Venezuela and Iran Pledge Cooperation on Energy and Shipbuilding
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This week’s inflammatory speech at the United Nations by Venezuela’s Hugo Chavez will likely do nothing but ramp up tensions between the South American oil producer and its biggest customer. Referring to US President Bush as “the devil,” Chavez underscored the ongoing disagreements between the Bush administration and Venezuela’s increasingly leftist regime. Behind the rhetoric, however, are substantial indications that Venezuela is more than determined to divert a significant portion of its energy output to places other than the United States.
According to local media reports in Venezuela, Venezuela and Iran have established a joint fund to finance the construction of oil tankers. Established as part of the official visit of the Iranian President, Mahmoud Ahmadinejad, to Venezuela, the fund reportedly will provide about $2 billion for the construction of ships and oil tankers. Additionally, the fund will also finance oil exploration, development, production and infrastructure. Oil issues were a key facet in some of the 34 cooperative agreements signed during the two-day official visit, as well as a joint-venture deal between Venezuela’s state-run oil company PDVSA and the Iranian equivalent.
Venezuela’s promises to begin sending its oil to places other than North America hinge largely on being able maintain current production levels, and building infrastructure to produce more. The Iranian deals closely follow other similar pacts with China and ultimately might allow Venezuela to follow through on threats to cut off oil supplies to the US. Such an event would have a significant effect on the US economy and price of crude oil, but at present, would probably have a more deleterious effect on the Venezuelan economy. That could change.
This week’s events were consistent with last month’s signing of a series of trade agreements between Chinese President Hu Jintao and visiting Venezuelan President Hugo Chavez last Thursday. Significant aspects of those deals included agreements which call for China’s National Petroleum Corporation and PDVSA, the state-owned Venezuelan energy company, to jointly develop Venezuelan oilfields. Additionally, Venezuela is expected to increase oil exports to China to at least 300,000 barrels per day before the end of the year. China is also planning to help Venezuela build as many as 18 new oil tankers by 2012. The move will potentially boost Venezuela's shipping capacity to carry crude oil to China.
China’s investment into Venezuelan infrastructure may be as much as $5 billion. But, once again, the energy deals were the cornerstone of the August visit to China by Hugo Chavez. China is now the world's second largest oil consumer, trailing only the United States and its growing economy has become increasingly dependent on foreign oil. Venezuela also currently provides about 11% of US petroleum imports, but PDVSA exports to the U.S. fell by at least 15% in the half of this year. Beyond this, a marked recuction in the number of gas stations supplied by PDVSA and the sale of one of its Gulf Coast refineries is raising still more eyebrows. Other assets are also rumored to be for sale, as well. One thing is clear: Venezuela and its national oil company PDVSA have embarked upon a course which could eventually divert a significant portion of its energy output to the Far East.