you can sell goods at, so what you do is actually exchange 10 bolivars for a dollar, and turn around and exchange that dollar for 1000 bolivars on the black market. You keep doing that until either you have way too much money or you lose the preferred exchange rate.
Price controls: No country is an island these days. No matter what good it is, you need external imports. For instance, if you're making beer, you might need to import hops or barley (true story, look up Polar in Venezuela).
With the currency controls, you can't get hard foreign currency to pay your suppliers. And they sure as heck aren't going to accept your debased currency as payment. So your factories sit idle, because you just can't get supplies for production, and then the government nationalizes your factory because you're "sabotaging production".
Government nationalization: The goal of the government is ideological purity. If you're not producing goods for sale at artifically low prices (sometimes the sale price is below the cost of production), the government swoops in, calls you an enemy of the revolution, and replaces all the skilled people who are ideologically impure, such as managers, with party hacks who have no idea what they're doing. That's why Venezuela oil production is in the toilet.
The Nordic version of "socialism" simply involves taxing the rich and giving subsidies to the poor. They don't try to dictate prices or control means of production or fiddle with the exchange rate. The authoritarian socialism Venezuela is using right now has failed in every instance it has been tried.
If you were on the black market, you'd LOVE to exchange bolivars for dollars.
The inflation rate is over 700% I think this year, and it's only going up. Why wouldn't you want something that's almost guaranteed to be valuable, instead of holding on to a rapidly depreciating asset?
I said that exchanging dollars for bolivars was easy. Exchanging bolivars for dollars, that's different.
You realize you just said that you said the exact reversal of my statement.
Socialism traditionally means that the state - composed of the people, one assumes - owns the means of production. This does not mean that safety nets are assured or can even be sustained if the profits are insufficient.
A safety net can exist independent of government control/ownership of industry. Just take a bit out of everybody's paycheck and BAM! Universal healthcare.
It is clear to anyone with a basic understanding of economics and history that the private market allocates resources more efficiently and creates more wealth than central planning. There are times that the government steps in to fix market failures or areas without sufficient private investment (acid rain regulations and the interstate highway system), but that doesn't mean letting the government step in is an inevitable path towards Leninism.
It simply makes more sense to tax the profits of the private sector than to step in, say you can do it better, and route the profits directly to the social safety net without cannibalizing the business in the first place.
https://en.wikipedia.org/wiki/Just_price
What a lot of people don't realize is that prices aren't inherently good or bad in and of themselves, they just are. If somebody else is willing to pay 20k for a diamond, that's the price of a diamond.
No amount of legislation or argument will drive down the price of a diamond to what it "should" be.
See http://www.wsj.com/articles/SB100014240527023034600045791921.... The prices of electronics dropped in price after a governmental mandate. Guess what? After the store inventories were depleted, they never got any more TVs to sell.
Arguably, even the early Christian thinkers like Acquinas agree with you on this. http://www.thepublicdiscourse.com/2015/08/15435/
> but was simply the current market price, with this important reservation: in cases of collusion or emergency, the public authorities retained the right to interfere and to impose a fair price.
In socialist governments, they see the free market as always "colluding" to cheat the working man. That's why they set unrealistically low prices for basic goods, like bread, and rail against producers for "colluding" because hey, most price costs about the same amount, so it has to be a coordinated effort while people are going hungry.
For instance, it's cheaper to produce steel and aluminum abroad than in the states. But we erect protective tariffs on steel and aluminum to keep those industries in the states so that in case war breaks out, our aggressors can't cut our supply lines, and we can keep churning out jet and tank parts.
But agreed, it's a fascinating field. Why do you restrict the explanation to residents of SF, rather than all citizens of the US?
This is the reality, when foreign government's peg their currency. It's usually when they are doing bad. So say you live in such a country and want to buy a good from the US or another country because you want to resell or do manufacturing. You need dollars. But all you have is your local currency in this case the bolivar. There is such a short supply of the dollar, because most of it is going out due to imports and less is coming in (little exports). You go to the govt to get some and most likely will be told there's none.
There usually is none too! the govt is spending all their little dollar buying more things they need and paying debt. At the end of the day, they have none, they find themselves in the negative. So trying to sell your bolivar for the USD? Good luck.
