Over the last decade, oil production has slipped in Venezuela, even as estimates of the country's petroleum reserves have grown. Venezuela's reserves are now thought to be the world's largest, giving the country an enormous revenue potential for decades to come. Whether or not President Hugo Chavez can help his country realize that potential is a matter of debate.
On Independence Day, President Chavez portrays Venezuela's oil wealth as a symbol of national liberation. Venezuela nationalized its oil industry in the 1970s, but President Chavez rails against foreign oil interests as if it had happened yesterday. "Petro-colonialism was installed in Venezuela, and dominated our politics, our culture, and our economy," he said.
With the oil industry under state control, Mr. Chavez bears responsibility for how it is run. At a first glance, the numbers do not look encouraging. Experts say production has dropped about a third since he came to office, robbing the country of the full financial benefit that could have accrued in 2008, when global oil prices peaked around $140 a barrel.
Venezuelan oil analyst Juan Carlos Sosa says the government has diverted funds from oil infrastructure in order to sustain ever-more-expensive socialist initiatives.
"To get back to the 1998 level of production, Venezuela would need to invest $10-$12 billion a year for the next 10 years to upgrade its petroleum operations. This is not being done, and so the situation is critical," he said.
To make matter worse, according to Sosa, the government has fired thousands of technicians from the state-owned oil company, PDVSA and replaced them with workers whose primary qualification is their loyalty to President Chavez. And, he notes, a significant portion of Venezuela's dwindling oil production is donated to Cuba and other leftist-led countries.
"Cuba receives more than 100,000 barrels of Venezuelan oil per day without paying anything. Instead, Cuba provides medical services, sports training, and other assistance. It is an ideological arrangement. But PDVSA suffers, because it could be selling that oil to the United States for hard currency," Sosa said.
President Chavez scoffs at the criticism, noting that Venezuela has signed accords with China and other nations that will yield tens of billions of dollars of investment in oil infrastructure. Far from declining further, he predicts production will double.
"In just a few years, we will be producing five million barrels a day. Then six million barrels a day," Chavez said.
Ordinary Venezuelans have mixed feelings about how their nation's oil wealth is managed. One man appreciates cheap domestic gasoline, sold at pennies per liter, but adds "on the other hand, if the price of gasoline were higher, maybe there would be more funds for roads and other projects."
But a worker at a PDVSA-run textile shop sees nothing but positives.
"PDVSA used to just pump oil to support the wealthy. Now oil is used for health care, nutrition, education, and jobs," he said. We have this center thanks to PDVSA. It finances everything. PDVSA is everywhere helping the people. Like the president says, PDVSA now belongs to the people."
Venezuelan economist Orlando Ochoa says nationalistic slogans and socialist rhetoric cannot disguise what he sees as a simple truth: that the Chavez model is unsustainable.
"Oil prices for the first six months of this year are roughly what they were in the year 2006, a boom year for Venezuela. But now that revenue is not enough for the government, which has boosted domestic spending by subsidizing food and taking over private enterprises," he said.
But Ochoa admits that continued oil revenues, even if insufficient to cover mounting government expenditures, will allow President Chavez to put off, at least for now, any day of reckoning that may loom ahead.