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Venezuelan Oil Production Cutback Leaves Workers Unemployed - 2002-11-07

Venezuela's oil industry, a major supplier to the United States, has fallen on hard times because of production cutbacks imposed by President Hugo Chavez to comply with OPEC quotas. Even if war breaks out in Iraq, experts say it will take the Venezuelan industry some time to gear up to meet likely increased demand from the United States.

Unemployed oil workers pass the time playing dominoes outside a union hall in the town of Cabimas, on the shores of Lake Maracaibo in northwestern Venezuela. As the players slap down the dominoes on a makeshift table, they discuss their plight and wonder when they will find jobs again.

Romero Franqui, a member of an oil union, Sindicato de Fedehydrocarburos, has been out of work for a year. He and the others at the domino table blame the government's policy to reduce production to meet OPEC quotas.

At the same time, Mr. Franqui acknowledges the policy has helped raise oil prices.

"On the one hand," he said, "it hurts us, takes away our jobs. But on the other, it raises the price of oil, makes it stable, and that is good for the country."

Mr. Franqui went on to say the Chavez government should have policies in place to help the unemployed, adding that it is difficult for ex-oil workers like him to support a family without a job.

Lake Maracaibo is the center of Venezuela's oil industry, which began in the early 20th century. Giant oilrigs rise up from the brackish lake waters, though many are idle now.

Analysts say this is the direct result of adhering to OPEC production quotas. Venezuela, the world's fifth-largest oil supplier, was a founding member of OPEC but had often violated quotas in the past.

Since taking office in 1999, President Chavez strengthened ties with the oil cartel and slashed production to comply with OPEC's policy of reducing output to force price increases. The strategy worked. Petroleum is selling for around $24 a barrel, compared to a low of $10 a barrel in the late 1990s.

Under the OPEC quotas, Venezuela is producing 2.5 million barrels a day. Far less than the three million barrels a day when Mr. Chavez came to power.

Lower production has idled drilling rigs, refineries and other sectors of the industry. An American oil executive in Maracaibo, who did not wish to be named because of the tense political situation, says the cutbacks also have caused many foreign companies to leave the country.

"The international companies are basically pulling out," he said. "All your drilling companies have left, your Halliburtons and everybody, and all the major companies have cut their personnel way, way back because there is just no work."

But even more damaging is what the lower production has done to Venezuela's oil capacity. Exploration has been cut to levels that cannot counter the depletion rates of 25 percent in the oil wells. The unnamed American executive says this will prevent Venezuela from rapidly increasing capacity if war breaks out in the Middle East.

"In order to keep the production the same you need to work these wells over," he said. "They will not just keep producing the same amount year after year, you have to drill new wells, you have to do work on the wells to keep them performing at their normal standard, and because of the production cutback everything has just gone down. Even if they wanted to there is no way they could increase production. They keep saying they could go up to four million barrels a day, but there is no way."

He adds it would take a minimum of six months to raise production by just 500,000 barrels a day.

An oil industry analyst in the city of Maracaibo, Fernando Delgado, is less pessimistic. Mr. Delgado says there are some small signs of reactivation in the industry in anticipation of greater demand in the future.

"Everything indicates there is more activity now, because of the need to react," he said "But, we do not know if this reaction will come in time to meet an upsurge of demand."

Mr. Delgado went on to note that Venezuela's world ranking in numbers of drilling rigs has dropped dramatically. From fourth place a few years ago to below tenth place. Each rig, he says, employs up to 200 people, while another 1,000 jobs are created in indirect employment.

In the town of Cabimas where oil is pumped out of the ground from the backyards of houses, the loss of jobs from the decline in exploration and drilling is increasingly frustrating for those out of work. And this frustration has political consequences in Venezuela, which is polarized between those who support President Chavez and those who want him to resign.

A heated discussion about Mr. Chavez breaks out among a group of men standing outside the gates of an oil company, waiting in hopes of getting a single day's work. Some sharply criticize the populist President, others remain hopeful he can somehow revive the oil industry.

Arguing over Mr. Chavez helps break the monotony of their wait. But as the morning passes and no one emerges from the company to offer a day job, the group dwindles and the men drift off, resigned like so many others to another day of unemployment.