Desperate to keep your business afloat, you go to the black market, and you are willing to pay a lot for dollar. There is more demand for dollar than supply, so the dollar climbs and that's why people are willing to buy a dollar for their 1010 bolivar. Why would anyone do that? If you need to buy raw materials to produce, or maybe you need medicine. Since your country is in the shitters, no one wants your currency but dollars, euros, etc. The only way to survive is buy dollar,euro, pounds.
The reality is that to play that arbitrage between the dollar and bolivar is difficult. The politicians/govt/bankers are very corrupt and hoard all the cash that is suppose to be sold in the market. That 1:10 peg is if you are selling dollar for bolivar. If you are buying dollar, they will never sell it to you at 10, they will sell it for much higher or never. So who in the world will sell their dollar for 10 bolivar? Tourists. Not even foreign businesses.
If you are a foreign entity, you bring in $1, get 10 Bolivar, you do some sort of business, turn it into 100 bolivar. very nice, time to get out, you exchange it for USD. you get 10cents before cost of business and taxes. At this point, most foreign companies have closed up shop and are long gone.
Let's say you have a connection in the government, maybe your uncle is high up in politics. So the 10:1 bolivar to dollar rate is given by the government for essential supplies (who has hard currency reserves), but you need to know somebody to get it.
So your uncle hooks you up, and gives you 100 dollars for 1000 bolivars, cause you want to import 100 pounds of flour, because flour is an essential supply.
You turn around, buy 10 pounds of flour for 10 dollars, and then on the black market exchange 90 dollars for 90,000 bolivars. You have just made an incredible profit for doing nothing except exploiting your contacts. And since you still have the flour contract you can do this indefinitely, until your uncle gets tired of your leeching ass and kicks you out.
Does that make more sense?
When does the change in direction come? What brings it on? Will Maduro step down? Will his successor do any better? Or will his successor be even more dictatorial? It's all very worrisome, my heart goes out to those who live under such incompetent rule.
I ask why they don't do anything about it. They seem to think, there is nothing they can do.
Or Venezuela discovers it's sitting on vast undiscovered reserves of Unicorn Poop.
What we're seeing is, IMO, far less the Evuls of Socialisum than the end-game of an oil state. There's a similar story playing out through much of the Arab world, as you may have noticed over the past few years.
Then, welcome foreign and local investment: privatize most of the industries that were nationalized and are now idle, and fix labor laws a little, this also include liberalization of currency, enforce property laws so private companies feel safe investing in the long term.
When can this happen? As of today no sooner than 2019 when the next presidential elections will take place. Unless a coup is on the table but I don't see that happening.
Maduro has painted himself into a corner. He has very nakedly announced that he will do everything in his power to remain in power, even if it means crapping all over the constitution, and stripping the legislative branch of all its power.
He'll figure something out in 2019. He has all the guns, and he know that if he falls out of power, he'll be strung up on the nearest lamppost like Mussolini. He's doubling down because he really has nowhere else to go. Once you realize that, that he has to do everything he's doing to cement the military to his side, it all makes perfect sense.
This is especially true when corruption is rife. In countries with high corruption, it seems the very best thing to do is to limit as much as possible how much money flows from the top, which is another way of saying limit federal government spending.
This is like throwing out a carton of eggs because one of them broke.
The point isn't that the "textbook" definition of socialism is bad. The point is that every single real world attempt at getting to socialism has been bad, so why wouldnt future attempts run into the same problems?
The problem is that "every single real world attempt at getting to socialism" has been inspired by the same ( bad ) implementors, using the same ( bad ) mechanisms, without anyone trying to implement socialism from scratch by going back to the source of the ideology as opposed to looking at other dictators who used the premise of socialism to get into power without actually caring about socialism itself.
Venezuela is a corrupt place with socialism being implemented as a means to launder money as opposed to implement social safety programs, it's the same as the "Democratic" Republic of Korea or Congo.
Capitalism wouldn't really help a corrupt country like Venezuela, but Socialism was making some good progress in another Latin American country... Nicaragua, weren't it for the Contras. The rest is history.
By comparison the USSR, China, and North Korea all pay / paid some lip service to communism, but if you look at the people at the top it was not even close to communism.
PS: The real world is complicated. If you promote revolution you generally don't get whatever the revolutions talking points where.
Agreed, China has not been communist for some time now.
"It has only failed before so it probably won't succeed" is just a straight up logical fallacy.
