Venezuela's oil trap: economically speaking, other than oil nothing else is happening.

• Author: Whalen, Christopher
• Position: Editorial

Say what you want about China or India, to global oil mavens Venezuela and Cambodia are the two most intriguing venues in 2007. The latter is the new kid on the block, an emerging oil power that could earn billions of dollars annually via petroleum exports and thereby shift the geopolitical map of Asia (more about this in the next issue of TIE), but Venezuela is the wild card, an increasingly unstable factor in the global oil supply equation. This fact comes in large part because of the volatile individual who occupies that nation's presidency.

Hugo Chavez came to power as the result of oil, specifically the sharp decline in oil prices--and thus Venezuela's import revenues. It is fair to say that Venezuela's political consensus was already in tatters following the imprisonment of Carlos Andres Perez in 1998 and several coup attempts, including the 1992 coup led by a young army Lieutenant-Colonel named Hugo Chavez, who was later elected President.

When Chavez took power in January 1999, oil prices had fallen sharply to just $8 per barrel. The steep downturn in international oil prices which began a decade before had a severe impact on the Venezuelan economy. Fiscal cuts spurred by the loss of revenues, high interest rates, and the sharp downturn in export earnings drove Venezuela into recession in 1998.

By 1999, the Venezuelan economy was contracting and one in three of its citizens lived in dire poverty. The chief ingredient behind the country's political rot was oil, and the inflation and corruption that oil seemingly makes a permanent part of Venezuela's political economy. The fact of that social and political rot enabled the rise to power of Hugo Chavez, but it is also the chief and growing threat to his continuance as president of Venezuela.

The leftist rhetoric regarding Chavez paints him in heroic terms, the revolutionary and visionary, the leader of a populist political surge that is sweeping the Americas. But the reality is more modest, namely that Chavez is the latest in a long line of Venezuelan political opportunists who have used oil revenues and inflation to entice support from different elements of the country's population, both the impoverished majority and the influential middle class. As much as Nigeria, Iraq, or Cambodia, oil has come to dominate and distort civil society in Venezuela and is the determining factor in that nation's convoluted political system.

In terms of his political orientation, Chavez is hardly...