I'll freely admit there have been numerous failed socialist states. Very few self-proclaimed socialist states have even attempted to implement socialism. Many who claimed to be socialist were destroyed by capitalist states[1]. Some attempts for free states have been crushed by other self-identified socialists[2] but it's of course impossible to know if these groups would be socialist in the long term. Socialism is inherently horizontalist, which means it doesn't fit into the model of centrally controlled countries, making it very hard to achieve for any extended period of time.
The only current socialist experiment I'm aware of is Syrian Kurdistan, Rojava, which is trying to promote a co-op based economy based, while reducing the damage private ownership can do.
Imagine you tried to have a capitalist revolution in feudal Europe. Can you imagine that would go very well? Probably not. It's easy to see why capitalism is an improvement over feudalism, but it's hard to comprehend how long it took to get there. Similarly socialism, if it is ever achieved, is probably going to fought against by the established order tooth and nail. This is certainly no excuse for the failures and crimes of vanguard communist parties[3]. All this humble fellow would ask is people take the time to educate themselves on what socialists actually want before presenting critique.
[1] This category is almost beyond enumeration, Reagan Doctrine, Guatemala, domino theory, Vietnam, etc. etc. etc.
[2] My history isn't great but I believe these count: Revolutionary Catalonia, the Black Army, Kronstadt rebellion, there are probably more, especially in relation to the Russian Civil War of 1917-1922
[3] As an aside, I don't believe vanguard parties are the way to go
It's a bit of a straw man to present failed attempts at cold fusion when critiquing cold fusion itself.
Communist revolutionaries genuinely did attempt to implement socialism. The fact that so many failed should make one question the wisdom of attempting their approach. Perhaps the fatal flaw in socialism is only in it's revolutionary nature and a more conservative approach in it's implementation is warranted? Interesting hypothesis, but I'd like to see more data.
"Imagine you tried to have a capitalist revolution in feudal Europe. Can you imagine that would go very well? "
I dunno, I believe that's usually called the Industrial Revolution.
European feudalism was over by about ~1500, the Industrial Revolution started in about ~1750, but it certainly makes for a cute soundbite. People on the left often cite the enclosures[1] in England as the beginnings of capitalism. Laws such as vagrancy[2] laws were in place to force people to work, land which was previously agreed to be communal was taken into private hands. If you consider this to be a 'capitalist revolution' then it could easily be argued
[1] This has a lot to do with the lefts definition of capitalism, which I recognise is not universal so enclosures being the origin of capitalism isn't an argument which is likely to be fruitful, especially on HN.
[2] https://en.wikipedia.org/wiki/Vagrancy_(people)#United_Kingd...
http://www.cityam.com/article/1394655511/forget-nordic-socia...
We pretend there are clean examples, but everything is pretty messy, and we rarely get any pure test cases for any economic philosophy.
Macro is black arts. "Avoid price controls" and "don't print boatloads of money" seem like reasonable guidelines. Beyond that, who knows? Corruption's bad but hard to stop. Moving risk around is (sometimes)* bad but hard to stop. Shrug and try not to do anything too extreme.
* Insurance is a beneficial example.
There are only roughly 28 nations on earth with a GDP per capita over $20,000 for example.
I happen to find what the six or so best managed welfare states in Europe have accomplished, to be impressive. However, for every Sweden in Europe, there are two Bulgarias. Or there's France, which has seen economic stagnation for nearly a generation. Most of the well-managed welfare states have seen zero or near-zero economic growth for nearly a decade at this point, while their debt has exploded vastly higher as they try to fake-maintain their present standard of living by stealing from the future.
There is a continuum of social systems that can work, and whether it works mainly depends on confounding factors. History, culture fit, geography, neighbours. E.g. Sweden's been an empire most of its history; Bulgaria has been a colony. Check their performance in historical cohort perhaps? Sweden vs Turkey and Bulgaria vs Tajikistan?
Chavez' Venezuela system is well beyond the "habitable range" of governance. To present it as some condemnation of West European welfare states is ridiculous.
And their debts are so high because they had to bail out a deregulated finance sector, which caused a recession and major spike in unemployment, how is that a fault of a welfare state? You might as well argue the financial sector "stole from the future" by creating a decade long downturn. Quite the opportunity cost there.
But Venezuela's example really tells us nothing about market-oriented welfare states, like the US and much of the EU.
Even Saudi Arabia -- which does redistribute oil wealth like Venezuela and is far from the enlightened Norweigian policy -- is smart enough not to draw down the seed corn.
And are you seriously claiming the only thing stopping West Virginia from this kind of downward spiral, is free highways from Uncle Sam?
You mean like Saudi Aramco? That little company with $380bn of revenue (about 4 times larger than google but with the same number of employees?). /s
edit: meant to reply to parent
this should not be held up as ANY KIND OF EXAMPLE whatever re: the efficacy of social safety net programs. it's simply a non-sequitur. the fact that you're even attempting to link them at all speaks poorly as to your own understanding of the situation and reveals your ideological agenda.
And also maybe it's an example how power can be purchased with social programs.
Also points. Gotta get those points. I hear someday I'll be able to cash them in for bad karma debt forgiveness.
If you want to get into discussions on socialism, one might ask the question whether nationalization of industries presents an opportunity for corruption or if socialist ideology can present a cover for kleptocracy. It looks a lot like that's what happened in Venezuela.
Or are people just equating nationalizing the oil industry and making it illegal to get money out of the country with "social programs"?
I'd agree, though I think you could describe land redistribution as a 'social program.'
Taxation is the more reasonable way to do this. It is also confiscatory but it does so in a way where the level of duress is much reduced, and representation, agency, and participation are possible.
I would offer a provisional definition of a social spending program as a program with humanitarian goals that is funded by taxation. Land redistribution is not taxation (just pure confiscation) and so doesn't meet my definition of social program.
Maybe you think I'm just making a semantics argument and splitting hairs but I think its a meaningful difference. Land redistribution is the classic case of "peasant uprising gone bad".
Remember when the far left held Hugo Chavez up as the paragon of modern socialism? People pleasing in a petro-state is easy when oil is $150+ a barrel.
It's also easy to let "just a little" corruption ride along as a political price for getting things done.
Problem is, "just a little" corruption always becomes "a bit more" corruption and then "way too much" corruption. And while the good and the corrupt engage in battle royale for limited resources, the poor and hungry are soon forgotten.
Different markets have different needs. I disagree with socialism for all things. There are some things, where i think it's the best system we have. Air quality is a good example. Everybody needs air and it's hard to separate mine from yours. So, collective ownership with collective decisions about how much pollution is to be allowed makes sense to me.
http://www.npr.org/sections/money/2010/12/10/131784161/what-...
Chavez's "Bolivar Revolution" was a farce to get rid of his opponents and seize power as a strongman. In that, he succeeded. When the price of oil was high, it worked. Now, well... His legacy is a once great nation left in ruin, and many desperate people. It is sad stuff.
There's also plenty of history of corrupt right-wing governments with market economies in South American that were just as miserable, so I'm hesitant to say social programs did this. There are plenty of social democratic governments around the world that aren't corrupt failed states.
What does this mean? How does this work? Why do you need oil to make oil?
They have so many options to chose from to fix their economy. It seems like they don't have the will to fix anything. I wouldn't be surprised if there is some sort of corruption going on.
The leaders of the country seem to be intentionally draining the money out of the country (and personally profiting from this).
Whether its privately extracted by firms paying taxes on income and leases for extraction rights or publicly extracted by the government, the same fundamental problem remains (and the same broad economic results have been seen in economies dependent on a single extracted resource all over the world, independent of the public or private nature of the extraction.)
The country's leaders probably know that it's just a matter of time before they are removed from power and are trying to make use that time they have left to enrich themselves personally.
Trust is slow to build and fast to lose, they're now facing direct consequences of their earlier actions, and a reversal would likely come only after a regime change.
1. Not all oil is created equal. Most especially, oil has different qualities of hydrocarbon lengths (longer == heavier, more tar-like) and contaminants ("sour" == more sulfer). Light sweet is the optimum input for most transport fuel needs (petrol, kerosene/jet fuel, diesel).
2. Not all oil has the same extraction costs. In particular, Venezuela's oil has a much higher cost of extraction than Saudi Arabia's.
While there's a very strong tendency to attack Venezuela for having a failed socialistic / command economy, possibly with some merits, a much more direct issue is that Venezuela benefitted from oil which in the past was easier to extract and bring to market than its offerings today, combined with a long history of extensive domestic market subsidies of basic goods, including both energy and food (which, if you think about it, both reduce to "energy).
The same story has already played out in large part through the nations affected by the Arab Spring. Whilst we're not used to thinking of Egypt and Syria as large oil exporters, the truth is that they had some local oil extraction operations, enough to provide exports and some hard cash (of a useful quality: US Dollars, which had the added benefit of not affecting the value of their domestic currencies in foreign trade). Tunisia, Libya, and Yemen are also being affected by falling oil exports (the first two were where the Arab Spring originated, Yemen has had ongoing conflicts).
Russia is watching its cash reserves fall, also hit by a soft market for global oil. This has some strong parallels to the fall of the Soviet Union itself, in the wake of the late 1980s oil glut, then driven by increased supply-side dynamics as North Sea and North Slope, as well as offshore Gulf of Mexico extraction came online.
Saudi Arabia has the optimum product -- light sweet crude which flows (fairly) freely from the largest oilfields and most productive wells in the world. But depressed prices are hitting it as well, and its financial status has been discussed for the past year or several -- as with Venezuela, Saudi Arabia buys domestic tranquility with its oil export cash. As with much of the Gulf region, it also faces some of the most rapid population growth in the world (oil exporting states are a curious exception to the usual rule of Demographic Transition).
There's another interesting situation, one I've just run across a standard economic treatment / term for -- inverted or "backward-S" supply curves. Usually applied to labour, this also seems to fit the situation of natural resources. Where market prices fall to close to the marginal cost of extraction, the tendency of suppliers, especially those with fixed costs to meet, is to increase rates of extraction. This is quite typical of oil boomtimes (Titusville, PA, Spindletop, TX, and the East Texas Oil Field most especially). In the case of the latter, oil prices in the US fell from $1/bbl to $0.13/bbl, and then further to $0.02/bbl, before the governors of Oaklahoma called out their respective national guards, and in Texas, the Rangers, to sieze wellheads at force of arms to constrain supply. The result was the implementation of US production quotas, in effect from 1932 - 1973, under the US Department of Interior and the Texas Railroad Commission. It's a fascinating bit of economic history.
The size of reserves doesn't matter so much if the costs of extraction, or quality of product, aren't in your favour. Venezuela is somewhat cursed with riches, in that respect.
Much of US oil extraction in recent years emphasises what are called NGL and condensate. These are very light components of oil and natural gas extraction, too light even to be used in motor fuel. There was a point where condensate was used for early automobiles, but it had a very low octane rating, meaning the engines burning it couldn't have very high compression ratios, or be very efficient.
I'd have to check with a petroleum engineer, but the thought that this surplus US ultra-light not-suitable-for-fuel liquid might be helpful to mix with Venezuela's heavy extract seems at least intuitively sensible.
Simply mixing light and heavy oils won't produce useful fuel, but it might help even in getting the heavy stuff (some of which really is little more than tar) to simply flow through the refining plant and distribution systems.
"Cracking" of long hydrocarbon chains can produce usable lighter fuels, and is, if I understand correctly, actually a physical process of treating heavy oil with very fine sand, at high speed, to physically split longer hydrocarbon chains. Read with caution, I'm well out of my depth.
----
And: confirmation that US light crude is being imported as a dilutant for Venezuelan crude, via Reuters: http://www.reuters.com/article/us-oil-venezuela-imports-fact...
Alberta tar sands is similar, thick crude oil mixed with sand, but I don't think it's anywhere near as thick as the oil in Venezuela.
[1] http://jirirezac.photoshelter.com/image/I0000y08u1qUWSHA
chart indicates venezuela produces mainly heavy crude oil, which isn't as good for making gasoline, which i'm guessing is used pretty extensively to make and ship petroleum products from heavy oil.
http://money.cnn.com/2016/02/03/news/economy/venezuela-impor...
It's the opposite of a bootstrapping problem. Consider running microservices. you need logging, monitoring, continuous deployment, all kinds of very specialized stuff. Now, your resources decline dramatically, and your paging system doesn't work anymore. You've grown beyond the point that it can be handled manually, what do you do? Software is kind of a goofy example, because those kinds of problems can be fixed fairly quickly. A better example might be AWS increases it's prices x100, and there are no alternatives. It's going to take a while to buy servers, internet access, find a place for them to live, and move everything over. In the real world, equipment is expensive. If you let the billion dollar pipeline (or whatever) decay, you can't just whip up another pipeline on Wednesday. It takes months or years to restore that service.
If people are literally not eating food, that's typically when there's a revolution. If I couldn't eat everyday and feed my family, I'd be out in the streets. Why not? You have nothing to lose at that point.
They don't have the 2nd Amendment.
What keeps totalitarian governments is will to power, how much os the government willing to risk against the population. Owning a gun is not the same as being willing to die.
I think everything that can happen with the opposition can't be worse.
Not necessarily. Somewhere there's somebody with some political leverage thinking that the solution is simply more socialism. Not the bad, failed socialism that Maduro ran, but actual socialism, run by smart people! Because this time things will be different!
in 2015, the USA imported 9,400,000 barrels every day from 82 countries (Mostly from Canada, Saudi Arabia and ... surprise, surprise from Venezuela).
Now the NYT thinks that Venezuela importing 50,000 barrels of light crude (to dilute their heavy crude) is news? They forgot to mention that last year the US imported 830,000 barrels from Venezuela (the third largest supplier to the US). If you read the actual import/export numbers [0], you will understand that it's just a political submarine article. The reason Venezuelan oil production is declining is a pretty complex phenomenon (driven mostly by Geology and exacerbated by mismanagement, brain drain, corruption, etc).
Edit: my android autocorrect is altering my posts
...Who thought that was a good idea?
Norway is not immune. It's the current popular thing to say, but Norway will fall victim to it just like everyone else does.
Look at some charts on their exports: 60%+ is energy. Look at their industry: Basically non-existent, except energy. Look at where young people are making their living: Energy.
If (when?) the oil runs out (or people stop buying it) their economy will implode - the fund they setup will not last long enough (they have enough for about 10-20 years). No one is developing skills in any other fields, it will take a generation or more to transition, and in the meantime everyone depends on charity (i.e. the fund) - and that's toxic to any economy because people become used to it.
So what you wrote about "Iron Law" is correct without the qualifier you added for Norway.
They gets lots of credit for being aware of the problem, but less credit for thinking they are doing better than they actually are.
It's too bad oil will be worth less eventually - otherwise they could just force themself to leave it in the ground, but the way things are going they had best convert it to cash as soon as possible.
It makes me wonder if it's economically long-term better for them to pretend not to have oil and develop their economy, vs. selling the oil.
Long term, which will give them more total cash?
They turned one of the richest countries in the region into a rapidly deteriorating third-world hell hole.
The situation in Venezuela devolves in large part, though not entirely exclusively, from:
1. The globally depressed petroleum market. After massive price spikes in the late 2000s, increased extraction, mostly from very highly-financed unconventional wells, and an ongoing global economic recession, have caused oil prices to fall.
2. The highly-financed well operators, much as Venezuela, have the problem of high fixed costs, mostly debts, which must be serviced in order to avoid bankruptcy. This creates a perverse incentive to increase supply as price falls. Since these operators have high marginal costs, their profits are also lower to start with.
3. Venezuela's oil reserves, among the largest in the world, have always been less desireable than West Texas or Persian Gulf oil, both of which are "light sweet crude" -- comprised largely of smaller hydrocarbons, and low in contaminants, especially sulfer. Saudi crude flows like syrup, Venezuelan more like molassas on a cold day. Venezuela previously had more light and medium crude oil, but production of these has fallen by 37% since 2004 (Reuters, below).
4. Much of recent US domestic oil supply has been of NGL (natural gas liquids) and condensate -- very light fractions of hydrocarbons, some of which are only very barely not gaseous at normal temperatures. (This is also, incidentally, why oil train wrecks and fires have been so volatile -- the lighter fractions of oil are exceptionally volatile and burn explosively.) Much of this supply is not suitable for use in transport fuels. You cannot produce petrol, kerosene/jet fuel, or diesel from them, and the US has been (quietly) looking for ways to export this anyway. See this Wall Street Journal article from June, 2014:
http://blogs.wsj.com/corporate-intelligence/2014/06/25/what-...
Oil industry critics have argued that counting condensate/NGL in US crude oil extraction statistics isn't defensible.
http://oilprice.com/Energy/Energy-General/The-Condensate-Con...
Exports of condensate began only in 2014 following regulatory rule changes:
http://fuelfix.com/blog/2014/06/24/feds-open-door-to-condens...
5. Venezuela is using the US imports as dilutants for its heavy oil. I suggested this in an earlier reply, and confirmed the fact in a Reuters artice:
Each barrel extracted from the Orinoco belt needs some kind of diluent to be transported and exported. Naphtha is typically used to transport crude to the upgraders, but when these facilities are not fully working or are under maintenance lighter crudes are needed to formulate blends for exports.
http://www.reuters.com/article/us-oil-venezuela-imports-fact...
Venezuela previously imported distillates from Nigeria in the 1990s.
6. As the NY Times article does manage to mention, Venezuela faces large debt and financing obligations to multiple creditors, including China, and several US firms, including Halliburton.
As with several previous Venezuela stories on HN, there's been a swarm of comments attacking the Venezuelan government and political systems. At best, those criticisms tell only a part of the story, and quite possibly a minor part.
When you compare Venezuela to those of its neighbors who are completely submitted to international capital and empire, capitalism doesn't seem so glamorous either.
I think the best indicator would be how people are voting with their feet. Are people fleeing from Venezuela to its neighbors or the other way around?
WTF they are doing so wrong?! Are they under intense internal or external sabotage? Corruption is so bad?
I mean, this is not some mid-African country with >50% of the population illiterate, bunch of horrible tropical diseases, plus children running around with guns and AIDS...
A country like Venezuela should "kind of work" even with corruption and inefficient socialism! What the heck is going on there?
See also official food prices below production costs, empty stores and hunger.
As an aside here's an article on how things have gone in Venez vs Chile since 1975. http://humanprogress.org/blog/5-ways-capitalist-chile-is-muc...
The oil price collapse has just made a terrible situation into a genuine atrocity; an entire generation of young is being stunted physically and mentally by the leftist politics of Venezuela. Actual starvation is being inflicted in the name of economic `justice.'
That's a hell of an assumption. One of the things you're failing to consider is that when resources are allocated by fiat instead of by markets, corruption becomes much more pervasive and suffocating.
Also, all of the people who have the skills and experience to get things done leave for somewhere they can be rewarded for their efforts instead of demonized.
>I mean, this is not some mid-African country with >50% of the population illiterate, bunch of horrible tropical diseases, plus children running around with guns and AIDS...
Except it actually isn't too far from that. People don't seem to recognize just how fragile civilization is.
Look at Cuba. It was once the richest country in Latin America. Today it is one of the poorest thanks to communism.
Over ambitious social programs, an owner-class hell bent on sabotaging and completely backed by the US. What do you do when it all starts to slide? Tighten the screw. When that doesn't work, tighten it again. Recipe for disaster.
> > an owner-class hell bent on sabotaging and completely backed by the US
reeks of conspiracy-theory paranoia, at least in the absence of actual evidence.
its not just a little corruption. it's absolutely stunning batshit off the charts rampant corruption.
The short version is that they fired all the technicians and replaced them with the party faithful. And then went nuts driving the PDVSA around like a combination of a gift horse and a war horse.
Also see Zimbabwe's 2000 plan to redistribute farming wealth.
(And, please, don't blame it on communism/socialism; people have interests and I believe so do people in Venezuela - including those working in the government.)
It's not that they don't know how to produce oil. It's that the oil company has been so heavily mismanaged and used for political purposes that it has become extremely inefficient.
http://www.economist.com/news/americas/21607824-venezuelas-l...
> IN 2003 Venezuela’s then president, Hugo Chávez, fired more than 18,000 employees, almost half the workforce, of the state-run oil corporation, Petróleos de Venezuela (PDVSA). Their offence was to have taken part in a strike (pictured) called in protest at the politicisation of the company. Their punishment was to be barred from jobs not only in PDVSA itself but also in any company doing business with the oil firm. The axe fell heavily on managers and technicians: around 80% of the staff at Intevep, PDVSA’s research arm, are thought to have joined the strike. At the stroke of a pen, Venezuela lost its oil intelligentsia.
Obviously, this wouldn't have happened in a free market. But even other state-run oil companies haven't made this kind of blunder.
… Communism!
If Venezuela has an incompetent authoritarian rule, but had a free market for oil companies and didn't harass the employees of oil companies? Then they'd still be drilling with a state-of-the-art technology & workforce today.
my point is its the incompetence and authoritarianism that caused the problems.
> my point is its the incompetence and authoritarianism that caused the problems
A lot of people believe there's a causal road from Communist governing philosophies to incompetent authoritarianism (though you're right, it certainly wouldn't be the only way to get there).
All of those other systems I've mentioned also have high functioning, efficient, non-corrupt versions of them as well. Look at Singapore for an example of a high competence, low corruption form of Authoritarian government.
So I'll just say it one more time. Communism is orthogonal to competence/corruption of government. The fact that so many people implicitly believe they're linked is evidence of the century long propaganda campaign against anything socialist that has been waged by the powers-that-be in the capitalist system.
I can't readily think of an example of a high functioning authoritarian Communism, but maybe there's one out there like those other forms... but I'm not sure counterexamples would go very far anyway.
I maybe said "cause" earlier, but I'm thinking "cause" in the sense that smoking causes lung cancer. You can smoke and not get cancer, and you can get cancer without smoking, but we still say they're causally related.
> The fact that so many people implicitly believe they're linked is evidence of the century long propaganda campaign
Eh, I dunno. Mostly the smart people I know who have studied economics and 20th century history seem to think there's a strong relationship, and they can provide plausible theories to explain why Communism would be particularly prone to these sorts of disasters.
Namely feedback systems... in democracies, when things go horribly wrong, the officials tend to lose power. In capitalism, when there's horrible mismanagement, those responsible tend to lose most of their capital, reducing their influence in turn. They might not always lose proportionate to the damage they caused, but the feedback is comparatively sharper than under authoritarian communism.
There are some other bits about the theory of prices as an information system, but I think feedback systems are the main issue.
Maybe those people that I think are smart are really part of a global disinformation campaign, but it seems pretty unlikely. And if all my friends are loading me up with propaganda, I'm probably screwed anyway.
Also, quoting from The Economist is one sided considering their position regarding Venezuela during and after Chavez.
You see, media is biased and I don't want to trust them, no matter how "respectable" they are. (eg. NYT in the eve of 2003 Iraq invasion)
I'd like to hear from people who live there (or from less biased reporters) about causes for this situation in which an oil rich country must import oil from its major adversary, in which the whole society dissolves.
EDIT: User nnq asks the same questions as I do.
Why would Chavez do such a thing? I suspect (OK, guess) that when you have a theory that you are so committed to that anything that doesn't conform is regarded as enemy propaganda, it becomes amazingly easy to do really stupid things. (Note that this does not depend on what the theory is; any theory, disconnected from any counter-evidence, is prone to this.)
If anyone is curious what The Economist's "bias" against Chavez looks like, here's a good article: http://www.economist.com/news/leaders/21573106-appeal-populi...
I suspect the US has a strong interest in Venezuela not going belly-up and is selling oil just for cash, perhaps turning the wheels on Maduro a bit by having your "enemy" take care of you in a time of need. I imagine Maduro is getting a good price as well. Suddenly all that Socialist talk doesn't make sense when your once wealthy country is dirt poor and the "evil" capitalist neighbor is the guy getting you out of trouble. We don't need anything political or strategic from them, but China and Russia certainly do. Venezuela would be in no position negotiate with these powers and history has shown them how getting into bed with Russia in the Americas tends to end badly.
I imagine more civilized and less expansionist countries like Norway want none of the hot mess that is Venezuela and have no problems finding buyers of their oil. It would also be incredibly controversial to Norwegians who believe in human rights and Norway, being a democracy, would bow to the pressure of its people. I don't know why you think Norway would automatically approve such a sale. Just because both countries are 'not the USA' doesn't mean they are bosom buddies or somesuch.
This statement shows that you fundamentally don't understand the problems a socialist (or communist) economy runs into. People obviously have interests and incentives; people in Venezuela are people, just like people in the US.
But you can have an economic structure which helps align those incentives with productive work -- in a market economy, those running the oil industry are heavily incentivized to actually _produce oil_ and get paid for it.
When you have price controls and rampant shortages because of them, you can make far more money using your federal money to buy supplies and sell them on the black market, instead of fixing your oil rigs (because (1) you don't own the output and (2) the gas you sell is price controlled to ridiculously low levels).
If you have a government which turns a blind eye to rampant theft and cronyism, you're not even taking risks by doing the above -- it's practically condoned.
Russia, China, and Norway know that the government of Venezuela is just as likely to turn their kleptocratic ways on them, as soon as the going gets even tighter. The "state" oil industries in those countries are actually semi-private, and have actual financial incentives to not get screwed over.